Canadian Corporations and Social Responsibility

C ANADIAN D EVELOPMENT R EPORT 1998 C

C ANADIAN ANADIAN C ORPORATIONS AND S OCIAL R ESPONSIBILITY C ANADIAN

The private sector now dominates North-South D EVELOPMENT C ORPORATIONS relations. But are trade and investment substitutes for foreign aid? What should S OCIAL corporations contribute to AND the welfare of the global community, particularly its R ESPONSIBILITY

EPORT R poorest citizens? How should government trade promotion programs 1998 support their efforts?

In tackling these questions, this volume surveys the activities of Canadian corporations—in the financial, manufacturing, mining, infrastructure/ engineering, and management consulting sectors—in developing country markets, explores social and environmental responsibility issues, and examines the need for public and private sectors to work together for development.

In addition, a 45-page ISBNstatistical 1-896770-17-7 annex analyzes Printedthe infull Canada range of Canada’s relations with countries in the South. Pages a-138 (152) 4/24/98 4:05 PM Page a

CANADIAN DEVELOPMENT REPORT 1998

CANADIAN CORPORATIONS AND SOCIAL RESPONSIBILITY

EDITED BY M ICHELLE H IBLER

AND

R OWENA B EAMISH Pages a-138 (152) 4/24/98 4:05 PM Page b

THE NORTH-SOUTH INSTITUTE

The Institute is a charitable, not-for-profit corporation established in 1976 to provide professional, policy-relevant research on “North-South” issues of relations between industrialized and developing countries. The results of this research are made available to policymakers, interested groups, and the general public to help generate greater understanding and informed discussion of development questions. The Institute is independent and nonpartisan and cooperates with a wide range of Canadian, overseas, and international organizations working in related activities.

The contents of these essays represent the views and findings of the authors alone and not necessarily those of the North-South Institute’s directors, sponsors, or supporters, or those consulted in their preparation.

CANADIAN CATALOGUING IN PUBLICATION DATA

Main entry under title: Canadian corporations and social responsibility : Canadian development report, 1998

(Canadian development report, ISSN 1206-2308) Includes bibliographical references. ISBN 1-896770-17-7

1. Social responsibility of business—Developing countries. 2. Corporations, Canadian. 3. International economic relations. 4. Economic assistance, Canadian—Developing countries. 5. Sustainable development—Developing countries. I. Hibler, Michelle II. Beamish, Rowena III. North-South Institute (Ottawa, Ont.) IV. Series.

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C ANADIAN D EVELOPMENT R EPORT 1998

TABLE OF CONTENTS

FOREWORD i The Right Honourable Joe Clark

ACKNOWLEDGEMENTS iii Roy Culpeper

OVERVIEW 1

CHAPTER ONE THE CORPORATE STAKE IN SOCIAL RESPONSIBILITY 13 Roy Culpeper and Gail Whiteman

CHAPTER TWO MAKING ECONOMIES SERVE PEOPLE 35 T HE F INANCIAL S ECTOR Robert Walker and Marc de Sousa-Shields

CHAPTER THREE ETHICS IN THE MARKETPLACE 55 T HE M ANUFACTURING S ECTOR Ann Weston

CHAPTER FOUR BEYOND BEST PRACTICE 73 T HE M INING S ECTOR Moira Hutchinson

CHAPTER FIVE PURSUING SUSTAINABLE DEVELOPMENT 91 I NFRASTRUCTURE AND E NGINEERING Gail Whiteman and Susan Brandum

CHAPTER SIX THE BUSINESS OF DEVELOPMENT? 109 M ANAGEMENT C ONSULTING Marlene Benmergui

CHAPTER SEVEN SELLING CANADIAN VALUES 117 E NCOURAGING P RIVATE S ECTOR A CTIVITY IN THE S OUTH Ted Paterson

LIST OF CONTACTS 135

STATISTICAL ANNEX 139 Pages a-138 (152) 4/24/98 4:05 PM Page j Pages a-138 (152) 4/24/98 4:45 PM Page i

FOREWORD

here has recently been much discussion as made by adhering to the lowest possible Tto what constitutes appropriate behaviour standards for workers, the community, or the for Canadian corporations operating interna- natural environment. And there may, indeed, be tionally. The actions of corporations flying the lost commercial opportunities in adhering to Canadian flag help define Canada’s reputation higher standards. But there are two extremely abroad, just as the actions of governments good reasons for aiming considerably higher establish the policy, legal, and regulatory than the lowest common denominator. framework within which corporations act. The first relates to our values as Canadians. As the capacity of nation-states becomes more At home, we treat issues such as human rights, restricted, however, the imprint of global workplace standards, and responsible stewardship business is becoming more pronounced. Given over the natural environment very seriously. The that the role and influence of multinational importance we attach to these values is integral corporations continue to grow, and that the to our international reputation as a fair and power of governments to compel is diminishing, democratic society. It is no doubt also reflected the question arises as to whether or not in Canada’s consistently high ranking at or near the responsibility of business should grow the top of the United Nations’ Human concomitantly with its influence. Development Index. In our conduct abroad, our standards should be no less than those we This edition of the North-South Institute’s strive to achieve at home. Indeed, what coun- Canadian Development Report considers the tries are better placed than Canada to defend question of corporate responsibility in the these values in the global marketplace? global marketplace to be a leading issue for the 21st century. The report focuses on the activities Second, ethically and environmentally respon- of Canadian corporations in the developing sible conduct can actually be good for business. world, where the challenges of social and Canada is a trusted country, a respected country, environmental responsibility are apt to be most and those attributes are of benefit to corporations acute. In keeping with the Institute’s approach, doing business in its name. More to the point, the report seeks a balanced judgment on both however, firms striving to enhance their work- what Canadian firms have achieved in the past place, community, and environmental standards and what they may strive to achieve in the actually strengthen the climate for business. future. It does this by lauding the good corpo- By contributing to the well-being of their rate practices (and there are many examples) stakeholders and the sustainability of the as well as identifying the bad. And it makes natural environment, firms invest in their several recommendations to corporations, own long-term profitability. governments, and the Canadian public, aimed The Canadian Development Report 1998 conveys at enhancing the social and environmental these and related messages with insight, convic- performance standards of Canadian businesses. tion, and considerable persuasion. I commend Striving for higher levels of social and environ- the Institute’s staff and collaborating authors for mental performance does come at a cost. Some a timely and highly useful contribution to a set might say that such efforts impair the competi- of issues that is bound to attract the increasing tiveness of Canadian businesses in the global attention of corporate decisionmakers, public marketplace. To be sure, there are profits to be policymakers, and citizens in general.

The Right Honourable Joe Clark

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ACKNOWLEDGEMENTS

his second volume in the North-South case, the final text was a product of internal and TInstitute’s annual series investigating external peer review and much internal discus- Canada’s dynamic relationship with the sion. We were fortunate to have retained the developing world, the Canadian Development services of accomplished researchers and writers Report (CDR) 1998: Canadian Corporations and who authored or co-authored four of the Social Responsibility forms part of the Institute’s chapters in this report. The collaboration of broader research on the theme of markets and Michael Jantzi of Michael Jantzi Research social equity. Associates Inc. was crucial in research and data gathering, as were the efforts of NSI Information Because this was the Institute’s first major enter- Specialist Gail Anglin who provided background prise examining the role of the corporate sector resources for the text and data. For their in sustainable development, the volume’s plan- insightful comments on early drafts of the ning, writing, and production required the active text, we would like to thank Charles Barrett, participation and support of a great number of Vicky Berry, Gerald K. Helleiner, Andrew Jackson, individuals and organizations. We would like to Robert Kerton, John Kozij, Jim Moore, thank all those who offered their advice and Nigel Roome, and Jessie Sloan. suggestions, particularly members of the NSI Board of Directors and the CDR’s advisory The data in this year’s CDR was assembled by committee—The Right Honourable Joe Clark, Senior Researcher Andrew Clark, who has since Ghislain Paradis, and Deborah Turnbull—who left the Institute to join CIDA. He was assisted helped determine the project’s overall direction by Lawrence Latim who completed an intern- and content. For their advice in the planning ship at the Institute before returning to his stages of this work, we would also like to thank post at the Ministry of Works, Transport, and John Robinson at the Canadian International Communications in Uganda, and Kerry Max Development Agency (CIDA); Chris Greenshields who joined the Institute as Researcher in and Ross Snyder of the Department of Foreign December 1997. The Institute would like to thank Affairs and International Trade; and the many government officials from Statistics David Sevigny of the Department of Finance. Canada; the Departments of Finance, Foreign Affairs and International Trade, Citizenship and This report has required a great effort on the Immigration; and the Export Development part of the Institute’s staff. Vital support was Corporation who helped us compile the data provided by all members of Research, for the statistical annex. In particular, we would Communications, and Administration who like to thank Lucie Laliberté, Director, Balance invested a great deal of energy individually and of Payments Division at Statistics Canada and collectively to ensure this volume’s success. CIDA statistical analysts Jean-Willy Ileka and In particular, we would like to thank Hélène Mainville. Karen Gervais for administrative and logistical support and Sanjiv Mehta for valuable research A very special thank you is reserved for the assistance. Institute Communications staff dozens of Canadian companies who gave member, Anne Chevalier provided logistical and researchers and writers of their time and shared technical support and coordinated translation valuable insights and information. We parti- and production. Another member of the Com- cularly acknowledge the generous financial munications team, Melanie Gruer, contributed contributions of the CDR donors, listed at the editorial and logistical assistance. A special beginning of the report, for their support of this thank you goes out to lead translator Hervé major endeavour. Rombaut and to Michel Limbos and Sylvie Lee et associés for their painstaking work, as well as to Paul Edwards of Paul Edwards Design. Roy Culpeper Each member of staff who contributed a chapter President is acknowledged as its author, although in each The North-South Institute

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OVERVIEW Pages a-138 (152) 5/1/98 1:48 PM Page 2

OVERVIEW

C ORPORATE SOCIAL n recent years, we have witnessed a burgeoning Corporate social and environmental responsibility is becoming the business issue of the 21st RESPONSIBILITY IS THE interest by private investors in the developing I century. During the past few years, corporate OVERALL RELATIONSHIP world. As a result, Canada’s trade and investment leaders such as Courtney Pratt of Noranda Inc. have spoken publicly about the need to make OF THE CORPORATION now dwarfs its aid to the South. But are trade and social and environmental concerns a part of WITH ALL OF ITS STAKE- investment substitutes for foreign aid? What everyday business. Meanwhile, corporations of all kinds, on all continents, are commissioning HOLDERS. THESE should corporations contribute to the welfare of the independent “social audits” to monitor and ver- INCLUDE CUSTOMERS, global community, particularly its poorest citizens? ify their social and evironmental performance. Others are distributing their ethical manifestos EMPLOYEES, What should they contribute to environmental by post, fax, and e-mail. Still others are joining COMMUNITIES, OWNERS/ sustainability? associations and displaying symbols certifying that production complies with environmental INVESTORS, GOVERN- In tackling these questions, the Canadian or labour standards. For a growing number of MENT, SUPPLIERS AND Canadian and international firms, social Development Report 1998 (CDR) surveys the accountability is part of their mission COMPETITORS. activities of Canadian corporations in developing- statements and operating culture. E LEMENTS OF SOCIAL country markets, explores social responsibility issues, While corporate responsibility may occupy RESPONSIBILITY centre stage in a number of Canadian corporate and examines the need for public and private sectors boardrooms, it has also invaded Canadians’ INCLUDE INVESTMENT IN to work together for development. Because nothing living rooms. During the past few months, for COMMUNITY OUTREACH, example, radio ads for ethical funds have asked inspires like an example, this volume follows author if your investment dollars supported repressive EMPLOYEE RELATIONS, Paul Hawken’s advice: “Rather than simply going military regimes and child labour. Newspaper CREATION AND MAINTE- headlines reported on “Buying goods, with a after irresponsible companies,” he advised, “we side of ethics”2 while Ottawa city council NANCE OF EMPLOYMENT, should be contributing to making the responsible debated a donation from Nike Inc. because of ENVIRONMENTAL the company’s poor labour record in developing corporations so successful that we will shame the countries. Many Canadians flocked to theatres RESPONSIBILITY AND others into joining in.”1 Thus, in this volume, we to watch the inept hero of the Hollywood FINANCIAL PERFOR- comedy Billy Madison triumph when his business “give credit where credit is due” and highlight competitor fails to define “business ethics.” MANCE. incidences of positive social responsibility—best Why has the spotlight turned on corporate social CANADIAN CENTRE FOR practices so to speak. The list of examples cited is and environmental responsibility? First, because of globalization. The United Nations, for instance, BUSINESS IN THE COMMUNITY, by no means exhaustive. reports that transnational corporations—45,000

THE CONFERENCE BOARD OF firms and 280,000 foreign affiliates—account for This second volume in the North-South Institute’s two-thirds of the world’s trade in goods and CANADA annual series investigating Canada’s dynamic services and employ some 73 million people.3 In the post-Cold War era, global markets have relationship with the developing world, CDR 1998 made it possible, even desirable, for firms to do forms part of the Institute’s broader research on the business on six continents, 24 hours a day. theme of markets and social equity. As Roy Culpeper, President of the North-South Institute, and NSI Researcher Gail Whiteman explain in the first chapter of this report, private capital flows have increased five-fold during the 1990s, and now account for more than

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BOX 1 GETTING MORE THAN WE GIVE Are developing countries dependent on aid from Canada and other industrialized countries? Not more so than we are on them. Canada and other rich countries reap enormous material benefit from their trading and investment relations with the Third World. In light of the theme of this edition of the Canadian Development Report, which focuses on commercial activities in the developing world, the increase in Canada’s earnings from the developing world is highly revealing.

CANADIAN LOANS AND INVESTMENTS IN DEVELOPING COUNTRIES ($ BILLIONS) 1996 1995 Debt owed to public agencies ...... $12.81 ...... $14.88 Debt to chartered banks...... 24.53 ...... 13.34 Bonds...... 1.79 ...... 1.68 Stocks ...... 8.23 ...... 5.73 Foreign direct investment...... 16.07 ...... 16.02 Total...... $63.43 ...... $51.65 Sources: Canada, Public Accounts of Canada, 1996; World Bank, Financial Flows and the Developing Countries, May 1997; Statistics Canada, Canada’s International Investment Position 1926 to 1996, 1997.

Canadian loans to and investments in developing countries rose by almost a quarter, from $52 billion in 1995 to $63 billion in 1996. Most of that increase is due to a growth in loans outstanding by the chartered banks to the developing countries (about $11 billion). However, it is also worth noting that the outstanding investment in portfolio equity (stocks or shares) grew by more than 40 percent, from $5.7 billion to $8.2 billion. The income derived by Canadian agencies and investors also grew somewhat:

ESTIMATES OF INCOME FROM CANADIAN LOANS TO AND INVESTMENTS IN DEVELOPING COUNTRIES ($ BILLIONS) 1996 1995 Debt owed to public agencies ...... $0.74 ...... $1.02 Debt to chartered banks...... 1.42 ...... 0.91 Bonds...... 0.12 ...... 0.08 Stocks ...... 0.53 ...... 0.29 Foreign direct investment...... 1.61 ...... 1.60 Total...... $4.42 ...... $3.91 Source: Computed by The North-South Institute.

Continuing the comparison begun in the Canadian Development Report 1996-971 between these “inflows” into Canada (through incomes reaped by Canadian public and private agencies from the developing world) and the “outflows” represented by official development assistance (including support to Eastern Europe and the former Soviet Union), we note with concern that the disparity between inflows and outflows has widened. The concern arises particularly from the fact that our official development assistance (ODA) declined from $3.1 billion in 1995 to $2.7 billion in 1996.

CANADIAN INCOME PER DOLLAR OF ODA 1996 1995 Income from all sources ($billions) ...... 4.42 ...... 3.91 ODA ($billions) ...... 2.68 ...... 3.10 Ratio ...... 1.65 ...... 1.26

In other words, rising loans and investments and a rapidly falling aid program, combined to provide Canada in 1996 with an income of $1.65 for every $1 spent on the aid program— an increase of almost a third (or 31%) percent over the past year. -ROY CULPEPER

N OTES 1 N.B. adjustments have been made here to the 1995 figures to account for the exclusion of Barbados, Singapore, and South Korea from 1996 data. See “Statistical Annex, ‘Technical Notes’,” p. 184.

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80 percent of investment capital flowing from found evolution in the philosophy of corporate industrial to developing nations. Accompanying governance. The conventional view has long this rapid increase in private flows was a sharp held that corporations have only one social drop of official flows in the 1990s—official responsibility: to maximize their profits as long development assistance as well as bilateral and as they adhere to “the rules of the game, without multilateral loans from government-run deception or fraud.” But this view has come agencies. As a result, private investment has under increasing criticism from both within and supplanted aid as the main channel of relation- without corporations because the “rules of the ship between developed countries such as game” are often perceived to be slanted in favour Canada, and countries of the South. In a similar of business, and business is often seen as too vein, Canada’s trade with developing countries ready to lay off employees or despoil the environ- now accounts for almost one-third—some ment. Thus, accusations of a race to the bottom $39.5 billion in imports and exports—of our have been levied by labour critics against corpo- non-US trade. This dramatic increase in rations’ investments in developing countries. In North-South commerce has generated both response, business and advocates of economic widespread benefits as well as questions about liberalization accuse of “protectionism” those the socioeconomic role of corporations in wanting to impose trade restrictions on goods developing countries. produced with child labour or under conditions below acceptable Northern standards. The issue, Consider also that today’s corporate giants are however, is what is worth protecting — the rights bigger than most sovereign nations. For exam- of traders and investors to unfettered markets, or ple, the 1995 sales of the world’s five largest the rights of workers to basic labour standards corporations exceeded the gross national and citizens to a sound environment? product (GNP) of China. And while Canadian corporations do not rank among the world’s Tracing the evolution of thought about issues largest, they are nonetheless formidable entities of markets and social equity, Culpeper and in their respective sectors and in comparison to Whiteman argue that self-interested behaviour mid-sized developing countries. For example, in a market system may not be in the best the 1996 gross revenues of BCE Inc., Canada’s interest of either society as a whole or the largest corporation, exceeded the 1995 gross natural environment. There are three reasons for domestic product (GDP) of countries such as corporations to move beyond a fixation with Côte d’Ivoire, Sri Lanka, Guatemala, Ecuador, the bottom line: first, the business world is Uruguay, and Vietnam. unavoidably embedded within social and natural systems; second, the marketplace by Modern information and telecommunications itself cannot resolve environmental and social technology is also enabling small and medium- issues; and third, it pays to be responsible. sized enterprises to carry out business in remote markets. And individual private investors are In fact, the corporate world is under increasing getting into the act by purchasing and selling pressure to contribute something to society, to emerging market shares through mutual and be responsible to a “body politic known as pension funds, as well as brokered deals. How- stakeholders.”4 ever, as the recent financial crisis emanating How can companies incorporate social from Asia has demonstrated, investing in the responsibility into daily operations and inter- emerging markets can be risky and fraught with national management practices? uncertainty. • By reintegrating ethics into business culture.

THE CORPORATE STAKE IN SOCIAL • By adopting a systems-centred approach to RESPONSIBILITY stakeholder management. This supposes that the firm’s long-term interests must take Global markets present corporations with new into account the welfare of its employees, opportunities and new challenges, particularly customers, the communities in which it in developing countries where customs, operates, and the health of the natural standards, and the legal/regulatory framework environment. governing working conditions and environmental stewardship are radically different. • By adopting an international code of conduct that addresses social and environmental Accompanying the dramatic shift in the circum- inequities. stances in which firms operate is an equally pro-

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• By broadening corporations’ accountability their respect for the natural environment— for their actions and unintended inevitably sends signals to the host country consequences. about what Canadians think is important and nonnegotiable. These signals are particularly Like it or not, say Culpeper and Whiteman, strong during missions of Team Canada, when there is every reason to expect that markets will business people are accompanied by senior continue to spread around the world. In fact, politicians from across the country. they can potentially play an important role in S TAKEHOLDERS ARE alleviating the grinding poverty in which a large Unfortunately, the news stories splashed on the PERSONS OR GROUPS part of humanity still lives. But the globaliza- front pages of Canada’s daily newspapers often tion of markets can also undermine the frame- paint a dismal picture of less-than-responsible THAT HAVE OWNERSHIP, work of laws adopted to protect the economic behaviour: fraud in remote jungle mining RIGHTS, OR INTERESTS welfare of individuals and communities and the operations; chemical spills in environmentally integrity of the natural environment. And inter- fragile rivers; displaced populations; exploited IN A CORPORATION AND national charters and conventions have not yet workers. Seldom heard are the success stories, ITS ACTIVITIES, PAST, produced a set of rules that are monitored and examples of how Canadian corporations enforced throughout the world. The ideal would contribute both to social welfare and environ- PRESENT OR FUTURE. be an effective system of global governance to mental stewardship in developing countries, oversee the functioning of markets and ensure even while remaining competitive. Because MICHAEL C. DECK, social and environmental responsibility. Such these stories could serve as models to guide CORPORATE CODES AND an objective may be difficult to achieve, at least companies in their developing-country opera- in the near future. In the meantime, there is an tions, the Institute has chosen to highlight ETHICS PROGRAMS: MANAGING important role for governments, acting together some of them in its study of social responsibility FOR ETHICAL PRACTICE, or alone. Corporations should adopt in various corporate sectors. a business culture that accepts social and KPMG CANADA environmental responsibilities that are not yet FINANCIAL SERVICES required by law in the jurisdictions in which they operate. The Canadian financial services industry, which opens our survey, is highly concentrated: only 22 firms are listed on the Toronto Stock Exchange CANADIAN FIRMS IN THE GLOBAL ECONOMY 300, an index of the largest and most actively Canada’s largest firm, BCE Inc. was only traded companies: six banks, nine investment number 162 in the 1997 Fortune 500 list of the and mutual fund companies, three insurance world’s largest corporations. Canadian firms are companies, and four financial management com- strongly oriented in their business dealings panies. Historically, there has been tremendous toward the United States, like the Canadian continuity in the industry: the five largest banks economy as a whole. in 1997 were also the largest in 1901. The absolute size of a corporation, however, As Robert Walker and Marc de Sousa-Shields— is a misleading indicator of its relative impor- current and past Executive Directors of the tance in global markets. In some sectors, inter- Social Investment Organization (SIO)—explain nationally active and competitive firms tend to in this report’s chapter on the financial sector, be considerably smaller than, say, the giant the major banks rank among Canada’s largest transnationals in the automotive or petroleum corporations in terms of revenues, assets, and industries. Canadian firms are particularly com- profitability. On a world scale, Canada’s finan- petitive internationally in sectors such as min- cial sector is tiny: Canada’s largest bank—the eral exploration (where firms are quite small), as Royal Bank of Canada—ranks number 50 in the well as mineral development and world. Canadian banks, however, are deriving production; in engineering/consulting services an increasing proportion of their income (again, where annual turnover is relatively small outside Canada and are making bold forays relative to the manufacturing sector); and the into the emerging markets. telecommunications industry. In May 1997, the SIO listed six banks and one No matter what sector they are in, Canadian mutual fund company as leaders in Canadian firms doing business abroad are ambassadors for corporate social responsibility: Bank of Montreal, Canadian values, whether or not they want to Canadian Imperial Bank of Commerce, Investors be. The way they deal with workers, clients, Group, National Bank of Canada, Royal Bank communities, and the host government—and of Canada, Bank of Nova Scotia, and the

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Toronto-Dominion Bank. These firms display Indeed, Walker and de Sousa-Shields consider their corporate responsibility primarily through that it is at the level of the global financial their relationships with employees and commu- system that financial institutions can inflict the nities, and their charitable donations, within most social and environmental harm. And that Canada. It is more difficult, however, to assess capacity is growing as a result of globalization, their performance overseas. The difficulty stems deregulation, trade liberalization, and the from assessing not just the direct impact of the proliferation of new financial products. lenders, but also the impacts of the projects and How can financial institutions be made to serve borrowers they support through their loans. social and economic needs, especially in the international arena? Policy options suggested by Walker and de Sousa-Shields include social and BOX 2 THE IMPORTANCE OF CANADA-DEVELOPING COUNTRY environmental clauses in trade agreements; LINKAGES enhancing corporate disclosure regulations to Are some developing countries more important to Canada than others? include social performance; recognizing The simple answer is “yes.” In 1994-96, China was the most important shareholder rights and allowing shareholders to country for Canada in terms of combined immigration, trade, and aid. advance proposals on “general economic, politi- A distant second and third were India and Mexico. Comparing continents, cal, racial, religious, social or similar issues;” and Asia ranked highest. introducing legislation to require financial Looking at individual indexes, China was most important in terms of trade, institutions to disclose financing activities related while India ranked highest on the human relationship index, and Egypt in terms of aid. to the equitable distribution of capital—in short, making banks more accountable to communities. These rankings were obtained by averaging three separate indices—for immigration, trade, and aid—which serve as a statistical representation The authors add that there is also a vital role for of people linkages, economic ties, and political ties, respectively. The immi- individuals: by becoming more financially gration index measures the immigration from each country as a percentage of total developing-country immigration. The trade index presents literate; by considering screened investment each country’s imports and exports as a percentage of Canadian trade with portfolios; by supporting responsible shareholder- all developing countries. The aid index measures each country’s proportion ship; by promoting the development of codes of of bilateral aid in 1995-96. conduct and progressive sourcing policies; and The five most important countries to Canada by continent are: by supporting the credit union movement and

A SIA A FRICA A MERICAS alternative institutions for micro- and small business credit. China Egypt Mexico India South Africa Brazil Philippines Algeria Haiti MANUFACTURING Bangladesh Ghana Jamaica Indonesia Côte d’Ivoire Chile Manufacturing has grown rapidly in developing countries where it now employs 10 percent of the THE IMPORTANCE OF CANADA workforce. But while this is generally lauded for Looking at the other side of the coin, to which developing countries does the benefits it brings—knowledge, skills, employ- Canada matter most? The clear winner is Guyana, followed distantly by ment, income—questions have been raised about Jamaica and St Lucia. Of the top 10 countries for which Canada is most important, seven are from the Caribbean, one from Central America—Costa the distribution of the benefits and costs, for the Rica—and two from Asia—the Maldives and Malaysia. workers, their environment, and for competitors The Caribbean’s high ranking is due in large part to the relatively high in the informal sector. Manufacturing accounts proportion of its citizens who emigrate to Canada. Trade is also important: for an important share of Canadian foreign direct for instance, imports and exports to and from Canada account for 32 percent investment (FDI) abroad. of Guyana’s gross domestic product. Caribbean and African countries also rank high on the aid index which measures bilateral aid received from In the chapter on manufacturing, Ann Weston, Canada as a share of total aid. St Lucia ranks highest on this index. NSI Vice-president, says that developing coun- Canada is most important to the following five countries or country tries court FDI to provide the finance, technol- groupings on each continent: ogy, training—and often market outlets— needed A SIA A FRICA A MERICAS to generate employment and exports. Canadian Maldives Ghana Guyana investment in manufacturing in developing Malaysia Angola Jamaica countries is probably as focused on supplying their Bangladesh Niger St Lucia domestic market with goods and services as on Philippines Benin Costa Rica exports. But do they contribute to host country Oceania Togo Trinidad and Tobago development? A number of positive contributions Source: The Canadian Development Report 1998, “Statistical Annex, Table 11: ‘Canada-Developing Country can be cited in technology transfer, environmen- Linkage Indices’,” p 180. tal protection, equitable labour practices, and

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industrial and community development by such Canadian firms are heavily involved in companies as Northern Telecom Ltd, the Bata exploration in the former Soviet Union as well Shoe Organization companies, British Columbia as in Latin America. To a lesser extent, they are Packers Ltd, and Premdor Inc. exploring in Asia and Africa where the lure is predominantly gold. This increase in Canadian Moreover, Canada’s manufacturing companies exploration abroad has been taking place in the are introducing codes covering ethical, environ- context of a major restructuring of the mining mental, and labour practices in all their opera- industry in developing countries. tions. While these are important steps toward increasing accountability, they also raise ques- How do Canadian firms perform abroad? As tions about standards, coverage, monitoring, author Moira Hutchinson writes in the chapter and enforcement. Among industry associations, on the mining industry, there is little data to the Canadian Apparel Federation has launched support the oft-cited benefits of multinational a number of initiatives to encourage its mem- mining investment—technology transfer, bers to protect the rights of workers overseas. employment creation, provision of capital, and export earnings. But mining, by its very nature, Canadian retailers and consumers have a role to has an undeniable environmental, social, and play in encouraging manufacturers to be socially economic impact. A number of concerns have responsible, by buying from suppliers that do been raised about Canadian mining operations: not employ child labour, for example, and if possible, avoiding suppliers operating under repres- • Several Canadian companies have invest- sive regimes. Others advocate a “buycott”— ments in three countries with repressive encouraging companies that meet certain stan- regimes—Burma, China, and Indonesia. dards. For instance, this is the strategy of groups • Corruption is seen to be a problem in a favouring fair trade labeling. Canadian and other number of countries with significant unions have also been active in the fight for Canadian mining investment. workers’ rights globally, notably the Canadian Labour Congress; the International Textile, • Canadian companies have been involved in a Garment, and Leather Workers’ Federation; the number of conflicts over Aboriginal land enti- Communications, Energy, and Paperworkers tlements, notably in Panama and Guyana. Union of Canada; the Canadian wing of the • Core labour standards are seriously restricted United Steelworkers of America; and the in many countries with significant Canadian Canadian Auto Workers’ Union. mining investment. Labour regulations are not enforced in others. Weston considers that informed analysis and discussion of corporate practice requires additional • Environmental disasters have been associated studies on trade and investment at the corporate with Canadian companies, most recently in level. She also recommends more public and reg- Guyana and the Philippines. ular stocktaking of corporate performance involv- • Communities can experience a range of ing local groups in the definition of standards negative social and economic impacts, and monitoring. Among incentives, she suggests particularly remote communities close to awards for best practices and the removal of small ore bodies. additional tariffs from countries that enforce minimum labour standards. Finally, developing Companies and critics alike support the estab- country governments and organizations need to lishment of a standard based on best practice or be supported in their efforts to implement “best of sector.” To date, the mining industry effective social, economic, and other policies. advances this concept only in the environmental area. It is implied in the code of the Mining Association of Canada—the first such code in MINING EXPLORATION, DEVELOPMENT, the world—that members must endorse. The AND PRODUCTION Ontario Mining Association and International Canada leads the world in mineral exploration, Council on Metals and the Environment also and is a leading supplier of capital to the interna- bind members to environmental charters. tional mining industry. Canadian firms account However, only 13 percent of exploration proper- for about 20 percent of global exploration expen- ties and 26 percent of production properties are ditures. Alcan Aluminum Ltd, Noranda Inc., and owned by Canadian companies subscribing to Inco Ltd—Canada’s three top minerals firms— these codes. are among the top 10 global operators.

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O VERVIEW

T HERE IS GROWING EVI- Codes notwithstanding, individual companies Integral to all infrastructure development are and their critics alike are endeavouring to pro- engineering services. Canada is the world’s DENCE THAT [ BUSINESS mote good practices. Alcan, Battle Mountain Gold fourth-largest exporter of engineering services.

SUCCESS] DEPENDS NOT Co., Cominco Ltd, Falconbridge Ltd, Inco, Nine Canadian companies are in the top 200 Noranda, Placer Dome Inc., and TVX Gold Inc. international design firms. In terms of market ONLY ON BOTTOM LINE have been recognized by the Conference Board of share, Canadian firms—among the world’s most

PROFITS, BUT ON THE Canada, the Social Investment Organization, the competitive and best respected—are fifth in Asia United Nations Environment Programme, and the and second in both Latin America and Africa. VALUE- ADDED A World Bank for their work with local communi- Engineering consultants, for their part, play a key BUSINESS CREATES. ties, the environment, and their local employees. role in development, far greater than suggested

A DDING VALUE DEPENDS But, says Hutchinson, most of these good prac- by the dollar value of their activities. A large part tices occur at the production stage of mining: of their work consists in planning and imple- ON CREATING A POSI- more problematic are the exploration and menting infrastructure projects in the power,

TIVE RELATIONSHIP closure stages. Ultimately, says Hutchinson, water, and telecommunications sectors. As such, accountability, not best practice, will determine they are able to influence or determine the social WITH PEOPLE— whether Canadian companies contribute or not and environmental impact of the projects they

EMPLOYEES, CUSTOMERS, to social equity in developing countries. Among design. They also transfer technology and know- needed mechanisms are community consulta- how to local counterparts through collaborative AND SUPPLIERS AS WELL tion and participation; respect for workers’ basic arrangements and strategic alliances.

AS OTHER STAKEHOLDERS rights; codes of conduct; and corporate gover- Often, the implementation of projects diverges nance principles that maximize stakeholder IN A WIDER COMMUNITY. from the plans or recommendations of the access to information and decisionmaking. engineers. While Canadian firms have been T HROUGH COMMUNITY involved in controversial projects such as the

INVOLVEMENT, BUSINESSES INFRASTRUCTURE AND ENGINEERING Three Gorges Dam in China and the Chamera Dam in India, they have also won awards for CAN BUILD THEIR Infrastructure—from roads to dams and canals, social and environmental impact planning, energy and communications, water and sanita- REPUTATION WITH ALL such as Acres International Ltd’s hydropower tion—is a pressing need in developing countries feasibility study in Nepal. THESE GROUPS AS WELL as population increases, cities mushroom, and economic growth spurs demands for additional It is encouraging, the authors note, that some AS DEVELOP THE SKILLS services. To meet this need, a growing number Canadian companies are taking the initiative

AND EXPERIENCE OF of developing country governments, with the and moving beyond economic criteria. support of international funding agencies, are Canadian funding agencies, for example the THEIR EMPLOYEES turning to the private sector to both develop Export Development Corporation (EDC), do not

AND CREATE A MORE and manage projects. Among the benefits cited yet include social or environmental criteria in are greater efficiency, more effective manage- their assessments of projects they support. ECONOMICALLY ment practices, and greater fiscal accountability. How can engineers make a difference? By taking PROSPEROUS AND But private sector involvement is not a panacea, a stronger stance on development issues, say warn NSI Researcher Gail Whiteman and author VIBRANT SOCIETY. Whiteman and Brandum; by becoming leaders Susan Brandum in the chapter on infrastructure in environmental management; by employing and engineering: social and environmental costs evaluation methodologies that combine social, NEIL SHAW, can still be incurred. environmental and economic impacts; and by

CHAIRMAN, TATE & LYLE Whiteman and Brandum argue that “sustainable introducing sustainable development infrastructure” is essential. In developing accounting or independent monitoring systems. countries this requires, first, improving the effi- Increased professional development is also ciency of existing infrastructure, and second, needed in the areas of business ethics and finding more efficient ways of meeting demand. sustainable development. This presents opportunities for Canadian firms in energy, water supply, waste management, and MANAGEMENT CONSULTING telecommunications. The focus of most large According to the World Bank, trade in goods Canadian companies, such as public electricity will soon be supplanted by services which suppliers, is making technology more efficient accounts for 20 percent of world trade and and thereby reducing waste. But while this is continues to exhibit strong growth. While practiced at home, it is seldom part of their Canadian service companies cannot be consid- overseas operations. That has been left largely to ered major players globally, their contribution is smaller companies.

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C ANADIAN D EVELOPMENT R EPORT 1998

BOX 3 GOOD INTENTIONS: CODES OF CONDUCT “Every organization has an ethics program, whether it knows it or not,” says business ethics expert Steven Brenner.1 An increasing number now also have a corporate code. Very simply, a business code of conduct is a statement of principles business agrees to abide by voluntarily over the course of its operations.2 There are three basic types of corporate codes:3 • A code of ethics states the values and principles that define the purpose of the company. “These codes are expressed in terms of credos or guiding principles. Such a code says: ‘This is who we are and this is what we stand for...’.” • A code of practice interprets and illustrates corporate values and principles, and is addressed to the employee as an individual decisionmaker. It says: “This is how we do things around here.” • A code of conduct says “this is what you must (or must not) do.” Codes of conduct typically consists of a list of rules: “Thou shalt and Thou shalt not.” Looking at 32 Canadian companies with international operations, KPMG Canada found a marked difference between the codes of subsidiaries of American corporations and those of Canadian companies. “With few exceptions, the code of the US parent stood as the code of the Canadian subsidiary, unchanged and firmly rooted in US law. The Canadian corporations were more apt to include a clause requiring adherence to laws ‘foreign and domestic’ ”4 and “reflect the Canadian values of tolerance, co-operation, and compromise and appeal to these guiding principles rather than merely impose narrow legal rules prohibiting certain conduct.”5 A number of broader codes have also been promulgated: • The Principles for Business developed in 1994 by the Caux Round Table in Switzerland represent the first international ethics code created as a result of collaboration between business leaders in Europe, Japan, and the United States. • The Principles for Global Corporate Responsibility: Benchmarks for Measuring Business Performance, launched in September 1995 by the Ecumenical Committee for Social Responsibility, the Interfaith Center on Corporate Responsibility, and the Taskforce on the Churches and Corporate Responsibility. • The OECD Convention against international corruption, signed in December 1997 by 29 leading industrial countries members of the Organisation for Economic Co-operation and Development and five nonmember countries. • The International Code of Ethics for Canadian Business, signed by 13 Canadian companies in September 1997.

N OTES 1 Steven N. Brenner, “Ethics Programs and Their Dimension,” Journal of Business Ethics, Vol. 11, 1992, p. 391-99, as quoted in Michael C. Deck, “Corporate Codes and Ethics Programs: Managing for Ethical Practice,” presentation at “Business Practices under NAFTA: Developing Common Standards for Global Business,” conference, University of Colorado at Denver, December 8-10, 1994. KPMG website at: http://www.kpmg.ca (consulted March 1998). 2 Craig Forcese, Commerce with Conscience? Human Rights and Corporate Codes of Conduct (Montreal: International Centre for Human Rights and Democratic Development, 1997), p. 14. 3 Michael Deck, “Corporate Codes and Ethics Programs.” 4 Ibid. 5 Max Clarkson; Michael Deck; and Richard Leblanc, Codes of Ethics, Practice and Conduct, Management Accounting Issues Paper 13 (Hamilton: The Society of Management Accountants of Canada, 1997), p. 19.

increasing. The growth leader is commercial Also growing is the trade in legal services, services, particularly management consulting. although little of that business is with developing countries. Nevertheless, Canadian lawyers A large part of the work carried out by Canadian are making a significant contribution to increas- management consultants in developing coun- ing skills and strengthening the legal systems in tries is under the auspices of the Canadian new democracies through a volunteer program International Development Agency (CIDA) and launched by the Canadian Bar Association. other international development agencies. As distinct from consulting engineers, management SELLING CANADIAN VALUES consultants deal with issues such as public sector restructuring and legislative and regulatory Canadian government support can contribute reform—in effect, the very business of develop- to the success of our corporations overseas. The ment, says journalist Marlene Benmergui in the promotion of Canadian prosperity is clearly the chapter on management consulting. principal objective of most Canadian policies

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O VERVIEW

B USINESS IS A CRITICAL and programs. In foreign policy, trade missions Canada enjoys an enviable reputation in have been at the top of the government agenda, developing countries. How can it capitalize on ELEMENT OF SOCIETY. under the Team Canada banner. its competitive advantage? First, by following

I T INEVITABLY HAS A through on its foreign policy objectives. This During the past five years, the government has would require abandoning trade missions to GREAT IMPACT ON HOW taken a number of steps to foster Canadian countries whose policies are inconsistent with business success abroad: trade diversification; SOCIETY DEVELOPS. fundamental Canadian values and requiring multilateral agreements; coordination between that firms which receive subsidies in support of I T HAS A RESPONSIBILITY government departments and the implementa- international activities sign codes of social and tion of the International Business Strategy; a TO PLAY THAT ROLE environmental conduct, among other measures. clear focus on fast growing emerging markets Also essential, says Paterson, is for Canada’s aid WITH HIGH ETHICAL AND and niches; increased cooperation between gov- program to reassert the priority of developmental ernment and the private sector; the promotion MORAL STANDARDS, rather than commercial objectives. of small and medium-sized enterprises; better

WITH CONSCIOUSNESS monitoring; and heavy use of information technology to facilitate consultation and networking. C ONCLUSION AND WITH PURPOSE. But, says Ted Paterson, NSI Director of Finance This compact survey of Canadian financial,

COURTNEY PRATT, and Special Projects, in the chapter titled mining, manufacturing sectors, and infrastruc- “Selling Canadian Values,” the strategy has not ture/engineering consulting firms shows that, CHAIRMAN, NORANDA INC. been working. Canada’s trade with the fastest for many Canadian companies, social responsi-

“BUSINESS ACCOUNTABILITY: growing markets has been declining while our bility is an integral part of doing business and is dependence on the US continues to increase. critical to performance and success. Others, SHAREHOLDERS, Moreover, 70 percent of exports are supplied by however, continue to view corporate social

STAKEHOLDERS OR SOCIETY?” fewer than 100 firms. responsibility as “a discretionary activity—to be engaged in when better financial performance ADDRESS TO THE CANADIAN What are the benefits and costs of Team Canada results in the availability of resources for missions? While they serve the public relations CLUB OF TORONTO, philanthropic initiatives, employee relations needs of politicians and participating firms, or community investment.”5 SEPTEMBER 29, 1997 they have not translated into greatly increased trade. They have, however, led to a downplay- Ensuring that corporations engage in ethical ing of environmental security, human rights, behaviour, however, is not only an issue for the and democracy. Paterson notes that the private sector. It requires the active participation Canadian government, in fact, does little to of both governments and individuals. The require or even encourage Canadian businesses bottom line is that we all play a role in shaping to promote respect for human rights overseas, how corporations conduct their business and although the promotion of Canadian values and must ourselves act responsibly by exercising our culture is one of the three pillars of Canada’s economic power—by selective shopping, foreign policy. investment screening, and workplace decisions.

K EY C ONCLUSIONS AND R ECOMMENDATIONS

KEY CONCLUSIONS • Corporations operate not just within the marketplace, but also within social and ecological systems whose well-being is vital to the companies’ prosperity and their very survival. • In addition to their shareholders, corporations’ “stakeholders” encompass their employees, customers, the communities, and the natural environment in which they operate. • Social and environmental responsibility should therefore be regarded as investments yielding rich dividends, both in terms of the firm’s long-term competitiveness, and the health of the system which it is a part. • It is not sufficient for corporations simply to say they intend to be socially and environmentally responsible: they must also be held accountable for their actions (or inaction). • The Canadian government has privileged trade promotion, to the detriment of development, human rights, and environmental considerations.

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C ANADIAN D EVELOPMENT R EPORT 1998

K EY C ONCLUSIONS AND R ECOMMENDATIONS (continued)

KEY RECOMMENDATIONS

FOR CORPORATIONS • CEOs and managements can start by implementing codes of ethics for their own firms and integrating personal ethics into their business culture. • Corporations should adopt international codes of conduct aimed at: • improving the well-being of their employees and customers and of the communities in which they operate; • proper environmental stewardship; • the observance of basic human rights; and • ethical business practices. • Codes of conduct must address issues of corporate accountability and ensure that corporate behaviour is independently monitored and verified. • Companies should adopt some form of sustainable development accounting. • Corporations need to adopt governance principles and practices that maximize the access of stakeholders to information and decisionmaking. • Corporations need to adopt evaluation methodologies that combine social, environmental, and economic considerations.

FOR GOVERNMENT • The Canadian government should systematically make information available on human rights conditions and environmental concerns in countries targeted by trade missions or in which Canadian firms desire to do business. • The Canadian government should not financially support commercial activities in countries whose policies are inconsistent with fundamental Canadian values. • Canadian values, particularly with regard to observing basic human rights and environmental responsibility, need to be integrated into programs supporting the commercial activities of Canadian firms and administered by CIDA, the EDC, or other agencies and programs of the federal or provincial governments. • The Canadian government should reverse the funding cuts of the past decade to the international aid program and favour programs addressing poverty and basic needs.

FOR CANADIANS • Shareholders need to exercise their rights to influence corporate social and environmental practice. • Canadians must act responsibly by exercising their economic power as educated consumers of products and services, and as investors in mutual funds, RRSPs, and pension plans.

OTHER SUGGESTIONS • Further research is needed on how to transform corporate responsibility into accountability. • Best practices in all sectors need to be recognized and promoted.

N OTES 1 Paul Hawken, Keynote Address, Recycling Council of Ontario 4 KPMG, “The Age of Ethics,” February 1998. Website: 17th Annual Conference, Hamilton, October 2, 1996. http://www.kpmg.ca (consulted in March 1998). 2 Susan Semenak, “Buying goods, with a side of ethics,” The Ottawa 5 Janet Rostami, Corporate Social Responsibility: Taking Action to Meet Citizen, August 11, 1997, p. C3. the Challenge, Members’ Briefing (Ottawa: The Conference Board of 3 United Nations, World Investment Report 1997: Transnational Canada, January 1998). Corporations, Market Structure, and Competition Policy (New York: United Nations, 1997), p. xv.

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C HAPTER O NE

THE CORPORATE STAKE IN SOCIAL RESPONSIBILITY

Roy Culpeper and Gail Whiteman

R OY C ULPEPER IS P RESIDENT OF THE N ORTH-SOUTH

I NSTITUTE. GAIL W HITEMAN IS A RESEARCHER AT

THE N ORTH-SOUTH I NSTITUTE, SPECIALIZING IN

MARKETS AND SOCIAL EQUITY ISSUES.

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C HAPTER O NE

THE CORPORATE STAKE IN SOCIAL RESPONSIBILITY

M Y FUNDAMENTAL anada is the world’s eighth largest trader, change. In particular, the prevailing ethic of Cwith US$192 billion of merchandise exports competitively driven self-interest must give way HYPOTHESIS IS THAT IF in 1995, or 4 percent of the global total. In to a more cooperative ethos in which the bene- THE C ANADIAN terms of services like insurance and tourism, fits accruing to society and the environment are Canada ranks 15th as an exporter with a 1.7 integrated into business policy and decision- BUSINESS COMMUNITY percent share, earning US$18.4 billion.1 And making along with the more conventional CAN COME TOGETHER IN while our trade is heavily concentrated on the profit motive. United States, Canadian trade with developing A COMMITMENT TO There are promising signs that the prevailing countries accounts for almost a third—some culture and ethical practices of corporations are MAKING A DIFFERENCE $39.5 billion in imports and exports—of our changing. Perhaps foremost is that business trade with the rest of the world (see Statistical IN BUILDING THE people now openly acknowledge that corruption Annex, Table 6, p. 139). and bribery (with respect to foreign as well as SOCIETY OF THE NEXT Trade, in fact, has supplanted aid as the main domestic governments) are ethically reprehensi- MILLENNIUM, THEN channel of relationship between Canada and ble. Indeed, an international consensus on the countries of the South. Trade in both directions issue has resulted in the adoption by the C ANADIAN CORPORATIONS has grown greatly during the past 20 years, and Organisation for Economic Co-operation and WILL BE ABLE TO MAKE investment even more in recent years. This is Development (OECD) of an international code to likely to continue: securing trade is set down limit such conduct (see Box 1). Progress on other A MEANINGFUL unambiguously in the Canadian government’s forms of ethically objectionable corporate beha- DIFFERENCE IN SHAPING 1995 foreign policy document, Canada in the viour—child labour, oppressive or exploitative World. working conditions, etc.—lags behind, although A SOCIETY THAT IS there is a considerable amount of discussion This shift in relationship gives rise to a number BETTER FOR ALL OF US— about the issues. On yet other issues, such as the of questions concerning the role and responsi- relationship between corporate behaviour and BUSINESS, EMPLOYEES, bilities of the private sector in developing human rights, there is little consensus. However, markets. Do conscience and commerce mix?2 THE ENVIRONMENT, the launching of the International Code of Ethics Should businesses help improve human rights, for Canadian Business by a group of Canadian OUR COMMUNITIES. labour standards, environmental stewardship? Is firms in late 1997 is a step in the right direction it even possible? Do corporations have the (see Box 2). Finally, many leading corporate COURTNEY PRATT, ability or power to influence (for good or ill) executives are speaking out on the need for social equity and environmental standards? As CHAIRMAN, NORANDA INC. businesses to demonstrate social and the private sector rapidly becomes a pre-eminent environmental responsibility. ADDRESS TO THE CANADIAN actor, both domestically and in the international marketplace, answers to such questions are CLUB OF TORONTO, increasingly urgent. G LOBALIZATION AND SEPTEMBER 29, 1997 N ORTH-SOUTH R ELATIONS Problems of social inequity and environmental degradation are exceedingly complex. Their Globalization has become the seemingly solution will therefore require persistent, inge- unstoppable force governing international nious, and multi-faceted interventions and economic and political relations. Private demand the active participation of businesses, markets today drive the global economy and governments, and civil society. If the policies dominate North-South economic relations. and actions of any one of these actors alone is Globalization can be a tremendous force for likely to be inadequate, corporations have a good: it can generate employment, income, and particular stake in social responsibility. In today’s economic growth. It can help develop or use global markets, business must be part of the human resources, transfer technology, and solution rather than part of the problem—social increase productivity. It can thus help raise responsibility is both good for society and for standards of living and vastly improve the quality business. For this to happen, however, the dom- of life. Globalization has the potential of making inant culture and practices of business must the world a better place in which to live for all its

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C ANADIAN D EVELOPMENT R EPORT 1998

BOX 1 OECD CONVENTION AGAINST INTERNATIONAL CORRUPTION Corruption and bribery occur in both the developed and developing world. But while experts agree that the problem is widespread, its actual dollar impact is unknown.1 Corrupt practices affect not only the global trading system, but can also lead to a misallocation of scarce public resources, particularly in the developing world, and help sustain corrupt authoritarian regimes.2 Transparency International3 defines corruption as “the abuse of public power for private gain.”4 Canadian firms have two reasons for combating global corruption: first, a level playing field that does not tolerate corruption allows them to compete fairly and openly in the global marketplace; and second, Canadians have an obligation to help foster transparent and democratic accounting systems and noncorrupt business practices.5 While corruption is not believed to be widespread in Canada, it is perceived to be in some countries where Canadian firms operate, such as Indonesia and Nigeria.6 On December 17, 1997, 29 leading industrial countries (OECD members), and five nonmember countries (Argentina, Brazil, Bulgaria, Chile, and the Slovak Republic) signed the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. All signatory countries agreed to make the bribery of foreign officials a crime wherever it occurs.7 Before the signing of this Convention, only the United States, through its Foreign Corrupt Practices Act, made it a criminal offense for a US firm to pay bribes abroad.8 OECD member countries have agreed to introduce domestic legislation to implement the Convention and to ratify it by the end of 1998. The OECD Convention focuses on “active corruption” or “active bribery”—meaning the offence committed by the bribe giver. The Convention establishes a standard to be met by signatory countries and “seeks to assure a functional equivalence among the measures taken.”9 Actions that are not prohibited by the Convention include small “facilitation” payments made in some countries to induce public officals to perform their functions—an activity which is to be addressed by individual countries in support of good governance—and payments to political parties. In addition, it is not an offence if an “advantage is permitted or required by the written law or regulation of the foreign public official’s country, including case law.”10 Culprits may receive criminal sanctions, including fines and imprisonment.11 According to the nonprofit NGO, Transparency International, there are a number of outstanding issues. Like any international code, a key problem is effective monitoring. Since the Convention adopts a “soft law” approach—a recommendation for action by national governments that is not legally binding—effective implementation at the national government level needs to be evaluated at an international level. In addition, monitoring corporate compliance is difficult since, in many cases, neither party may willingly admit to corrupt practices. Instead, the Convention will help companies that are unwilling to participate in bribery by providing them with international grounds for nonparticipation. In addition, Transparency International believes that the OECD initiative will help strengthen domestic anti-corruption movements in developing countries.

N OTES 1 Robert Johnstone, “ Corruption and International Business,” Newsletter, CIIA, vol. II, (1) (Toronto: Canadian Institute of International Affairs, 1997). 2 Transparency International, Press Release, “OECD Anti-Corruption Convention leaves critical questions still open,” November 5, 1997, Berlin. For more details see http://www.transparency.de/press/1997.1.3.oecd-convention.html 3 A nonprofit NGO which operates at both an international and national level through its National Chapters, Transparency International emphasizes the need for increased public transparency and accountability in international business activities and public procurement. The organization also provides international Standards of Conduct. To contact Transparency International Canada, e-mail Dr Wes Cragg at [email protected] 4 Transparency International, Press Release, November 5, 1997, Berlin, p. 2. 5 Johnstone, 1997. 6 Ibid. 7 In OECD countries like Japan and Germany, companies are not held responsible for criminal acts. Instead, the Convention outlines the need for penalties as a meaningful deterrent. See Transparency International, Press Release, November 5, 1997. 8 Ibid. 9 Commentaries on the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, OECD website http://www.oecd.org 10 Ibid., p. 2. 11 Canada, Department of Foreign Affairs and International Trade (DFAIT), News Release (No. 214), December 18, 1997.

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C HAPTER O NE T HE C ORPORATE S TAKE IN S OCIAL R ESPONSIBILITY

BOX 2 INTERNATIONAL CODE OF ETHICS FOR CANADIAN BUSINESS1 Canadian business has a global presence that is recognized by all stakeholders2 as economically rewarding to all parties, acknowledged as being ethically, socially, and environmentally responsible, welcomed by the communities in which we operate, and that facilitates economic, human resource, and community development within a stable operating environment.

BELIEFS PRINCIPLES

We believe that: A/Concerning Community Participation • we can make a difference within our sphere and Environmental Protection, we will: of influence (our stakeholders) • strive within our sphere of influence to • business should take a leadership role through ensure a fair share of benefits to establishment of ethical business principles stakeholders impacted by our activities • national governments have the prerogative to • ensure meaningful and transparent consul- conduct their own government and legal tation with all stakeholders and attempt to affairs in accordance with their sovereign rights integrate our corporate activities with local • all governments should comply with inter- communities as good corporate citizens national treaties and other agreements that • ensure our activities are consistent with they have committed to, including the sound environmental management and areas of human rights and social justice conservation practices • while reflecting cultural diversity and differ- • provide meaningful opportunities for tech- ences, we should do business throughout nology cooperation, training and capacity- the world consistent with the way we do building within the host nation business in Canada B/Concerning Human Rights, we will: • the business sector should show ethical • support and promote the protection of inter- leadership national human rights within our sphere of • we can facilitate the achievement of wealth influence generation and a fair sharing of economic • not be complicit in human rights abuses benefits • our principles will assist in improving C/Concerning Business Conduct, we will: relations between the Canadian and host • not make illegal and improper payments governments and bribes and will refrain from participat- • open, honest and transparent relationships ing in any corrupt business practices are critical to our success • comply with all applicable laws and conduct • local communities need to be involved in business activities in a transparent fashion decision-making for issues that effect them • ensure contractor’s, supplier’s and agent’s • multistakeholder processes need to be activities are consistent with these principles initiated to seek effective solutions D/Concerning Employee Rights and • confrontation should be tempered by Health & Safety, we will: diplomacy • ensure health and safety of workers is protected • wealth maximization for all stakeholders • strive for social justice and promote freedom will be enhanced by resolution of outstand- of association and expression in the workplace ing human rights and social justice issues • ensure consistency with universally accepted • doing business with other countries is good labour standards, including those related to for Canada and vice versa exploitation of child labour

VALUES APPLICATION We value: • Human rights and social justice The signators of this document are committed • Wealth maximization for all stakeholders to implementation with their individual firms • Operation of a free market economy through the development of operational codes • A business environment which mitigates and practices that are consistent with the vision, against bribery and corruption beliefs, values and principles contained herein. • Public accountability by governments • Equality of opportunity N OTES • A defined code of ethics and business practice 1 Thirteen Canadian companies developed the Code in • Protection of environmental quality and September 1997: Alcan Aluminum Ltd; Beak International Inc.; sound environmental stewardship Cambior Inc.; Chauvco Resources Ltd; John Neville Inc.; Komex International Ltd; Liquid Gold Resources Inc.; Profco Resources • Community benefits Ltd; Pulsonic Corp.; Reid Crowther International Ltd; Sanduga & • Good relationships with all stakeholders Associates; Shell Canada Ltd; and Wardrop Engineering Inc. • Stability and continuous improvement 2 Should include: local communities, Canadian and host govern- within our operating environment ments, local governments, shareholders, the media, customers and suppliers, interest groups, and international agencies. Source: http://www.uottawa.ca/~hrrec/busethics/codeint.html

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inhabitants. But even proponents of globalization terms. This is due to a number of overlapping admit that it has definite downsides: unemploy- developments: global official development assis- ment, widening income disparities, and environ- tance (ODA) has substantially declined; the level mental degradation have so far accompanied of foreign direct investment (FDI) in the devel- globalization.3 So how, in a world dominated by oping world has increased significantly, as has global market forces and private sector interests, that of portfolio investment; and there has been can social and environmental equity flourish? an ongoing move toward a deeper and broader G OOD CORPORATE form of economic integration between devel- Market capitalism is nearly universal today. This oped and developing worlds. Private investment ETHICS HAVE TO BE THE may suggest that there is global consensus about flows have been highly concentrated in about the advantages of market-based economies. But it FOUNDATION OF OUR one dozen developing countries, however. is evident that there is not just one “model” of BUSINESS. market capitalism: the market economy in the The 1980s also witnessed changes of fundamen- United States differs from Canada’s more “mixed” tal importance in North-South relations. First, AL FLOOD, CHAIRMAN, economy and considerably from Western Europe’s the aftermath of the debt crisis led to a wave of and Japan’s. In each, there is a different balance economic liberalization, reform, and openness CANADIAN IMPERIAL between the responsibilities of states, market to foreign investment. Second, developing BANK OF COMMERCE agents, communities, and households. countries in East and Southeast Asia experienced unprecedented economic growth, based primar- QUOTED IN ROBERT WALKER, The demise of the communist system throughout ily on higher investment rates and export pro- much of the world makes it possible to ask “THE ETHICAL IMPERATIVE,” motion. Until the recent financial crisis in Asia, searching questions about the market-based this model seemed successful and highly attrac- THE FINANCIAL POST 500, economy. How “fair” are free markets? Given tive to other developing countries, which have widening income disparities in the industrial 1997, P. 28. begun to actively compete for foreign direct countries during the past 20 years, how equitably investment. Finally, a wave of political liberal- distributed are the benefits of market-based ization resulted in the spread of democracy economies? What is their impact on different through many of the non-OECD countries. segments of society—workers, households, and These combined events set the stage for a strong communities? What are corporations’ rights and commitment to privatization, which created responsibilities toward society? Toward common- many new opportunities for private sector firms. property resources and the natural environment? How does diminishing state power affect all? The increase in private investment flows to developing countries has been both swift and Searching questions have also been raised about dramatic. Corporations have actively entered corporate governance. Are major shareholders a new and expanded markets. The postwar domi- corporation’s only, or even the primary, “stake- nation of private by official flows has been over- holders?” What responsibilities do corporations turned in the first half of the 1990s (Table 1), have toward their customers and clients? toward returning perhaps to the pattern that existed consumers generally? toward their employees before the Great Depression. Most countries, and the communities in which they operate? including the remaining centrally planned com- toward future generations and the environment? munist states such as the People’s Republic of In a market-driven global economy, issues of China, have now embraced market-based corporate conduct, ethics, and governance have economies. As a result, the linkages between come to the fore. These issues are both more rich and poor countries are driven by private stark and complex in developing countries where standards, legal systems, and customs differ from those in industrialized countries. TABLE 1 Aggregate Net Long-Term Resource Flows to Develop- ing Countries, 1990-96 T HE G ROWING R OLE OF (US$BILLIONS) P RIVATE F OREIGN I NVESTMENT 1990 1993 1996 IN EVELOPMENT D Aggregate Net Resource Flows 100.6 212.0 284.6 Official Development Finance 56.3 55.0 40.8 Total Private Flows 44.4 157.1 243.8 DEVELOPMENTS OVER THE LAST DECADE of which: FDI 24.5 67.2 109.5 Since the late 1980s, the role of private foreign Portfolio Equity Flows 3.2 45.0 45.7 investment in developing countries has Source: World Bank, Global Development Finance, 1997, p. 3. expanded greatly, both in relative and absolute

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T HE GLOBAL ECONOMY, investment, trade, and commerce even more so assess, monitor, and limit environmental and than before. (It should be noted, however, that social impacts. As a result, the replacement of WITH ITS BORDERLESS the poorest countries, particularly those of sub- ODA-financed infrastructure by privately and

FLOW OF GOODS, Saharan Africa, remain largely outside the ambit locally financed infrastructure is likely to raise of these new global markets.) One indicator of many of the same issues. There is a danger that, CAPITAL AND IDEAS, the relative importance of the private and without the involvement of public aid agencies

CANNOT FUNCTION public sector linkages is captured in Table 1. in infrastructure projects, environmental and social standards will be laxer. WITHOUT A GLOBAL THE DECLINE IN OFFICIAL FINANCING FOR ETHIC. DEVELOPMENT THE RISE OF PRIVATE FOREIGN INVESTMENT From 1990 to 1996 there was a sharp drop in Investment by transnational corporations—a JOHN DALLA COSTA, official flows (comprising both ODA and other central, defining feature of globalization—has “MORAL CRISIS BEHIND ASIAN official flows, such as bilateral and multilateral expanded enormously since the Second World loans). After a sharp fall in 1993 and a partial War. Such investment facilitates “deep MESS,” THE GLOBE AND MAIL, recovery in 1994, ODA dropped by nearly integration” between different countries and MARCH 26, 1998 10 percent in real terms (adjusted for inflation communities as global firms source inputs of and exchange rates) in 1995. As a share of the manpower, capital, raw materials, and gross national product (GNP) of OECD intermediate products from wherever it is best Development Assistance Committee (DAC) to do so, and sell their goods and services in members, ODA fell to 0.27 percent, its lowest all the major world markets. level in 45 years. The ODA/GNP ratio fell in In 1995 there were 45,000 transnational corpo- 15 out of 21 DAC member countries, including rations (TNCs) with 280,000 foreign affiliates. all the G-7 countries. Huge cuts in the United Their estimated global sales were US$7 trillion; States ODA program reduced that country from since 1987 such sales have exceeded exports of the number one position to fourth place by goods and services by a factor of 1.2 to 1.3. Most 1995, with a program less than half the size of TNCs are headquartered in developed countries, Japan’s, and less than those of both France and although by 1995, 7,900 of the 45,000 were Germany.4 Canada, which had been known as based in developing countries.5 one of the more committed aid donors until the 1990s, cut its aid budget by 40 percent between Foreign direct investment by transnationals—the 1989 and 1997. activity through which they establish and grow their foreign affiliates—is now a major force There are strong reasons to believe that private shaping globalization. In 1996, these flows foreign investment, even without numerous amounted to US$350 billion worldwide, and questions about its social responsibility and resulted in a global FDI stock of US$3.2 trillion. impact, is not and will not be a perfect substi- Of the $350 billion FDI total, some US$129 tute for foreign aid (publicly funded official billion, or 37 percent, went to developing coun- development assistance). Private investment tries.6 A good proportion of FDI is concentrated has, in fact, generally complemented ODA: for in the hands of the 100 largest TNCs (ranked by example, two of the key sectors of interest to the size of foreign assets), which own $1.7 trillion foreign investors are natural resources and man- of assets in their foreign affiliates, controlling an ufacturing, sectors not traditionally given much estimated one-fifth of global foreign assets. support through ODA. In other sectors, such as infrastructure, private foreign investment is Since three-quarters of the investment of affili- replacing ODA. But this substitution may come ates was financed by means other than FDI from at a price. their parents (e.g., through commercial banks and equity markets, both at home and abroad), For several reasons, over the past decade, aid their actual investment in 1996 was $1.7 trillion, agencies have backed away from infrastructure about one-fifth of world gross capital formation.7 projects in developing countries. These reasons In other words, TNCs and their affiliates have a include dwindling funds and the costliness of substantial role in global investment. infrastructure projects. Moreover, much negative publicity has surrounded the adverse envi- There has always been controversy over the role ronmental and social impacts of poorly planned of FDI in development, and although the debate or implemented infrastructure projects. In is muted in the 1990s, many of the underlying response to criticisms, the World Bank and issues still remain (see Box 3). This is in part other agencies have implemented procedures to because of a heavy concentration of FDI among

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BOX 3 FOREIGN DIRECT INVESTMENT AND DEVELOPMENT Until the 1980s, Foreign Direct Investment (FDI) was one of the most hotly debated topics in North-South relations. It was viewed, at best, as a mixed blessing, and at worst, as a sort of neo- colonialism. As a result of such attitudes, nationalization and expropriation of transnational corporations’ developing-country assets was not uncommon during the first three postwar decades, imparting to FDI a high level of political risk. In the 1990s, the debate has cooled as many developing countries welcomed, even enticed transnationals (TNCs) to invest through favourable tax or other policies. TNCs and FDI are now widely seen as an effective route to modern technology and employment, to export markets and industrial growth.1 Nonetheless, some important underlying issues remain. For example: • a favourable investment climate is a strong factor in attracting FDI, but the response to more liberal terms in developing countries is often overestimated; • if tax incentives are offered, there is clearly a cost in terms of foregone revenues; • an increasing part of world trade is internal to TNCs. While this is efficient for corporations, it may not be optimal for developing countries; • transfer pricing of intra-TNC transactions remains an important problem, as developed- country hosts recognize, but most developing countries do not have the capability to deal with it effectively; and • the terms on which FDI is provided to developing countries are likely to be the products of bargaining, in which TNCs typically have more bargaining power than their hosts. Even though one of the key advantages of FDI is that it usually transfers technology to the host country—a rather attractive prospect for poorer countries striving to increase productivity— these advantages can also negatively affect the development of local technological capabilities and skills. Innovative activity by TNCs is typically concentrated in a few developed countries. Upgrading skills and capabilities in developing countries involves high learning and other costs which TNCs are typically unwilling to bear. Therefore, developing countries may be unwise to rely solely or principally on FDI (or more generally on markets) to encourage technological development and extension to the domestic economy, as well as local human development. Ultimately, the development of indigenous skills and technology must rely on local government initiatives. The older debate on FDI is resurfacing in the context of a Multilateral Agreement on Investment (MAI) (see Chapter 3, p. 58). A cornerstone of that agreement, currently being negotiated principally among the developed member countries of the OECD, is the principle of national, nondiscriminatory treatment of foreign investors by host countries. This would in effect disallow many developing countries (if they were to become MAI signatories) from implementing policies adopted in the past, for example selective measures to protect domestic industry and technological development, as well as performance requirements (for example, on exports) on FDI to achieve specific developmental objectives. Moreover, many developing-country critics have compared the proposal for an MAI—which would be legally binding upon signatory governments—with three past initiatives undertaken under the auspices of the United Nations,2 aimed at establishing codes of conduct for transnational corporations: industrialized countries insisted these would be nonbinding and voluntary. Finally, the fact that the MAI has been negotiated in a forum dominated by the developed countries (the OECD) rather than a more universal forum such as the World Trade Organization, adds to the developing countries’ apprehensions that the economic, social, and political objectives of development are likely to be marginalized in the treaty.

N OTES 1 See Gerald K. Helleiner, “Transnational Corporations, Foreign Direct Investment and Economic Development,” in H.B. Chenery and T.N. Srinivasan, eds, Handbook of Development Economics, vol. II (London: Elsevier Science Publishers, 1989), pp.1,441-480; and Sanjaya Lall, “TNCs: The New Custodians of Development?” in Roy Culpeper, et al, eds, Global Development Fifty Years After Bretton Woods (London: Macmillan, 1997), pp. 169-91. 2 See A.V. Ganesan, “Strategic Options Available to Developing Countries with regard to a Multilateral Agreement on Investment,” unpublished paper prepared for the Group of 24, January 1998. The three UN codes referred to are: the Multilaterally Agreed Equitable Principles and Rules for the Control of Restrictive Business Practices, adopted by UN Resolution in 1980; the Draft UN Code of Conduct on Transnational Corporations (negotiated but not yet adopted); and the Draft International Code of Conduct on the Transfer of Technology (negotiated but not yet adopted).

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It would be a mistake, however, to consider eco- TABLE 2 Transnational Corporations’ Gross Revenues and nomic globalization a phenomenon that involves Developing Countries’ GNP, 1994-95 only large transnational corportations. Because of modern information and telecommunications a Corporation Revenues HQ Developing GNP Population technology, small and medium-sized enterprises (US$ billions) Country (US$ billions) (millions) are also able to carry out business in remote 1 General Motors Corp. 168.4 US China 697.6 1,200 markets, in a manner unthinkable even half a 2 Ford Motor Company 147.0 US Brazil 688.1 159 century ago. Individual private investors are also 3 Mitsui & Co. Ltd. 144.9 Japan Korea 455.5 45 4 Mitsubishi Corporation 140.2 Japan Russia 344.7 148 getting into the act. One of the most remarkable 5 Itochu Corporation 135.5 Japan India 324.1 929 and unprecedented developments of the 1990s 6 Royal Dutch/Shell Group 128.2 UK/Neths Argentina 281.1 35 has been the growth of cross-border portfolio 7 Marubeni Corp. 124.0 Japan Mexico 250.0 92 equity investment (see Table 1). The purchase of 8 Exxon Corporation 119.4 US Indonesia 198.0 193 share capital, once almost wholly confined 9 Sumitomo Corporation 119.3 Japan Thailand 167.1 58 10 Toyota Motor Corporation 108.7 Japan Turkey 164.8 61 within national boundaries, now occurs between 11 Wal-Mart Stores Inc. 106.1 US South Africa 136.0 42 countries in a number of ways. And an increasing 12 General Electric Co. 79.2 US Saudi Arabia 125.5 19 proportion of the transactions take place between 13 Nisho Iwai Corp. 78.9 Japan Poland 117.7 39 industrialized and developing countries, many of 14 N.T. & T. Corp. 78.3 Japan Greece 90.6 11 which have opened their stock markets for 15 IBM Corp. 75.9 US Malaysia 85.3 20 47 Low-Incomeb 316.9 1,050 investment by nonresidents for the first time— and in some cases established stock markets for Notes: a Location of TNC’s head office. the first time. Individual investors in industrial b The world’s poorest countries other than India and China. countries now participate in such cross-boundary Source: Fortune, August 4 1997; World Bank, World Development Report 1997. transactions by purchasing and selling “emerging market” shares through mutual and pension funds, and through brokered deals involving the largest TNCs, and also in part because the particular Southern firms. largest TNCs tend to be headquartered in the US, Europe (particularly the United Kingdom, At the end of the 1990s, both the behaviour of Germany, and France), and Japan. Many of TNCs and the role of FDI are changing. these huge corporations have gross revenues or Traditionally, TNCs expanded their territorial sales exceeding the GNP of all but a handful of horizons primarily to exploit their core compe- developing countries (see Table 2). tencies or competitive advantages. Increasingly, however, global firms seek to enhance their There are some particularly striking contrasts advantages by acquiring, or gaining access to, between TNCs and developing countries. strategic assets, new resources, and capabilities— Together, sales of the world’s five largest corpo- part of a phenomenon called “alliance capital- rations, with aggregate revenues exceeding ism” by John Dunning. Instead of the traditional US$735 billion, exceed the GNP of China (a hierarchical relationship (between parent and country with more than one-fifth of the world’s affiliate), such alliance behaviour often involves people). General Motors Corp. alone is bigger cooperative arrangements, whether for technical in this sense than Thailand (with 65 million service or subcontracting agreements, or more people), and all but eight other developing informal inter-firm understandings.8 countries. General Motors and Ford Motor Company have aggregate revenues exceeding the total GNP of 47 of the world’s poorest coun- G LOBAL M ARKETS AND tries, home to more than one billion people. S OCIAL E QUITY Royal Dutch/Shell Group is larger and Exxon Corporation slightly smaller than Saudi Arabia, DILEMMAS OF THE MARKET SYSTEM the world’s largest oil-exporting country. The Markets have existed as long as human revenues of Wal-Mart Stores Inc. are more than communities, but it is only since the industrial half as much as the entire GNP of Indonesia, a revolution two centuries ago that the “market country of more than 190 million people. system” has increasingly dominated society— While Canadian corporations do not rank first at the national level, and now at the global among the world’s largest, they are nonetheless level. Social theorists have long criticized the formidable entities in their respective sectors impact of the market system on society and, and in comparison to mid-sized developing more recently, on the environment. In the 19th countries (see Box 4). century, political economists such as Karl Marx

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BOX 4 CANADA’S LARGEST CORPORATIONS

R EVENUES ($BILLIONS)

Corporations Sector C$ US$ 1 BCE Inc. Telecommunications 28.64 20.91 2 Northern Telecom Ltd Telecommunications 17.79 12.99 3 Royal Bank of Canada Banking 16.47 12.02 4 CIBC Banking 14.88 10.86 5 Bank of Montreal Banking 13.00 9.49 6 George Weston Ltd Food 12.81 9.35 7 Bank of Nova Scotia Banking 12.40 9.05 8 Trans-Canada Pipelines Ltd Energy 10.83 7.91 9 Thomson Corp. Publishing 10.72 7.93 10 Imperial Oil Ltd Energy 10.51 7.67 11 Alcan Aluminum Ltd Metals 10.39 7.69 12 Noranda Inc. Mining 9.88 7.21 13 Loblaws Supermarkets Ltd Food 9.87 7.21 14 Imasco Ltd Management 9.45 6.90 15 Toronto-Dominion Bank Banking 9.07 6.62

Notes: It is clear that Canada’s largest corporations are smaller than the world’s leading transnationals. The largest Canadian firm, BCE Inc., is number 162 on the Fortune 500 list. Nonetheless, it is worth observing that BCE’s gross revenues in 1996 exceeded the 1995 GDP of countries such as Côte d’Ivoire, Sri Lanka, Guatemala, Ecuador, Uruguay, and Vietnam, and equaled 80 percent of Nigeria’s GDP. If the world’s transnationals are ranked according to assets rather than sales, Canada has four corporations in the top 100: Seagram Ltd (number 30); BCE Inc. (61); Thomson Corp. (64); and Northern Telecom (Nortel) (78). See UN, World Investment Report 1997: Transnational Corporations, Market Structure and Competition Policy, New York, 1997. Source: Report on Business Magazine, July 1997.

and John Stuart Mill, social activists such as ety and the natural environment. These Robert Owen, and novelists such as Victor Hugo counter-movements have led to laws and regu- and Charles Dickens deplored the social lations governing the way in which market inequities of the market system that took root actors behave, and establishing minimal labour with the industrial revolution. In the 20th and environmental standards.9 century, John Maynard Keynes pointed out that Similarly, the eminent Canadian political econo- a key lesson of the Great Depression was that mist C.B. Macpherson traced the rise of the con- the market system does not guarantee full cept of “economic justice” (the establishment of employment—indeed it may result in an fair prices and just distribution of social income underemployment equilibrium that leaves a and wealth) to markets and merchants achieving substantial portion of the population without a relative autonomy from the state and other source of income. While the solutions proposed social relations, although he saw this beginning by some of these thinkers have come under to happen two centuries before the industrial considerable attack, that does not diminish revolution. Like Polanyi, Macpherson held that their critique of the problems of the market the social order had to adopt defence mecha- system, many of which, including chronic nisms against the encroachment of markets on unemployment and widening income accepted notions of fair prices and a just distrib- disparities, continue to plague market-based ution of wealth. In contrast to Polanyi, however, economies. Macpherson was pessimistic about the future— Another 20th-century thinker, Karl Polanyi, he viewed the achievements of liberal and social- argued in The Great Transformation that, with democratic states in the 20th century as the market system, the economy became “dis- temporary successes in the struggle for economic embedded” or separated from society for the justice in a world increasingly dominated by first time in human history. The system of self- markets and corporate power. However, he also regulating markets that has emerged has turned thought that the huge disparities between the labour and natural resources into commodities Third World and the developed countries would to be bought and sold, used, and sometimes keep the concept of economic justice alive.10 destroyed. In Polanyi’s view, this dramatic trans- The issues of markets and social equity are con- formation in relationships both among mem- tentious enough within a single political juris- bers of society, and between society and nature, diction, such as the nation-state. They become has had such a wrenching impact that it has far more complex when business transactions provoked “counter-movements” to protect soci-

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A COMPANY MUST take place across jurisdictions in which the laws of self-interest as the engine of economic effi- and regulations differ substantially. To the ciency in a competitive economy goes back two ESTABLISH AN ACTIVE extent that the standards of corporate behaviour centuries to Adam Smith,12 the father of mod- SOCIAL RESPONSIBILITY are prescribed by law or custom and commonly ern economics. The 20th-century version of the observed (and this may be far from being the “Invisible Hand” doctrine was articulated by COMMITTEE AT THE case), there is little leeway within the nation- Milton Friedman. In a well-publicized essay in BOARD OF DIRECTORS state to gain a competitive advantage in the The New York Times Magazine, he provided an domestic marketplace by diverging from the early definition of corporate social responsibility: LEVEL. ITS MANDATE norms. But the globalization of trade and invest- [T]here is one and only one social MUST GO WELL BEYOND ment has profoundly changed the context of responsibility of business—to use its social norms in the marketplace. CORPORATE PHILAN- resources and engage in activities Globalization has posed a basic conundrum for designed to increase its profits so long as THROPY AND “ ASSESS all international transactions. Whose standards it stays within the rules of the game, THE IMPACT OF THE of behaviour should apply—those of the home which is to say, engages in open and free or host country? The dilemma is: if foreign competition without deception or fraud. CORPORATION ON ALL investors or traders abide by lower host country [For business to do otherwise is economi- ITS STAKEHOLDERS AND standards (such as labour standards), they are cally reprehensible and] fundamentally open to the charge of exploitation. But if they subversive. . . in a free society. 13 BE A VOICE TO URGE abide by higher home country standards, they Friedman’s definition of corporate social respon- BALANCE. may lose the host market to third country sibility, which defines the currently dominant competitors with fewer scruples. view, albeit with much dissension, raises imme- RICHARD J. MAHONEY, Thus, accusations of “a race to the bottom” are diate questions. First, how are the “rules of the EX-CEO OF MONSANTO levelled by labour critics against corporations‘ game” derived? The issue of the obligatory social investments in developing countries. On the responsibilities of firms is highly political, partic- “TAKING THE INITIATIVE ON other hand, business and advocates of economic ularly since there may be disagreements con- STAKEHOLDER RIGHTS,” liberalization accuse of “protectionism” those cerning community standards on which to base wanting to impose trade restrictions on goods the laws governing admissible corporate con- BUSINESS & SOCIETY REVIEW, produced with child labour or under conditions duct. There is also a question of monitoring and NO. 97, 1996, PP. 21-25 below acceptable Northern safety or enforcing the rules to prevent “deception and environmental standards. fraud.” Even with the best enforcement systems, however, one must expect that a value system in The driving force underlying many of these which self-interest is paramount will lead to a quandaries is competition on a global scale. The certain amount of both deception and fraud. Group of Lisbon, a coalition of 19 distinguished scholars—many with strong links to the business Critics of the dominant view begin with the fact community—from North America, Europe, and that businesses do not exist in a vacuum, but Japan, attributes to “excessive competition” the must operate within a framework of laws, rules, decline of the welfare state, increasing poverty and conventions.14 Indeed, the notion of and chronic unemployment, and/or widening “laissez-faire” underlying Friedman’s model is a income disparities in the industrial countries, serious misconstruction of what “free markets” and the further de-linking of the world’s poorest actually require and entail. Free markets, and countries from the global economy. It issues a the system of private property, depend for their visionary call for “cooperative global gover- existence on law. Markets are a legal construct nance” to ensure environmental sustainability, which facilitate certain transactions (such as social solidarity among present and with future contracts), while laws prohibit others (such as generations, the protection of cultural diversity trespass). Moreover, the legal framework goes far and freedom, and participatory democracy.11 beyond defining property rights and contract obligations to defining social norms that may also limit freedoms (for example, laws forbid- MARKET BEHAVIOUR AND SOCIAL EQUITY ding racial discrimination). Finally, businesses Underlying the tension between market behav- may also have “supererogatory” responsibili- iour and social equity is an apparent conflict ties—those beyond legal requirements—that between the self-interested motivations of profit- they may be motivated to meet. maximization, pursued through competition, Even while Friedman expounded the 20th- and the collective interests of society that result century version of the Invisible Hand doctrine, from cooperative behaviour. The pre-eminence it was under challenge by other mainstream

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economists who demonstrated through game importance of social solidarity, or trust, for long- theory that cooperation can be superior to self- run economic survival and productivity.18 interested competition, not just for the welfare Pointing to examples of industrial organization of society, but for the competitors themselves.15 in Japan, Germany, and the United States, he asserts that certain forms of behaviour by firms, Similarly, scholars like Amartya Sen have their workers, and clients cannot be explained by pointed out that commercial or economic suc- the motivations of profit-maximization and self- cess is not simply a matter of the self-interested interest. Indeed, in many instances, such pursuit of profits, and that moral codes of behaviour seems to be distinctly at odds with the behaviour can enhance corporate productivity self-interest of the parties involved. Fukuyama and competitiveness.16 If so, the dichotomy argues that the creation of economic wealth and between the interests of society and those of stability depends on “social capital”—the ability corporations is false, making plausible win-win of people to work together for common purposes combinations of corporate responsibilities and in groups and organizations—which in turn social interests. requires shared norms and values and the Sen’s critique of the dominant view runs much subordination of individual interests to those of deeper. One premise of this prevailing view holds the larger group. that maximizing self-interest constitutes the only Even leading proponents of globalization, such form of “rational market behaviour” and other as John Dunning, have concluded that coopera- forms of behaviour (involving duty, loyalty, tion is as important as competition for corpora- goodwill, or ethically motivated conduct) will tions seeking strategic assets as they position undermine the efficiency of markets. Both these themselves in the global marketplace. However, assumptions are highly questionable: nonself- Dunning’s conception of “alliance capitalism” interested behaviour is neither “irrational,” nor where he sees cooperative behaviour taking does it necessarily undermine efficiency. Sen place, is very restrictive. The strategic coopera- argues that standard economic models do not tion he refers to focuses primarily on the inter- recognize the differences between cooperative action between “wealth-creating constituents.” and competitive behaviour, and therefore do not Such “cooperation” is not unlike oligopolistic or give guidance in many situations—for instance, even collusive behaviour aimed at promoting when economic actors can choose either cooper- the interests of the cooperators at the expense of ative or competitive strategies to deal with issues nonparticipants. Of course, the same criticism that have collective impact. can be levelled at Fukuyama’s model of “trust:” Defenders of the dominant view assert even a firm may cooperate with its workers and more strongly that self-interested behaviour suppliers primarily to get a competitive edge approximates actual real world behaviour. This on rival firms. assertion, which usually underlies the conventional position on the social responsibilities of THE MARKET ECONOMY AND THE corporations, is equally contestable. In Japan, ENVIRONMENT for example, which is a market-based economy, many commercial relationships are based on Self-interested behaviour in a market system duty or loyalty, including labour market con- may not always, or typically, lead to the best ventions such as lifetime employment. While outcome for society as a whole. For similar they no doubt entail an economic cost, these reasons, self-interested behaviour in a market relationships have arguably enhanced produc- economy may not be in the best interests of the tivity and played an important role in Japan’s natural environment in which the economy industrial competitiveness and extraordinary and society must operate. growth rate. At the same time, they have con- Indeed, critics such as Herman Daly warn that a tributed to social cohesion, at least until the global economy based purely on competitive, 1990s. The implication is that it is quite plausi- self-interested behaviour portends grave, possible for corporations to both compete in the bly devastating environmental consequences. marketplace and take on social responsibilities Such critics argue that the environment is often that enhance their commercial success.17 treated by agents of the global market system as Other social commentators have stressed that a free source of natural resources, and a free cooperative relationships are fundamental to “sink” in which to dispose of waste products. wealth creation and social stability. Recently, The former leads to resource depletion and the author Francis Fukuyama underlined the latter to ecological degradation.

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W HAT I LEARNED FROM Instead, such critics urge the adoption of gen- Corporate activity affects much more than the uinely sustainable development strategies, in bottom line. Business fundamentally changes THE RAINFOREST IS EASY which the global economy is viewed as a “sub- and shapes society and the natural environment, 19 TO UNDERSTAND.WE system” of the global natural environment. As in both positive and negative ways. While many a subsystem, the economy cannot for long of these costs and benefits are not currently CAN USE LESS, AND remove from (or inject into) the environment, included in a company’s financial statements,

HAVE MORE. CONSUME without replacing (or withdrawing) resources their effects are tangible. A business operates that are necessary (or inimical) to life on the explicitly as an economic actor through the mar- LESS, AND BE MORE. IT planet. Sustainability, therefore, is the ability of ket system, but also implicitly as a moral and

IS THE ONLY WAY. FOR the economic subsystem to coexist in harmony environmental actor as its economic actions with the larger environmental system. permeate the related social and ecosystems. THE INTERESTS OF What does this mean for corporate actors in the Second, the marketplace cannot by itself resolve BUSINESS, AND THE global market system? Visionary thinkers such environmental and social issues. Some, includ-

INTERESTS OF THE as Paul Hawken speak about redesigning the ing the Government of Canada, argue that a economic and production systems to ensure strategy of “constructive engagement” will ENVIRONMENT, ARE NOT “true cyclicality,” so that there is virtually no eventually instill liberal values through trade

INCOMPATIBLE. THEY waste that cannot be digested by natural and commerce, even with regimes that are processes.20 Such thinking points in the direc- socially repressive or environmentally irrespon- ARE THE J APANESE tion of “natural capitalism,” where “natural cap- sible. For their part, corporate actors engaged in

OMOTE AND URA, THE ital” (the earth’s renewable and nonrenewable trade and commerce are typically unwilling or resources) is considered an integral part of the unable to influence social or environmental C HINESE YIN AND YANG, capital with which businesses must work. conditions in foreign countries.23

PRODUCT AND PROCESS, Third, it pays to be responsible. Increasingly,

ECONOMY AND C ORPORATE R ESPONSIBILITY: corporate image is linked to profits—or net B EYOND P ROFITS worth, to be more precise. There is an important ECOLOGY, MIND AND relationship between corporate ethics and the Canadian corporations have far-reaching SPIRIT— TWO HALVES. perceived value of the firm: studies show that impacts on society and the health of the planet unethical corporate behaviour negatively affects O NLY TOGETHER CAN WE itself. Some of these impacts are positive, others stock performance.24 Increasingly, external are negative. Given that the marketplace does MAKE THE WORLD stakeholders are demanding that business not always demand that corporations become deliver sustainable results in more ways than WHOLE. more socially responsible, it is crucial that busi- return-on-investment. Companies like Nike Inc. ness culture recognizes this need internally. But have learned the hard way that a negative image TACHI KIUCHI, MEMBER OF a sustainable change in corporate culture in the public domain can affect sales, particu- requires commitment at all levels of the corpo- THE BOARD OF MITSUBISHI larly when linked to the threat of consumer ration, including its leadership. While any cul- boycotts. On the other hand, companies that ELECTRIC CORPORATION. tural change is challenging, the shift to social are perceived to be socially and environmentally and environmental responsibility is not easy. KEYNOTE ADDRESS, responsible may gain a competitive advantage But the adoption of global social and environ- over more traditional firms. The Body Shop “WHAT I LEARNED IN THE mental responsibility can lead to many positive International PLC is an example of one firm results. As Courtney Pratt, Chairman of Noranda RAINFOREST,” WORLD whose profitability is further enhanced through Inc., suggests: “If the Canadian business com- its image of good corporate citizenship. FUTURE SOCIETY, munity can come together in a commitment to making a difference in building the society of It is important to note, however, that increasing JULY 19, 1997 the next millennium, then Canadian corpora- a firm’s net worth does not necessarily mean tions will be able to make a meaningful differ- increasing its short-term profitability. Corpora- ence in shaping a society that is better for all of tions must often incur costs when they choose us—businesses, employees, the environment, to operate in a socially responsible manner. At our communities.”21 first glance, in a market where other corporate actors choose to ignore broader responsibilities, The first step is for corporations to recognize socially responsible firms may seem at a compet- why they need to move beyond Friedman’s fixa- itive disadvantage. But socially responsible firms tion with the bottom line. There are at least can survive, indeed thrive, in a competitive envi- three reasons for doing so. ronment even if they incur higher costs. Socially First, the business world is unavoidably responsible firms can enhance their long-run embedded within social and natural systems.22 prosperity by increasing employee commitment,

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building customer loyalty, generating coopera- Social and environmental responsibility can tion among suppliers and subcontractors, differ- mean a variety of different things. For some, entiating themselves from the competition, and the definition stresses the social dimension of by lowering recruitment and labour costs (as corporate responsibility, asking companies to employees acquire social value).25 become better “citizens” and to actively contribute to the development of equitable Of course, those firms with market power or global communities. Environmental considera- highly differentiated products will have greater tions are viewed through the lens of society, of flexibility to adopt supererogatory standards of the need to protect the natural environment for behaviour and to act in a socially responsible future generations. For others, corporate manner. Firms operating in highly competitive responsibility stretches beyond human self- markets and/or producing undifferentiated interest and incorporates the millions of non- products may have much less latitude to go human stakeholders who share the earth. From beyond what is required by law and custom. To such a perspective, ecological sustainability do so may mean to go out of business. This becomes the key criteria in business important distinction brings us back to the key decisionmaking. role of governments in establishing the rules of the game, in particular the social and environ- Vision is one thing. Action is another. A key mental standards to which firms must adhere, challenge facing companies is how they can thereby also determining the fixed or overhead incorporate “corporate social responsibility” costs that all firms must incur. into daily operations and international management practices. We see at least four ways in A mature corporation is one that evaluates both which Canadian companies can become more its intended and unintended economic, social, socially and environmentally responsible. and environmental impacts. A responsible corporation seeks balance in its operations 1 REINTEGRATE ETHICS INTO BUSINESS because it recognizes its moral obligation to do CULTURE so. It also recognizes that such behaviour makes good business sense. Encouragingly, enlightened Ethics have always existed within the hallways of chief executive officers (CEOs) from around the business. But in the mainstream business culture, world are beginning to understand the limits of ethics have often been viewed as separate from short-term economic self-interest. As Noranda’s proper business practice. Many theorists (such Courtney Pratt explains: “Business is a critical as Chester Barnard and Milton Friedman) element of society. It inevitably has a great believed in a clear division between business impact on how society develops. It has a and society, between the actions of a person responsibility to play that role with high ethical acting on behalf of the corporation and the and moral standards, with consciousness and actions of that same person acting in private. with purpose.”26 In his or her private life, a business executive may indeed have social responsibilities, but these don’t usually intrude upon business life. TOWARD CORPORATE SOCIAL AND As Milton Friedman suggested, “If there are ENVIRONMENTAL RESPONSIBILITY social responsibilities, they are the social A recent study of a number of US firms that responsibilities of individuals, not of business.” 29 have consistently demonstrated social responsi- As early as the 1930s, the prevailing culture bility suggested some commonalities:27 demanded that corporate employees separate • Strong, progressive senior management. their personal ethics from their work.30 That is, This is a core attribute of a socially responsi- “every participant in an organization may be ble company. These corporate leaders consis- regarded as having a dual personality—an orga- tently demonstrate “moral imagination”— nizational personality and an individual the ability to perceive the moral relationships personality.”31 Business actions were “de-individ- behind competing economic relations.28 ualized” in the name of the corporation.32 • Catalysts for social change. Companies When people became “company men and assume this role by filling unmet social needs. women” their personal ethic (and personality) • Responsible corporate practices. These was minimized. In many cases, this attitude is actions lead to competitive advantage in the still pervasive in business and business educa- marketplace. tion. Hence, the old adage: “It’s a business decision, not a personal decision.”

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This corporate doctrine rationalized a sort of potential for “evil” or wrongdoing. Sunk costs schizophrenia, a corporate culture that has and a commitment to an existing course of separated employees and executives from their action, coupled with fragmented information personal ethics and rewarded the development and the diffusion of managerial responsibility, of dual personalities. In this milieu, corporations contribute to a business environment which can have tended to be governed by an “emergent negatively affect society and the environment.34 morality,” which can resemble a labyrinth of Such effects can be both intended and unin- “moral mazes.”33 By viewing the corporate actor tended. Combined with the fact that adverse as separate from the individuals who work for effects often seem abstract or intangible, while the corporation, a schism is perpetuated financial gains appear concrete, many seem- between business and personal ethics. Business ingly benign business situations have the actions are decoupled from the prevailing social potential to become harmful. system. Reintroducing personal ethics into business In such an environment, the unintended social may be a partial solution. But because ethics are and environmental side-effects of business activ- culturally determined, this may not be easy in a ity which are cumulative and dispersed (as with pluralistic society. On an international level, the global warming) or geographically distant (as in situation becomes even more complex. the developing world), become even harder to Different cultural norms govern behaviour in track—and easier to ignore. different ways. What seems right here, may not be right there. This creates a dilemma for John Darley of Princeton University argues that transnationals attempting to operate ethically. even the most ordinary corporations have the

BOX 5 CORPORATE EXECUTIVES NEED ETHICS TRAINING As KPMG Business Ethics and Integrity Services1 suggests, corporate executives need to be trained in ethical decisionmaking. Managers need to develop and utilize “moral imagination” alongside traditional business skills. Business ethicists2 recommend six key steps for corporations attempting to make moral business judgements: 1 Use moral imagination. Corporate executives need to develop the ability to effectively perceive the moral relationships behind competing economic relations. Role playing can be an effective means for developing more acute ethical perception. 2 Identify and order the moral factors of a situation. For executives to incorporate moral choices into business decisionmaking, they need to learn how to identify and then prioritize the moral impacts of a given decision. In many cases, decisions are not clear-cut and moral choices remain in a grey area. 3 Evaluate the moral choices. While difficult, moral choices often need to be made, whether operating at home or at the office. Increased transparency in moral evaluation can help executives effectively identify the trade-offs inherent in any situation. Clear corporate principles and processes help executives fully evaluate the moral outcomes of a decision. 4 Build tolerance of moral disagreements and ambiguity. In any moral choice, disagreements are bound to occur. There is usually no clear-cut “right” answer. In particular, decisions which cross international borders are bound to result in cultural criticisms. Executives should be trained to be tolerant of such disagreements and to expect ambiguities: corporate critics should not be seen as “enemies” who are “wrong.” Instead, tolerance and a desire for rapprochement should be instilled throughout the corporate culture. 5 Integrate managerial competence and moral competence. Moral issues in management are not an isolated phenomenon. Such issues permeate corporate life. Managers need to become as competent with moral management as they are with economic administration. 6 Instill a sense of moral obligation throughout the organization. Integrity and moral obligation are essential to management practice. These qualities can be consistent with the free enterprise system; corporate culture needs to recognize and embrace the coexistence of morals with profit.

N OTES 1 See KPMG website at http://usserve.us.kpmg.com/ethics 2 Charles W. Powers and David Vogel, Ethics in the Education of Business Managers (Hastings-on-Hudson, NY: The Hastings Center, 1980), pp. 40-45. Source: Archie B. Carroll, “In search of the moral manager.” Business Horizons, March-April, 1987, pp. 7-15.

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BOX 6 PRINCIPLES FOR GLOBAL CORPORATE RESPONSIBILITY: BENCHMARKS FOR MEASURING BUSINESS PERFORMANCE

Proposed by the Ecumenical Committee for Corporate Responsibility (ECCR), the Interfaith Center on Corporate Responsibility (ICCR), and the Taskforce on the Churches and Corporate Responsibility (TCCR)

This document, prepared by three ecumenical associations, begins by recalling that the churches, through their own investments, are often shareholders, and thus partially owners of companies. This obligation as owners requires that greater care be given, not only to the financial situation, but to the impact of the activities of companies on general well-being. The document successively examines the wider community in the broad sense, the national communities, and the enterprise. In each of these parts, it establishes principles on action, criteria to be adopted, and references to be used in assessing the performance of enterprises in the light of the previously defined criteria. This box refers to the section dealing with the action of enterprises vis-à-vis shareholders, employees and clients, suppliers, and subcontractors.

3. The enterprise providing the essential social tunity 2000” and the UN 3.3.P.4. There is a commitment 3.1 Shareholders infrastructure of child care, elder Declaration on Gender Equity. to fair trading practices. care and community services PRINCIPLES 3.2.B.5. A code for the employ- 3.3.P.5. The company accepts its which allows workers, especially ment of disabled persons at least responsibility to use its purchas- 3.1.P.1. The company’s corporate women who have traditionally as rigorous as the Code for the ing power to encourage good governance policies balance the done this work as unpaid labour, Employment of Disabled People corporate citizenship among its interests of managers, employ- to participate as employees (text produced in the United Kingdom. suppliers. ees, shareholders and other com- proposed by ICCR only). CRITERIA pany stakeholders. 3.2.B.6. The company respects CRITERIA the rights of its employees to 3.3.C.1. All advertisement and CRITERIA 3.2.C.1. No discrimination in its organize in trade unions or labeling of products is complete, 3.1.C.1. Ensuring shareholders’ policies of employment and other appropriate worker repre- fair and honest. Only claims participation and rights to infor- remuneration, whether by race, sentative bodies to monitor which can be substantiated and mation while protecting the age, sexual orientation, disability working conditions and does fulfilled are made by the compa- interests of other stakeholders. or religion. not engage replacement workers ny, its employees and its agent. 3.1.C.2. The company respects 3.2.C.2. Training, development, during a dispute. 3.3.C.2. Care is taken by the the right of shareholders to sub- promotion, and advancement 3.2.B.7. International Labour company not to denigrate or mit proposals for vote and to ask opportunities within the compa- Organization (ILO) Conventions supplant alternative natural questions at the annual meeting. ny are available to all employees. are complied with: No. 29 products. REFERENCES 3.2.C.3. All those who work (forced labour); No. 87 (freedom 3.3.C.3. No engagement by the 3.1.B.1. The company observes a within and on the company’s of association); No. 98 (right to company in cartels, spheres of code or codes of best practice or premises, whether permanent, engage in collective bargaining); influence, or patent protection to has drawn up its own compre- temporary or contractual, shall No. 100 (equal remuneration); the exclusion of others’ rights. No. 105 (abolition of forced hensive corporate code such as receive equal protection especial- 3.3.C.4. The company is scrupu- labour); No. 111 (prohibition of General Motors’ 28-point ly in provision of equipment lous in its negotiations and con- discrimination); No. 122 Guidelines for Corporate and information concerning tractual arrangements with other (employment policy); and Governance. The code that the their health and safety at work. companies. This includes fair No. 138 (minimum age). company observes must be at 3.2.C.4. Employees are free to dealing, prompt payment and the least as rigorous as the Cadbury establish and join workers’ orga- 3.2.B.8. The company shall have avoidance of corrupt practices, Code of Best Practice (UK). nizations without discrimination a process to establish a sustain- bribes and questionable payment. able wage, such as a market bas- 3.1.B.2. Shareholders are or interference and to engage 3.3.C.5. The company seeks out ket survey or some other informed about significant and freely in collective negotiations suppliers who meet the same appropriate method. material violations of corporate to regulate the terms and condi- standards on environmental and policies (including codes of con- tions of their employment. 3.2.B.9. Developing concrete social grounds as the company duct), adverse decisions by tri- 3.2.C.5. Paying a sustainable goals to provide women with sets for its own products. bunals or courts, and results of true and equal participation in wage to all employees. 3.3.C.6. The company will not internal audits or analyses of decision-making. 3.2.C.6. The company provides enter into contracts with suppli- corporate activity. equal pay for work of equal 3.2.B.10. Providing adequate ers who use any form of forced value, with goals and timelines technical training which con- or compulsory labour. 3.2 Employees tributes to advancement of all to implement this policy. BENCHMARKS PRINCIPLES employees, particularly women. 3.2.C.7. The company provides 3.3.B.1. The company receives 3.2.B.11. The company encour- 3.2.P.1. The company has a univer- social support to enhance positive evaluations from inde- ages or participates in the cre- sal standard governing its employ- women’s economic empower- pendent consumer organizations. ment practices and industrial rela- ment. This includes centres for ation of child-care centres and 3.3.B.2. Appropriate consumer tions. The standard includes gen- child care, elder care and the centres for the elderly or codes are followed (cf. Infant uine respect for employees’ rights care of persons with disabilities. disabled where appropriate. Formula marketing codes). to freedom of association, labour BENCHMARKS 3.3 Customers, suppliers organization, and free collective 3.3.B.3. Where either advertising 3.2.B.1. International Labour and contractors bargaining and is nondiscrimina- standards legislation or codes Organization (ILO) standards. tory in employment. PRINCIPLES exist, they are complied with and 3.2.B.2. The Convention on the this compliance is regularly dis- 3.2.P.2. The company values its 3.3.P.1. The company ensures Rights of the Child as it relates closed (see British Codes of employees and their contribu- that its products and services to labour practices. Advertising and Sales Promotion). tions in every sector of its meet customer requirements and operations. 3.2.B.3. The ECCR Wood/ product specification. Sheppard Principles on equal 3.2.P.3. The company pays ade- 3.3.P.2. The company is commit- opportunity of employment for quate wages to enable employ- ted to marketing practices which people from ethnic minorities or ees, especially women, to meet protect consumers and which an equally rigorous code. the basic needs of themselves ensure the safety of all products. and their families and to provide 3.2.B.4. An appropriate and rig- 3.3.P.3. The company will not discretionary income. orous code with regard to equal market its products to con- opportunity of employment for 3.2.P.4. The company recognizes sumers for whom they are not Source: TCCR, Toronto, women based around “Oppor- the need for supporting and/or appropriate. September 19, 1995.

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W EHAVENOSET Despite the complexity, Wharton University influence over the corporation. This approach to professor Tom Donaldson says that this is not stakeholder management does not represent ANSWERS TO ANY OF an excuse for either cultural relativism or social and environmental responsibility.40 35 THE DILEMMAS [...] cultural imperialism. He believes that all In the second instance, stakeholders are identi- businesses, whether at home or abroad, can H OWEVER, WE DO KNOW fied in the broadest terms possible “in order to follow three ethical principles: participate in a fair balancing of various claims THAT, WITH AN OPEN • Respect core human values (respect for and interests within the firm’s social system.”41

AND HONEST APPROACH, human dignity and basic rights, and good The system in question is a broad amalgam of citizenship); the communities, as well as the numerous A WILLINGNESS TO ecosystems in which the company operates or • Respect local traditions; and DISCUSS AND COMMUNI- has an impact. Unlike the firm-centred • Consider the context of the situation. approach, the company moves beyond its own CATE, WE CAN HELP TO interests, and recognizes that it shares social While these principles are exemplary, a more MOVE THE PUBLIC systems and the natural environment, which critical question is how can they be imple- become more equitably represented. The DISCUSSION FORWARD. mented? For instance, Donaldson’s final princi- Taskforce on the Churches and Corporate ple of considering the local context could be W E IN THE INTER- Responsibility (TCCR) adopted this approach in used as a loophole to justify a business decision its Principles for Global Corporate Responsibility NATIONAL BUSINESS that may seem inappropriate from an external (see Box 6), which attempt to remove the corpo- perspective. European management theorists COMMUNITY CERTAINLY ration from the centre of the stakeholder model. Ian Jones and Michael Pollitt argue that there (To our knowledge, no Canadian company has DO NOT SEEK IN ANY are at least three levels of integrity in business yet adopted these principles.) life: the personal, the corporate, and the macro- WAY TO DICTATE economic (or systemic). They acknowledge the If a company interacts with its stakeholders

ANSWERS TO ANY OF obvious: that personal and societal ethics funda- without clearly integrating business ethics, it is mentally interact with corporate ethics. 36 A likely to follow a public relations approach THESE PROBLEMS. reintegration of the personal and communal whereby it may say the right things but not

T HEY ARE SOCIAL AND into corporations is the first step to changing actually do them. If a company focuses solely business culture. But it is only one step. on business ethics, it may miss other important POLITICAL ISSUES stakeholder considerations because it is focused

WHICH REQUIRE A 2 ADOPT A SYSTEMS-CENTRED APPROACH TO primarily on its own stake. By combining ethi- STAKEHOLDER MANAGEMENT cal management with stakeholder assessment, a BROAD- BASED CONSEN- company can more easily approach a sustain- The term “stakeholder” has rapidly entered busi- SUS. WE ARE ACUTELY able system-centred approach to business. ness vocabulary. Many firms talk of “their”

AWARE OF THE NEED TO stakeholders and how corporate activities 3 ADOPT INTERNATIONAL CODES OF CONDUCT address their needs. R.E. Freeman first identi- PARTICIPATE IN AN fied a stakeholder in 1984 as “any group or indi- Historically, Canadian corporate codes focused

INFORMED AND RATIONAL vidual who can affect or is affected by the on issues of corruption and conflict of interest. achievement of the organization’s objectives.”37 Self-protection motivated the adoption of inter- INTERNATIONAL But a company’s use of stakeholder analysis national codes.42 The focus on legal and eco-

DISCUSSION OF THESE does not, in itself, constitute social or environ- nomic issues is unquestionably still important, mental responsibility. The firm’s motivation must particularly as Canadian businesses increasingly COMPLEX AND DIFFICULT be taken into account. operate abroad. Recently, for example,

CHALLENGES. Bombardier Inc. lost a $450-million contract in For example, stakeholder management can be Mexico, allegedly due to corruption, nepotism, firm-centred or system-centred.38 In the first COR HERKSTROTER, and political interference.43 As this case illus- instance, stakeholders are narrowly defined to CHAIRMAN OF THE COMMITTEE trates, ensuring a level playing field continues to reflect those groups that have “direct relevance to be a pressing issue for Canadian business. OF MANAGING DIRECTORS, the firm’s core economic interests.”39 A firm-centred ROYAL DUTCH/SHELL GROUP. approach is often no more than a refinement of Corruption remains such a major stumbling

ADDRESS TO THE the old corporate strategy of self-interest and is block of global commerce, in fact, that the more concerned with the bottom line and public OECD recently established the Convention on NETHERLANDS ASSOCIATION relations than with genuinely satisfying external Combating Bribery of Foreign Public Officials in FOR INTERNATIONAL AFFAIRS, stakeholder claims. Corporations that talk of International Business Transactions. The AMSTERDAM, their stakeholders in this way may be missing Convention rejects most forms of bribery any-

OCTOBER 11, 1996 key groups which do not have direct economic where in the world and provides transnationals

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(with head offices in OECD countries) with a indicator of corporate social responsibility. A UK legitimate reason for just saying “no.” It will study48 found no statistical evidence to suggest also strengthen anti-corruption movements in that corporate codes led to better performance. developing countries. Despite potential limita- Instead, it appeared that the “soft” stuff—the tions (such as the difficulty of effective process of education and decisionmaking that monitoring and follow-up, and the failure to accompanied the adoption and application of include all types of purchase of influence), corporate codes—was equally important. Thus, the Convention holds promise.44 while corporate codes can provide managers with direction and ethical guidance, they can also But corporations need to look beyond their help define an organization’s “core values.”49 own self-interest. Despite failed attempts to establish binding codes of conduct for transna- 4 BROADEN CORPORATE ACCOUNTABILITY tionals,45 the existence of the Convention provides an important precedent for other In the final analysis, corporate actions speak international codes. With the proper motiva- louder than vision statements. Unquestionably, tion, legally binding international codes of Canadian companies need to broaden their conduct that address social and environmental spheres of responsibility. But they also need to inequities are now possible. be socially and environmentally accountable for these actions and for their unintended In late 1997, a group of 13 Canadian compa- consequences. nies46 led by John McWilliams, Senior vice- president of Canadian Occidental Petroleum A number of mechanisms exist to increase Ltd., developed an “International Code of Canadian corporate accountability. First, com- Ethics for Canadian Business” (see Box 2). panies need to adopt international codes of con- Praised by politicians and business groups duct that specify an effective means of verifying (such as the Alliance of Manufacturers and performance. As Tachi Kiuchi, Member of the Exporters Canada), this code has also been Board of Mitsubishi Electric Corporation criticized for its voluntary nature and its lack of explains, “Humans have the best individual feed- accountability mechanisms. The code contains back systems anywhere in nature—our eyes, four general principles concerning the our ears, our minds. But our collective feedback community and environmental protection; systems—at the community and company human rights; business conduct; and employee level—are nowhere near as developed.”50 rights, health, and safety. A compelling vision, Independent monitoring of corporate codes is a the code does not provide direction for its useful way to gain objectivity and integrate application: its vagueness on how to monitor external perspectives. The US Council on and enforce its guidelines is its chief limitation. Economic Priorities (CEP) recommends a three- It is nevertheless the first step in a difficult stage corporate monitoring system.51 First, the journey. company itself monitors its activities, searching A 1996 survey47 of Canadian multinationals for both positive and negative impacts. Results showed that only 21 of 98 companies surveyed are then evaluated by a second party, such as an had international codes of conduct, although independent auditing firm. At the third stage, 22 companies reported that they applied more an independent group monitors and evaluates rigorous environmental and labour standards the process. Such third-party monitoring can than required by the local regulations. ensure that noncommercial interests and critical Overall, however, the survey suggested that, for perspectives are adequately presented. Such Canadian business, social responsibility and monitoring can, and should, take place on a human rights promotion were not a priority. local and global basis. In fact, only 14 percent of large Canadian trans- Environmental and sustainable development nationals had international codes that dealt reporting is a related mechanism of corporate specifically with human rights issues, 14 percent accountability. By systematically reporting the had guidelines for operating under repressive social and environmental costs of doing busi- regimes, few had adopted all of the OECD core ness, a company provides a more balanced labour rights, 14 percent included effective picture of its operations and long-term viability. mechanisms for accountability, and few Sustainable development reporting adopts a provided employees with ethics training. holistic approach which looks at the economy, The existence of such codes is not a sufficient the environment, and society as an integrated

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whole. Yet only a handful of Canadian compa- report Putting Conscience into Commerce: Strategies nies provide this type of noneconomic reporting for Making Human Rights Business as Usual, (see Box 7). This is a key area of opportunity for Craig Forcese recommends that Canadian cor- companies aiming to become more socially and porations undertake detailed human rights environmentally responsible. impact assessments prior to making decisions about international investment.52 Similar to an While essential, such reporting tends to occur economic assessment, a human rights assessment after the fact. Independent monitoring and sus- recognizes that corporate activity affects human tainable development reporting provide impor- rights internationally in a variety of ways. In tant information on the impacts of corporate addition, we recommend that companies under- behaviour. But it is equally important for corpo- take a broader assessment that includes social rations to integrate accountability into daily deci- and environmental considerations. sionmaking: corporate accountability should not only be an annual event. For example, in his Canadian companies such as engineering firm Acres International Ltd are already making important strides in this area. Acres has BOX 7 SUSTAINABLE DEVELOPMENT AND ENVIRONMENTAL REPORTING developed a methodology to assess social and IN CANADIAN COMPANIES (1997) environmental impacts of different courses of corporate action. It then includes these costs Company Name Industry Type of Reporting Developing Developing with economic and technical considerations Sector Country Opera- Country Opera- to determine the best—not simply the most tions with tions without SD/Environmental SD/Environmental economic—course of action (see Chapter 5). Reporting Reporting Finally, increased transparency in all business B.C. Hydro Power Environmental Review none China, Pakistan, activities and decisions will ultimately help Nepal, Colombia, ensure that corporations are more fully account- Brazil Ontario Hydro Power Sustainable Egypt, Perunone able for their actions. By recognizing the infor- Development Report mation rights of external stakeholders, a company Hydro-Québec Power Environmental Costa Rica, Haiti, none can build consensus among a variety of different Performance Report Colombia, India, constituents. Such broad-based consensus can Morocco, Laos, help secure long-term social and environmental Turkey, Vietnam, China sustainability within the market system. Manitoba Hydro Power Sustainable none Guatemala, Development Report El Salvador, Honduras, Nicaragua, Panama, COSTS AND BENEFITS Lesotho, Uganda, The market system brings both benefits and Jamaica, Brazil, Namibia costs to society. On the positive side, there is no Northern Telecom Telecom- Environment, Health China, Malaysia, none question that the spread of markets, through a Ltd (Nortel) munications and Safety Report Mexico, Puerto Rico, deepening of the division of labour, technologi- Thailand cal progress, and an enhancement of productiv- Dofasco Inc. Steel Environmental Reports na na ity, has led to higher living standards for much Placer Dome Inc. Mining Annual Report none Papua New Guinea, Philippines, Venezuela, of the world’s population. But many people Chile have not benefited or have been marginalized Noranda Inc. Mining Environmental, Health Chile, Zambia none by the advent of markets. And market actors and Safety Report have been blind to these social costs, as well as Rio Algom Ltd Mining Environmental Report Chile, Peru, Argentina to environmental costs. Inco Ltd Mining Annual Report none Indonesia Barrick Gold Corp. Mining Annual Report none Peru, Chile Like it or not, however, there is every reason to Falconbridge Ltd Mining Sustainable Dominican Republic, none expect that markets will continue to spread. Development Report Chile Among other things, the market system Notes: na=not available promises to play an important role in alleviating Sources: CMA, Accounting for Sustainable Development: A Business Perspective, Management Accounting Issues Paper 14 (Hamilton: The Society of Management Accountants of Canada, 1997); Blair W. Feltmate, the grinding poverty in which a substantial por- “Making sustainable development a corporate reality,” CMA Magazine, March 1997, pp. 9-16; and data tion of humanity still lives, and reducing mater- collection by the North-South Institute, 1998. The survey of corporations and their environmental or sustainable development reporting activities ial scarcity and deprivation for countless others. was conducted by Dr Blair Feltmate, President of Sustainable Systems Associates Ltd. While no single, universally accepted definition of sustainable development was applied across all industrial sectors, or As the market system developed around the even to each company within sectors, Feltmate defined sustainable development in such a way as to world, societies—to greater or lesser degrees— encompass the notions of environment, economy, and society as an integrated whole, and took into account the notion of the well-being of present and future generations. adopted measures (laws, regulations, and codes at

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BOX 8 MANAGERS’ ETHICAL CONCERNS In November 1996, the Toronto-based consulting company KPMG Canada carried out a Business Ethics Survey among 1,000 private and public Canadian companies ranging in size from less than $50 million in annual revenue to more than $5 billion. Chief executive officers provided more than half of the 251 responses, suggesting that ethics is a top priority for many companies. Two-thirds of respondents reported having a code of ethics—mainly large companies—and 40 percent had a senior manager responsible for the company’s ethics program. Only 21 percent claimed any kind of training in connection with their ethics program, however. Managers considered the following to be the 10 most and least important ethical issues.

The Top 10 The Bottom 10 1 Integrity of books and records 1 Membership on boards of other corporations 2 Worker health and safety 2 Business practices forbidden at home, 3 Security of internal communications permissible abroad 4 Quality and safety of products and services 3 Political activities 5 Receiving inappropriate gifts, favours, 4 Office-level environmental practices entertainment, and bribes 5 Foreign bribery or “grease” payments 6 Security and use of proprietary knowledge 6 Use of company time and intellectual property 7 Use of company name 7 Discrimination on the basis of sex, race, 8 Outside business or employment or religion 9 Employees’ rights with respect to 8 Privacy, confidentiality, appropriate use mandatory health testing of employee records 10 Protection of whistle-blowers 9 Sexual harassment 10 Reporting fraud or compliance failures

Source: 1997 KPMG Business Ethics Survey Report, Toronto, February 1997.

the national and subnational levels) to protect ties vis-à-vis the local environment. the economic welfare of individuals and commu- Undoubtedly, the best solution would be to nities and the integrity of the natural environ- create the necessary global framework so that ment against the intended or unintended actions international conventions on human rights are of firms and investors. Such measures have not in fact universally observed, and organizations always been adequate to the task, but there is such as the ILO have the requisite monitoring widespread consensus that any market system and enforcement capabilities. What is needed is must have a duly established and enforced legal an effective system of “global governance” to framework establishing “the rules of the game,” oversee the functioning of global markets and within which the precepts of social equity and ensure social and environmental responsibility. environmental responsibility must be observed.53 There is an important role for governments acting The globalization of markets has posed a dual multilaterally or alone. It is hoped that interna- challenge to social equity and environmental tional discussions will, over the next decade, move responsibility. First, as countries compete with in this direction. Indeed, the recently adopted each other for footloose investment and trading OECD Convention on bribery is a promising opportunities, globalization has sometimes indication that governments are getting serious undermined the framework of rules established about establishing a set of rules appropriate to the at national and subnational levels. Second, global marketplace. But while prohibiting bribery international charters and conventions, such as will increase profitability by reducing transactions the UN Declaration of Human Rights, and costs, the opposite may be true for other agreements, agencies such as the International Labour for example on child labour.55 It also remains to Organization (ILO) have not yet produced a set be seen how this and other conventions will be of “international rules of the game” that are monitored and enforced, because that is the litmus monitored and enforced evenly throughout the test of any framework of rules. world.54 This has presented investors and traders with a poorly defined, and in some cases In the meantime, corporations active in global almost nonexistent, legal or institutional frame- markets are themselves under increasing pres- work in which to resolve issues pertaining to the sure from various stakeholders—their own rights of workers and communities in which workers, the union movement, consumers, they operate, or to ascertain their responsibili- nongovernmental organizations, environmen-

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talists, ethical shareholders, churches, and so Some corporations have demonstrated their on. What unites these groups and individuals is belief that “good ethics make for good business” a conviction that corporations must go beyond by adopting codes of conduct, individually or the narrow objectives of short-term profit maxi- collectively. Most informed observers agree56 mization to accept social and environmental that such codes amount to statements of intent responsibilities that are not yet required by law more than policy that is systematically opera- in the jurisdictions in which they operate. tionalized, since they generally lack monitoring and enforcement provisions. Nonetheless, they There are, in fact, good reasons why such ethical are a step in the right direction. The next steps behaviour also makes good business sense, not require systematic provisions for implementa- necessarily in terms of quarterly profits, but of tion, monitoring, and enforcement. This, in the firm’s net worth, its resilience, and long- turn, might require new procedures, even term survival capabilities. There are also many institutions similar to financial auditing firms, straightforward commercial opportunities for capable of undertaking arms-length social and firms to provide innovative solutions to the environmental audits. challenges of sustainable development. Generally, however, a significant shift in the The challenge of corporate social responsibility prevailing business culture will be required to in global markets is here to stay. It is certain that convince firms of the commercial wisdom, as debate will intensify on what it means, and how well as the moral necessity, of adopting more to translate it into action. It is also clear that ethical and responsible policies. progress will require the engagement of the business community, governments, and civil society.

N OTES 1 WTO, Focus (Geneva: WTO, May 1996), No. 10. 15 See Samuel Brittan, “Economics and Ethics,” in Samuel Brittan 2 Craig Forcese, Putting Conscience into Commerce: Strategies for and Alan Hamlin, eds, Market Capitalism and Moral Values (Aldershot: Making Human Rights Business as Usual (Montreal: International Edward Elgar, 1995). Game theory, illustrated by the “prisoner’s Centre for Human Rights and Democratic Development, 1997); also dilemma,” suggests that a strategy of self-interest may lead to a third- by Forcese, Commerce with Conscience? Human Rights and Corporate best outcome compared to a strategy based on trust and cooperation. Codes of Conduct (Montreal: International Centre for Human Rights 16 Amartya Sen, On Ethics and Economics (Oxford: Basil Blackwell, and Democratic Development, 1997). 1989); and Sen, “Moral Codes and Economic Success,” in Brittan 3 John Dunning, “The advent of alliance capitalism,” in Dunning and and Hamlin, eds, Market Capitalism and Moral Values. See also Khalil A. Hamdani, eds, The New Globalism and Developing Countries Sunstein, Free Markets and Social Justice. (Tokyo, New York, Paris: United Nations University Press, 1997). 17 Amartya Sen, “Moral Codes and Economic Success,” in Brittan 4 World Bank, Global Development Finance, Analysis and Summary and Hamlin, 1995. Tables, Vol. 1, 1997, pp. 35-6. 18 Francis Fukuyama, Trust: The Social Virtues and the Creation of 5 United Nations, World Investment Report 1997: Transnational Prosperity (London: Penguin, 1996). Corporations, Market Structure, and Competition Policy (New York: 19 Herman E. Daly, Beyond Growth: The Economics of Sustainable United Nations, 1997), p. xv. Development (Boston: Beacon Press, 1997). 6 Ibid., pp. xv-xvi; xx. 20 Paul Hawken, The Ecology of Commerce: A Declaration of 7 Ibid., p. xvii. Sustainability (New York: Harperbusiness, 1994) and Growing a Business (Toronto: Collins, 1987). Also “Natural Capitalism: The 8 Dunning and Khalil, p. 29. Next Industrial Revolution,” an address to the National Round Table 9 See Gregory Baum, Karl Polanyi on Ethics and Economics (Montreal on the Environment and the Economy, Ottawa, March 21, 1995. and Kingston: McGill-Queen’s University Press, 1996); See also Hawken mentions several technological examples, such as a new Robert Heilbroner, Twenty-First Century Capitalism (Concord, Ont.: ink that makes de-inking of newsprint environmentally benign. Anansi, 1992), ch. 4, for a similar critique of the “market system.” (Many inks currently used are highly toxic so that de-inking solves 10 C.B. MacPherson, The Rise and Fall of Economic Justice, and Other the problem of preserving the newsprint but creates another.) Papers (Oxford and New York: Oxford University Press, 1985), pp. 1-20. 21 Courtney Pratt, Address to The Canadian Club of Toronto, 11 The Group of Lisbon, Limits to Competition (Cambridge and “Business Accountability: Shareholders, Stakeholders or Society?” London: MIT Press, 1995). September 29, 1997. 12 Smith’s doctrine of the “Invisible Hand” is captured by his asser- 22 Paul Shrivastava, CASTRATED environment: GREENING organi- tion that “It is not from the benevolence of the butcher, the brewer zation studies. Organization Studies, 1994, 15 (5), pp. 705-726. or the baker that we expect our dinner, but from their regard of 23 See Forcese, Putting Conscience into Commerce. their own advantage.” The doctrine holds that through the pursuit 24 S. M. Rao and Brooke Hamilton III, “The effect of published of self interest, the economy is guided as though by an invisible reports of unethical conduct on stock prices,” Journal of Business hand, to maximize wealth and prosperity. However, unlike some of Ethics, vol. 15 (2), 1996, pp. 1,321-330. his latter-day followers, Smith also recognized corporate power, 25 business collusion, and the role of the state as important. Robert H. Frank, “Can socially responsible firms survive in a competitive environment?”in David M. Messick and Ann E. Tenbrunsel, 13 Milton Friedman, “Social Responsibility of Business is to Increase eds, Codes of Conduct, Behavioral research into business ethics (New Its Profits,” The New York Times Magazine, September 13, 1970, pp. York: Russell Sage Foundation, 1996). 32-33. 26 Pratt, “Business Accountability,” September 29, 1997. 14 For example, Cass R. Sunstein, Free Markets and Social Justice (New 27 York and Oxford: Oxford University Press, 1997). See Steven D. Lydenberg,”Companies with a social vision: A review of Aiming Higher by David Bollier,”Business & Society Review, no. 97, 1996, pp. 75-76.

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28 See Charles W. Powers and David Vogel, Ethics in the education of 45 Earlier efforts to create international codes for transnational activi- business managers (Hastings-on-Hudson, NY: The Hastings Center, ties met with significant resistance among both the private and public 1980). sectors. As David Schilling and Ruth Rosenbaum of the Interfaith 29 Friedman, “Social Responsibility of Business,” p. 33. Center on Corporate Responsibility suggest, “early UN attempts to create a global code of conduct failed because individual governments 30 Chester Barnard, The Functions of the Executive (Cambridge, Mass: were not able to reach legislative assent to a ‘Code of Accountability Harvard University Press, 1938/1968). for Transnational Corporations’ and many companies opposed it.” See 31 Ibid., p. 88. David M. Schilling and Ruth Rosenbaum, “Principles for global corpo- 32 See Charles Perrow, Complex Organizations: a critical essay, rate responsibility,” Business & Society Review, no. 97, 1996, p. 55. 3rd edition. (New York: Random House, 1986). 46 They were: Alcan Aluminum Ltd; Beak International Inc.; 33 Robert Jackall, Moral Mazes: The World of Corporate Managers Cambior Inc.; Chauvco Resources Ltd; John Neville Inc.; Komex (New York: Oxford University Press, 1988). International Ltd; Liquid Gold Resources Inc.; Profco Resources Ltd; 34 John M. Darley, “How organizations socialize individuals into Pulsonic Corp.; Reid Crowther International Ltd; Sanduga & evildoing,” in Messick and Tenbrunsel, eds, Codes of Conduct. Associates; Shell Canada Ltd; and Wardrop Engineering Inc. 35 See Thomas Donaldson, “Values in tension: Ethics away from 47 See Forcese, Commerce with Conscience? home,” Harvard Business Review, September/October 1996, pp. 48-62. 48 L.V. Ryan, “Ethics Codes in British Companies,” Business Ethics, 36 Ian W. Jones and Michael G. Pollitt, “Economics, ethics and vol. 3 (1), Summer 1995, p. 55. integrity in business,” Journal of General Management, vol. 21 (3), 49 See Donaldson. 1996, pp. 30-47. 50 Tachi Kiuchi, Keynote Address to the World Future Society: 37 See R.E. Freeman, Strategic Management: A stakeholder approach “What I learned in the rainforest,” July 19, 1997. (Boston: Pitman Publishing Inc.,1984), p. 46. 51 Forcese, Putting Conscience into Commerce, p. 28. 38 Ronald K. Mitchell; Bradley R. Agle; and Donna J. Wood, 52 Ibid. “Toward a theory of stakeholder identification and salience: 53 For a recent review of the question of the interaction between Defining the principle of who and what really counts,” Academy of states and markets, see the North-South Institute, States, Emerging Management Review, vol. 22 (4), 1997, pp. 853-86. Markets and Development, Briefing Report, Ottawa, December 1997. 39 Ibid., p. 857, (italics in original). 54 It should be noted, for example, that the United States has never 40 Ibid. ratified the ILO’s labour standards. 41 Ibid., p. 859. 55 In any event, if it is properly done, combating child labour will 42 Maurice Lefebvre and Jang B. Sing, “The content and focus of require more than business codes. It would require parallel actions Canadian corporate codes of ethics,” Journal of Business Ethics, to ensure that the child workers’ families do not suffer a loss in vol. 11, 1992, pp. 799-802. income, and that educational opportunities are available in ways 43 See Laura Eggertson, “Chrétien seeks probe in Mexico,” The Globe that do not penalize children or their families. and Mail, Report on Business, September 29, 1997, pp. B1, B5. 56 For example, see Forcese, Putting Conscience into Commerce. 44 Transparency International, Press Release, “OECD Anti- Corruption Convention leaves critical questions still open,” November 5, 1997, Berlin.

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C HAPTER T WO

MAKING ECONOMIES SERVE PEOPLE

T HE F INANCIAL S ECTOR

Robert Walker and Marc de Sousa-Shields

R OBERT W ALKER IS THE E XECUTIVE D IRECTOR OF

THE S OCIAL I NVESTMENT O RGANIZATION. MARC

DE S OUSA-SHIELDS IS V ICE-PRESIDENT FOR L ATIN

A MERICA AND THE C ARIBBEAN FOR N EW V ENTURES

G ROUP, AND S ENIOR A DVISOR TO THE L ATIN

A MERICAN C ENTRE FOR E XCELLENCE IN C OMMUNITY

E CONOMICS AND THE E NVIRONMENT IN C UERNAVACA,

M EXICO.

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MAKING ECONOMIES SERVE PEOPLE

E THICS AND ECONOMICS or every complex and difficult question,” organization bears little resemblance to the H.L. Mencken wrote, “there is a simple working world we have known. ARE OFTEN REGARDED “F and easily understood answer. And it is wrong.” Third, the financial sector—and in particular AS OPPOSITES, BUT Much the same could be said of assessing the banks—often evoke emotional reactions from THEY ARE IN FACT social and environmental performance of many Canadians. Historically, in the world of Canadian corporations. While some observers commerce and industry, the financial sector has INEXTRICABLY draw clear and simple distinctions between enjoyed a deified status at the pinnacle of INTERTWINED. good and bad, ethical and unethical, others rec- power. Banks offer a safe haven for life savings ognize that conduct can vary widely not only and provide loan capital for major consumer JOHN DALLA COSTA, within industrial sectors, but also within com- purchases and worthy businesses; trust compa- panies. In addition, widespread consensus on nies provide sophisticated asset management for “MORAL CRISIS BEHIND ASIAN the range and nature of corporate obligations to the more fortunate; insurance companies pro- MESS,” THE GLOBE AND MAIL, society has yet to be reached. The question is vide for us in the event of property loss or per- complicated further when corporations operate sonal disaster; securities dealers allow the more MARCH 26, 1998 in developing countries, where cultural values adventurous among us to seek greater fortune in and social norms can differ substantially. the world of stocks and bonds. And new players, the mutual fund companies, allow an increasing The inherent complexity of evaluating the proportion of Canadians to play the market performance of Canada’s financial services with professional, but cost effective, portfolio industry, however, is especially challenging for management. that growing spectrum of individuals, groups, and organizations who care about the social and But we do not always look upon these deities as environmental performance of the private benevolent. Every business, for example, needs sector. Why? money. Banks will provide loans to this business rather than that one, deciding which will pros- First, the operations, products, and services of per and which will wither on the vine. The the financial sector are esoteric even at the best winners walk away satisfied (though perhaps of times. While most Canadians have little diffi- disgruntled by terms and conditions) and the culty understanding that forest products firms losers are outraged. Despite playing a critical cut down trees and that mining companies dig economic function, the financial sector is rocks out of the ground, few are familiar with loathed by many. the ins and outs of the London Interbank Offer Rate or the whys and wherefores of many new With these caveats in mind, how should financial products such as “puttable convertible Canadians assess the social and environmental bonds,” “synthetic convertible debt,” or impacts of our financial services companies in “variable cumulative preferred stock.” developing countries? Second, globalization and the advent of information technologies have affected the providers of A SSESSING THE F INANCIAL financial services, again perhaps more than any S ECTOR other sector. This is because the world of finance Any such practical assessment is limited by essentially involves trading bits of information three factors: a lack of information concerning embedded in prices. For transactions to occur, no Canadian corporate activity overseas; the lack of cargo is transported. No harbour facilities, no rail resources currently devoted to monitoring and cars, no trucks, no containers, no mills. No reporting on that activity; and domestic regula- customs officers. Little or nothing is physically tions with few provisions to enforce adequate warehoused outside of massive computer data- disclosure of business activity, both at home and bases. Boundaries, distance, and culture are all abroad. superfluous to earning profit by directing and facilitating the flow of capital around the world. To understand the current state of our capacity For most of us, this emerging form of economic to evaluate Canadian financial institutions, we

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begin by describing the sector in its domestic to be augmenting their capacity to inflict harm and global context. In doing so, we provide to society while maintaining the fundamentals some sense of the scope and scale of the of the system, people around the world are changes wrought by a range of forces now feeling powerless to advance progressive social having an impact on the industry. change or even preserve the gains of the past. We then turn to the question of how Canadians But we are not powerless in the face of these might assess the social and environmental phenomena. Individuals, organizations, performance of Canadian financial institutions institutions, and national governments can in developing countries. We suggest that an engage in a broad range of strategies to appropriate assessment of the financial services reconnect the financial economy with the sector must occur on two levels: at the level of productive economy and restore the financial the firm; and at the level of the global financial services sector as a critical and positive force in system. our economy and society. These two levels, of course, are linked. What is This is no simple task, however. Canadians are critical is that a range of forces—globalization, constantly barraged by the message that information technologies, deregulation, prolifer- globalization, continued environmental ation of new financial instruments—are funda- degradation, and technological displacement of mentally altering the industry and leading to a workers by corporations pursuing competitive situation in which the “financial economy” is advantage are forces not subject to the will of becoming increasingly distanced from the “pro- society or individuals. Within the context of a ductive economy”—the world of productive and debate framed in this way, discussion of the physical enterprise. In developing countries and public good is subsumed by a deference to private around the world, rapid changes in the financial sector interests and a set of historical forces services industry can mean that an increasing thought to be as ineluctable as the movement of proportion of the population does not receive tectonic plates. As a first step to reconnecting the the financial services it and a modern economy financial economy to the productive economy, need; that good businesses may go without ade- we as a society must reject this perspective and quate loan capital, or that suspect businesses reassert that economies exist to serve people. receive it; and that entire economies will con- In the context of the 1990s, this assertion may tinue to experience floods and droughts of capi- appear heroic or naive. We should note, however, tal with severe social and political implications. that post-Second World War leaders saw this claim What’s more, all this can happen without dam- as self-evident. The participants who gathered at age to the financial system as a whole. As expe- Bretton Woods, New Hampshire in 1944 believed rienced in the last half of 1997, systemic forces that revolutions in Russia and China, two world can bring about the liquidation of individual wars, and the Great Depression were the direct financial institutions in particular geographical result of a world in which workers had been left locations, while the system as a whole persists, unprotected from the vagaries of economics and fundamentally unchanged and with most trade. To avoid future social dislocation and war, institutional players unaffected. these leaders sought to design a system in which an active role for national governments was Thus, individual antipathy toward financial maintained to ensure that growth and equity institutions is augmented today by a sense of went hand in hand, and to ensure that helplessness concerning the flow of capital economies served the needs of people.2 across borders, and the capacity of society or governments to do anything about it when Though the Bretton Woods system may have those flows are thought to harbour negative failed on many accounts, its architects social and environmental impacts.1 In Canada, identified social dislocation and social the negotiation of the Multilateral Agreement sustainability as a fundamental problématique. on Investment (MAI), in particular, has led to As today’s leaders proceed with deregulation, the establishment of grassroots organizations trade enhancement, and financial liberalization ready to oppose its adoption by parliament. If agreements, we should be reminded: the system Canadians fear the loss of sovereignty over areas and its institutions will not prevail in this form that used to be a matter for national policy, peo- over the longer term should large segments of ple in developing countries are even more vul- our society conclude that they no longer nerable. And as the financial institutions appear operate in the public interest.

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T HE C ANADIAN F INANCIAL Historically, there has been tremendous conti- S ERVICES S ECTOR: nuity in the industry, particularly among the A DESCRIPTION chartered banks. The five largest banks in 1997—the Bank of Montreal, Royal Bank of THE DOMESTIC STRUCTURE Canada, the Bank of Nova Scotia (Scotiabank), Canadian Imperial Bank of Commerce (CIBC), For many years, the Canadian financial services and the Toronto-Dominion Bank—were also the sector has enjoyed a smooth operating environ- five largest in 1901.5 ment. Heavily regulated, cocooned by high barriers to entry, protected as government- THE FOUR PILLARS sanctioned providers of essential economic services, and respected by many as critical to Bank failures during the Great Depression the functioning of a modern society, much of prompted the federal government to regulate Canada’s financial services industry has been financial institutions more heavily by segregat- operating profitably since the mid-19th century.3 ing the industry into four areas of activity, with little overlap in products and services permitted. Banks in particular have long been regarded as The four “pillars” of the financial services sector critical to the economy. Since the Great historically include: Depression, governments have believed that these major players cannot be permitted to fail. • chartered banks which accept short-term The Canadian Deposit Insurance Corporation deposits and provide personal and business (CDIC) and the assurance that governments loans; would step in to support troubled institutions in • securities companies which transact purchases order to avoid the spectre of bank runs and sys- and sales of secondary equities and under- temic failure have long underpinned the industry write new stock issues; to an extent not enjoyed by any other sector.4 • trust companies which manage estates and trust funds, although they have some ability This has fundamentally shaped the industry’s to accept short-term deposits and provide structure. For instance, because entry has been mortgage financing; limited by government, the Canadian financial • insurance companies which sell insurance. services industry is highly concentrated. Only 22 financial services firms are listed on the Mutual fund companies are relatively new Toronto Stock Exchange 300, an index of entrants in the financial services sector. Mutual Canada’s largest and most actively traded com- funds provide professional management of a panies: six banks, nine investment and mutual diversified portfolio of holdings actively fund companies; three insurance companies; invested on the behalf of unit holders. Although and four financial management companies. their roots go back to the 1930s, mutual funds are a 1990s phenomenon. A combination of a protracted bull market, “baby boomers” with money to invest, and low inflation has led to BOX 1 THE TSE 300 AND THE unprecedented growth for mutual fund compa- FINANCIAL SECTOR (as of July 1997) nies. In 1987, 50 such companies controlled Banks and Trusts Midland Walwyn approximately $20 billion in assets. In 1997, Bank of Montreal Capital Inc. about 150 fund companies managed some Bank of Nova Scotia Sceptre Investment $260 billion in assets and offered the Canadian Counsel Ltd Canadian Imperial Bank public more than 1,200 funds.6 of Commerce Trimark Financial Corp. National Bank of Canada Insurance Companies Royal Bank of Canada DEREGULATION E-L Financial Corp. Ltd Toronto-Dominion Bank Fairfax Financial The deregulation of the financial sector began Holdings Ltd Investment Companies in 1980 when the government revised the Bank Great-West Lifeco Inc. and Funds Act to allow foreign banks to establish sub- AGF Management Ltd Financial Management sidiaries (Schedule II banks) in Canada. Because Dundee Bancorp Inc. Companies limits were retained on asset growth and on the Fahnestock Viner Newcourt Credit Group Inc. right to establish branches, foreign banks oper- Holdings Inc. Power Financial Corp. ating in Canada primarily loaned to business, First Marathon Inc. Edper Group Ltd Investors Group Inc. Trilon Financial Corp. drawing on asset bases established elsewhere. Mackenzie Financial Corp.

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A second round of deregulation in 1987 relaxed As globalization continues and trade and limitations on domestic ownership and financial investment restrictions fall, Canadian financial institutions were permitted to provide a full range institutions—and in particular the banks—are of financial services. This assault on the tradi- deriving an increasing proportion of their tional four pillars is often referred to as “the little income outside of Canada.13 With the growing bang,” in reference to the “big bang” deregulation threat of increased competition both at home that took place in England that same year. and abroad, Canadian financial institutions are looking to augment their asset bases and market Canada’s major banks have been winners under positioning to enable them to compete interna- deregulation. In the wake of the little bang, each tionally. And to grow assets internationally, has acquired and/or developed a securities arm. industry analysts agree, Canadian financial The Bank of Montreal bought Nesbitt Burns Inc.; institutions must first establish a major presence the Royal Bank took on RBC Dominion Securities in American capital markets. Inc.; Scotiabank operates Scotia MacLeod Inc.; and CIBC acquired Wood Gundy Securities Inc. CIBC has perhaps been the most aggressive in The Toronto-Dominion Bank established an this regard. Operating through Wood Gundy it in-house securities operation and has focused on has acquired the Argosy Group Inc., a New York the discount brokerage business. Only three secu- investment banking firm specializing in the high rities dealers—First Marathon Securities, Gordon yield debt market. CIBC has also bought Capital, and Midland Walwyn—remain as major Oppenheimer & Co. Inc., a Wall Street brokerage independents. The banks have also bought up house respected for the quality of its US equity most of Canada’s trust companies. (As of writing, research.14 The Bank of Montreal operates in the Canada Trust is the only major Canadian trust to United States primarily in the Chicago area remain independent).7 through Harris Bankcorp Inc., its wholly owned subsidiary. Toronto-Dominion has recently Insurance companies represent the final fron- acquired Waterhouse Investor Service, the third tier, and many industry analysts anticipate that largest discount broker in North America. The banks will begin acquiring the more lucrative Royal Bank’s attempt to purchase the London prospects as deregulation continues.8 Mergers, Life Insurance Company in 1997 may signal an acquisitions, and consolidation among the attempt to model itself after England’s Lloyd TSB banks will result in major changes and greater Group PLC, specializing in both banking and corporate concentration as the major players insurance.15 call for continued deregulation and policymakers remain predisposed to oblige.9 In fact, in January 1998, the Royal Bank and the Bank of A PRESENCE IN THE DEVELOPING WORLD Montreal announced plans to merge. Though small, most Canadian banks have long maintained some measure of physical presence THE GLOBAL CONTEXT in many developing countries. In several cases this has amounted to providing offshore The major banks rank among Canada’s largest services to clients seeking shelter in tax havens corporations in terms of revenues, assets, and such as Bermuda, and throughout the profitability. Historically, they have also compared Caribbean.16 With globalization, however, favourably to North American banks overall, with Canadian financial institutions—along with Royal Bank, CIBC, Bank of Montreal, and much of corporate Canada—are making adven- Scotiabank all ranking in the top 10 in 1991.10 turous forays into the volatile but rapidly On a world scale, Canada’s financial sector is growing emerging markets of the Third World. tiny. Canada’s largest stock market, the Toronto Some are more adventurous than others. CIBC’s Stock Exchange, is considered to be of a lower strategy, for example, is to become an interna- order than the major centres in New York, tional leader in underwriting and syndicated Tokyo, and London.11 Canada’s largest bank, the project finance. Within the context of the Royal Bank, with assets of US$157 billion developing world, CIBC has made forays into ranked number 50 in the world in 1997. The the private power industry in Taiwan through Bank of Tokyo-Mitsubishi Ltd ranked first with its investment banking arm.17 assets of US$648 billion.12 (Recently, however, problems in Japan’s financial sector give Billing itself as the “first NAFTA bank,” the Bank evidence to an overvaluation of its banks.) of Montreal has acquired a 16 percent equity position in Grupo Financiero Bancomer, a leading

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MONEY LAUNDERING Mexican retail financial institution, to provide E VALUATING P ERFORMANCE customers with a full range of services including W HILE PROVIDING OFF- commercial, corporate, and private banking; bro- CHECKS AND BALANCES ON CORPORATE kerage, leasing, and factoring services; and foreign PERFORMANCE SHORE BANKING SER- exchange trading and warehousing.18 Ongoing efforts to assess the social and environ- VICES FOR CLIENTS, The Bank of Montreal is also one of only eight mental performance of Canadian corporations FINANCIAL INSTITU- foreign banks permitted to conduct business in date back to the mid-1970s and have been Beijing. Although not allowed to conduct busi- conducted consistently by the various groups, TIONS TAKE GREAT ness in Chinese currency, the new branch can organizations, and investment professionals PAINS TO AVOID MONEY accept foreign currency deposits, make foreign that compose the social investment movement. currency loans, discount bills, and make invest- LAUNDERING: THE Social investment can be defined as the integra- ments. While most Canadian banks have been tion of social, ethical, and environmental values PROCESS OF CONCEAL- able to provide referral services through “repre- into the investment decisionmaking process. sentative banks” in China for several years, the ING THE NATURE, In general, social investors can pursue three Bank of Montreal now has a significant advan- strategies to perform this integration: screened SOURCE, OR LOCATION tage over its rivals in the world’s largest investment portfolios; shareholder action; and potential market.19 OF CRIMINAL PROCEEDS. alternative investments in credit unions, Scotiabank, however, has historically been the cooperatives, and community loan funds. All are E XPERTS ESTIMATE most aggressive Canadian financial institution designed to advance social and environmental GLOBAL MONEY LAUN- internationally, with ties to the Caribbean that progress through investment capital and go back more than a century. The only socially responsible businesses. DERING TO INVOLVE AS Canadian bank with extensive consumer bank- The social investment movement is rooted in MUCH AS US$300 BIL- ing operations abroad, it operates in nearly 50 the churches, anti-war protests, and early envi- countries. It is expanding aggressively in Asia LION ANNUALLY. THE ronmental groups. Its modern origins in the and recently established an office in Hanoi, the United States can be pinpointed to an eight- INFLUENCE WIELDED BY first Canadian bank in Vietnam. With branches month period between 1969 and 1970 during in Malaysia, Thailand, and China, and as the CRIMINAL ORGANIZA- which the US invasion of Cambodia prompted only Canadian bank operating in India, it is many Americans to reconsider their holdings in TIONS CONTROLLING currently exploring opportunities in Pakistan, companies producing weapons for the war in Bangladesh, and Sri Lanka. THIS WEALTH HAS LED Southeast Asia; the inaugural Earth Day put Scotiabank planned to spend $200 million in corporate environmental performance under SOME WORLD LEADERS 1997 to extend and deepen its South American the microscope; and Ralph Nader’s campaign TO DEEM MONEY LAUN- network through acquisition and investment. It against General Motors gave rise to the first now owns 16 percent of Grupo Financiero effective shareholder action focusing on product DERING A GEOPOLITICAL Inverlat, a Mexican financial company that con- safety and hiring practices.22 PROBLEM WHICH, IF trols Mexico’s second and fourth largest banks. In Canada, initial issues for social investors were It also has a 25 percent interest in Banco LEFT UNCHECKED, apartheid in the Republic of South Africa and Quilmes, Argentina’s seventh-largest private human rights violations in Chile and Brazil. THREATENS THE POLITI- bank and a 29 percent interest in Chile’s Banco Canadian churches have been at the forefront. Sud Americano.20 CAL AND SOCIAL FABRIC In 1975, a coalition of church-based organiza- Canada’s mutual fund industry has also estab- tions established the Taskforce on the Churches OF FRAGILE DEMOCRA- lished a presence in developing countries by and Corporate Responsibility (TCCR) to facilitate CIES AND DEMOCRATIC developing and marketing emerging market shareholder action on these and other issues, mutual funds. There are now 48 such funds in such as the environmental impact of forest INSTITUTIONS. Canada with assets of $4.3 billion: most are products and mining companies, relations with exceedingly new, dating only from the early Aboriginal people, and bank lending practices.23 Source: Charles A. Intriago, 1990s. Investors and fund managers regard “Money Laundering Controls in Offshore Banking Clients,” emerging market funds as potentially lucrative SOCIAL AND ENVIRONMENTAL SCREENS: Offshore Finance Canada, but highly volatile and therefore of limited inter- AROMETERS OF ERFORMANCE May/June 1997. See also B P “Money Laundering: That est to most mutual fund investors seeking stable, To assess the performance of Canadian corpora- Infernal Laundering Machine,” predictable returns. The foreign property rule The Economist, July 26, 1997. tions and establish socially responsible invest- limiting investors to a maximum 20 percent of ment portfolios, the social investment tax-sheltered savings in foreign securities also movement developed a number of criteria and hampers the growth of emerging market funds.21 performance benchmarks. Much of this is now

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embedded in investment “screens” established This may surprise some observers. It shouldn’t. by market demand, research companies, non- Canada’s major banks are often found in the profit groups, environmental organizations, and portfolios of many social investors, including social development groups. the portfolios of socially screened mutual funds. Canada’s banks have a relatively good history of There are two types of screens. Negative or progressive employment equity policies and exclusionary screens define social criteria which, generous community donations programs, even if not satisfied, eliminate companies from an though they draw the ire of Canadians unhappy investment portfolio. The best known screen with their lending practices, high service would be that which was applied against charges, large profit margins, outsized executive companies with operations or significant salaries, and cozy corporate governance regimes. holdings in South Africa under apartheid. As a white collar industry, banks find it rela- Positive or qualitative screens define social tively easy to comply with environmental regu- criteria which can be applied on a sliding scale. lations. And bank performance overseas has not While some companies may be excluded recently been targeted by the social investment because of an established pattern of non- movement as a cause for concern.25 compliance with environmental regulations, for Two research problems today confront the social example, others will be included in a portfolio investment industry and the use of social because their performance, while perhaps far screens to evaluate overseas performance. The from perfect, is better than that of its industry first is how we assess the full social and environ- peers. Such qualitative assessments can be mental impact of financial institutions. If banks highly nuanced and allow investors to establish do not themselves pollute, are they lending to a diversified portfolio by investing in companies corporations that do? How can we fully evaluate from a wide range of industries. This “best of the downstream impacts of the lending policies sector” approach represents a frank acknowledge- of Canadian banks and investment houses? ment of the gritty reality of the Canadian economy and, ideally, is accompanied by active The second problem concerns the difficulties shareholdership to influence corporate directors associated with researching the performance of and management in positive directions. Canadian financial institutions overseas. The demands being placed on a small network of researchers and nonprofit groups tracking the BOX 2 SOCIAL INVESTMENT SCREENS performance of Canadian corporations abroad The screens employed by Michael Jantzi are onerous to say the least. For-profit compa- Research Associates Inc. are made up of 90 nies will take up this challenge on a case-by-case indicators of corporate social and environ- basis in response to requests for information mental performance in 10 different issue areas. from investors and media coverage of particularly lurid or interesting international stories. • Negative or exclusionary screens include: military production; nuclear power; and But no comprehensive assessment of an entire operations in countries with intolerable industrial sector will be possible without a human rights records. significant increase in resources from the private • Positive or qualitative screens include: sector, foundations, or government.26 community relations; diversity; employee relations; environment; international performance; products C ANADIAN F INANCIAL and corporate practices; and corporate I NSTITUTIONS AND THE governance. G LOBAL F INANCIAL S YSTEM Although small, Canadian financial institutions ASSESSING CANADA’S FINANCIAL SECTOR do participate in the global financial system, and it is at the level of the system that the A May 1997 review of corporate social responsi- potential to inflict negative social and environ- bility by the Toronto-based Social Investment mental impacts on developing countries may be Organization listed six banks and one mutual greatest. In addition, the system’s capacity to fund company as leaders in Canadian corporate inflict harm is growing. social responsibility: Bank of Montreal; CIBC; Investors Group; National Bank of Canada; Many would argue, of course, that the financial Royal Bank of Canada; Scotiabank; and the services industry has never served developing Toronto-Dominion Bank.24 countries terribly well. The Latin American debt

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crisis of the 1980s and subsequent adjustment institution, risks were of course minimized: programs is just one instance when financial lenders could not afford to be wrong very often. institutions benefited at the expense of Risks were minimized in two ways. The first, developing countries. broadly acknowledged, was through collateral In the past, however, the threat of default on requirements. The second, often ignored, was loan payments emanating from capitals in through the establishment of long-term rela- Mexico, Brazil, or Argentina at least gave the tionships between lenders and borrowers; the financial sector pause. The fate of Southern acquisition of deep expertise in specific indus- economies was tied, not only to specific lending tries; and a capacity to assess the quality of a institutions, but to the global financial system management team—providing guidance and as a whole. Developing countries, at least poten- support where necessary. In many ways, bankers tially, could have prompted a systems collapse. were the first management consultants and few No longer. Today, while individual financial ever wanted to call a loan: to do so was to admit institutions may suffer, the financial sector as a failure, that the lending officer had misjudged whole can engage in reckless lending, corrup- the company. tion, and harbour woefully inadequate internal controls—as in the case of the savings and loan THE NEW APPROACH scandal in the US, the collapse of Barings Investment Bank, and the devastation of The new financial sector will be essentially Crédit Lyonnais—and flourish, the system left unregulated. It will be global rather than local. in place, fundamentally unchanged. It will be stock and bond market-oriented, as Canada and Europe follow the American model Worse, it can flood Southern economies with of corporate finance in which capital tends to be capital one day, withdrawing it the next. raised through the stock market. It will create Domestic economies can be left devastated—as distance between financial institutions and bor- in the case of Mexico in 1995—while Northern rowers as critical functions become increasingly financial institutions never step off the road to automated through sophisticated computer pro- prosperity.27 grams and lending checklists. Future small busi- For many observers this is the mark of a sector ness lending, at least, will take place over the that, in many ways, is evolving into an telephone and the internet. autonomous, self-contained economy—the This system will be oriented toward the elimina- economy of the financial sector—divorced from tion of firm-specific risk. Financial institutions the productive economy in which people make can do this for a number of reasons including things, provide services, and require the basic the proliferation of liquid securities markets financial services critical to the functioning of a around the globe; by developing a sophisticated modern economy. capacity to use derivatives and other financial What is happening? Globalization. Information instruments to hedge bets; and by establishing and communication technologies have elimi- the assembly of assets as a profit centre (through nated distance and borders, leading to a prolifer- a variety of trading activities), rather than a cost ation of new products and services and centre (as was the case when banks had to accu- fundamental changes in business organization mulate assets primarily by paying interest on and techniques, while hastening the transfor- savings accounts held by individual mation of domestic economies. The financial depositors).28 sector has perhaps been transformed more than To further understand the evolving financial any other. sector, it is useful to look at financial markets and instruments a little more closely and in THE OLD WAYS historical context. In the past, the financial sector was heavily regulated, bank-centred, typically localized with NEW WINE, OLD BOTTLES commercial lending operations run out of bank In many ways, there is little that is new about branches. Its essential economic and social func- stock markets or the global reach of capital. tions were clear. Among the more critical was to Stock markets were established in the 17th cen- deliver capital to the economy’s most produc- tury as Dutch and English East India companies tive and efficient enterprises. To sustain the issued shares to the public to finance imperial

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FOREIGN EXCHANGE MARKETS BOX 3 WHAT ISADERIVATIVE? In the past, foreign exchange was an intermedi- Derivatives are a broad class of securities whose prices are derived from the prices of ate process. A multinational corporation would other securities. Though there are more take profits in German marks, for example, and than 1,000 different variations, derivatives convert them to American dollars to purchase basically come in two forms: options and equipment from a John Deere manufacturing futures (traded on regulated exchanges); plant in Ohio. An investor would liquidate a US THE TOBIN TAX and forwards, swaps, collars, swaptions, and literally hundreds of other custom-made treasury bill and convert it to Japanese yen to instruments (mostly traded “over the purchase shares in companies listed on the I N AN EFFORT TO counter”). Tokyo stock market. RESTRICT SHORT- TERM The basics of derivatives are usually Today, foreign exchange has become an asset explained by reference to an ancient Greek SPECULATION, REDUCE named Thales of Miletus. Ridiculed for his class in itself, separated from any other under- poverty, Thales set out to prove he was poor lying stock or bond. The foreign exchange VOLATILITY, AND by choice, not by necessity. An astute market is primarily about trading in money INCREASE GOVERNMENT observer of the stars and weather patterns, rather than monetary claims on real assets. In he forecast a bumper crop of olives one an April 1992 survey, it was found that, on REVENUE, NOBEL P RIZE- year. Before the fruit began to ripen, he cir- average, US$880 billion changed hands daily, an culated among the owners of olive presses WINNING ECONOMIST and paid them a small fee for the right to amount equal to approximately one week of rent their presses during harvest, but only in America’s GDP, and one month’s worth of J AMES T OBIN PROPOSED the event that he needed them. Thales paid global production. Only 12 percent of the trans- INSTITUTING A TAX OF only a fraction of the actual cost of rental. actions involved productive world customers: And the rental rate negotiated was low. The press owners were glad to take the cash, not 75 percent of daily turnover was in transactions BETWEEN 0.1 PERCENT willing to risk what would happen in the solely between foreign exchange traders. AND 0.25 PERCENT ON event of a crop failure. In 1996, the International Monetary Fund (IMF) When the harvest came in, Thales rented estimated daily currency trading averaged ALL FOREIGN EXCHANGE the presses and charged the olive growers US$1.3 trillion.30 what he pleased, because he controlled all TRANSACTIONS. THE the means for producing olive oil. Of course, DERIVATIVES PROPOSAL HAS BEEN had the crop failed, Thales possessed the right not to rent: all he would have lost The use of derivative instruments is often justi- CRITICIZED AS DIFFICULT would have been the one-time payment for fied by citing their use by agricultural producers the right to rent. Thales had invented the TO ENFORCE AND LIKELY “option.” as futures and options to purchase a form of insurance in the event of crop failure. Leaving TO INCREASE THE COST Source: Gregory J. Millman, The Vandal’s Crown: How Rebel Currency Traders Overthrew the World’s Central Banks (New York: aside the distinction between derivatives such as OF CAPITAL BY The Free Press, 1995). futures and options traded in organized and regulated exchanges and the proliferation of exotic DISCOURAGING “ GOOD” instruments traded over the counter (OTC), CAPITAL FLOWS ( E . G ., enterprises. In return, investors were granted a it is important to note that about 70 percent of share of profits in the form of dividends. Since trading in derivatives is in financial futures TO FINANCE TRADE) AS investors did not want to wed themselves irrev- (e.g., interest rate futures). Only 15 percent WELL AS “ BAD” ONES. ocably to the company, share certificates were involves trading derivatives with agriculture made freely transferable, thus transforming a produce as the underlying asset. stream of future dividends into an easily FOR A COMPREHENSIVE REVIEW OTC derivatives trading took off in the 1980s tradable capital asset. OF THE PROS AND CONS OF THE and 1990s. In 1986 the notional principal in What is new is the scale and scope of financial interest rate swaps was US$400 billion with TOBIN TAX, SEE JANE INCH, markets, the proliferation of exotic financial another US$100 billion in currency swaps out- “CONTROL OPTIONS FOR instruments, and the extent to which much of standing. By the end of 1993, notional principal the activity of the financial sector is performed on interest rate swaps totaled US$6.2 trillion INTERNATIONAL CURRENCY not to finance production, but to earn specula- and currency swaps US$1.8 trillion. By March SPECULATION,” PAPER tive returns. Indeed, some industry observers 1995, the notional value of outstanding OTC allege that banks may now be trading as much derivates was US$47.5 trillion. There was a fur- PREPARED FOR THE HALIFAX for their own account as for the benefit of their ther US$17 trillion in derivatives traded in stock 29 INITIATIVE COALITION, clients. The institutions and instruments that and mercantile exchanges. In aggregate, the allow them to do so are now entrenched in the global derivatives market is now twice as large DECEMBER 1996. global financial system. They include: as world output and much larger than the stock

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of fixed income-securities in member countries exchanges in these countries. Over the past 20 of the Organisation for Economic Co-operation years, Mexico, more than any other country, has and Development (OECD— US$24 trillion). learned that the impacts of such flows can be Even the replacement value of OTC derivative devastating. positions at US$2.4 trillion is three times as large as the capital of the world’s 75 largest banks.31 THE IMPLICATIONS OF INCREASED GLOBAL LIQUIDITY: FINANCIAL CRISES IN MEXICO BONDS AND TREASURY BILLS Succeeding financial crises in Mexico can be Government bonds and treasury bills represent traced back to the establishment of the loans that can be easily traded on the market. Eurodollar market in the 1970s, when massive They are a pledge on the part of government volumes of American dollars were deposited (or increasingly, corporations) to pay a future (primarily by OPEC countries recycling stream of interest payments and the return of “petrodollars”) in European (primarily London) the principal at the bond’s maturity. From a banks. As the decade progressed, other curren- portfolio manager’s perspective, these instru- cies joined the dollar, the market spread to ments offer a virtually risk-free investment other financial centres, and American banks opportunity, requiring little or no credit analy- moved offshore to join the fray. But the sis, beyond taking note of credit ratings pro- Eurodollar market remained outside domestic vided by Moody’s or other rating services. monetary systems and the control of national The explosion of debt in the 1980s vastly monetary authorities. increased bond traders’ power to demand As depositors became willing to hold dollars in austere fiscal and monetary policies of govern- European accounts, banks began to put this ments around the world. Under our current money to work by extending loans to developing financial system, “the higher a government’s countries pursuing a strategy of indebted indus- debt, the more it must please its bankers.”32 trialization. With this investment opportunity— Historically, the credit market—which includes and recession in many countries of the North— loans arranged through a variety of instruments international commercial banks assumed and institutions, from bank loans to complex responsibility for recycling Eurodollars to the bond products—has represented the heart of the South. financial system, far outstripping the stock mar- Mexico was among the prime recipients of these ket in terms of trading activity. This too is loans. And it soon became the most desperate changing. The Government of Canada’s July and persistent example of the problem of inter- 1997 announcement that, as a result of deficit national indebtedness. Three times in less than reduction, it need no longer offer new debt two decades Mexico has found itself issues, has created some consternation on Bay sliding toward national insolvency. Street. As fund managers move from safe treasury bills and government bonds to corporate BAILING OUT THE 1982 MEXICAN DEBT CRISIS debt and commercial paper, Canadians looking for secure pensions will need to be apprised of The first Mexican debt crisis occurred in 1982. It reduced liquidity and increased risks associated would be difficult to overstate its impact on the with equity-based investment opportunities. In international financial system and financial this sense, at least, there is an additional down- institutions. Two points are salient here. side to debt-reduction, beyond that of reduced First, the 1982 crisis and succeeding crises later public services.33 that decade led to the creation of new financial instruments for dealing with developing coun- FINANCIAL MARKETS IN DEVELOPING COUNTRIES try indebtedness. The establishment of Brady Stock exchanges are now proliferating in bonds in 1989 allowed the world’s largest inter- Malaysia, Chile, Taiwan, Thailand, the national banks to convert approximately US$40 Philippines, Korea, India, Mexico, Brazil, billion in Mexican government debt to 30-year Indonesia, Argentina, and China. These account bonds, much of it with guaranteed rates of for just 13 percent of world stock market capital- return. ization and are dwarfed by markets in London Second, the 1982 bailout, engineered primarily and New York.34 Investors in the North now by the US government, established a creditor have the capacity to buy up and desert stock strategy that has guided subsequent rescue pack-

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ages imposed on debtor nations around the Michel Camdessus, the Managing Director of globe. The strategy typically includes a combi- the IMF, who called it “the first crisis of the nation of banks, governments, and interna- twenty-first century.”39 tional organizations acting as lenders of last The social impacts of the crisis are also clear. In resort, providing liquidity to the debtor while 1995, per capita income in Mexico dropped negotiating the rescheduling of debt repayment; 8.5 percent. Nearly 1 million jobs were lost. a severe adjustment or austerity program Mexico swung from 4.4 percent growth in real imposed upon the debtor; and assigning pri- GDP in 1994 to a 6.2 percent contraction in mary responsibility for enforcing adjustment 1995. As the price of imports increased, inflation and certifying eligibility for financial assistance became rampant, and real purchasing power to the IMF. Although the details of the packages decreased by nearly 30 percent. By September vary and continue to evolve, the primary under- 1995 the minimum wage was sufficient to pur- lying principle of the strategy remains the same: chase only one-third of the basic food basket.40 the fault—and therefore the major task in resolving the debt problem—rests with the DOMESTIC POLICY OPTIONS? debtors, not the creditors.35 In the end, the Mexican government felt it had THE 1995 MEXICAN PESO CRISIS little or no capacity to deter the flight of capital. As the upward pressure on the peso began to This premise is highly contentious. The peso’s erode export competitiveness, the government collapse in December 1994 and the subsequent could have intervened to contain currency flight of capital through much of 1995 suggest appreciation by lowering interest rates. But this that something is wrong with the fundamentals would have added to already flourishing infla- of global finance and the social efficacy of the tionary pressures. An intervention to sterilize IMF program.36 the inflationary impact by increasing interest To be sure, domestic economics and politics rates, in turn, would have inflicted costs on provided proximate causes for the 1995 peso investment, borrowers, and workers and aug- crisis. With a current account deficit of 8 per- mented the problem of currency appreciation cent of GDP, the Chiapas uprising in January by attracting even more foreign exchange. In 1994, the assassinations of several prominent effect, Mexico was fundamentally incapable of Mexican political figures—including Luis dealing with the economic crisis. It had no Donaldo Colosio, the presidential candidate of policy arrows in its quiver. the ruling Institutional Revolutionary Party— This might be thought odd given the existence bond traders, money managers, and foreign of a range of policy options already in place in exchange dealers had no shortage of excuses other Latin American countries, designed to for bailing out and finding a safer haven for deal specifically with the kinds of problems capital.37 Mexico was experiencing. Some countries, for But it is also clear that the crisis would not example, have created national stabilization have occurred in the absence of a rapidly funds to cushion the economy when commod- evolving and exceedingly liquid global finan- ity prices weaken and maintained controls cial system. Most certainly, the peso would not aimed at discouraging sudden inflows and out- have attained such heights in the absence of flows of capital. Chile has led the world in this massive flows of capital into Mexico’s financial regard by enacting laws requiring portfolio markets to service trade deficits and foreign investment to remain in the country for a mini- debt. Crucially, nearly 75 percent of the mum of 12 months. As a result, its economy has US$98.5 billion that entered Mexico between proven to be relatively immune to the dreaded 1989 and 1994 came in the form of short-term “tequila effect:” the spread of financial crisis portfolio investment, and not as long-term from one country where the threat may be con- direct investment in productive enterprise. tained by concerted action to other countries in Even The Economist has noted: “The form of the region.41 It is worth noting that Chile Mexico’s crisis was shaped by the financial remains the darling of emerging market innovations of recent years; and advances in investors, despite having implemented these information and communications technology controls.42 caused it to be propagated globally in a way that is without precedent.”38 The far-reaching implications of the crisis were noted by

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T HE W AY OF THE W ORLD: The Multilateral Agreement on Investment M ORE F INANCIAL Currently under negotiation under the auspices L IBERALIZATION of the Organisation of Economic Co-operation Participation in international trade agreements and Development, the Multilateral Agreement may have prohibited Mexico from following the on Investment (MAI) will require signatory states Chilean example. Article 1109 of the invest- to: treat foreigners no less favourably than ment chapter of the North American Free Trade domestic investors; limit performance require- Agreement (NAFTA) specifically prohibits ments for investors to meet specific conditions domestic restrictions or controls on cross-border in exchange for access to national economies; flows of capital including profits, interest, accept a dispute-resolution mechanism allowing dividends, and fees. investors to sue governments for damages when they believe laws violate the MAI; and ban Despite the apparent efficacy of the Chilean pol- restrictions on the repatriation of profits and the icy response, it appears that multilateral trade movement of capital across borders.45 organizations are intent on continued financial liberalization and placing more limits on the Proponents claim that the MAI will increase ability of national governments to control the global prosperity by freeing investors from dis- flow of capital across borders. Current initiatives tortions and inefficiencies caused by excessive include: market regulation. Those opposed claim that the MAI will restrict the capacity of government The World Trade Organization’s Financial to enforce environmental laws, promote job Services Agreement creation, or protect cultural industries. To them, the agreement represents yet another major Covering more than 95 percent of the global financial services market, this agreement gives banks, insurance companies, and securities firms greatly enhanced access to international BOX 4 CURRENCY CRISES IN THE markets. Signed in December 1997, the agree- “SUBMERGING” ECONOMIES OF SOUTHEAST ASIA ment commits 70 countries to liberalizing their markets, starting in March 1999. Although some Until recently, some observers have taken major Asian and Latin American countries are comfort in the belief that Mexico was a unique case. The currency crisis in Thailand still permitted to use protectionist measures in a in the summer of 1997 and the subsequent limited number of cases, the agreement estab- meltdown of several Southeast Asian lishes a clear set of binding rules for trillions of economies suggest that the international dollars worth of business in financial services.43 financial system may want to brace itself for a succession of future crises. As a mountain of bad debt crushed Thailand’s weaker The IMF Supplemental Reserve Facility financial institutions, foreign investors with- The IMF has developed the Supplementary drew funds from the country, propitiously. The baht went into free fall, and other Asian Reserve Facility, designed to enhance its capac- countries have been affected. It is antici- ity to bail out countries that have lost foreign pated that GDP growth in Thailand in 1997 investors’ confidence. Coming in the wake of will fall somewhere between a contraction 1997 financial crises in Thailand, Indonesia, and of 1 percent to 4 percent growth (with a South Korea, the enhanced plan signals a shift disastrous second half), compared to several years during which growth exceeded 8 per- in IMF bailouts, shortening their duration and cent.1 With a string of financial institution raising the interest rates charged to borrowing failures, even Japan has been affected. governments. This will have the effect of tight- Observers note that the size of Japan’s ening the screws on developing countries while financial problems rival those of the rest of 2 ensuring a quick return to capital markets. In Asia combined. addition, even supporters of increased trade N OTES liberalization are beginning to worry that the 1 Paul Shere, “Bangkok Calls on Foreign Banks,” The Globe and Mail, August 8, 1997. bailout packages distort proper market incen- 2 ”Showdown Nears in Japan,” The Globe and Mail, tives. On several occasions, The Economist has December 5, 1997 and “BIS Warns of Fallout From Asia,” The Report on Business, December 9, 1997. While certain sec- warned of the “moral hazard” involved when tors of the Canadian economy are expected to suffer (partic- the knowledge that the IMF will ride to the ularly the forest products industry and mining), the financial services industry will find ways to benefit. See Bruce Little, rescue leads investors to engage in behaviour “Asian Woes Expected to Spill Over,” The Globe and Mail, they would otherwise avoid.44 December 9, 1997.

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surrender of national sovereignty to private good corporate citizenship includes providing investors and multinational corporations. products of value, satisfying employees, maintaining a commitment to the community, What cannot be doubted is that the MAI will and safeguarding the environment.47 increase global liquidity and the ease with which investors can move portfolio investment But the task of reconnecting the financial econ- in and out of capital markets around the world. omy to the productive economy and human What is uncertain is whether or not signatories needs cannot be left to CEOs alone. There is a T ODAY, THE CHALLENGE will be able to implement policies that hinder role for everyone. Financial institutions, after FOR THE SOCIAL the flows of portfolio investment and so-called all, are part of society, our history, our culture. “hot money” that exacerbate currency, financial They only abide by the “rules of the game” that INVESTMENT MOVEMENT sector, and stock market crises. our society generates, maintains, and tolerates. MOVES TO A NEW Fundamental change will only come by revising those rules. In general, this means changing the FRONT: TO R ECONNECTING TO S OCIAL following: people’s social expectations concern- R ESPONSIBILITY DEMONSTRATE THAT ing the behaviour of corporations and our own Powerful forces generated within the financial behaviour as investors and consumers; the CORPORATIONS CAN ACT sector are not adequately serving social and norms and standards maintained by industry AS AGENTS FOR economic needs in many countries. And as wit- associations and professional trade organiza- nessed in Asia during the latter part of 1997, tions concerning acceptable member behaviour; PROGRESSIVE SOCIAL they are inflicting harm upon hundreds of mil- and the rules, regulations, and legislative CHANGE. lions of people. In the face of such forces, the regimes established by parliament, interpreted essential challenge is to identify, develop, and by the courts, and enforced by the government. implement strategies for reconnecting the finan- ROBERT WALKER AND SUSAN The following strategies may help achieve these cial sector to productive functions, human changes. FLANAGAN, “THE ETHICAL needs, and socially responsible development. IMPERATIVE,” IN It is possible to do so by insisting first that POLICY OPTIONS economies exist to serve society, not vice versa. THE FINANCIAL POST 500

The firewall between traditional economic MAGAZINE, TRADE AGREEMENTS—THE NEED FOR SOCIAL “imperatives” (defined in conventional terms of AND ENVIRONMENTAL CLAUSES growth, profit, and development) on the one MAY 1997, P. 28 hand, and social needs (as defined by funda- Current trends toward financial liberalization mental human rights, social justice, and envi- appear as unstoppable today as industrialization ronmental protection) on the other, serves to in the mid-19th century. While a critical exami- perpetuate a false dichotomy. In the parlance of nation of the principles underlying liberaliza- the social investment community, all invest- tion are necessary, so too are efforts to work ments, all consumption, and all financial and within existing multilateral organizations to economic decisions are fundamentally social in ensure the inclusion of social and environmen- content because each decision will have social tal clauses in trade agreements as they are nego- and environmental implications downstream, tiated. The NAFTA side agreements, though regardless of whether the decisionmaker is perhaps weak, provide an interesting model for aware of these implications or not. efforts to establish rules to protect the environment, regulate labour markets, and reassert Despite the pervasiveness of this dichotomy, some measure of national control over national there are dissenting voices. And the chief opera- economies. The ultimate objective should be to ting officers (CEOs) of major Canadian financial establish a regime that encourages corporate institutions may be among them. Al Flood, CEO social and environmental responsibility and of the Canadian Imperial Bank of Commerce, has helps reconnect the world of finance to the said that “people are much better informed and world of productive enterprise.48 they are concerned about things like corporate ethics. And for us to succeed we must maintain ENHANCING CORPORATE DISCLOSURE their trust and confidence. Good corporate ethics REGULATIONS have to be the foundation of our business.”46 Matthew Barrett, CEO of the Bank of Montreal, The discussion paper released by the Canadian also maintains that corporate social responsibility government’s Taskforce on the Future of the should inform corporate practices and can be the Canadian Financial Services Sector in June 1997 key to sound financial performance. For Barrett, identified disclosure as a key to a healthy and

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competitive financial services sector and an issue responsibilities. These include a share in profits, of concern for revisions to the Bank Act. Unfor- voting rights at annual meetings, and the right tunately, the taskforce has chosen to maintain a to propose corporate policies. narrow interpretation, limiting the industry’s con- In the United States, socially responsible cept of disclosure to issues such as the cost of investors have long used shareholder rights as a banking services, executive compensation, and powerful tool for influencing corporate social and corporate governance. Financial institutions are environmental practice. A wide range of groups, also required to report on direct foreign invest- including church-based organizations, pension ment and acquisitions. But they are required to funds, and mutual funds, maintain proxy voting disclose lending targets, loan exposure, and loan guidelines and engage in active shareholdership loss provisions only when such policies pertain to as a standard feature of their operations. critical operations of the financial institution. The Bank Act and the Canada Business Canadian financial institutions listed on the Corporations Act, however, perpetuate the Toronto Stock Exchange (which includes all the dichotomy between the financial sector and major banks) also fall under securities regula- economic needs by allowing corporations to tions of the Province of Ontario. Securities regu- exclude shareholder proposals deemed by direc- lators require more information than the Bank tors to have been put forward for the purpose of Act, and do not require mandatory nonbusiness “promoting general economic, political, racial, related disclosure. Prospectuses require detailed religious, social, or similar issues.” Shareholders business and industry risk factors assessments may advance only those resolutions relating and disclosure of other material business or legal directly to the financial health of the corpora- information that would influence an investor’s tion. Corporations have used this rule to refuse investment decision. Information on material circulation of resolutions that attempt to connect environmental liabilities is required, but only if a company’s social and financial performance. In such considerations would have a significant the US, however, governing legislation recognizes effect on the fair market price of a company’s social and environmental factors as potentially stock value. Thus, legal suits related to a large oil significant to a company’s business. In most spill would require disclosure, while decimation states, fiduciary law allows specifically for the of the Brazilian rainforest or stockpiling consideration of corporate decisions’ effects on a hazardous waste would not.49 variety of nonshareholder interests.51 Mandatory annual corporate reports typically In the US, shareholders and the courts can hold contain business and financial reporting items; corporations accountable for social and environ- increasingly, mention of social performance is mental impacts through shareholder actions. usually related to charitable works or environ- Concerned shareholders, for example, have the mental performance. Only rarely are related right to file resolutions at annual general international “social” issues raised. In addition, meetings. The federal Securities Exchange neither federal agencies regulating financial Commission, which is responsible for the regu- institutions nor the Canadian Bankers’ lation of the US investment industry, allows Association maintain or track data concerning noneconomic factors to be considered for domestic, let alone international, lending proxy circulation if a proposal is significantly patterns and practices. related to a corporation’s operations. More than Western commentators have repeatedly pointed this, “a company may not omit a shareholder to inadequate disclosure regulations and a fun- proposal related to social or political damental lack of accountability as underlying policy...unless the policy has virtually no con- causes of the 1997 meltdown in Asian financial nection to the company’s operation.”52 markets.50 Before proceeding too much further Importantly, resolutions are circulated to all with this critique, it may be useful for industry shareholders in advance of the meeting, at representatives and regulators to reflect and which shareholders are given the opportunity to expand upon disclosure regulations in Canada. discuss and vote on the issues raised. Underlying these considerations is US legisla- LINKING SOCIAL VALUES AND RESPONSIBLE tion recognizing broader interests of society and SHAREHOLDERSHIP that “ethical issues... also may be significant to Although often overlooked by investors, owner- the (company’s) business, when viewed from a ship of common stock confers rights and standpoint other than a purely economic

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one.”53 This view is supported in the majority of portfolios—as a guaranteed way to limit the uni- US states by fiduciary law which allows trustees verse of stocks from which to choose, thereby “to consider the effect of their decision on a reducing diversification, increasing risk, and variety of nonshareholder interests.”54 limiting the potential for maximum financial return within risk parameters established by GREATER ACCOUNTABILITY TO COMMUNITIES clients, advisors, and managers. Again in the US, the Community Reinvestment “When I go into a bank, I get rattled,” Stephen Act (CRA) requires all federally regulated banks to Leacock wrote in his 1910 classic, My Financial disclose detailed financing activities related to Career. Banks rattle most people. More material the equitable distribution of capital in local and on the financial sector is crucial to overcome minority communities. The CRA’s performance this fear. Heightened awareness of the industry categories are: community credit needs; market- will allow people to begin to make the connec- ing and types of credit offered and extended; geo- tion between their values and their investment graphic distribution and record of opening and decisionmaking. closing of offices; discrimination or other illegal practices; and community development.55

Importantly, the act provides assessment and BOX 5 INTERNATIONAL SOCIAL INVEST- enforcement mechanisms to ensure some degree MENT CRITERIA: SELECTED SOCIAL ENVIRONMENTAL MUTUAL FUNDS of compliance. The Bank of Montreal’s purchase of the Harris Bank, for example, was temporarily Ethical Funds Inc. blocked by regulators because its former owners at The EFI family of funds seeks corporations the Bank of Chicago were not in compliance with that encourage progressive industrial rela- the CRA. No similar legislation exists in Canada, tions, strive to comply with environmental although the Canadian Community Reinvest- regulations and the implementation of environmentally conscious practices, and conduct ment Coalition advocates the inclusion of similar their business in and with countries providing 56 provisions in Canada’s Bank Act. racial equality within their boundaries. The fund does not seek corporations that profit significantly from the sale and/or manufac- HAT NDIVIDUALS AN O W I C D ture of tobacco, nuclear energy, or military equipment. IMPROVE FINANCIAL LITERACY Investors Summa The dichotomy between economic imperatives Owned by the Investors Group, Investors and social needs is perpetuated by much of the Summa will not invest in companies whose literature surrounding the world of finance, eco- practices openly or passively support nomics, and investment. The bulk of this comes repressive regimes. in two forms. The first, the popular literature written for individuals investing for personal Clean Environment International Equity financial security, has played a central role in Clean Environment does not have an exclusionary country screen for repressive regimes. encouraging many to invest in today’s markets Rather, it seeks to invest in a globally diversi- either through mutual funds, investment clubs, fied portfolio of companies that fit the or self-directed portfolios. The second form of lit- environmental concept of sustainable erature is the highly technical, increasingly math- development. ematical studies designed for the owners and Both Ethical Growth and Investors Summa managers of capital and finance theorists. In the have exclusionary screening criteria which words of Mencken (writing on the dense nature preclude investments in companies operating of economics): “The amateur of such things must in countries which, like Burma and South be content to wrestle with their professors seek- Africa before the end of apartheid, have universally criticized human rights records. Other ing the violet of human interest beneath the countries with poor human rights records, 57 avalanche of their graceless parts of speech.” particularly those with large market potential such as China and Indonesia, are not neces- These two streams of finance literature rarely sarily precluded. Investments in corporations question the social and environmental impact operating in these countries tend to be of capital flows.58 The literature surrounding the considered on a case by case basis. investment industry, for example, explicitly dis- misses these questions—and the application of Source: Social Investment Organization, Social Investment Directory, Toronto, Summer 1997. social and environmental screens to investment

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CONSIDER SCREENED INVESTMENT PORTFOLIOS have emerged as top performers across fund categories. Dozens of US studies also demonstrate Socially responsible investors are the most sig- empirically that screened investment portfolios nificant private sector actors encouraging social can and do offer competitive rates of return: in and environmental corporate performance. some cases, they can outperform industry Currently, hundreds of thousands of Canadians benchmarks and peer group averages.60 hold more than $5 billion in 14 socially screened mutual funds and six socially responsible SUPPORT RESPONSIBLE SHAREHOLDERSHIP labour-sponsored venture capital corporations.59 But these represent only the tip of the iceberg. Despite regulatory barriers, shareholder action It is impossible at this time to estimate screened in Canada is possible. In fact, Canada’s financial assets held by pension funds, charitable founda- institutions have been the target of several tions, high net worth individuals with self- actions led by Canadian churches and the directed portfolios, and funds being screened by Taskforce on the Churches and Corporate discretionary managers. Responsibility. In addition to the issue of apartheid in South Africa, the churches have With more than $600 million in assets, the pushed the banks to disclose information and Ethical Growth Canadian Equity Fund offered provide debt relief on loans to Southern coun- by Ethical Funds Inc. is the largest screened tries. The most successful action took place at a mutual fund in Canada. Ethical Growth invest- Bank of Montreal shareholder meeting when 5.8 ments are based on a number of social and percent of shareholders supported South African environmental criteria. As mentioned above, divestment.61 because of relatively good social performance, the fund typically holds several of Canada’s Despite TCCR’s leadership (see Box 7), share- large banks in its portfolio at any given time. holder action in Canada has been sporadic. A Most other Canadian ethical funds such as recent landmark case instigated by minority Investors Summa and Clean Environment also shareholder activist Yves Michaud, however, hold bank stocks from time to time (see Box 5). indicates that interest in shareholder action may be on the rise. The case involved Michaud’s These funds represent only a tiny fraction of right to circulate a resolution on two corporate gross market capital. Unless they grow and governance issues to National Bank and Royal begin engaging in shareholder action, their full Bank shareholders. The Quebec Supreme Court social impact will not be felt. ordered the banks to circulate the resolution, One of the largest barriers to more rapid expan- possibly paving the way for shareholders to sion of socially responsible investment in Canada forge the link between corporate social responsi- has been the perception, held by many main- bility, financial performance, and ultimately the stream financial advisors, that screened portfolios intimate connection between economic and do not perform as well as unscreened. This per- social well-being.62 ception is false: screened mutual funds in Canada Of course, not every individual or institutional investor will be in a position to lead the charge as filing and co-filing proposals requires a great BOX 6 SELECTED CANADIAN SOCIALLY deal of research and coordination. What is nec- RESPONSIBLE MUTUAL FUNDS essary, however, is for every investor to put in Assets ($ millions) place the decisionmaking processes, the proto- (as of October 16, 1997) cols, and the proxy voting guidelines that will Selected Canadian Equity Funds allow them to vote their shares responsibly and Ethical Growth Fund 628.0 to play a critical role in reconnecting the world Investors Summa 260.4 of finance and investment to human needs. International Funds Clean Environment International Fund 10.7 Ethical Pacific Rim Fund 30.0 SUPPORT THE DEVELOPMENT OF CODES OF Ethical Global Bond Fund 12.5 CONDUCT AND PROGRESSIVE SOURCING POLICIES Ethical North American 94.5 Since the introduction of the Sullivan Principles Total Assets $1,036 million calling for divestment in South Africa, codes of Source: Selected Canadian Socially Responsible Mutual corporate behaviour have attracted growing Funds were reported in The Globe and Mail on October 16, attention as a tool for increasing corporate 1997. The numbers reported are for the month ending September 30, 1997. social responsibility and public accountability.

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BOX 7 THE TCCR AND CANADIAN FINANCIAL INSTITUTIONS: SHAREHOLDER RESOLUTIONS ON INTERNATIONAL ISSUES, 1983-95 Year Bank Issue Outcome 1983 CIBC Loans to Southern countries 2.25 percent in favour 1984 Bank of Montreal Divest from South Africa 5.8 percent in favour Bank of Nova Scotia Divest from South Africa 3.2 percent in favour 1990 Bank of Montreal Southern country debt relief Resolution withdrawn Bank of Nova Scotia Southern country debt relief Resolution withdrawn Royal Bank Southern country debt relief Resolution withdrawn 1991 Bank of Montreal Southern country debt relief Resolution withdrawn Bank of Nova Scotia Southern country debt relief Resolution withdrawn Royal Bank Southern country debt relief Resolution withdrawn

Notes: In all cases, TCCR found banks steadfastly opposed debt relief for debtor countries, preferring instead to renegotiate, swap, write- off, sell, or otherwise dispose of Southern debt. Nevertheless, TCCR’s diligent work in corporate boardrooms has resulted in a slow acceptance by some executives of broader social responsibility. Source: “Shareholder Proposals in the Canada Business Corporations Act: Recommendations for Revisions of S.137,” by Moira Hutchinson for Michael Jantzi Research Associates Inc., June 1996.

Often developed by nongovernmental organiza- SUPPORT THE CREDIT UNION MOVEMENT tions, codes of conduct provide a reference As local financial cooperatives, many credit point for assessing corporate behaviour on non- unions maintain a commitment to make signifi- business related issues and can help inform the cant contributions to the communities in which development of social screening criteria. they operate. The credit union movement in Many codes have enjoyed some success, Canada is also committed to social and eco- although typically, single issue codes such as the nomic development in developing countries, MacBride Principles on employment practices in with projects aiming to help people become Northern Ireland, or very broad codes such as more self-sufficient. International development the Caux Round Table Principles for Business, is coordinated by the Canadian Co-operative have received the greatest attention and corpo- Association and funds are raised throughout the rate support. More demanding codes, such as cooperative sector. In addition, the Credit the TCCR-sponsored Benchmarks for Measuring Union Central of Canada, the national trade Corporate Performance (see Box 6, p. 27), or the association of credit unions across the country, Coalition for an Environmentally Responsible is a member of the World Council of Credit Economy (CERES) Principles have received Unions. With affiliated members in 80 countries, greater critical acclaim from social and environ- the Council directs financial and leadership mental activists, but far less acceptance by the resources to credit union extension throughout business community.63 the world. Some credit union systems, such as the Mouvement des caisses Desjardins’ Measurement and enforcement of codes remain “Développment international Desjardins” have problematic, not only because compliance is vol- dedicated international development programs. untary, but also because proposed measures are typically hard to quantify and are inconsistent SUPPORT ALTERNATIVE INSTITUTIONS FOR across industrial sectors. How, for example, can MICRO- AND SMALL BUSINESS CREDIT the environmental impact of a forest company, a software firm, and a bank be assessed using the Over the last two decades, micro-credit, or the same measure? Codes also tend to be aimed at provision of loans to micro- and/or small busi- corporations operating in the North and are less nesses for the purpose of generating increased appropriate for the South where social and business income, has grown as a development cultural standards and inadequate physical tool. Micro-lending in developing countries was infrastructure present compliance barriers. pioneered by the Grameen Bank in Bangladesh. The World Bank now estimates that there are Unfortunately, there are presently no specific more than 7,000 micro-lending institutions social or environmental codes for financial insti- worldwide, involving more than 13 million tutions, and those codes that do exist relate clients and more than US$19 billion.65 primarily to operating activities.64

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. . .BY DIRECTING The Toronto-based Calmeadow Foundation is a Globalization, information technologies, dereg- recognized world leader in micro-credit and has ulation, trade liberalization, and the prolifera- CAPITAL RESPONSIBLY, been involved in the establishment of a number tion of new products are fundamentally altering

WE CAN ENCOURAGE of projects including the development of Banco finance services corporations, the industry, and Sol in Bolivia and ProdFund, an international the rules of the game. This is leading to a situa- MAJOR CORPORATIONS micro-bank financing organization. Calmeadow tion in which the financial economy—the

TO COMPETE NOT ONLY is also active in building micro-credit capacity in world of debt, equity, bond trading, currency South Africa.66 exchange, and commercial lending—is becom- ON THE BASIS OF THEIR ing increasingly distanced from the productive Scotiabank established a similar micro-credit pro- FINANCIAL PERFOR- economy—the world of productive physical gram in Guyana in 1993. Though not well publi- enterprise. MANCE BUT ON THEIR cized, the program now boasts more than 3,000 clients and loans thousands of dollars annually. Given the power, complexity, and geographical SOCIAL AND ENVIRON- Bancomer, a large Mexican bank in which the spread of this industry, reconnecting these

MENTAL RECORDS AS Bank of Montreal has a significant stake, is also worlds will be no easy task. But, as we have reported to be developing a micro-credit program. seen, individuals and institutions have access to WELL. a variety of strategies that can be employed Mennonite Economic Development Associates immediately. (MEDA) also actively finances small business ROBERT WALKER AND SUSAN development internationally. In addition to More than anything else, reconnecting these FLANAGAN, “THE ETHICAL more traditional types of development work, worlds will require appropriate levels of public MEDA offers a number of financing tools to accountability and informed investors, con- IMPERATIVE,” IN THE small and micro businesses in developing coun- sumers, and legislators. In the absence of bal- FINANCIAL POST 500 tries including Bolivia, Nicaragua, Haiti, and anced analysis of the sector’s performance in Jamaica. Similarly, through its Dutch parent, the developing countries, public interest and public MAGAZINE, MAY 1997, P. 28 Ecumenical Development Society (EDS) provides policy are left dangerously uninformed. The need loans to a range of development projects and to augment resources and increase the reporting businesses in several countries, including capacity of the social investment movement is Zimbabwe and India. EDS has also helped crucial. Similarly, there is a need to advocate for finance “fair trade” businesses such as international agreements that integrate social Bridgehead Canada, which purchases goods and environmental concerns, equivalents to the directly from producer groups.67 Community Reinvestment Act, and the establishment of new institutions independent of the Alternative financing provides an important existing major players, capable of meeting function as high impact social equity models. It demand generated by those with low incomes. remains, however, relatively insignificant in the face of more traditional flows of international If the information available on the impacts of financial resources. But the growth of such mod- the financial sector does not increase, however, els is important in that they raise the standards financial institutions will remain immune to all to which other financial institutions can be held efforts to increase their accountability. The cur- accountable. rent trend toward greater disclosure of shareholder-related information goes some distance to advance institutional transparency, but, as M AKING E CONOMIES S ERVE with other sectors, this may not be enough to P EOPLE promote broader stakeholder interests, certainly Assessing the performance of the Canadian over the short and medium terms. financial sector involves understanding and To start making these changes, we must first confronting all the subtleties and nuances of articulate the nature of our problem. Today, few social screening and industry benchmarks, as of the major players would acknowledge the well as addressing fundamental questions of cul- central problématique of the Canadian develop- tural values and economics. It also requires ment and social investment communities or grappling with how changes in the global finan- recognize that, in order for a just society to be cial system are establishing a new set of incen- sustained, economies must serve people. tives for financial institutions around the world.

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N OTES 1 “Today it seems that the heads of governments may be the last to 22 For an introduction to social investment see Peter Kinder; Steven recognize that they and their ministers have lost the authority over D. Lydenberg; and Amy L. Domini, Investing for Good: Making Money national societies and economies that they used to have.” For per- While Being Socially Responsible (New York: Harper Collins Publishers spectives on the loss of national sovereignty see Susan Strange, The Inc., 1993). For a Canadian perspective see Eugene Ellmen’s Retreat of the State: The Diffusion of Power in the World Economy The 1997 Canadian Ethical Money Guide (Toronto: James Lorimer & (Cambridge: Cambridge University Press, 1996). Company, 1996). 2 See Ethan Kapstein, “Workers and the World Economy,” Foreign 23 See Renate Pratt, In Good Faith: Canadian Churches Against Affairs, May/June 1996. For a classic treatment of the links between Apartheid (Waterloo, Ont: Canadian Corporation for Studies in social dislocation and war in the 20th century see Karl Polanyi, The Religion, 1997). Great Transformation: The Political and Economic Origins of Our Time 24 See Robert Walker and Susan Flanagan, “The Best of the TSE 300” (Boston: Beacon Press, 1957). and “The Ethical Imperative,” The Financial Post Magazine, May 1997. 3 For historical overviews see Graham D. Taylor and Peter 25 See MJRA, Profiles. Note that any concern over the social or envi- Baskerville, A Concise History of Business in Canada (Toronto: Oxford ronmental performance of a Canadian financial institution will be University Press, 1994) and James L. Darroch, Canadian Banks and indicated by MJRA only in the event that a major controversy is gen- Global Competiveness (Montreal and Kingston: McGill-Queen’s erated. Canadian researchers have no capacity for independently University Press, 1994). researching Canadian corporations in developing countries on a com- 4 Some industry observers argue that the existence of these guaran- prehensive basis and must rely on standard media sources. Note also tees in certain countries establishes a perverse set of incentives and that during the 1970s and 1980s Canada’s major banks were targeted prompts banks to engage in reckless activities. See “Coping With by the Taskforce on the Churches and Corporate Responsibility’s the Ups and Downs,” The Economist, April 27, 1996. campaign against apartheid in South Africa. See Pratt, 1997. 5 See Canadian Annual Financial Review (1901) and The Financial Post 26 Founded in 1993, Michael Jantzi Research Associates Inc. analyzes Magazine, “Top 500 Investor’s Handbook Edition,” May 1997. By the social and environmental performance of Canadian corpora- way of contrast, most investment firms in the US are youngsters. tions. The company maintains a database of approximately 450 Morgan Stanley, among the oldest and most prestigious of the Canadian companies and has a wide-ranging clientele consisting of “bulge bracket” firms, was established only in the 1930s. Over time, fund managers, pension funds, charitable foundations, and various institutions have entered and exited, either fading from nonprofit organizations. glory (Dillon, Read, or Kuhn, Loeb) or exploding infamously 27 For a discussion of the potential for systems collapse see “The (Drexel Burnham Lambert). Domino Effect: A Survey of International Banking,” The Economist, 6 See Shirley Won, “Mutual Fund Assets Set Record,” The Globe and April 27, 1996. Mail, Report on Business, July 16, 1997. 28 For fuller descriptions of the transformations taking place see 7 Current regulations state that no more than 10 percent of any Martin Mayer, The Bankers: The Next Generation (New York: Truman class of shares of a Schedule I bank may be owned by a single Talley Books/Dutton, 1997); Gregory J. Millman, The Vandals’ investor, or by investors acting in concert. This has the practical Crown: How Rebel Currency Traders Overthrew the World’s Central effect of limiting foreign control. The Task Force on the Future of Banks (New York: The Free Press, 1995); William Wolman and Anne the Canadian Financial Services Sector is exploring questions of for- Colamosca, The Judas Economy: The Triumph of Capital and the eign ownership and it is expected that sooner or later this barrier Betrayal of Work (New York: Addison-Wesley Publishing Company, will fall. See Discussion Paper, June 1997. Inc., 1997). For a reassuring examination of the economic function 8 See for example, Dennis Slocum, “London Life Expected to Gain of speculation see “Pennies from Hell,” The Economist, February 3, Muscle After Sale,” The Globe and Mail, June 28, 1997; Dawn 1996. For an accessible discussion of risk see Peter L. Bernstein, Walton, “Bank’s Entry Worries Insurance Industry,” The Globe and Against the Gods: The Remarkable Story of Risk (New York: John Wiley Mail, July 1, 1997, and Dennis Slocum, “More Banks, Insurance & Sons, Inc., 1996). For a window on the origins of modern portfo- Alliances Expected,” The Globe and Mail, August 11, 1997. lio theory and the quest to eliminate firm-specific risk from investment portfolios, see Harry M. Markowitz, “Portfolio Selection,” 9 See John Partridge, “Banking Task Force Nixes Ban on Takeovers,” Journal of Finance, March 1952 and Harvey E. Bines, “Modern The Globe and Mail, Report on Business, July 12, 1997. For an indica- Portfolio Theory and Investment Management Law: Refinement of tion of the direction of the next round of revisions to the Bank Act Legal Doctrine,” Columbia Law Review, 1976. see, Task Force on the Future of the Canadian Financial Services Sector, Discussion Paper, June 1997. See also Andrew Willis, 29 Bank for International Settlements, Central Bank Survey, (Basel, “Banking On It,” The Globe and Mail, December 13, 1997. Switzerland: BIS, 1992). See also, Jane Inch, “Control Options for International Currency Speculation,” paper prepared for the Halifax 10 See Darroch, 1994. Historically, American banks have been Initiative Coalition, December 1996, and Ted Fishman, “Our restricted domestically to the state within which they are incorpo- Currency in Cyberspace,” Harper’s, December 1994. rated. This has kept American banks relatively small and the industry fractured. The same pressures of globalization, however, are 30 Bank for International Settlements, Central Bank Survey, 1995 and leading to rapid consolidation south of the border. IMF, International Capital Markets 1996. 11 See Geoffrey Dobilas, “The Canadian Financial System in 31 See Doug Henwood, Wall Street (New York: Verso, 1997). International Perspective,” in John Britton, ed., Canada and the 32 “Bond Watch,” The Globe and Mail, Report on Business, July 16, Global Economy: The Geography of Structural and Technological Change 1997. See also “Letter to the editor,” from Jim Stanford, economist (Montreal and Kingston: McGill-Queen’s University Press, 1996). with the Canadian Auto Workers, Report on Business, July 25, 1997. 12 See Richard Blackwell, “Canadian Banks Improve in World 33 Ibid. Rankings,” The Financial Post, July 5, 1997. See also, Karen Howlett 34 See International Finance Corporation, Emerging Stock Markets and Andrew Willis, “Domestic Giants, Global Pipsqueaks,” The Factbook, Washington, D.C., 1995. Globe and Mail, Report on Business, June 28, 1997. 35 For discussions of the broad implications of the Mexican debt 13 “Banks Without Borders,” The Globe and Mail, December 16, 1997. crises see Robert Gilpin, The Political Economy of International 14 “CIBC Buys Oppenheimer,” The Globe and Mail, Report on Relations (Princeton: Princeton University Press, 1987) and Eric Business, July 23, 1997. Helleiner, States and the Reemergence of Global Finance: From Bretton 15 See Karen Howlett, “Brokers Differ on Route South,” The Globe Woods to the 1990s (Ithaca: Cornell University Press, 1994). and Mail, Report on Business, July 1, 1997 and Michael Jantzi 36 “Ten Lessons to Learn,” The Economist, December 23, 1995- Research Associates Inc. (MJRA), Investor Profiles, Toronto, 1996. January 5, 1996. 16 For a window onto the world of tax havens see the periodical, 37 For lurid details of the events leading up to the crisis, see Andres Offshore Finance Canada. Oppenheimer, Bordering on Chaos: Guerillas, Stockbrokers, Politicians, and 17 CIBC, Annual Report, 1996. Mexico’s Road to Prosperity (Boston: Little, Brown and Company, 1996). 18 See Monica Ballesca, “Foreign Banks Invade Mexican Market,” 38 “The domino effect: A survey of international banking,” The The Financial Post, December 12, 1996. Economist, April 27, 1996. 19 “Bank of Montreal Confirms Beijing License,” The Globe and Mail, 39 The Economist contends that while the chances of system-wide Report on Business, December 21, 1996. financial breakdown have diminished, the costs, if it should happen, are mounting. See “The domino effect: A survey of interna- 20 See Bank of Nova Scotia, Annual Report, 1996 and John Partridge, tional banking,” The Economist, April 27, 1996. “Scotiabank Pushing Deeper in South America,”The Globe and Mail, Report on Business, April 1, 1997. 40 John Dillon, Turning the Tide: Confronting the Money Traders (Ecumencial Coalition for Economic Justice and the Canadian 21 See The Globe and Mail, “Report on Mutual Funds,” July 17, 1997. Centre for Policy Alternatives, 1997).

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N OTES (continued) 41 G. Pierre Goad, “Not Being Mexico Isn’t Always an Edge,” The 55 “A Capital Idea: The Case for Reinvestment Requirements and Globe and Mail, August 1, 1997; Paul Sherer, “Thailand Closes 42 Accountability Mechanisms for Financial Institutions in Canada,” Finance Companies,” The Globe and Mail, August 6, 1997; Paul Democracy Watch, April 1994. Sherer, “Bangkok Calls on Foreign Banks,” The Globe and Mail, 56 For more information write: Democracy Watch, P.O. Box 821, August 8, 1997; and Marcus W. Brauchli, “Austerity Injures National Station B, Ottawa, Ontario, K1P 5P9. Pride in Asia: Currency Woes Put Some Countries Projects on Hold,” 57 Quoted in Doug Henwood, Wall Street. The Wall Street Journal, August 26, 1997. 58 Ibid. 42 “Financial Virtue Bolsters Chile,” The Globe and Mail, December 8, 1997. 59 See Tricia Hylton and Robert Walker, “Screened Investment Funds in Canada, 1987-1997: A Decade of Growth, A Time of 43 See “WTO Reaches Accord as Asians Agree to Open Finance Performance,” SIO Forum, vol. 8, no.1, Jan/Feb 1998. When referring Industry to Foreigners,” The Wall Street Journal, December 15, 1997, to market share it is necessary to distinguish between the mutual and Heather Scoffield, “Agreement Opens World Financial Services fund and the venture capital industries. According to the Canadian Market,” The Globe and Mail, December 15, 1997. Venture Capital Association, the labour-sponsored funds dominate 44 “The Domino Effect: A Survey of International Banking,” The the venture capital industry in Canada. The six funds tracked by the Economist, April 27, 1996 and Michael M. Phillips, “IMF Develops SIO (those that apply social screens in their investment decisions) Plan for Speedy Bailouts,” The Wall Street Journal, December 10, make up almost 40 percent of this $7.1 billion industry. Few 1997. Note too that proponents of increased financial liberalization observers will miss the irony of labour unions dominating the most are also calling for the amendment of IMF Article 6 which condones entrepreneurial and romantic segment of investment capitalism. controls on capital movements. 60 See for example John B. Guerard, Jr., “Is There a Cost to Being 45 See for example, Laura Eggertson, “Treaty to Trim Ottawa’s Power: Socially Responsible in Investing?” Vantage Global Advisors, August Equal-Treatment Rules for Foreign Firms Could Limit Research, Job- 1996; Stanley J. Feldman; Peter A. Sokya; and Paul Ameer, “Does Creation Targets,” The Globe and Mail, April 3, 1997. Improving a Firm’s Environmental Management System and 46 Al Flood, quoted in Robert Walker and Susan Flanagan, “The Environmental Performance Result in a Higher Stock Price,” ICF Ethical Imperative,” The Financial Post Magazine, May 1997, p. 28. Kaiser Consulting Group, 1996; and Lloyd Kurtz and Dan 47 Matthew Barrett, “Good Citizenship is Good Business,” Policy DiBartolomeo, “Socially Screened Portfolios: An Attribution Options, December 1996. Analysis,” Journal of Investing (Fall 1996). 48 See Michael Hart, “What’s Next: Negotiating Rules for a Global 61 See Moira Hutchinson, “Shareholder Proposals in the Canada Economy,” Occasional Papers in International Trade Law and Policy, Business Corporations Act: Recommendations for Revisions of No. 36, (Ottawa: Centre for Trade Policy and Law, The University of S 137,” for MJRA, June 1996. Ottawa and The Norman Paterson School of International Affairs, 62 See Robert Walker, “Shareholder Action: Social Investment’s Next Carleton University, 1995.) Frontier?” SIO Forum, vol. 7, no. 1, February 1997. 49 See Randall Morck and Masao Nakamura, “Banks and Corporate 63 See Principles for Global Corporate Responsibility: Benchmarks for Governance in Canada,” in Ronald J. Daniels and Randall Morck, Measuring Corporate Business Performance, available from the Taskforce Corporate Decision-making in Canada (University of Calgary Press, 1995). on the Churches and Corporate Responsibility. It includes the CERES 50 “Showdown Nears In Japan,” The Globe and Mail, December 5, 1997. Principles and other codes of corporate conduct. 51 For an excellent study of these issues see “The Promotion of 64 For a recent overview of corporate codes of conduct see Craig Active Shareholdership for Corporate Social Responsibility in Forcese, Commerce With Conscience? Human Rights and Corporate Canada,” prepared by Moira Hutchinson for Michael Jantzi Codes of Conduct (Montreal: International Centre for Human Rights Research Associates Inc., November 1996. and Democratic Development, 1997). 52 See Lovernheim v. Iroquois Brands, 618 F. Supp. 554 (D.D.C. 65 See Barbara Calvin, “An Introduction to Micro-Credit and Micro- 1985) and discussions in Richard Roberts, “Shareholder Proposal Finance,” a presentation to Glendon College, York University, Reform—A Search for Objectivity in Rule 14a-8,” 22 Securities February 1996. Regulation Law Journal, 235 at 239 (1994) cited in Owning Up: The 66 Interview with Barbara Calvin, Director, International Case for Making Corporate Managers More Responsive to Shareholder Operations, Calmeadow Foundation, July, 1997, Toronto, Ontario. Values, published by Democracy Watch, Ottawa, March 1997. 67 See Eugene Ellmen, The Canadian Ethical Money Guide (Toronto: 53 Securities Exchange Act of 1934, Release No. 12999, 41 Fed. Reg. James Lorimer & Company, 1996). 52, 994, 52 997 (1976). 54 See Stephen Bainbrige, “Interpreting Nonshareholder Constituency Statues,” 19 Pepperdine Law Review, 971 at 973 (1992) cited in Owning Up: The Case for Making Corporate Managers More Responsive. Note that a broad coalition of groups in the US led by the Social Investment Forum believe that proposed changes to SEC rules will decimate shareholder action there.

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C HAPTER T HREE

ETHICS IN THE MARKETPLACE

T HE M ANUFACTURING S ECTOR

Ann Weston

A NN W ESTON IS V ICE-PRESIDENT AND R ESEARCH

C OORDINATOR AT THE N ORTH-SOUTH I NSTITUTE.

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ETHICS IN THE MARKETPLACE

1 T RADE REQUIRES TRUST, efore you finish eating breakfast this than a fifth in other regions. The expansion of “B morning, you will have depended on manufacturing behind protective tariff barriers, AND THE MORE INTIMATE half the world. This is the way our universe is following the import-substitution model, is not AND COMPREHENSIVE structured...” Most Canadians would agree with as prevalent in the 1990s as it was in the past. Martin Luther King Jr. We would find it quite To succeed today manufacturers must compete GLOBAL TRADING difficult to go through a day without using at in more open markets. And indeed, many devel- BECOMES, THE MORE WE least one product manufactured elsewhere, oping countries have greatly increased their whether it be clothing, an electronic gadget, or exports of manufactures: from 1975 to 1995, the NEED GLOBAL NORMS even processed food. Many of those goods are share of manufactures in developing country 2 FOR GENERATING AND produced in developing countries. exports rose from 28 to 83 percent.

MAINTAINING THAT Increasingly, however, questions are being asked While this expansion is generally lauded, ques- about the way in which these goods are pro- tions have been raised about the distribution of TRUST. duced. Here we examine the role played by the benefits of manufacturing production and Canadian companies, whether as retailers or as some of the associated costs, for the workers, JOHN DALLA COSTA, investors in goods manufactured abroad. We for their physical environment, and for competitors in the informal sector. “MORAL CRISIS BEHIND ASIAN concentrate on the activities of firms with head offices in Canada, on the assumption that they In Canada, manufacturing has had to adjust to MESS,” THE GLOBE AND MAIL, are more likely to be influenced by Canadian many pressures—from changes in production government and public pressure than sub- MARCH 26, 1998 technologies and industrial organization, to sidiaries of American firms. What do they see as new consumer preferences, variable macro- their corporate responsibility toward developing economic policies (notably interest and countries? Have they made special efforts to exchange rates), and domestic market liberali- improve the development impact of their zation. Opportunities have emerged with the manufacturing linkages to the South? reduction of barriers to Canadian manufactures’ We also explore how Canadian consumers and exports, and total output has grown, but workers can use their links to promote better employment in the sector has declined steadily. conditions in the manufacturing sector in devel- Manufacturing jobs fell from 1.9 million in oping countries. Even where the linkages are 1990 to 1.7 million in 1995, barely 16 percent less direct, Canadians can play a part—workers, of total Canadian employment. The largest fall for instance, through their union humanity was in textile products and clothing. The most funds have supported efforts to improve important industry is now transportation, working conditions in other countries. accounting for 13 percent of all manufacturing employment.3

M ANUFACTURING‘ S I MPORTANCE TO THE S OUTH TRADE LINKAGES AND TO C ANADA Trade is the most familiar link between Canada’s Many analysts still consider manufacturing as and developing countries’ manufacturing sectors. the basis for the development of a modern As Table 1 shows, Canada had a trade deficit of economy. In addition to generating employ- US$13.4 billion in overall manufactures trade ment and income, it can help disseminate tech- in 1996, of which some 70 percent was with nologies, knowledge, and skills. It can also developing countries. Manufactures represented create demand for inputs and support services. just more than half of Canadian exports to Approximately one in 10 people in low- and developing countries, but some two-thirds of middle-income countries now work in manufac- our imports from those countries. In the past, turing. Output has grown most rapidly in East our bilateral trade deficit in textiles—especially Asia, where manufacturing now accounts for clothing—was a cause for concern, partly as a one-third of economic output, compared to less result of the falling employment in this industry

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TABLE 1 Trade in Manufactures with Developing Countries (1996, $US billions)

World Developing Africa Asia Of which Latin Of which Countries less Japan China America Mexico Machinery/ Exports 78.67 3.85 0.27 2.31 0.43 1.27 0.38 Transport Equipment Imports 87.22 9.61 0.03 6.07 0.87 3.51 3.30

Textiles/Clothing Exports 2.89 0.17 0.01 0.11 0.00 0.05 0.02 Imports 5.86 2.36 0.04 2.19 0.64 0.13 0.11

Other Consumer Goods Exports 9.94 0.41 0.03 0.25 0.02 0.13 0.02 Imports 16.02 2.89 0.01 2.47 1.47 0.41 0.32

Total Manufactures Exports 125.84 7.60 0.42 4.95 0.83 2.23 0.50 (including others) Imports 139.26 17.11 0.22 12.14 3.38 4.75 3.98

Memo: All Products Exports 201.58 14.44 1.16 9.43 2.09 3.85 0.88 (incl. nonmanufactures) Imports 170.86 23.42 1.52 14.22 3.61 7.68 4.41

Notes: Developing countries include Africa, Asia less Japan, and Latin America. Source: WTO, Annual Report, Geneva, 1997, Table A8.

in Canada. Today, the deficit in machinery INVESTMENT and equipment is nearly three times as large Anecdotal evidence suggests that while the top as that in textiles and clothing, and growing. Canadian manufacturers do a lot of business in Our imports of manufacturing from Mexico— developing countries, it is largely limited to predominantly automobiles and car parts— sales of goods made in Canada or products from exceed our exports by some US$3.5 billion, plants based in other countries. Investment even more than our trade deficit with China. linkages between the Canadian manufacturing As discussed in Chapter 7, much government sector and developing countries are much effort has focused on promoting Canadian murkier, although undoubtedly growing. exports of services and technology, of Most of the discussion in Canada about foreign manufacturing inputs, and of manufactures direct investment (FDI) has dealt with ways of themselves to developing countries. But beyond promoting investment flows into Canada. This is some assistance with marketing and minor considered critical to access new technologies tariff cuts for the least-developed countries, and stimulate domestically owned firms, in addi- there is little discussion in Canada of the tion to ensuring the growth of globally competi- promotion of imports of manufactures from tive Canadian-based companies.5 Even the developing countries. This is probably due to government’s industry-specific strategies make Canada’s existing trade deficit, which may grow little reference to using Canadian direct invest- even faster following cuts in our tariffs and ment abroad (CDIA) as a strategy for increasing quotas resulting from the GATT Uruguay Round competitiveness. An exception is the reference to negotiations.4 manufacturing initiatives and joint ventures in In sharp contrast to the US, there is much Mexico as a mechanism enabling suppliers of less evidence of export processing in Canada— Canadian agricultural technology and equip- that is, sending Canadian components to ment to increase sales.6 Nonetheless, there is developing countries for additional, labour- growing recognition that CDIA is important: this intensive processing, then re-exporting to presumably underlies the government’s enthusi- other countries or re-importing into Canada. asm for negotiating several bilateral investment Nonetheless, it is clear that a number of treaties (many of them with developing coun- Canadian industries are being restructured and tries), as well as the Multilateral Agreement on integrated into a production chain linking Investment (MAI), currently under discussion at plants in many countries around the globe. the Organisation for Economic Co-operation This process has been driven by an acceleration and Development (OECD) (see Box 1). of investment flows, as well as by trade Certainly CDIA has grown faster than inward liberalization. investment in the last decade, although it

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BOX 1 FROM FTA TO MAI.... In the last decade, Canada has participated in without a scientific basis, its actions might be several international agreements which govern challenged under WTO rules by the govern- our trade and investment with other countries. ment of any member country whose exporters These include: are affected. Under the NAFTA, the company itself could challenge the Canadian government • The Canada-US Free Trade Agreement in many instances. (CUSFTA), in effect from 1989 Of course there are exceptions, though whether • The North American Free Trade Agreement these are permanent or should be phased out in (NAFTA), from 1994 the foreseeable future is a matter of some • The World Trade Organization (WTO), debate. In the case of subsidies, for instance, from 1995 governments can continue subsidies to disad- • The Canada-Chile Free Trade Agreement, vantaged regions, or to whole industries, or to from July 1997 cover costs of updating equipment to meet new environmental standards. In general, the WTO • The Canada-Israel Free Trade Agreement, allows developing countries more exceptions from 1997 and longer time-periods than others to respect Canada is also taking part in ongoing negotia- the new rules, although they enjoy less special tions over free trade in the Americas (FTAA), in and differential treatment than was the case Asia-Pacific (within APEC), and under a under the General Agreement on Tariffs and Multilateral Agreement on Investment (MAI), Trade (GATT). For example: as well as contemplating bilateral deals with • The WTO recognizes that subsidies may play Europe and Mercosur, in South America, among an important role in economic development others. programs (Article 27.1 of the Agreement on In many respects these agreements have cre- Subsidies and Countervail Measures). ated new opportunities for Canadian firms to Developing countries can continue to use sell products overseas, or to import goods for subsidies related to privatization of state distribution in the Canadian market. As in the companies (Article 27.13). past, liberalization of markets through tariff cuts • Least-developed countries have seven years has been an important element. Also impor- to abide by the TRIMs rules, and neither they tant, however, are a number of newer elements, nor other developing countries have to fol- including commitments to: low the rules if they have balance of pay- • reduce (arbitrary) government intervention ments problems (Agreement on Trade- in markets, for example, by limiting the use Related Investment Measures, Article 4). of subsidies, anti-dumping duties, or health The debate about how far international rules and sanitary regulations; should limit government action has reached • reduce discrimination against foreign firms, for fever pitch in the context of the MAI negotia- example, banning requirements that foreign tions underway at the OECD in Paris. Although firms use local inputs, hire local managers, only 29 countries are directly involved, a few export a certain amount, transfer technology; large developing countries are observing the and allowing them access to government process, including Brazil. The goal is for the procurement contracts or subsidies; and assembled members and others to eventually sign the agreement, and for its transfer from the • entrench intellectual property rights, that is, OECD to the WTO. to limit copying of products without due payment to companies that developed them. A global treaty would help to rationalize the proliferating and often confusing array of more Some have questioned whether this combina- than 1,200 bilateral and regional investment tion of liberalization and deregulation globally treaties, many of them now involving develop- has gone too far, whether the reduction of gov- ing countries. As US business analyst John Kline ernment controls over markets has given corpo- notes, “the resulting international regulatory rations too much flexibility. For instance, under environment for transnational business threat- CUSFTA and NAFTA, the removal of virtually all ens to become a morass of binding and tariffs has accelerated the rationalization of sev- nonbinding partial instruments that overlap on eral industries and relocation of many factories some issues while leaving broad areas of FDI across borders. The WTO will eventually pro- policy and transnational business activity uncov- hibit all countries, developing as well as devel- ered by effective regulations or guidelines.”1 oped, from linking a company’s imports to its exports of local products, even though ending At the same time, the MAI is clearly intended to these and other types of local content require- raise investment standards—in the sense of ments may reduce the incentive for foreign expanding the scope of obligations on govern- firms to develop backward linkages. ment and, as a corollary, the freedoms granted to companies—going well beyond those agreed in In Canada’s case, if the Canadian government most treaties and certainly beyond those in the failed to treat foreign firms equally or to enforce WTO:2 patents, or if it introduced health standards

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• The definition of investment is much • There is little mention in the MAI of foreign broader. companies’ obligations. Rather, the purpose • Members would be expected to eliminate is to reduce the obligations which government restrictions on foreign ownership (e.g., of can require of them. The OECD Voluntary shares of local companies, or companies in Guidelines for Multinational Enterprise particular sectors), and on the transfer of (agreed in 1976) may be included in the capital and earnings. text. These, however, are not rules but recommendations covering taxation, compe- • They would also have to end requirements for tition, employment and industrial relations, the appointment of nationals to the boards of environmental protection, etc., to help directors of foreign companies or as senior companies ensure that their operations are in managers; and for the transfer of technology. harmony with the national policies of the • Some countries would like culture and a countries within which they operate. number of publicly provided services (e.g., If the OECD countries are able to resolve their health and education) to be excluded from differences and conclude the MAI in May 1998, the agreement. But the bulk of exceptions increased membership would then be sought by would likely be listed by countries in their taking the treaty to the WTO. This would require individual schedules, and future negotiations the support of at least two-thirds of WTO mem- could focus on their elimination, i.e., the bers. At the Ministerial Meeting in Singapore in extension of MAI rules to these areas. December 1996, however, members only tenta- • Disputes may be resolved through inter- tively agreed to create a working group to exam- governmental consultations. Alternatively, as ine the relationship of trade and investment, as in the NAFTA, corporations could sue gov- well as one on trade and competition (including ernments directly if their intellectual property anti-competitive practices). Developing coun- rights or rights to invest and market products tries are likely to hesitate at accepting new limits were considered to be violated. on their policies to maximize the benefits and limit the costs of foreign investment. • The commitments would be binding for much longer—a country could withdraw As Martin Khor of the Third World Network has from the treaty after six months’ notice, but said: “The proposed foreign investment treaty investors operating there at the time would would deprive developing countries of a large be granted MAI rights for another 15 years. part of their economic sovereignty... It removes the rights of states and the powers of govern- • The MAI would limit the discriminatory use ments to regulate foreign investments and of subsidies, e.g., for domestic and not investments in general as well as other key ele- foreign firms. There are no rules yet to limit ments of macroeconomic policy, financial man- let alone phase out, tax breaks and other agement and development planning.”3 incentives, to avoid the costly competition for investments which several developing As the Joint NGO Statement on the MAI notes: countries have experienced. Some OECD “Governments must ensure that they do not countries favour negotiations within three have to pay for the right to set environmental, years on this topic. labour, health and safety standards even if compliance with such regulations imposes signifi- • On labour and the environment, it is pro- cant financial obligations on investors.”4 posed that members would not encourage investments by lowering domestic standards, Nor is it clear that MAI membership is really although this would probably be a “best critical; already in 1996, some US$200 billion of efforts” commitment. It seems unlikely that private capital flowed to developing countries. MAI will go beyond even the limited NAFTA For countries overlooked by these flows, other provisions on these issues, let alone include a types of macroeconomic reform are likely more binding commitment to core international important than acceptance of the MAI in labour standards. attracting investors.

N OTES 1 “International Regulation of Transnational Business: providing the missing leg of global investment standards,” Transnational Corporations, vol. 2, no. 1, February 1993. 2 The following comments are based on the May 1997 draft of the treaty. OECD, Multilateral Agreement on Investment: Consolidated Text and Commentary, Paris, May 1997. DAFFE/MAI(97)1/REV2. 3 “The WTO and the Proposed Multilateral Investment Agreement: Implications for Developing Countries and Proposed Solutions.” Manila: Third World Network, mimeo, 1996 (pp. 18-19). 4 NGO/OECD Consultation on the MAI, Paris, October 27, 1997.

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T HE ALLEGATION THAT remains at about 70 percent of inward invest- in 1993), compared to less than half (49 per- ment stocks. The bulk (some 60 percent) of cent) for all imports.14 Most of the linkages MULTINATIONALS ARE Canadian investment each year is still attracted between US firms at home and in developing

EXPLOITING THE THIRD to the US, but developing countries now countries are vertical, and involve specialization account for some 20 percent of CDIA, to date in different stages of the production and WORLD IS OFTEN some $34.6 billion.7 One problem with this data distribution chain.

MISGUIDED. USUALLY, is that it may not capture the phenomenon of By comparison, most Canadian linkages have strategic alliances which many Canadian com- THE “ EXPLOITATION” been horizontal—Canadian firms produce the panies now consider more important and less 8 same goods abroad as in Canada, but are going CONSISTS OF LETTING risky than FDI for building global capabilities. beyond the small Canadian market to exploit These alliances can involve co-production, co- DEVELOPING COUNTRIES their established expertise in international mar- marketing, cross-licensing, or joint research and kets.15 Some are integrating vertically, however, MAKE USE OF WHAT development (R&D) rather than the creation of transferring lower-skill production to countries a separate entity. ECONOMISTS WOULD with less costly labour while retaining higher- Manufacturing accounts for an important share skill tasks, including R&D and marketing, in CALL SOURCES OF of CDIA, although the level varies according to Canada. While the growth, productivity, and

COMPARATIVE the definition used: from 1986 to 1992, it profit performance of outward-oriented firms accounted for 21 percent of the total flows,9 or has generally been superior to domestically ADVANTAGE— CHEAP 44 percent of the stock in 1991 (this includes oriented firms, their employment growth was

LABOUR, SAY, OR A some resource-based industries such as primary lower—at least for 1986-91—reflecting greater metals and wood/paper),10 down from 56 per- restructuring and rationalization.16 GREATER TOLERANCE OF cent in 1960.11 Generally, it is fair to say that The North American Free Trade Agreement POLLUTION. THAT IS manufacturing is less important than construc- (NAFTA) may increase horizontal trade, as the tion and financial services, but more important HOW POORER COUNTRIES opportunity to produce for the whole North than natural resources even though the latter American market will lead companies to cut the GROW LESS POOR. has recently attracted much media attention. number of product lines made at plants in each Among the top 10 developing-country locations country. There will also be increased vertical for CDIA, five are major exporters of manufac- “COMPANIES AND integration and the closure of inefficient plants tures: Brazil, Singapore, Hong Kong, Indonesia, owned by Canadian multinationals both inside THEIR CONSCIENCES,” and Mexico. Between January 1994 and August and outside North America in cost-driven sec- 1997, Canada invested US$1,427 million in THE ECONOMIST, tors like auto parts and textiles.17 “Vertical link- Mexico: this made Canada the fifth largest ages and alliances with Mexican firms could JULY 20, 1996, P. 16 foreign investor and represented 5 percent of help Canadian firms improve their relative cost total investment in Mexico during that period. and productivity performance.”18 As much as 50 percent of Canada’s investments were in manufacturing; 32 percent were in While Canadian investment in manufacturing financial services; 10 percent in mining; and in developing countries has recently expanded, 8 percent in commerce.12 Three-quarters of the it is not new. The Bata Shoe Organization com- manufacturing investments were in food, panies have produced shoes in developing beverages, and tobacco. countries for many years—it has been in India for 65 years, for example. Its investments in Of the top 20 outward-oriented Canadian-based Zambia, Cameroon, and Madagascar in the firms (that is, those with the largest foreign 1970s were supported by the International assets), only seven are in manufacturing: Finance Corporation.19 In 1997, Bata produced Seagram Company Ltd (food and other prod- shoes and hosiery in 60 countries—43 of them ucts); Thomson Corporation, Moore developing—and employed some 57,000 peo- Corporation Ltd, and Thomson Newspapers ple.20 Seagram has produced rum in Jamaica and (printing and publishing); Northern Telecom Puerto Rico since the 1930s, moving into Ltd (Nortel) (communications equipment); Argentina in the 1960s, and into Brazil, Mexico, Noranda Inc. (lumber and wood); and and Venezuela by 1979. Massey Ferguson had a Bombardier Inc. (aircraft and parts).13 joint venture in India from 1961, produced Manufacturing accounts for a much larger share tractors in Mexico from 1966, was in South of US FDI today. Certainly the importance of Africa and Argentina from the early 1960s, and foreign subsidiaries is underlined by the fact in Peru from 1973. Before its collapse in 1976, that intra-firm imports account for nearly two- it was the leading producer of farm machinery thirds of US manufactures imports (63 percent in Brazil, Mexico, and Argentina.21

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Nortel’s first plant outside Canada was a joint oping country firms. For instance, final assem- venture with the Government of Turkey in bly of transit vehicles for Bombardier Inc. now 1969. It established a pilot plant in Malaysia in occurs in Malaysia.28 The Xian Aircraft 1973, bought factories in Brazil in 1976, and in Company in China has manufactured sub- 1981 entered a joint venture in Mexico to assemblies for Canadair CL-215 and CL-415 assemble telecommunications equipment.22 amphibious aircraft since 1980, while Shenyang Nortel also owns factories in China, Malaysia, Aircraft Company makes doors for Bombardier’s and Thailand. Its plants in China, for instance, de Havilland Dash-8 planes.29 produce telephone switches, semiconductors, In the food processing industry, there are a integrated circuits, and other telecommunica- number of Canadian companies with overseas tions equipment. According to the Canadian franchises—Con Agra Inc. has Country Style Auto Workers, some of these foreign facilities Donut outlets in Thailand, while there are Saint have replaced production in Canada.23 Only Cinnamon Bakery Ltd outlets in Korea and two of Magna International Inc.’s 118 manu- Indonesia.30 Yogen Fruz World-Wide Inc. from facturing operations and 20 product develop- Markham, Ontario has nearly 3,500 outlets in ment units, with 32,000 employees, are in 80 countries, including at least 30 in Latin developing countries—Mexico and, since 1996, America, Asia, Africa, and the Middle East.31 China.24 In December 1997 Magna announced plans to produce engine parts in Brazil through Although the number of Canadian clothing its ownership of Tesma International Inc.25 manufacturers with plants in Canada has shrunk, Bombardier Inc. has a plant at Sahagun, only a few have relocated some of their produc- Mexico. tion to developing countries—Vogue Bras and Pimlico Apparel Ltd which now operate in Dominion Textile Inc. has had plants in Tunisia Mexico, for example—and a few to the US.32 and Hong Kong since 1981 and in 1991, This is in sharp contrast to the restructuring of through a French company, built a nonwovens the US industry which has involved many plant in Malaysia to supply the Far Eastern mar- companies moving assembly operations offshore. ket. Another nonwovens plant using state-of- The share of the Canadian clothing market the-art technology is being built in Argentina by supplied by foreign-owned firms in developing its US-based subsidiary, at a cost of $45 million, countries and in the US has grown sharply. to supply South American hygiene markets, in particular the Mercosur trade zone.26 CONTRIBUTION TO DEVELOPMENT Canada Malting Co. Limited has a plant in Argentina and soon will expand to other parts Developing countries court foreign direct invest- of South America as well as to China. John ment to provide the finance, technology, Labatt Limited has had shares in a brewery in training, and often market outlets, needed to Mexico since 1994. Cott Corporation has inter- generate employment and exports. Canadian ests in bottling operations in South Africa. In investment in manufacturing in developing China, Maple Leaf Foods Inc. bought shares in a countries, such as it is, is probably as focused on hog feed mill in 1996 to promote sales of its supplying their domestic market with goods and “shure-gain” feed. Chai-Na-Ta Corporation, services as on exports. For companies such as which grows ginseng in Ontario, has shares in Bata, production for local consumption remains two Chinese companies where Canadian gin- a clear priority. In contrast, companies such as seng is processed into tonics and pharmaceuti- Magna in Mexico, Dominion Textile in Tunisia, cals. In 1996 McCain Foods Limited built a and McCain’s in Argentina produce for export french fry factory—reportedly the first in Latin regionally or back to North America. America—in Argentina at a cost of $35 million. In addition to the usual questions about the As much as 80 percent of the 110 tons of daily amount of capital invested, technology trans- output is to be sold in Brazil, primarily through ferred, labour hired and trained, and goods pro- fast-food outlets (bypassing the 14 percent duced, many other issues need to be considered: Brazilian tariff on imports from Canada).27 the appropriateness of the technology, training, In addition to direct investment, Canadian and products; working conditions and environ- manufacturing companies have entered into an mental practices; backward linkages; pricing and increasing number of subcontracting relation- transfer pricing; competition with local firms for ships for the final assembly or their products, or scarce local resources and customers; the com- the local production of components, by devel- pany’s relationship to the government through

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payment of taxes; and, more generally, its rela- ozone-depleting substances (chlorofluorocar- tionship to the community—for example, bons or CFCs) in the cleaning of semiconduc- through charitable donations. tors by citric acid, led to an 85 percent reduction in Nortel’s own CFC use. Countries to Recent assessments have been cautious about which the technology was released include the impacts of FDI on development. As the Brazil, China, India, Mexico, and Turkey.36 By International Monetary Fund (IMF) noted: the year 2000, Nortel aims to halve its total pol- “There is no reason why, in principle, the posi- lutant releases and solid nonhazardous waste, tive effects should be dominated by the nega- reduce its paper purchases by 30 percent, and tive effects or vice versa. This indeterminacy is, raise its energy efficiency (but not its total perhaps, why debate about the multinational energy use) by 10 percent.37 corporation has long been lively and subject to ‘sea change’.”33 A recent report by the secre- Nortel has also sponsored an annual Canadian tariat of the UN Conference on Trade and Award for International Development for the Development (UNCTAD) suggests that not all advancement of technical capability. The 1997 countries can benefit from technology transfer winner was Thiessen Equipment Ltd of British and other spillovers. Rather, this will depend Columbia for developing a method for repairing, on the level of development and local govern- recycling, and producing stronger drills used in ment policies: “there is a threshold level of mining in Chile, thus reducing metal waste.38 income before FDI can make a significant contribution to overall growth performance. [...] IN ENVIRONMENTAL PROTECTION The general body of evidence suggests that the In response to concerns about water pollution, nature and extent of any spillovers to domestic Bata built its tannery in Bangladesh to environ- firms is industry-specific and depends on how mental standards which were far more stringent domestic policymakers manage FDI.”34 than local guidelines, and in full compliance Moreover, the new production technologies with those of the World Bank.39 may allow FDI to be even less locally integrated: In the Solomon Islands where it has engaged in “the determinants and organization of FDI flows fish catching and processing since 1990, British have become complex[...]. The consequence Columbia Packers Ltd, a George Weston may well be that FDI becomes more footloose subsidiary, has introduced “dolphin-friendly” than in the past, relying heavily on imported catching methods to comply with US legisla- inputs from other affiliates and with fewer link- tion, as well as various programs to reduce and ages with and technological spillovers to the recycle waste.40 Questions must be asked, how- host economy.” Whether FDI and increased ever, about the long-term viability of Canadian trade lead to higher wages in manufacturing catching methods in countries such as China, may partly depend on measures, such as educa- South Africa, and Namibia where the Canadian tion policies, to enhance labour productivity. processing industry is seeking raw materials and But even this may be weakened by what Industry Canada has called on Canadian mis- UNCTAD calls “the stronger bargaining power sions to support “business sourcing strategies.”41 of capital against labour associated with globalization.”35 A number of companies report that they adhere to the same environmental standards in their Compared to the substantial literature on the developing country operations as in Canada. operations of US multinationals, there is a Premdor Inc., one the world’s largest manufac- dearth of publicly available information about turers of wood and steel doors, is one of them. Canadian companies involved in manufacturing Premdor requires its plant managers in Mexico in developing countries. What follows are a few and in Canada to report on environmental examples of their practices, both good and not- performance to the Canadian head office: these so-good, in a number of areas. reports are subjected to environmental audits. In some cases, however, even these standards IN TECHNOLOGY TRANSFER have been questioned. For instance, Royal Northern Telecom (Nortel) showed leadership in Group Technologies Ltd, which produces poly- its decision to disseminate free of charge, vinyl chloride or PVC doors and other building through the UN Environment Programme, an products in Argentina, Colombia, China, and environmentally important innovation. This Mexico, has been criticized for its promotion of technology, which involved the replacement of PVC which is the largest end use of chlorine and

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which Greenpeace is seeking to ban internation- IN INDUSTRIAL DEVELOPMENT ally. To its credit, Royal Group has chosen to use Bata has been involved in an initiative to pro- organo-tin as a stabilizer, whereas many other mote decentralized industrial development in PVC producers use heavy metals such as lead northeast Thailand, thereby reducing conges- and cadmium. It also operates a major PVC tion in Bangkok and increasing employment recycling plant.42 opportunities in one of the country’s poorest regions. The Thai Business Initiative in Rural IN LABOUR PRACTICES W E AUDIT OUR Development (TBIRD), launched in 1989 by the

In the case of autoparts, sociologist Kathryn Thai Population and Community Development CONTRACTORS” SAYS Kopinak’s survey found one Canadian company Association (PDA) in collaboration with the A BE G LOWINSKY, had not transferred new technologies to its two Thai Chamber of Commerce, has received sup-

plants in the Nogales region of Mexico. In fact, port from CIDA and other donors. PDA has bro- P RESIDENT OF some of the higher skilled jobs were returned to kered partnerships between companies and I NCREDIBLE C LOTHING Tillsonburg, Ontario following customer com- communities: these usually involve training,

plaints about the defect rate at the Mexican infrastructure development, and the provision IN T ORONTO,“AND IN plants. As the company’s CEO explained: of small loan funds for the establishment of cot- TURN WE ARE AUDITED “Tillsonburg is becoming the brains of our oper- tage industries or small-scale enterprises whose

ation and our facilities in Mexico couldn’t exist output is purchased by a partner company. BY OUR CUSTOMERS. without it. We found that with smaller produc- Since it began working with TBIRD in 1990, Bata T HEY ARE CONCERNED tion runs and more technical work, we could do 43 has helped create four producer cooperatives it better here.” Kopinak concludes that: “It ABOUT EMPLOYEE where several hundred workers—including many cannot be said... that simple assembly is disap- young women—make shoes. Bata provides SAFETY, CHILD LABOUR pearing among maquila industries. The new inputs, technology, and training and purchases labour process with work teams, quality-control AND THE ENVIRONMENT. the finished products.47 Although wages are sim- circles, and rotation of multiskilled workers has ilar to those in Bangkok (about $8.90 daily or not been implemented. Most workers have jobs CANADIAN APPAREL 27 percent above the minimum wage), the lower that are considered low-skilled.”44 property costs and relatively high productivity FEDERATION, Other labour practices in two plants owned by are projected to keep the shoe industry in “APPAREL ONTARIO,” the same company were also criticized. In both, Thailand competitive with factories in Vietnam,

shift quotas were constantly raised and job defi- China, and Indonesia for at least another eight APPAREL CANADA, nitions expanded, while real wages were cut to 10 years.48 The 1997 decision by another 40 SPRING 1997, P. 5 more drastically than in other plants.45 The companies, including Nike Inc., to move to this company responded to complaints by threaten- region is proof of the strategy‘s success. ing to move more jobs back to Canada. Finally, Bata’s involvement has earned the company backward linkages were weak, with the com- credit in such circles as The Prince of Wales pany buying very few goods or services locally. Business Leaders Forum.49 The role of an orga- Workers at Custom Trim Ltd’s plants in Mexico nization like PDA has probably been most criti- have also complained of unfair treatment. In cal in ensuring that the right structures are in May 1997 workers at the Valle Hermoso plant place to maximize the social benefits from the (Custom Trim has five other maquila plants— introduction of export-led production in the one in Matamoros, three in Contro Ramirez, region. This may provide a model that the and one at Ciudad Victoria) organized wildcat Canadian private sector and government could strikes. Despite a settlement, including a com- support to improve the extremely harsh condi- mitment of no reprisals, 28 workers were fired. tions facing workers in some of the newer eco- One of the workers who visited Canada in nomic zones. Such intervention cannot remove August 1997 on a speaking tour organized by the risks of producing for increasingly competi- the Canadian branch of the United Steelworkers tive global markets, however, and there will of America (which represents workers at the always be scope for improving environmental company’s Waterloo plant), was subjected to and labour standards. intimidation and death threats on his return to Mexico. Another worker at the Matamoros plant IN COMMUNITY DEVELOPMENT was fired after falling behind in production Many Canadian companies with foreign sub- because of work-related injuries.46 sidiaries make charitable contributions—at least to organizations based in Canada. For instance,

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T HE L ABOUR BEHIND Magna International’s Corporate Constitution • Magna has had an “Employee’s Charter” since includes a commitment to allocate up to 1988, based on fairness and concern for peo- THE L ABEL C OALITION 2 percent of its pre-tax profits “for charitable, ple. It includes a commitment to promote job

(LBLC) HAS CALLED ON cultural, educational and political purposes to security (for example, through training to support the basic fabric of society” and at least ensure products remain competitively priced); THE G OVERNMENT OF 7 percent for research and development.50 Since a safe and “healthful” working environment;

C ANADA TO FOLLOW 1974 Dominion Textile has given aid to some fair treatment (“equal employment opportu- 70 Canadian charitable and nonprofit organiza- nities based on an individual’s qualifications THE EXAMPLE OF THE tions located in communities where its employ- and performance, free from discrimination or

US BY LAUNCHING A ees live and work. Through the Canadian favouritism”); and competitive wages and Imagine Caring Company program, Dominion benefits. Magna also believes that every PROCESS TO DEAL WITH Textile and Bata, among others, are committed employee should own company shares.

THE PROBLEM OF to donating at least 1 percent of their Canadian Finally, it endeavours to provide employees pre-tax profits to philanthropic causes—this with information about developments in the APPAREL SWEATSHOPS amounted to nearly $140,000 for Dominion company and the industry.54 Only two of 51 IN C ANADA AND Textile in 1997. Magna’s North American plants are unionized: instead, grievances are reviewed by IMPORTS MADE IN Similar efforts need to be made for developing in-plant fairness committees.55 In Mexico, country communities in which Canadian SWEATSHOP CONDITIONS however, Autotek, a Magna subsidiary, is corporations operate, both on a voluntary basis fully unionized and workers receive various IN EXPORT PROCESSING and through the payment of taxes. For instance, benefits, such as a special medical plan. They companies might consider supporting the ZONES IN A SIA AND are also entitled to 10 percent of Autotek’s creation of health clinics within their factories profits, as required by Mexican law.56 L ATIN A MERICA. or the communities where their workers live. Bata has a long tradition of promoting its • Nortel believes it should show ethical leader- LBLC—A COALITION OF workers’ welfare, for example, through health or ship in the global community: “Employees,

C ANADIAN LABOUR, educational services. It also supports various shareholders, customers, and suppliers are local community projects. However, this tends not the only stakeholders in Nortel activi- COMMUNITY, RELIGIOUS to be on an ad hoc basis linked to local needs ties—the corporation has broader social

AND INTERNATIONAL rather than an explicit strategy, mechanically obligations as well. A global corporation faces linked to profit levels. a special challenge: to uphold consistent cor- DEVELOPMENT GROUPS— porate standards of ethical business conduct,

WANTS THE GOVERN- while also respecting the culture and varying C ODES OF C ONDUCT: business customs of every community and MENT TO CONVENE A E THICS IN THE M ARKETPLACE country in which it operates.” In regards to

TASK FORCE OF INDUS- Increasingly, Canada‘s manufacturing compa- employees, it commits to “treating individu- nies are introducing codes covering ethical, als with respect, following fair and equitable TRY, UNION AND HUMAN environmental, and labour practices in all their employment practices, and protecting and

RIGHTS ORGANIZATIONS operations, whether in Canada or abroad. Here enhancing employee health and safety.” In are some examples: addition, it is committed to seven core values: TO DISCUSS THESE respecting national and local priorities; • Dominion Textile requires outside contractors ISSUES. contributing to the well-being of local com- to comply with its environmental policy and munities; using corporate power responsibly standards; it conducts health and safety audits LETTER FROM ROBERT in relation to the political process; protecting at each of its plants; and its code on business and enhancing the environment; competing JEFFCOTT, LBLC STEERING ethics—in place since 1990—is reviewed annu- in an ethical and legitimate manner; support- ally by senior management. The company COMMITTEE, TO PRIME ing the international scientific community; apparently applies environmental and labour and ensuring accountability to a broad range MINISTER JEAN CHRÉTIEN, standards developed for Canada in countries of stakeholder groups.57 where national standards are lower.52 In 1997, MAY 8, 1997 it received a Canadian government award for • Spar Aerospace Ltd has a relatively narrow its efforts to reduce the use of greenhouse gas code limited to relations with suppliers and emissions. Also in 1997, the Social Investment employees and using host country Organization and the Financial Post Magazine standards.58 cited Dominion Textile as one of 50 major • While some of Bata’s literature stresses the companies quoted on the Toronto Stock safety of its products and of workers using its Exchange that have demonstrated leadership products,59 it is also Bata’s stated policy to as corporate citizens.53

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“provide equality of opportunity without dis- About standards: Is there scope for gradual crimination, to promote on merit.”60 Its improvement? toward an international unpublished code, introduced more than a norm, for instance? or toward Canadian decade ago, sets out strict policies for suppli- norms where these are higher? ers, as well as its own operations; for instance About coverage: Are they applied to all factories Bata tries to ensure that its suppliers do not including minority shareholdings and use child labour.61 contractors? While such efforts are an important step toward About monitoring: Is this undertaken by indepen- increasing accountability, they often raise many dent agencies and with public reporting? questions:

BOX 2 WORKING TOGETHER ON RIGHTS Canadian and other unions have been active in the fight for workers’ rights, globally. As the President of the Canadian Labour Congress (CLC), Bob White, said when he launched the CLC’s “Break the Sweat” campaign in 1997: “Sweatshops are as unacceptable now as they were a hundred years ago and it is our responsibility to uphold workers’ rights here and around the world.”1 Several unions—both national (predominantly in the North) and international—have been working in various ways to promote labour standards internationally, whether through linkages with international trade agreements, codes of conduct, collective bargaining, or even training. For many years, for example, the International Textile, Garment, and Leather Workers’ Federation has pressed for improved conditions and respect for human rights in these manufacturing industries.2 The International Confederation of Free Trade Unions (ICFTU) developed a model code of conduct which the International Federation of Football Association (FIFA) used in 1996 to set standards for suppliers making FIFA-licensed products. These include a ban on child labour, fair wages, and decent working conditions. Licensees must allow inspections at any time, and the ICFTU and other unions will be involved in policing the agreement.3 An international toy industry code introduced in 1996, however, has been criticized by some unions in producing countries as giving too much emphasis to child and prison labour rather than to the right to organize and bargain collectively, and for failing to incorporate independent monitoring.4 In the US, one union has negotiated a contract with certain employers which includes overseas human rights considerations. In 1995, the textile workers’ union (now UNITE) and the Clothing Manufacturers’ Association negotiated a national agreement with standards to be applied by certain employers when making or even buying certain products internationally. The rights cover wages, hours, forced labour, child labour, freedom of association, nondiscrimination, health, and safety.5 In the case of repeated violations, the union can ask for early remedial action or, failing this, binding arbitration in the US, including a recommendation that the company stop purchasing products from foreign manufacturers unable to comply with the standards.6 While this is an interesting precedent, it may not be very effective given the limited product coverage, as well as the union’s weak monitoring provisions and overseas capacity. This approach has not yet been tried in the Canadian manufacturing sector, although certain unions have begun informal discussions with workers in Brazil and other countries about the scope for transnational collective bargaining. In the early 1990s, the Communications Workers of Canada (now the Communications, Energy, and Paperworkers—CEP—Union of Canada) joined with unions in other countries to coordinate organizing and bargaining with Northern Telecom.7 In December 1997, the 180,000-strong Canadian Steelworkers formalized a strategic alliance with Mexico’s new Authentic Labour Front or FAT (Frente Autentico del Trabajo) which has 50,000 members.8 In the automobile sector, the Canadian Auto Workers’ Union, supported by the CAW Social Justice Fund, has offered health and safety training to Mexican workers belonging to some 25 reform unions in the public and private sectors.9 The Steelworkers have organized solidarity tours for Mexican workers from Custom Trim maquila plants. This company has cut employment at its plant in Waterloo, Ontario while expanding production at six plants in Mexico.10 The CEP Humanity Fund has supported groups in Mexican and Central American maquilas that are organizing to improve the rights and working conditions of workers producing garments, electronics, and other manufactures. Several solidarity initiatives have involved workers from Canada and developing countries employed by the same foreign company. A number of Canadian and US unions have joined FAT, for example, to protest the intimidation of unionization efforts at a Mexican auto parts factory belonging to US-based Echlin Inc., and launched actions against the nonenforcement of labour rights in Mexico under the NAFTA labour side-agreement.11 Through Echlin’s shareholders they have also pressed for the company to adopt a corporate code that would include workers’ rights to organize and collective bargaining.

N OTES 1 CLC, CLC-Hot Issues, 1997at http://www.clc-ctc.ca p. 1. 2 Jean-Paul Sajhau, Business Ethics in the Textile, Clothing and Footwear Industries: Codes of Conduct (Geneva: ILO, 1997), p. 3. 3 CLC, The Morning NAFTA, Ottawa, December 1996. 4 Craig Forcese, Putting Conscience into Commerce: Strategies for Making Human Rights Business as Usual (Montreal: ICHRDD, 1997), p. 39. 5 Sajhau, p. 4. 6 Forcese, p. 60. 7 Interview with Gary Cwitco, Communications, Energy, and Paperworkers Union of Canada (CEP), February 1998. 8 Interview with Gerry Barr, United Steelworkers of America-Canada (USWA), December 1997. 9 Canadian Auto Workers (CAW), Safety and Environment Newsletter, vol. 5, no. 4, April 1997, pp. 9-10. 10 USWA-Canada, News Release, “Steelworkers Sponsor Visit by Mexican Workers Fired by Canadian Company,” August 14, 1997. 11 US Department of Labor, Bureau of International Labor Affairs, 1998.

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About enforcement: What action is taken if for technological cooperation, training, and standards are found to fall below target levels? capacity building in the countries where they have investments. They will also ensure consis- Too often companies develop these codes with tency in their workplaces, with universally little consultation about their content or imple- accepted labour standards. Each company is mentation with groups working on labour rights expected to develop its own operational code or or environmental standards in Canada, let alone practices consistent with these overall guidelines. in the developing countries where they operate. Clearly this is only a beginning—further efforts Many Canadian companies view corporate codes are needed to elaborate the code, notably to as part of good business practices, regardless of clarify which International Labour Organization where they operate. In a number of cases, how- (ILO) standards will be adhered to, how the ever, pressure from US client companies—them- code is to be monitored and enforced, and how selves under pressure from labour, human rights, accountable firms will be. There is not yet any and consumer organizations—has provided an suggestion that an external monitoring agency added incentive. Some of Dominion Textile’s stan- should be used, or that the reports of such an dards on the environment and ethics, for agency should be made public. It should be instance, are needed to comply with requirements noted that even when such evaluations are car- of customers such as Levi Strauss & Co. Inc.62 ried out, however, they may not be conclusive: In September 1997, 13 Canadian companies for example, the overall positive evaluation of with international operations initiated an Nike labour practices, reported recently, was International Code of Ethics for Canadian rejected by labour and human rights groups Business (see Chapter 1, p. 16). Drawing on a who considered the methodology flawed.63 common vision, beliefs, and values, the code sets The Canadian government might consider hon- out a number of principles relating to commu- ouring those Canadian multinational companies nity participation and environmental protection, with the most comprehensive and well-imple- human rights, business conduct, employee rights, mented codes of conduct for their overseas activ- and health and safety. For instance, signatory ities. This would build on a US precedent where companies are expected to provide opportunities the Commerce Department awards American

BOX 3 CANADIANS AGAINST CHILD LABOUR In 1997, the Canadian government launched a “child labour challenge fund” which is intended to assist manufacturers, particularly smaller ones, and business associations develop plans for the eventual elimination of child labour.1 This followed the recommendation by a parliamentary committee that the government encourage the creation of private-sector taskforces (composed of overseas business partners, local communities, and civil society groups) on labour practices in those sectors where there is significant exploitation of child workers.2 Up to $200,000 annually will be available over two years in matching funds (of $10,000 to $50,000 each) for projects that involve NGOs, unions, and academics in Canada and abroad. Eligible initiatives include research and training in the development of voluntary guidelines, codes of conduct, and consumer labeling practices. Proposals will be considered by a committee chaired by Senator Landon Pearson, Foreign Affairs Minister Lloyd Axworthy’s special advisor on children’s issues, and which includes representatives from labour, the NGO community, and business. Such funds could, for instance, have been used to support efforts by the international football association (FIFA) to develop a code of labour practice for the production of soccer balls. The parliamentary committee also stressed that child labour in the manufacture of exports is the tip of the iceberg—many more children work in services and agriculture, or to produce goods for domestic consumption. To address the causes of child labour, a comprehensive strategy is needed, in which trade measures can only play a symbolic part. Canada already supports other initiatives, such as the ILO’s International Program on the Elimination of Child Labour (IPEC).3 Nonetheless, the committee also recommended that the government implement the Rugmark scheme (which identifies carpets as being made without child labour) for an initial two-year period.4 It will then be assessed before the government proceeds with an independently monitored product certification and inspection system for goods whose production is identified with child exploitation. The committee also recommended that, should the adoption of a voluntary set of guidelines prove ineffectual, the government consider introducing legislation.5

N OTES 1 DFAIT, Press Release, No. 78, “Child Labour Challenge Fund,” April 23, 1997 and October 9, 1997 at http://www. dfait-maeci.gc.ca 2 Canada, Standing Committee on Foreign Affairs and International Trade (SCFAIT), Sub-Committee on Sustainable Human Development, Ending Child Labour Exploitation, Ottawa, 1997, p. 43. 3 CIDA, Political and Social Policies Division, Policy Branch, Approaches to Child Labour, Hull, January 1997. 4 Canada, SCFAIT, Ending Child Labour Exploitation, p. 40. Some retailers in Canada support an initiative known as “Care and Fair” which encourages producers, suppliers, and consumers not to deal with carpets made with child labour, primarily through the distribution of literature. It also seeks to raise funding for programs to benefit children. 5 Ibid., p. 42.

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companies that best meet the 1995 Model Zellers’ company policy of not sourcing gar- Business Principles.64 Another approach would ments in factories that employ child labour.67 be to ask the Ottawa-based International The National Action Committee on the Status of Development Research Centre (IDRC) to create a Women has picketed Canadian toy stores to “Manufacturing and Sustainable Development in protest against poor labour conditions of workers, Asia” initiative, analogous to their recent initia- mostly women, in foreign toy factories.68 tive on mining in Latin America (see Chapter 4, Some have called for a buycott rather than a . . . IF A MERE TWO p. 79). This could bring representatives from boycott—the adoption of positive measures to internationally active Canadian manufacturing PERCENT OF CONSUMERS encourage trade with companies that meet companies together with labour and environmen- certain international norms. This is the strategy BECAME MORE VOCAL tal groups, from both developing countries and pursued by most “fair trade” organizations such Canada, to promote labour and environmental ABOUT THEIR ETHICS, as the Fairtrade Labelling Organization practices, as well as other measures that International and Transfair Canada, which have THEY COULD PRESSURE contribute to local development. each developed registers of fair trade organiza- MANUFACTURERS TO While it is important that companies assume tions (such as coffee cooperatives) and certified greater responsibility for their activities and food products, including coffee, tea, and honey.69 ADOPT FAIRER TRADE those of their suppliers, there are a number of The Bay has a business ethics policy, but no sys- PRACTICES. issues to consider. One concern must be the tem for monitoring its sourcing abroad that is extent to which this new approach would divert open to independent external auditing. It is left resources and attention from enhancing the role HOWARD ESBIN, to Bangalore and/or Hong Kong regional offices of the ILO and national governments. The prolif- to determine whether suppliers meet certain BRIDGEHEAD INC., eration of codes could also pose a problem. For human rights criteria.70 The Bay does, however, example, differences could create compliance QUOTED IN SUSAN SEMENAK, try to ensure that its suppliers apply national difficulties for developing country manufacturers standards in host countries, unless they are “BUYING GOODS, WITH A making goods for more than one company. The unconscionably low. The Bay is reported to be codes will also complicate the introduction of SIDE OF ETHICS,” developing a stricter code with the Retail social labeling schemes, whether by the ILO65 or Council of Canada and the ILO.71 It appears THE OTTAWA CITIZEN, nationally. For this reason, some have favoured that the planned code will be quite comprehen- the development of industry or sector-wide AUGUST 11, 1997, P. C3 sive, covering issues such as unionization, child codes, such as that recently agreed with US labour, relations with communities, environ- clothing manufacturers.66 mental protection, and product safety, as well as the full range of independent inspection/ THE CONSUMER CONNECTION enforcement mechanisms.72 While Canadian direct investment in manufac- In response to pressure from its members, the tures in developing countries may be relatively Mountain Equipment Co-op (MEC) introduced limited, Canadians as consumers—and Canadians a sourcing policy in 1997. This gives priority to companies as retailers—have many linkages to Canadian manufacturers and others that are manufacturing in developing countries. proactive in improving the living standards of their employees, are socially responsible, and/or In Canada, campaigns such as the “Clean are cooperatives. They must also meet MEC’s Clothes” of 1993-94—and more recently the product standards. MEC may also provide finan- Labour Behind the Label Coalition led by the cial and technical support and training to help garment workers’ union (the Union of develop their businesses and meet MEC specifi- Needletrades and Industrial Textile Employees cations. The standards with which suppliers are or UNITE)—try to increase retailers‘ responsibility expected to comply include nondiscriminatory for the conditions in factories producing the and nonexploitative employment practices; no goods they sell. For example, they have endeav- forced labour or physical/mental disciplinary oured to persuade them not to sell goods made tactics; compliance with national wages, bene- under very oppressive conditions in Burma. fits, and working conditions, even if the pro- Although most firms in joint investments with ducer is in a “protected zone” which exempts it Burma’s military regime are based in Thailand from these national standards; and enlightened or Hong Kong, a recent report found clothes environmental and packaging standards. There from Burma being sold by Sears Canada Inc., is no reference to respect for trade union rights, Hudson’s Bay Co., Reitmans Canada Ltd, Tip nor to minimum or adequate wages. Suppliers Top Tailors, and even Zellers Inc., despite are expected to agree to inspection visits at any

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W E ARE BEING MADE time, including by external monitors, with can- Conduct for clothing and shoe manufacturers cellation of contracts if they fail to meet the operating in the US and overseas. Companies TO WORK BOTH NIGHT standards. The broad wording used, however, will be allowed to use a “No Sweat” label, pro- AND DAY, LIKE leaves considerable scope for interpretation by vided they meet the following standards: pay- MEC buyers. MEC management is developing ment of a minimum wage according to national BUFFALOES TETHERED more detailed guidelines.73 standards; a maximum work week of 60 hours; TO TREES. NOT A at least one day off a week; no child labour, Additional pressure has also been generated by prison labour, or physical abuse. The conditions SINGLE MOMENT OF THE the US “No Sweat” campaign launched in May are to be audited by an independent monitor. 1997. Discussions by major retailing and manu- DAY IS THERE FOR REST. These efforts have been criticized as too weak: facturing companies with officials, trade unions, certainly, both the standards and the monitoring T HE MOTORS OF THESE and human rights groups led to a US Code of processes could be taken considerably

MACHINES BECOME

HEATED LIKE FURNACES. BOX 4 INITIATIVES OF THE CANADIAN APPAREL FEDERATION T HE SUPERVISORY STAFF The Canadian Apparel Federation (CAF), the national industry association representing apparel producers, has launched several initiatives to protect the rights of workers overseas. It also ARE NEVER SATISFIED encourages members to develop labour policies by organizing workshops and preparing a general policy manual. This would help promote best human resources practices in the industry and HOWEVER MUCH WE help companies comply with provincial labour laws.

PRODUCE. In addition, the CAF has commissioned a Swiss company, the Société Générale de Surveillance (SGS), to help define a social accountability process including certification, monitoring, and

WORKER IN A FACTORY IN A enforcement. This would draw on SGS’ work in compiling international and corporate standards and codes, and in advising other companies in this area (including, somewhat ironically, The 1 FREE TRADE ZONE IN Walt Disney Co. which has recently been heavily criticized for its purchasing practices). A case could perhaps be made for the development of a universal standard in this area through the SRI LANKA, TAKEN FROM International Standards Organization (ISO)—analogous to the ISO standards for the environment, for instance.2 WOMEN WORKING To demonstrate their commitment to fair labour practices, the CAF has developed a statement WORLDWIDE, AT of responsibility on human rights and labour standards which could be used as the basis for an industry-wide code of conduct: HTTP://WWW.POPTEL.ORG.UK “Members of the Canadian Apparel Federation are committed to the fair and rational practice of business in Canada and abroad. Basic to this commitment is the fair and equitable treatment of employees in the wages, working conditions, and benefits. In no case do we support the use of child labour, prison labour, discrimination based on age, race, national origin, gender or religion, the violation of legal or moral rights of employees, or destruc- tion or harm to the environment.”3 Some clothing manufacturers would like provincial labour ministries to increase their involvement in many ways, notably by more active enforcement of laws and more expedient inspections, as well as by teaching workers and employers about their rights and obligations. This is considered necessary to change the public’s perception of homeworking as a violation of workers’ rights. Others favour the introduction of a licensing scheme for both domestic and overseas contractors.4 This would require the support of retailers—notably through the Retail Council— many of whom buy directly from suppliers abroad or subcontractors in Canada. To ensure consistency across Canada, the CAF would like the federal government to specify certain minimum standards. This would also help diffuse criticism of the CAF for its standards which some consider too high and others too low, as well as for its involvement in monitoring and enforcement. Information on violators would need to be publicly available: this has not been Canadian practice, but there is a move within NAFTA for all three member countries to share this information publicly. Although some incentive is needed to ensure adherence to the code, the CAF wants to avoid a code of compliance which automatically terminates contracts with factories (and workers/ communities) if the code is violated. A recent Canadian example involved Woolworth which cut off purchases from two contracting firms, Unité Fashions and Well Trend, whose homeworking practices were alleged to have violated Ontario labour standards.5

N OTES 1 See CLC, CLC-Hot Issues, 1997. 2 In late 1997, the US Council on Economic Priorities launched such a standard for ethical sourcing known as Social Accountability 8000 or SA8000. Financial Times, December 12, 1997. 3 Canadian Apparel Federation (CAF), Apparel Canada, Spring 1997 http://www.apparel.org 4 Ibid. 5 The Toronto Star, June 16, 1997.

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further. For example, they could include interna- number have adopted codes of conduct. But tional norms and nonprofit, locally based moni- there is considerable room for improvement in tors, rather than accounting companies alone.74 the scope, standards, and process for creating, Nor is it clear what action will be taken should monitoring, and enforcing them. producers fail to comply with the standards. 2 INVOLVE STAKEHOLDERS Building on this work, the US Department of Labor now publishes a list of “Trendsetters”— In particular, more public and regular stock- J ONES A PPAREL G ROUP those US retail companies that have agreed to taking of corporate performance is needed, as USES CONTRACTORS ensure that their suppliers do not use sweatshop well as early involvement of local groups labour.75 This approach could be adopted by the (unions, human rights organizations, and EXCLUSIVELY AND Canadian government. other nongovernmental organizations) both in WOULD LIKE THEM TO BE the definition of appropriate standards and in Canadian producers operating under license their monitoring. Specifically, it would seem LICENSED. THAT WOULD from US companies, such as Levi Strauss and important for companies to clarify issues such Haggar Corp., and others making goods for sale PROVE THAT THE as compliance with national labour and envi- in the US will often face pressure to comply ronmental standards, and contributions to CONTRACTORS ARE IN with these new standards. Many Canadian local charities. Where national standards are producers also recognize the importance of BUSINESS LEGITIMATELY, weak, they should set precedents for standards to discourage unfair competition, improving them. THAT THEY ARE whether from sweatshops in Canada or elsewhere, as well as to avoid criticism from con- FINANCIALLY 3 HIGHLIGHT BEST PRACTICES sumer or labour groups. RESPONSIBLE AND ARE Drawing on the example of a forthcoming study on the North American clothing industry PAYING THEIR WORKERS C ONCLUSIONS AND by the North American Commission for Labour R ECOMMENDATIONS THE WAGES AND Cooperation, Canadian manufacturers, in col- This brief survey of Canadian links with manu- laboration with others, could organize annual BENEFITS REQUIRED BY facturing in developing countries underlines the meetings to highlight best practices. Another LAW. THAT WOULD GIVE need for more systematic collection of data. approach would be to create a “Manufacturing While trade data is readily available, informa- and Sustainable Development” initiative to US A LEVEL OF tion on Canadian investment linkages is much bring together Canadian multinational manu- COMFORT. scarcer. As explained in the technical notes to facturing companies with Canadian and the Statistical Annex (p. 184), disclosure rules developing-country labour/environmental CANADIAN APPAREL limit Statistics Canada’s capacity to provide groups to promote practices that contribute to investment figures that are disaggregated by local development. FEDERATION, country, let alone sector. A partial picture can be Canadian distribution companies also have a “APPAREL ONTARIO,” gleaned from statistics released by some host role to play in persuading manufacturers and countries, however. APPAREL CANADA, consumers to assume responsibility for the way in which goods are produced. Several initiatives SPRING 1997, P. 4 1 UNDERTAKE RESEARCH ON CORPORATE have been launched, but these need to be ratio- ACTIVITY IN TRADE AND INVESTMENT nalized and strengthened. Because there is little systematic information at the corporate level for either trade or 4 CREATE SPECIAL AWARDS investment, more studies need to be carried out The CIDA annual Awards for International on trade and investment if we are seriously to Development, granted to Canadian businesses engage in analysis and discussions of corporate working in developing countries (see Chapter 7, practice. p. 130), should include a specific category for Many Canadian manufacturing multinational “exemplary labour practices.” The selection companies have recognized that their perfor- panel would include representatives of labour or mance will be evaluated, not only in terms of of groups working on labour issues, such as the profits, but also by their contributions to the Maquila Solidarity Network. These awards are economic and social development, as well as the usually sponsored by a Canadian company: in environmental sustainability, of the communi- the case of labour practices, sponsorship could ties in which they operate. Some have set cer- also be provided by labour humanity funds. tain goals in these areas, and an increasing

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5 REMOVE TARIFFS ON SELECTED IMPORTS 7 SUPPORT DEVELOPING COUNTRY EFFORTS Under the General Preferential Tariff, the Finally, to ensure a net positive impact of Canadian government should consider foreign companies, measures are needed to removing all tariffs on imports of textiles, support the efforts of developing-country clothing, and footwear from least-developed nongovernmental and other organizations, countries that agree to endorse and enforce as well as governments, in the design and certain minimum labour standards. These tariff implementation of economic, social, and other preferences could be withdrawn if an policies. investigation by the ILO found that the standards were being violated and that the government had subsequently failed to introduce corrective measures.

6 BUILD A CONSENSUS AROUND MULTILATERAL STANDARDS In conjunction with the Canadian government and other organizations, Canadian companies could help develop a consensus around multilateral standards, reinforcing the work of the ILO and other international organizations. Some codification of the responsibilities of multinational corporations is overdue.

N OTES 1 World Bank, World Development Report 1997, p. 237. 15 Chow, 1994. 2 IMF, World Economic Outlook, May 1997, p. 73. 16 Rao et al, p. 108. 3 Statistics Canada, http://www.statcan.ca 17 Lorraine Eden, ed., Multinationals in North America. The Industry 4 See Ann Weston and Ada Piazze-MacMahon, “Guidelines for Trade Canada Research Series. (Calgary: University of Calgary Press, After 2000. How much has been gained in shift to the WTO?” 1994), pp. 244-46. Briefing No. 39 (Ottawa: The North-South Institute, 1996). 18 J. Knubley; M. Legault; and S. Rao, “Multinationals and Foreign 5 See for example, Team Canada, Canada’s International Business Direct Investment in North America,” in Eden, ed., p. 188. Strategy 1997-98, Overview, 1996. Gunderson and Verma note that “the wage and employment effects of outward FDI are likely to be in the same directions as those from 6 Industry Canada, Canada’s International Business Strategy— Industry import competition, having the greatest adverse effect at low-wage Strategies 1997-1998, Abridged Volume. Available on IC homepage at levels in Canada.” Nonetheless they argue that the evidence about strategis.ic.gc.ca the impact of CDIA on total employment is ambiguous (1994:189). 7 Statistics Canada, unpublished data. Unless otherwise specified, 19 Niosi, p. 54. all dollars are current Canadian. 20 See http://www.bataindustrials.com (May 12, 1997). 8 Sunder Magun, The Development of Strategic Alliances in Canadian 21 Industries: A Micro Analysis. Working Paper No. 13 (Ottawa: Niosi, p. 156. Industry Canada, 1996), p. 27. 22 Ibid. 9 Franklin Chow, “Recent Trends in Canadian Direct Investment 23 Canadian Auto Workers (CAW), “Nortel Workers Angered Over Abroad: The Rise of Canadian Multinationals,” in Steven Globerman, Award Presentation,” Contact, May 5, 1995. ed., Canadian-based Multinationals, The Industry Canada Research 24 See Magna homepage at http://www.magnaint.com and Series (Calgary: University of Calgary Press, 1994), p. 39. /corporateconstitution.html (May 13, 1997). 10 Someshwar Rao et al, “Canadian-based Multinationals: An 25 The Globe and Mail, December 4, 1997. Analysis of Activities and Performance,” in Globerman, 1994, p. 70. 26 Dominion Textile, Press Release, July 23, 1996 at 11 Other important areas of CDIA are infrastructure (32 percent of http://www.domtex.com. In December 1997 Dominion Textile was flows during 1986-92, or 17 percent in terms of 1993 stocks, accord- bought by the Polymer Group of North Charleston, South Carolina. ing to UN, World Investment Report 1996, New York, p. 285) and 27 The Financial Post, May 24, 1996, p. 6. financial services (26 percent of total CDIA flows or 35 percent of 28 flows outside the US, Chow, p. 38). This is a different picture from Bombardier Inc., Press Release, January 19, 1996 at 1980 when less than a fifth of Canadian investment was in develop- http://www.bombardier.com ing countries (Jorge Niosi, Canadian Multinationals, Toronto: 29 Bombardier Inc., Press Release, May 13, 1997 at Between the Headlines,1985, p.169), and manufacturing accounted http://www.bombardier.com for the largest share, with 42 percent of total CDIA (the same level 30 Food Institute of Canada, “Food Trends in Korea” as in the US) compared to 21 percent in oil and gas, 14 percent in http://www.foodnet.fic.ca August 1996; and The Financial Post, finance, and 10 percent in mining/smelting (Niosi, p.57) 1997, p.16. 12 Secretaría de Comercio y Fomento Industrial, “Inversión de 31 Yogen Fruz, http://www.pathfinder.com October 13, 1997. Canada en México,” November 1997. 32 Interview with Canadian Apparel Federation, June 1997. 13 Does not include lumber and wood as manufacturing. Rao, et al, 33 In ILO, The ILO, standard setting, and globalization. Report of the 1994, Table 3. Director General. http://www.ilo.org Geneva, 1997. 14 UN, World Investment Report, p. 104.

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34 UNCTAD, Trade and Development Report, 1997. Globalization, 62 Levi Strauss has had two sets of guidelines since 1992—one for Distribution and Growth. New York, 1997, pp. 92-93. the selection of countries (including widespread observation of 35 Ibid., p. 91. human rights) and the other for companies (e.g., no child labour or discrimination, a ceiling of 60 hours per week, good health and 36 Michael Jantzi Research Associates Inc. (MJRA). Various company safety, although no reference to trade union rights). Monitoring is notes, various dates. carried out by Levi’s employees, though summaries of these audits 37 MJRA, 1997; for further information on Nortel Habitat, see the are published regularly. Sajhau suggests Levi’s permanent dialogue company’s homepage. with workers’ representatives and business partners has been as 38 CIDA, News Release (97-59), “Minister Boudria Presents Canadian important in dealing with social problems. Jean-Paul Sajhau, Awards for International Development,” Ottawa, May 26, 1997. Business Ethics in the Textile, Clothing and Footwear Industries: 39 Interview with Bata official, September 9, 1997. Codes of Conduct (Geneva: ILO, 1997), p. 25. 40 MJRA, June 1996. 63 In the case of the International Code of Ethics for Canadian Business, neither the Canadian labour movement nor international 41 Fish and Seafood Products, March 20, 1997. development organizations were involved in the drafting process. 42 MJRA, 1997. CLC, CLC-Hot Issues, at http://www.clc-ctc.ca (1997). 43 Kathryn Kopinak, Desert Capitalism (Montreal: Black Rose Books, 64 Forcese, Putting Conscience into Commerce: Strategies for Making 1997), p. 123. Human Rights Business as Usual (Montreal: ICHRDD, 1997), p. 73. 44 Ibid., p. 185. 65 As the ILO Director-General has noted, “labelling may, depending 45 Ibid., p. 154. on its origin or the methods used, risk being arbitrary, singling out a 46 United Steelworkers of America-Canada (USWA-Canada), News particular right or product or being put to improper use.” He pro- Releases, ”Steelworkers Sponsor Visit by Mexican Workers Fired by posed the ILO consider awarding “an ‘overall social label’ to coun- Canadian Company,” August 14, 1997; and “Death Threats Shadow tries complying with a set of fundamental principles and rights and Mexican Workers After Canadian Tour”, September 12, 1997. agreeing to have their practices supervised by an international inspection on the spot which is reliable and legally independent.” 47 Jane Nelson, Business as Partners in Development. Creating wealth ILO, The ILO, standard setting, and globalization. for countries, companies and communities (London, UK: The Prince of Wales Business Leaders Forum, in collaboration with the World 66 Forcese has also called for country guidelines. Putting Conscience Bank and UNDP, 1996); also CIDA News Release, May 26, 1997. into Commerce, p. 34. 48 The Bangkok Post, March 24, 1997, p. 12. 67 Canadian Friends of Burma, Dirty Clothes: Dirty System, Ottawa, 1996, pp. 23-26. In August 1997, the Canadian government intro- 49 The Forum, through its “Partners in Development” program in duced limited sanctions against Burma. Burmese products will no collaboration with the World Bank, the UNDP, and other interna- longer enjoy reduced tariffs under Canada’s General Preferential tional agencies, aims to foster sustainable development by support- Tariff (GPT); this will not affect clothing imports, however, which are ing linkages between responsible businesses and local communities not covered by Canada’s GPT, whether from Burma or any other (Nelson, 1996). country. Also Canadian exports to Burma will require an export per- 50 See Magna website, http://www. magnaint.com mit and this will usually only be given to goods for humanitarian 51 Dominion Textile, Annual Report 1997. purposes (Burma Links, October 1997:1). Most major US clothing 52 Craig Forcese, Commerce with Conscience? Human Rights and wholesalers/retailers, on the other hand, responding to consumer Corporate Codes of Conduct (Montreal: ICHRDD, 1997), pp. 45, 50. boycott threats, have agreed to no longer sell goods made in Burma. 53 Dominion Textile, Annual Report 1997. 68 Forcese, Putting Conscience into Commerce, 1997, p. 39. 54 Magna, Annual Report 1996 http://www.magnaint.com 69 Laure Waridel, Coffee with a Cause. Moving Towards Fair Trade. (Montreal: Les éditions des intouchables, 1997), p. 61. 55 Financial Times, no date. 70 Canadian Friends of Burma, 1996. 56 MJRA. 71 Forcese, Putting Conscience into Commerce, p. 49. 57 Nortel, homepage http://www.nortel.com 72 Ibid. 58 Forcese, Commerce with Conscience? 1997. 73 Mountain Equipment Co-op, “MEC Sourcing Policy,” mimeo, 59 See, Bata, “Working class heroes and technology for the working October 26, 1997. man...” from www.bataindustrials.com (May 12, 1997). 74 Forcese, Putting Conscience into Commerce, p. 27. 60 Bata, no date. 75 Sajhau, p. 4. 61 Interview with Bata official, September 9, 1997.

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C HAPTER F OUR

BEYOND BEST PRACTICE

T HE M INING S ECTOR

Moira Hutchinson

M OIRA H UTCHINSON IS A RESEARCH CONSULTANT,

SPECIALIZING ON ISSUES OF CORPORATE SOCIAL

RESPONSIBILITY AND INTERNATIONAL

DEVELOPMENT.

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BEYOND BEST PRACTICE

M ANY BIG COMPANIES ining plays a key role in Canadian eco- Critics are challenging Canadian mining com- Mnomic, social, and political development. panies to demonstrate that their international TAKE MORAL ISSUES Indeed, Canada exported $29 billion worth of environmental, social, and labour standards are MORE SERIOUSLY THAN minerals in 1994, making it the world’s largest at least the equivalent of their domestic stan- exporter in this sector.1 Canada ranks as the dards. New international trade agreements, such EVER. THEY HAVE world’s largest producer of potash, uranium, and as the Canada-Chile agreement, require only ETHICS COMMITTEES, zinc, and ranks among the top five producers that signatories comply with their own national for 15 other minerals.2 labour codes and environmental standards. This ETHICS OFFICERS AND is often a modest yardstick, even in Canada Canadian mining corporations are also major ETHICS CODE. THE where the adequacy of domestic standards is players on the world stage. Canada is the global being questioned in the wake of such tragedies TROUBLE ARISES WHEN leader in mineral exploration, and has also as the Westray coal mine collapse. become a leading supplier of capital to the inter- THEY MUST TAKE HUGE national mining industry.3 The three top Simultaneously, mining companies are pressing 7 STRATEGIC DECISIONS, Canadian minerals firms—Alcan Aluminum Ltd, for less government regulation. The shift of Inco Ltd, and Noranda Inc.—are among the top investment from Canada to developing SUCH AS WHETHER TO 10 global mining operators.4 In 1991, Alcan, countries, combined with pressure for change INVEST IN MINERAL- Inco, and Noranda were among the top 20 in the balance between the companies’ outwardly oriented Canadian-based firms in obligatory and supererogatory responsibilities, RICH COUNTRIES THAT all sectors.5 is seen to be an invitation to lower standards

HAVE CRUEL OR VENAL everywhere. But mining companies argue that Some business spokespersons have suggested international “cookie cutter” and “command GOVERNMENTS. that Canadian companies almost inevitably and control” approaches to standards are not make a positive contribution to sustainable helpful. They emphasize the appropriate development and equity abroad because they “COMPANIES AND THEIR application of “best practices.”8 carry with them Canadian values and experi- CONSCIENCES,” ence.6 Mining companies, as key actors in the In the final analysis, however, the problem is not whether to define standards of corporate THE ECONOMIST, Canadian economy, seem as likely as those in other sectors to make such a contribution. responsibility or “best practices” for mining JULY 20, 1996, P. 15 But what values do they carry? What impact do companies, or what the standards should be, they have on sustainable development and but who should define standards and how to social equity in developing countries? monitor their implementation. Despite the best intentions, best practice approaches and The media has focused considerable attention codes of conduct without mechanisms of on the activities of Canadian mining companies accountability, governmental or other, will not abroad following events such as the environ- provide people with the capacity to protect mentally disastrous tailing spills at Placer Dome their interests. That capacity underlies real Inc.’s operations in the Philippines and Cambior social equity. Inc./Golden Star Resources Ltd’s in Guyana, as well as the dramatic bidding war in the context of highly visible corruption and the subsequent I NVESTMENT T RENDS revelation of fraud attending Bre-X Mineral The minerals industry begins with the Ltd’s operations in Indonesia. Perhaps not exploration for and production of basic ores surprisingly, media reports have focused largely and concentrates. This is followed by metal on the implications for investors. The questions production and industrial fabrication. Our being asked by communities and unions in host discussion focuses on Canadian corporate countries about the impact of mining invest- involvement in primary mineral exploration ment on their lives have received much less and production (mining and concentrating) attention in Canada, despite the efforts of some in developing countries. journalists, unions, human rights groups, and social investment organizations.

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The extent of Canadian investment in primary mineral exploration and production in developing BOX 1 CANADIAN MINERAL PROPERTY countries can be indicated only indirectly. PORTFOLIO WORLDWIDE: COUNTRIES ACCOUNTING FOR 80% Statistics Canada data on the amounts of invest- OF FOREIGN HOLDINGS OUTSIDE ment in the broader metallic minerals and THE US, 1995 AND 1996 metal products sector shows that in 1995, Companies of all sizes listed on Canadian stock exchanges Canadian direct investment was $4.97 billion in countries other than the United States, United Countries Estimated Estimated Kingdom (UK), other members of the European Properties Companies2 Union (EU), Japan, and other member countries (numbers rounded)1 of the Organisation for Economic Co-operation and Development (OECD). This represents a Mexico 280 114 Chile 140 50 significant increase from $1.8 billion in 1985. Indonesia 140 89 Between 1985 and 1995, Canadian direct invest- Peru 140 45 ment in this sector increased from 17.6 percent Venezuela 130 37 to 21.5 percent of total Canadian direct Argentina 120 42 investment in these countries.9 Ghana 100 32 Brazil 90 42 Increased mineral investment abroad followed Bolivia 80 28 from the stock market fall of 1987 and the Tanzania 70 11 Australia 60 25 subsequent recession which slowed exploration Ecuador 60 26 and mine development in North America. Guyana 50 27 While decisions to invest are clearly complex, Philippines 50 18 company spokespersons, such as Michael Zimbabwe 50 17 Knuckey of Noranda, attribute the move abroad South Africa 40 16 China 40 15 to “a dawning realization by our industry that Burkina Faso 40 17 some governments in Canada firmly believed Panama 30 19 that mining was passé,” and to “changes in Russia 30 9 political systems, liberalization of investment Botswana 30 18 policies, and the adoption of enticing new Cuba 20 13 Suriname 20 5 mining laws [that] have created an appearance Costa Rica 20 19 of reduced political risk in many places that were clearly off limits in the past.”10 Unions and N OTES: environmental groups, however, have charged 1 The property estimates draw on Lemieux, “Canada’s Global Mining Presence,” Figure 4, in Natural Resources Canada, that some Canadian mining companies were Minerals and Metals Sector, 1996 Canadian Minerals Yearbook: motivated by lower environmental and labour Review and Outlook (Ottawa: Natural Resources Canada, 1997), p. 8.4; and the author’s research using the MIN-MET CANADA 11 standards abroad. database. The number of properties is used to represent the relative value of the investments. However, as many as one-third of The extent of Canadian mining activity abroad the properties may not be owned by Canadian-based or Canadian-controlled companies: we were unable to find an effi- can only be estimated. André Lemieux of cient way to develop summary statistics that include only com- Natural Resources Canada found that, at the panies headquartered or incorporated in Canada. To arrive at the one-third estimate, we drew on research conducted for the end of 1996, companies listed on Canadian Steelworkers Humanity Fund, comparing sections of the MIN- stock exchanges held interests in more than MET CANADA database with information from Micromedia’s Compact D/Canada database, produced by Micromedia Limited; 4,900 exploration or producing properties in Diane Giancola, ed., Canadian Mines Handbook 1996-97 (Don Canada and 3,400 properties abroad. Apart from Mills, Ontario: Southam Magazine & Information Group, 1996), pp. 451-61; and Patrick Whiteway, “Our Annual Survey of holdings in Canada and the US, two dozen Canada’s Top 40 Mining Companies,” Canadian Mining Journal, nations (Box 1) account for 80 percent of the 117:4 (1996), p.8. balance of the mineral property portfolio held Other factors also limit the validity of using property count as a proxy for value: properties vary widely in acreage, reserves, and by companies listed on Canadian stock state of exploration and development; junior mining companies exchanges.12 tend to buy at earlier stages in exploration, at lower prices and higher risk, while senior companies buy when prospects are Most of the properties in which these compa- more surely defined. 2 The estimate for numbers of companies is based on Giancola, nies have interests are at the exploration stage. Canadian Mines Handbook, 1996-97, pp.451-62. The ratio of exploration properties to the total number of properties held abroad by Canadian companies has increased, while it has remained roughly constant in Canada. Lemieux comments that “because exploration is more risky

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than production, it would appear that Canadian region: Barrick Gold Corp. in Chile, Bolivar companies have assumed, over a relatively short Goldfields Ltd in Colombia, Placer Dome in period of time, increasing amounts of geological Costa Rica, KWG Resources Inc. in Cuba and and country risk abroad.”13 The strong and Haiti, Eldorado Gold Corp. in the Dominican increasing Canadian presence in exploration has Republic, Greenstone Resources Ltd in been insufficiently recognized in discussions of Honduras, Triton Mining Corp. in Nicaragua, the corporate responsibility of the Canadian Teck Corporation in Panama, Cambior in mining sector. The implications for social equity Suriname, and Rea Gold Corp. in Uruguay.15 of the exploration phase of the mining cycle This increase in Canadian exploration abroad will be discussed later. during the past 10 to 15 years has been taking In 1996, the worldwide mineral exploration place in the context of a major restructuring of market for precious metals, base metals, and dia- the mining industry in developing countries. monds was $6.3 billion. The data prepared by Privatization is proceeding in many countries. Lemieux about global trends is based on the The World Bank and other international and activities of larger companies worldwide, regional development banks have supported the defined as those with annual exploration bud- strengthening of infrastructure. The common gets larger than $4 million. There were 223 of objectives are to enhance overall economic and these in 1996, and they were expected to spend industrial growth, improve efficiencies in min- $4.8 billion on exploration. The Canadian-based eral recovery and use, acquire advanced tech- companies were expected to spend $1.3 billion nologies, reduce environmental impacts, and on exploration, with $958 million of that out- improve safety conditions.16 Countries which side Canada. The proportion of Canadian-based once actively discouraged foreign investment aggregate budgets allocated to exploration out- have been revising mining policies and rewrit- side Canada has risen from 43 percent in 1992 ing legal regimes to encourage and protect it. to over 70 percent in 1996.14 The Canadian industry has promoted these changes through their input to the Canadian As shown in Table 1, among regions in the government on development assistance and free developing world, Canada had its greatest pres- trade agreements. The Mining Association of ence in the exploration market of the former Canada (MAC) sees the trade agreements as Soviet Union, where Canadian exploration providing “certainty in investment.” At the represented 45 percent of total exploration. same time, it has expressed concern about In dollar terms, however, Latin America and the efforts to use trade-related measures to “push” Caribbean were the sites of the greatest environmental goals and as “instruments for Canadian activity. In 1996, several Canadian- social change.”17 based companies planned the largest exploration programs in several countries of the FINANCING NEW AND EXPANDED OPERATIONS Substantial capital is required to introduce new TABLE 1 Exploration Budget1 of the World’s Larger mining and processing technologies and Companies and of the Larger Canadian-Based expand capacity. The World Bank and national Companies,2 by Region (1996, $millions) bodies are sources of public lending. Private funding by the “senior”18 mining companies Region Exploration Regional Canadian Canadian can take the form of joint ventures, licensing Market by Market as % of Exploration Exploration Region Worldwide Market by Market as % of agreements, leases, concessions, permits, Market of $4,800 Region Regional Market management contracts, and international 19 Latin America $1,300 27 $485 37 subcontracting. Senior companies have access and the Caribbean to lending institutions and can also raise capital Africa $570 12 $112 20 through a variety of other means, including Southeast Asia and China $400 8 $120 30 retained earnings, cash flow, and equity Former Soviet Union $100 2 $45 45 markets. Generally unable to raise exploration

N OTES: funds from banks because of the high financial 1 Exploration budgets are for precious-metal, base-metal, or diamond exploration. risk of exploration,20 “junior” exploration 2 Larger Canadian-based companies are those with worldwide budgets of at least $4 million. companies rely primarily on equity investment Source: Calculations based on André Lemieux, “Canada’s Global Mining Presence,” in Natural through public financing or joint ventures with Resources Canada, Minerals and Metals Sector, 1996 Canadian Minerals Yearbook: Review and Outlook, Ottawa, 1997, pp. 8.2- 8.8 larger companies.

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Keith Brewer and André Lemieux of Natural erate substantial wealth and stimulate national Resources Canada have analyzed Canada’s posi- economic development. Unfortunately, mineral tion as the world’s leading supplier of capital for wealth is not always effectively converted into the mining industry since the early 1990s, espe- the lasting capital needed to support a broad- cially through the global exploration programs based process of sustainable development. A 1994 of Canadian-based junior mining companies.21 conference on the contribution of the mineral Their data shows that capital is being raised from industry to sustainable development described investors in both Canada and abroad. In 1996, the effects on mining as “Dutch Disease”25: almost $7 billion was raised in Canadian dollar This condition occurs when a new mineral issues through Canadian securities markets to discovery or an increase in mineral prices finance the domestic and foreign projects of creates a mineral boom. In this situation, Canadian mining companies. Of this total, $5.5 the exchange rate tends to appreciate, billion was in the form of equity and $1.3 billion causing other tradable sectors of the econ- in the form of debt.22 The equity financing for omy—notably agriculture and manufactur- mining accounted for about one-quarter of all ing—to become uncompetitive and Canadian-dollar equity issues raised in Canada, eventually to decline; mineral wealth is but less than 5 percent of debt. dissipated and the outcome over the Canada’s dominant position in mine finance longer term, in the absence of an effective has been attributed in part to the legal frame- policy response by government, is stagnat- work for raising funds in Canada, which is “con- ing and even negative growth for the econ- ducive to risk taking, to the valuation of mineral omy as a whole.26 assets, and to the buying and selling of those Some countries appear to have been successful, assets among prospectors, investors, developers, nevertheless, in expanding the mineral sector and producers.”23 The tax burden on profits while diversifying and improving the economy generated from minerals is comparable to or less as a whole. Chile is often cited as an example, than in other mineral producing jurisdictions.24 although the conference report suggests that it Flow through share financing, which refers to remains to be seen whether the diversification nondepreciable investments such as mutual process underway will lead to long-term sustain- funds, is a unique provision of the Canadian tax able development. Orlando Caputo Leiva, a system which, in the late 1980s, contained fea- Chilean economist who headed Chile’s state tures that also contributed to large amounts copper company in the early 1970s, argues that being raised for mineral exploration. Chile’s long-term economic development is not Investment in countries that might previously being well-served by “copper fever.” He predicts have been considered too unstable, such as the a global surplus in copper production from 1995 Democratic Republic of the Congo (formerly to 2000 that will precipitate a significant drop in Zaire) and Sierra Leone, has been made possible in prices. The global overproduction is due almost part because of the willingness of investors and exclusively to the increase in copper production managers to take risks with money pouring into in Chile, and within Chile by the production mutual funds. The relationship between financing increases of large foreign companies. The fall in mechanisms for mining and mining’s social and copper prices would mean huge losses for Chile, environmental impact is only beginning to be but a number of foreign companies could benefit explored. The social investment movement has as they use the cheaper resource as raw material focused its attention, through screening of invest- for other operations. 27 Nor is the Chilean model ment funds and shareholder activism, on the applicable to all mineral economies. Not all larger public companies. Public and private sector have Chile’s quality minerals and favourable banks have scrutinized the senior companies. But location. Other factors such as income levels, companies funded through highly speculative population size, and agricultural resources may financial markets, such as the Vancouver Stock also limit the options for diversification. Exchange, appear to have escaped examination. No research has been carried out enabling conclusions to be drawn about whether Canadian T HE I MPACT ON N ATIONAL mining investment in general, in particular D EVELOPMENT countries, or even a particular mining operation Until quite recently, negative environmental and contributes or not to sustainable development. community impacts from mining were tolerated Technology transfer, the generation of employ- on the grounds that mineral resources could gen- ment, provision of capital, and export earnings

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L OCAL COMMUNITIES are often referred to as benefits of multinational economic policies” and a “liberalization of min- mining investment.28 We found no data, how- ing policies” to create the “enabling environ- SELDOM REMAIN ever, establishing overall effects in relation to ment” needed to attract capital. At the same

NEUTRAL WHEN AN these factors. One study of technology transfer time, it is concerned that “exploration successes to developing countries (not specific to mining will not necessarily translate into mines, related INTERNATIONAL companies) suggests that benefits are generally industries, employment, and the increase in

COMPANY OR limited to the joint ventures or local subsidiaries national wealth if the requisite conditions are of multinationals and are not diffused to domes- not in place.” Issues it cites as hindering the sus- CONSORTIUM IS tic firms.29 Figures could be assembled on the tainable growth of the sector are: “the fragile

GRANTED A CONCESSION jobs created at specific exploration and produc- nature of the macroeconomic reforms, the con- tion sites, but these would not include either tinued existence of legal and regulatory impedi- TO EXPLORE FOR OR the short- or long-term spin-off and displaced ments in some countries, the weakness of public

DEVELOP RESOURCES IN employment impacts. They would also need to mining institutions, the constraints on the account for imported (or exported) labour. growth of the small and medium mining sec- THEIR AREA. tors, and the inadequate treatment of the envi- While some cite Chile’s mining sector as a posi- ronmental and social aspects of mining.”35 tive example of the economic benefits of WAYNE DUNN, “DON’T Canadian capital investment and the generation A newer theme in World Bank and industry of export earnings, others see it as a special, or analyses of mining’s contribution to sustainable BE AN ‘UGLY CANADIAN’,” unproven, case and point to Guyana where, since development is the recognition that “increas- THE GLOBE AND MAIL, production commenced at Omai Gold Mines, ingly over the last decade, sustainable develop- gold seems set to replace sugar, rice, and bauxite ment is being addressed from the perspective of MARCH 19, 1998 as the single largest contributor to the GDP, the local communities, as well as that of threatening balanced sectoral development. 30 national economies.”36 This might imply recognition that sustainable development requires Western mineral investment in a number of the participation of local communities in deci- transitional economies has been targeted at gold sions about development. On the other hand, it during a period of “relatively safe, relatively may simply be a response to local communities’ rapid, high rate of return on investment. growing opposition to mining operations. At Evidently, mining companies require confidence any rate, mining companies, the World Bank, in legislation and favourable market conditions and Canadian government agencies are consid- before considering huge investments into the ering new approaches to working with local base metals and industrial minerals.”31 Thus, the communities, unions, and nongovernmental deals between Tenke Mining Corp. and succes- organizations to address environmental and sive dictators to develop a copper-cobalt site in labour issues, social and cultural needs, and the Congo were questioned, not only because economic development.37 the current leader, Laurent Kabila, is accused of presiding over an army guilty of genocide, but The Canadian International Development because base metal producers who rely on rail- Agency (CIDA) currently supports a few small ways to transport their production are particu- projects focused on community needs related to larly vulnerable to civil unrest. Gold or diamond mining development. Through the United miners are less vulnerable because they can fly Steelworkers of America (Canadian National their production out of the country.32 Office) and the Canadian Auto Workers, it also supports labour sector development in the min- It is the price of gold, however, that has made it ing sector. However, most of its financing in this the primary Canadian exploration target in area is allocated to improving mining adminis- Africa. In the Philippines, one-third of projects tration, promoting the use of Canadian tech- involve gold; in China, half; and in Russia, gold nologies and services, and supporting Canadian and diamonds are the major targets.33 The private sector development initiatives. Industry junior companies leading exploration may, and government concern about growing com- however, be diversifying their exploration munity opposition in several developing coun- efforts in response to flat gold prices and rising tries to Canadian mining operations is evident prices of base metals.34 in the September 1997 announcement by the Developing-country governments generally wel- Ottawa-based International Development come Canadian investment, despite the uncer- Research Centre (IDRC) that it would commit tainty of mining investments’ contribution to $1 million a year, for three years, to support sustainable development. The World Bank has research on mining and sustainable develop- been encouraging governments toward “open ment in the Americas (see Box 2).

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A CATALOGUE OF C ONCERNS BOX 2 A CANADIAN INITIATIVE By its very nature, mining has an undeniable In September 1997, at a meeting of Mines environmental, social, and economic impact. Ministers for Latin America, the Caribbean, An extractive industry, it often operates in hin- and Canada, held in Arequipa, Peru, Canada’s terland areas, at the centre of Aboriginal land International Development Research Centre claims, and in isolated and dependent commu- (IDRC) announced a $1million a year initiative nities. Working conditions are high risk unless to support research on mining and sustainable development in the Americas. carefully regulated and monitored. Moreover, large projects produce highly visible wealth Citing the current boom in mining throughout which may not be widely distributed. Finally, it the Americas, Carlos Serés, IDRC Regional Director for Latin America and the Caribbean, is an export-oriented industry in a rapidly explained that “at this time, everyone from changing global economy. community groups to mining companies wants to ensure that mining contributes to The Canadian media, as well as nongovern- sustainable development.” Mining Association mental human rights, environmental, labour of Canada president George Miller, said that and social investment organizations, have “this initiative provides an opportunity for reported a number of concerns relating to the Canadian mining companies to show leader- operations of Canadian mining corporations in ship in sustainable development. As the dominant source of mining capital in the region, developing countries. Some of these are also Canada has special responsibilities.” noted in company reports and speeches. But not all incidents make the news. What is Being guided by a team representing the mining industry, environmental groups, interna- reported often depends on the capacity of local tional development interests, and researchers groups to organize and communicate their from Canada and Latin America, the initiative concerns. Issues arising from the operations of will support research for a better under- smaller companies, companies whose Canadian standing of the complex relationship between links are obscure, or companies with no mining and sustainable development, with special attention to local communities. Canadian operations are also less likely to be publicized in Canada. Moreover, one Source: “Canadian Initiative to Improve Environmental Impact of Mining,” IDRC News, No. 11, September 22, 1997. company’s substandard performance over long periods may go unreported while a single incident caused by another will make the Human rights advocates suggest that, in some headlines. instances, the only appropriate response to a repressive regime is disinvestment or a policy of Some of the complaints explored below about “no new investment,” if this is consistent with mining operations in developing countries have the strategy of internal or exiled opposition also been made about operations in Canada. groups. In other cases, conditions should be put There is a difference, however in the extent to on investment, such as no participation in joint which mechanisms exist in Canada to facilitate ventures with the regime, refusal to provide efforts to hold corporations accountable to gov- kickbacks and payoffs, and refusal to operate in ernments, communities, and employees for their areas where security or military force is used to social and environmental practices. establish or maintain the operation. Companies should speak out against human rights viola- REPRESSIVE REGIMES tions and be prepared to pull out if such public action endangers employees or operations. When companies invest in countries with repressive regimes, communities find it difficult, Canadian companies have investments in three if not impossible, to press for fair labour condi- countries that appear on most lists of repressive tions, good environmental practices, or the regimes: Burma, China, and Indonesia. The return of revenues to the community. The claim investment in Indonesia is the largest and the that industry will be a catalyst for positive change most publicized following the Bre-X scandal. has been refuted by analyses of the impact of Most of the companies arrived in 1996, follow- foreign investment in apartheid South Africa38 ing early reports of Bre-X’s exploration, and where, for example, companies were required to Canadian investment is now said to represent cooperate with national security forces used to 75 percent of all mining investment in the suppress popular opposition. More generally, country.39 The Canadian Mines Handbook, benefits from the mining operation accrued to 1996-97 lists 89 Canadian companies in the regime and were used to extend repression. Indonesia, including major names such as

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Barrick, Inco, Inmet Mining Corp., and Teck. A number of incidents involve Canadian mining Inco is a long-term investor, operating a massive corporations. In Panama, for example, Tiomin nickel mine: its expansion plans in Central Resources Inc. is proposing to develop an area Sulawesi are being opposed by some Indigenous where there are unsettled land issues between the and previously transplanted groups. Indochina government and the Ngobe-Bugle Indigenous Goldfields Ltd is in a joint venture partnership people who have complained about the lack of with the government of Burma. In China, the consultation and potential environmental Canadian Mines Handbook lists 15 companies, impact. There is also conflict over Western Keltic including Barrick and Viceroy Resource Corp. Mines’ involvement in exploration in Indigenous territory in Panama. In Guyana, Indigenous peo- CORRUPTION ples had a minimal role in the consultation about the opening of Omai Gold Mines—in which Bob Parsons, vice-president of the Prospectors Cambior is the majority and Golden Star and Developers Association of Canada, is among Resources the minority owner—and they have those who have spoken out about the effects of suffered from linguistic, social, and economic 40 corruption on mining development. dislocation as a result of mining operations.44 Corruption can take the form of kickbacks and payoffs, or deals with state agencies and politi- WORKPLACE STANDARDS cal leaders for mining rights that never come up for open auction. These practices affect the According to the Organisation for Economic prospects and profits of mining companies. Co-operation and Development, freedom of They also work against social equity in that the association is nonexistent or seriously restricted in wealth generated by the mine is unlikely to be a number of countries.45 Core labour rights are well-distributed. This issue is being addressed at seriously restricted in Bolivia, Botswana, China, the international and national government Indonesia, Panama, the Philippines, Tanzania, levels, but corporate policy decisions and and Zimbabwe, all countries with significant reinforcement are also needed. Canadian mining investment (Box 1). Without the freedom to form effective unions that can Corruption is perceived to be a serious problem monitor workplace health and safety practices, in a number of countries with significant the likelihood of corporate neglect is greatly Canadian mining investment (Table 1): increased. Argentina, Bolivia, Brazil, Chile, China, Ecuador, Indonesia, Philippines, Russia, and Venezuela.41 Even in countries not included on the OECD’s problem list, such as Chile, workers are nonethe- Corruption usually goes unreported, but the less concerned about a lack of effective labour Bre-X scandal brought the issue into the lime- rights and the impact this has on workplace light in relation to the Indonesian regime and standards.46 For example, the president of the the willingness of Canadian companies, such as Mining Confederation of Chile has charged that Barrick Gold, to make deals with President pressure for profits, unconstrained by effective Suharto’s family. Special payments and arrange- labour legislation, took priority over health and ments have also been made in countries safety in incidents at Barrick Gold and Placer embroiled in civil war: Tenke Mining and Branch Dome operations. Through exchanges between Energy Ltd, acquired by Diamond Works Ltd, are Canadian and Chilean miners it became evident alleged to have acquired or secured properties that Chilean collective bargaining agreements through indirect support for rebel forces in the with Canadian companies contained far fewer Congo and Sierra Leone, respectively.42 provisions for health, safety, and the environment than Canadian agreements.47 The MAC has INDIGENOUS PEOPLES’ RIGHTS responded to such charges by citing its members’ Indigenous peoples and mining companies are commitment to bring the highest standards to often in conflict because separate legal regimes bear, whether operating in Canada or abroad, and exist for surface and subsurface land entitle- it points to the awards received by Barrick and 48 ments. Believing that people and land constitute Placer Dome for their operations in Chile. a spiritual and material unity, Indigenous peoples In other countries where Canadian investment make no distinction between these entitlements. is significant, such as Guyana, adequate labour However, “legislation usually privileges the min- regulations are said to exist on paper, but ing company’s rights through entitlements to governments do not have adequate human and 43 expropriate land and establish easements.” financial resources to enforce them.49

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ENVIRONMENTAL IMPACT and Falconbridge Ltd in the Dominican Republic; and over minority interests, such as In recent years, environmental disasters have Inmet’s 18 percent ownership of Ok Tedi in been associated with Canadian companies in Papua New Guinea. Guyana and the Philippines. Guyana’s government commission of inquiry attributed a major While it is relatively easy to list companies asso- cyanide spill into the Essequibo River in 1995 to ciated with environmental problems, it is more inadequate construction and design of the tail- difficult to assess and compare their perfor- ings dam at Cambior/Golden Star Resources’ mance. Factors such as the mine’s age, its loca- Omai Gold Mines. Cambior is contesting a class tion, and the products need to be considered. action suit for reparation of environmental Organizations monitoring corporate practices, damage and damages for each of the class mem- such as Michael Jantzi Research Associates Inc. bers, filed in Quebec by Recherches interna- and Ethicscan Canada Ltd, find it difficult to tionales Québec on behalf of individuals in obtain the kind of information they require to Guyana. The award would be used to establish a assess Canadian operations abroad. For exam- sustainable economic development fund for the ple, Ethicscan cites the lack of agencies to moni- region.50 Cambior has replied that the commis- tor compliance in many countries and the sion found the company’s response to the dam infrequency with which violations are prose- failure prompt and effective, and that no cuted.55 The factors that make information evidence was found of a serious threat to life, or unavailable also make it easier for corporations hazard to the health of workers and residents.51 to behave irresponsibly.

In 1996, in the Philippines, a major tailings spill occurred at the Boac site of Marcopper Mining ECONOMIC AND SOCIAL IMPACT Corp.—a Philippine company in which Placer Variables such as the scale of operations, the Dome had a 40 percent interest. Placer Dome mine’s distance from communities, and the paid for technical work and financial compensa- expected life of the project are related to the tion, then proceeded with earlier plans for social and economic problems experienced by divestment. Critics in the Philippines charge communities.56 A remote community close to a that the rehabilitation and compensation plans newly discovered small ore body that is were inadequate.52 In addition, there are con- expected to be rapidly depleted, for example, tinuing calls for environmental rehabilitation will be among the most vulnerable. There is a and compensation in connection with the dis- greater likelihood that the operator will be small posal of tailings into Calancan Bay from and inexperienced, that new infrastructure will Marcopper’s Mount Tapian site from 1975 to not be developed, and that basic health and 1991. Critics contend that Marcopper ignored safety precautions will not be taken. A new ore expert recommendations and government body that is potentially a “world-class” mine in orders regarding an alternative disposal system, a remote location is more likely to attract an and that Placer Dome, as the partner with min- operator using state-of-the-art management and ing expertise, should accept its share of respon- technology. Negative social impacts may sibility. 53 Placer Dome agrees that the tailings nonetheless arise from massive and rapid system would not meet today’s standards, but migration of workers to the area. argues that it is unfair to apply these standards retroactively. It also disputes claims made about Potential problems include: the tailings’ impact on the fishery.54 • The creation or rapid expansion of commu- Environmental concerns have been expressed nities in remote areas can lead to high rates at various times about the explorations and of alcoholism and sexually transmitted operations of many other companies and coun- diseases, a shortage of adequate housing, and tries. Some complaints have arisen over the overcrowded roads. In North America, this Canadian takeover and expansion of old mines, problem is commonly dealt with by adopt- for example, by Greenstone Resources Ltd in ing a “fly in, fly out” policy. In developing Nicaragua; others over the exploration for new countries, this practice has sometimes been operations, such as by Placer Dome in Costa opposed. For example, landowners at the Rica and Breckenridge Resources Ltd’s proposed Porgera mine in Papua New Guinea have silver mining operations in Tibet’s fragile criticized Placer Dome’s “fly in, fly out” plateau ecosystem; over long-established mines, practices because they lose the mine-related such as those operated by Inco in Indonesia business.57

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M Y EXPERIENCE OVER • Environmental damage can have secondary mandatory, a company may apply it in one situ- effects, such as reduction in wildlife or fish ation but not another if not pressured to do so THE PAST 25 YEARS needed for subsistence. Residents in the area of or if it would entail an “unacceptable” level of 64 WITH A NUMBER OF Inmet Mining’s Ovaçik project in Turkey, for profits. In some developing countries there example, fear that the use of cyanide in the are no strong public interest groups to provide a WELL- KNOWN MAJOR gold recovery process will have an adverse check on the definition of best practice or its

C ANADIAN PLAYERS impact and they have opposed the loss of olive implementation. trees caused by the mine’s development.58 ABROAD IS THAT Closely related to the concept of best practice is • The local and regional economy’s depen- that of “best of sector.” Used by the social invest- C ANADIAN CORPORATE dence on the mine for income and employment movement, it recognizes the unfairness of

VALUES RANK AMONG ment can lead to problems when the mine comparing companies across sectors—resource closes. Inco, for example, mothballed its companies with software companies on environ- THE VERY HIGHEST. operations in Guatemala in 1982, but mental performance, for example. Using this 59 C ANADIAN COMPANIES problems with land access remain. approach, social investors may include in their portfolios a mining company whose environ- SHOULD RECOGNIZE THIS • Communities can be disrupted or displaced mental record is far from perfect or from meet- when new mines open or old ones expand. AS AN ASSET AND APPLY ing a best practice standard. The recognition of a Greenstone, for example, is involved in con- company as the best among its peers is seen to THEIR STANDARDS AND troversy over the adequacy of its response to contribute to upward pressure on all companies. the dislocation of artisanal miners in BEST PRACTICES Nicaragua.60 Golden Knight Resources Inc.

WHEREVER THEY GO. has suggested that the government’s land PROMOTING BEST PRACTICE commission and army may need to intervene To date, the mining industry advances the con- to clear mining areas in Ghana.61 Vista Gold TOM D’AQUINO, PRESIDENT cept of best practice only in the environmental Corporation’s purchase, temporary closing, area, although discussions are being initiated AND CEO, BUSINESS COUNCIL and modernization of two old mines in about the possibility of developing social guide- Bolivia led to the deaths of seven miners and ON NATIONAL ISSUES, lines. An intergovernmental working group on a police officer in clashes between miners, Aboriginal issues is also endeavouring to codify “GLOBALIZATION, SOCIAL police, and troops.62 best practices in Canada for relations between PROGRESS, DEMOCRATIC mining companies and Aboriginal communities. G OOD, BETTER, BEST DEVELOPMENT AND HUMAN The concept of environmental best practice is P RACTICES not spelled out in industry codes, but it is at RIGHTS,” ADDRESS TO THE Some companies and critics alike support the least implied in the MAC code, the first such ACADEMY OF INTERNATIONAL establishment of a standard based on “best national code in the world. Association practice.” Companies may see the promotion of members must endorse an environmental code BUSINESS, ANNUAL GENERAL standards based on “best practice as economi- which states that “in all jurisdictions, in MEETING, BANFF, SEPTEMBER cally achievable” as an alternative to govern- addition to complying with legislative require-

27, 1996 ment regulation. Some environmental groups, ments, member companies will diligently apply such as the Environmental Mining Council of technically proven and economically feasible British Columbia, support the development of a measures to advance protection of the best practice standard as a way of establishing a environment throughout exploration, mining, “bottom line” set of criteria against which to processing, manufacturing, and closure.”65 judge activities. To enable public interest groups The International Council on Metals and the to base their arguments on the need for respon- Environment (ICME) also has an Environmental sible development, the Council has produced “A Charter that commits members—which include Social Movement Perspective on ‘Best Practices’ eight of Canada’s largest mining companies— and Environmental Mining Reform.”63 to adopt measures to foster environmentally sustainable economic development. The Other critics of mining companies reject a best Council’s activities include research and publi- practice approach and argue for legally binding cations on advances in environmental practice. international standards on the grounds that the concept of best practice is inherently relative. Do such industry-wide efforts to support envi- Best practice is defined in terms of what other ronmental best practice affect Canadian opera- companies in the industry are willing to do, not tions in developing countries? There is no clear necessarily what they could or should do. They answer, or even a full understanding of what also argue that because best practice is not constitutes a “Canadian” company. At the end

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of 1996, companies of all sizes listed on code), or the International Council on Metals Canadian stock exchanges held interests in and the Environment. 3,400 foreign mineral properties.66 Not all these We estimate only about 12 percent of companies are registered or have headquarters Canadian companies operating in developing in Canada (we estimate that perhaps one-third countries are “industry leaders.” Or, using a are based outside Canada) although they are different source of data, that only about 13 associated with Canadian financing. Regardless percent of exploration properties and 26 per- of where they are based, many are not among cent of production properties in developing the 100 of 3,000 companies registered in countries are owned by Canadian-based indus- Canada that are reported to have comprehen- try leaders.68 We define industry leaders very sive environmental policies.67 Nor are they generously to include companies that, likely to have producing properties, or even although they may be far from leaders, have exploration properties, in Canada that could made some commitment to best practice provide the best practice basis for operations and/or may have been influenced by Canadian abroad. Many are also unlikely to participate in best practice. This group includes members of forums where best practices are discussed—the the Mining Association of Canada, the Ontario Mining Association of Canada, the Ontario Mining Association, and the International Mining Association (which endorses the MAC

BOX 3 RECOGNITION OF GOOD OR BEST PRACTICE Company Good / Best Practice Source of Recognition Alcan In Jamaica, on reserve bauxite land, Alcan operates a commercial agricultural division and leases land to The Conference Board Aluminum Ltd tenant farmers. Its agricultural division is the largest producer of milk and beef in Jamaica, provides agricul- of Canada1 tural technology to local farmers, and extension services, fertilizer credit, and marketing assistance to tenant farmers. It is also working to bring land affected by the mining operations back into productive use. Battle Through its 88% interest in Empresa Minera Inti Raymi in Bolivia, Battle Mountain operates the Kori Kolli The Social Investment Mountain Gold Mine. Inti Raymi has established a foundation to support projects to improve the health, education, and Organization2 Co. standard of living of communities around the mine. Cominco Ltd In 1995, the Cominco operation at Quebrada Blanca, Chile, received the José Tomás Urmeneta Award Institute of Mining for its technological innovations under harsh weather conditions and its high level of concern for the Engineers of Chile; environment. The operation was also highlighted in a report of the United Nations Environment UNEP3 Programme (UNEP) and the International Council on Metals and the Environment (ICME). Falconbridge In the Dominican Republic, Falconbridge adopted a human resource development, benefits, and health The Conference Board Ltd and safety standards package that is comparable to the one it offers in Canada. It has excellent labour- of Canada4 management relations, and its unionized labour force has gone on strike only twice in 25 years, the last time in 1986. Inco Ltd In Indonesia, expatriates form less than 2% of the company’s workforce, and senior positions, including The Conference Board that of president and chief executive officer, are held by Indonesians. of Canada5 Noranda Inc. Noranda’s environmental reporting was praised in a report of the UNEP and the ICME. Noranda has pro- UNEP6 duced five environmental reports since 1990: the 1994 report was judged by the The Financial Post to be the best among resource companies in Canada. Placer Dome Placer Dome’s process for integrating community consultation and participation in project definition and World Bank Inc. implementation at Minera Las Cristinas in Venezuela was described as “a paradigm shift” in a workshop Conference on Mining report from the World Bank Conference on Mining and the Community, May 1997. and the Community7 TVX Gold Inc. In Brazil, TVX helped establish and continues to fund the “Cruzada do Menor,” an independent charita- The Social Investment ble organization that feeds disadvantaged children and provides them with vocational training. Organization8

S OURCES: 1 Stelios Loizides and George Khoury, Corporate Responsibility in Developing Countries: Key Success Factors (Ottawa: The Conference Board of Canada, 1996), pp. 8-9. 2 The Social Investment Organization (ed.), Canadian Mining Industry Social Investment Profile, Toronto, 1997, p. 16, based on information from Michael Jantzi Research Associates Inc. 3 Cominco Ltd, “One Company, One Standard.” Electronic reprint from Orbit, Cominco’s Quarterly Magazine, Summer 1996 (http://www.cominco.com/about/values.html), date accessed: 06/05/97.; and UNEP and ICME, Case Studies Illustrating Environmental Practices in Mining and Metallurgical Processes, 1996, pp. 30-31. 4 Loizides and Khoury, p. 17. 5 Ibid., p. 5. 6 UNEP and the ICME, 1996, pp. 6-7. 7 Alyson Warhurst, “Mining and Community Workshop Report: Consultative Process.” World Bank Conference on Mining and the Community, Quito, Ecuador, May 6-8, 1997, p. 11. 8 The Social Investment Organization, Canadian Mining Industry Social Investment Profile, 1997 p. 16, based on information from Michael Jantzi Research Associates Inc.

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W HEN IT COMES TO Council on Metals and the Environment. Also in accordance with the environmental laws included are companies that might, because of applicable in the company’s home province. ETHICS, COMPANIES ARE their size and production base in Canada,

MEASURED NOT BY reflect best Canadian practices. These latter are Workplace standards: among the top 40 Canadian mining companies THEIR CODES OF • hiring and training local people for technical in terms of 1995 revenues, are incorporated and management positions; CONDUCT OR VISION and headquartered in Canada, and have at • top wage and benefits packages in the host least one property in Canada,69 but are not STATEMENTS, BUT BY country; listed as members of industry associations. • good relationships with unions; WHAT THEY ACTUALLY The geographical distribution of industry lead- • awards for working hours without lost-time

DO. STILL, THE ers is far from even. Only about 4 percent of accidents; Canadian companies with interests in • on-site medical programs for employees. ‘ SHOULDS’ AND Indonesia are in this group, for example. On the

‘ OUGHTS’ ARE GOOD, other hand, Chile—often cited by the Canadian Economic and social impacts on communities: industry as a model for overseas mining devel- AND THEY SHOULD • consultation with communities prior to mine opment—had 31 percent.70 opening and concerning resettlement sites; BECOME EVEN MORE SO • financial and technical support for educa- GOOD PRACTICES AT HOME AND ABROAD WHEN THEY CHANGE TO tion, youth training, and crime prevention; While it is easier to define best practice in the • construction of employee housing, local ‘ WE WILL’. environmental area than in other areas, there is hospitals, and schools; increasing evidence that individual companies • support for community economic develop- MICHAEL DECK, and their critics are endeavouring to promote ment, such as a textile cooperative;

“COMPLIANCE REAL TEST OF and identify good, if not best, practices in other • agreement with local independent miners’ areas. A review of some company promotional cooperatives to provide them with mining NEW CODE,” KPMG ETHICS literature and company profiles prepared by areas within the company’s concession and

& INTEGRITY SERVICES other organizations (see Box 3) showed that, in purchase the ore they produce; addition to environmental best practices, good • statement of principles governing the con- HTTP://WWW.KPMG.CA practices in the areas of employment, health duct of exploration projects, prepared for and safety, and community support (housing, local employees, communities, and education, infrastructure, community economic government authorities. development, etc.) were frequently highlighted. It is highly unlikely, however, that mining indus- There was almost no reference in company liter- try participants and observers would agree that ature to good or best practices in other “con- these actions necessarily constitute “good” prac- cern” areas such as investment in countries with tice, in Canada or abroad. Each case must be repressive regimes, corruption, and respect of judged individually. For example, who appoints Indigenous rights. the “independent stakeholder committee” that Social investment and policy organizations and monitors environmental implementation? Does mining companies themselves identified the a record number of working hours without lost- following good practices in international time accidents indicate good safety procedures or operations.71 is it indicative of a system that penalizes workers for reporting accidents? Does a unionized labour Environment: force with a low number of strikes suggest good labour relations or a country whose laws are hos- • revegetation, reforestation of mined-out tile to independent unions? What did “consulta- areas, land brought back into production; tion” with communities represent when it came • production without major process emissions time to make decisions about resettlement? or tailings ponds; • independent stakeholder committee to monitor implementation of environmental FROM EXPLORATION TO CLOSURE recommendations; Most of the good and best practices identified • “de facto ecological reserve” maintained above are applicable at the production stage of around an exploration camp, in which key mining. Social equity and sustainable develop- habitats and ecological sites are identified ment require that much more consideration be and protected; given to the exploration and closure stages. • agreement with partners to carry out a project

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Ian Thomson and Susan Joyce of Orvana Minerals Cambior/Golden Star operations in Guyana Corp., a mining company engaged in exploration where local and Indigenous peoples had no role in Bolivia, suggest that the dynamics of the com- or rights in law, and the companies agreed to a pany-community relationship at the exploration consultation process that involved only compa- stage are different from the production stage: nies and the state. In response to community opposition, the process here as in similar cases, Exploration is a dispersed and transitory became one of ad hoc consultation in the devel- activity characterized by uncertainty and opment phase and inadequately addressed the ambiguity: a problematic situation from the communities’ social equity concerns.74 point of view of company-community relations. This is in marked contrast to mining At the other end of the cycle, a few mining which takes place at fixed locations and over companies are now giving more serious consid- extended periods of time. Where a mine eration than before to the question of what exists, company-community issues can be happens after a mine closes. They consider that focused around the relatively stable realities it is in their best interest to ensure the mine’s of a productive commercial venture.72 contribution to sustainable economic development, since it will ensure their future welcome The mining industry is ill-equipped to deal with in the host country and other countries as well. social and environmental issues in the exploration phases. Part of the problem, according to Placer Dome notes that mining companies Thomson and Joyce, is due to the high number of have long made social investments in the mineral industry professionals who found them- immediate vicinity of their operations, but this selves working internationally for the first time has generally meant schools, hospitals, and when junior, high-risk venture capital companies other facilities intended primarily for employees. became the dominant force in mineral explo- In some countries, however, Placer Dome ration between 1991 and 1997. Mining codes may suggests that mining companies have not been provide for a right to explore, but companies able to assume that the central government often consider this as an unconditional right to would invest some of the mining revenues back go where they want and do what they want. As into the broader community. The company junior companies have no long-term vested inter- must therefore provide these benefits to retain est in the potential impact of their actions, com- community support. munity relations are a secondary consideration. In Papua New Guinea, Placer Dome has contri- Moreover, a property may pass through the hands buted to local infrastructure and community of several companies before it is developed. development, with the financial burden eased Thomson and Joyce propose: by a tax credit arrangement. But it sees the need to extend social expenditures to a much larger There is potential for leadership by the area and population group. “In this, mines take operating companies who should recognize on the responsibility themselves of translating the enhanced value offered by projects that their industrial investment into sustainable come to them in social “good standing.” social and economic development for a signifi- An assessment of the socio-economic situa- cant part of the country.”75 However, its experi- tion surrounding a project should be part ence leads it to believe that: “A different model of the due diligence and valuation con- is needed for structuring the responsibilities of ducted when a property is optioned or pur- mines, governments, and local communities to chased. Payment of a premium price for achieve long-term social and economic delivering projects maintained in “good improvement in frontier zones.”76 standing” through exploration would help provoke the acceptance of new standards In Venezuela, Placer Dome hopes to provide a for industry practice.73 “new model for a multi-institutional approach to community development made possible by a If Canadian operating companies agree to develop new mine.”77 Its goal is “diversifying the a property that has not come to them in social institutional involvement in community “good standing,” it is unlikely that later efforts to development around the mine.” To do so, it establish good relations with the community (or is undertaking a feasibility study, with the what remains of it) by building schools, contribut- Canadian International Development Agency’s ing to charitable foundations, and so on will be participation, of how it can collaborate in com- seen as examples of best practice or as evidence of munity development projects at Las Cristinas concern for social equity. A case in point are with Canadian nongovernmental and for-profit

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organizations, in partnership with Venezuelan Steelworkers Humanity Fund participated in an counterparts. Greenstone Resources in exchange between Cominco Ltd workers in Nicaragua has also been discussing a “round Canada and Chile. 79 Cominco says it meets table” approach to the social issues associated Canadian benchmarks for worker safety and with its mining projects. It says it would like environmental management in overseas opera- coordination and input from local communities tions, even though local laws may allow for and Aboriginal groups, the national govern- lower standards. But, says Marshall, when ment, aid and environmental NGOs, and Chilean miners shadowed the operations of the CIDA.78 union over a two-week cycle in Canada, their biggest surprise was the quality, depth, and reg- Aid agencies and nongovernmental organiza- ularity of communications with management tions will no doubt have to consider the impli- in the workplace. The collective agreements in cations of a “multi-institutional approach to the Chilean mines contained nothing concern- community development made possible by a ing the role of the union within the workplace. new mine” if the communities affected were not Nor were there grievance procedures to ensure involved in the initial decision to develop the compliance even with the meagre protections mine. Questions of consultation and participa- the contract offered, she noted. tion, beginning with the decision to explore, are critical. As well, the lack of reinvestment of Even though Canadian mining companies have mining revenues into the community by long had full joint health, safety, and environ- governments is not always the result of corrupt ment committees in their Canadian mines—and or elite-serving regimes. In some cases, it can be laud them as a factor in creating safe mines in due to pressures by international financial Canada—they have argued against establishing institutions to reduce social expenditures in the these committees in their Chilean operations name of the macroeconomic reforms required because Chilean law does not force them to do to attract international investment in the first so. The ongoing communication between place. Canadian and Chilean unions working for the same companies has raised the latter’s expectations. “If we’re talking best practices from the A CCOUNTABILITY: Canadian mining industry,” said Marshall, B EYOND B EST P RACTICE “probably collective bargaining is one of the Accountability, not “best practice,” is the key to most important practices to export.” whether or not Canadian companies will con- We leave unexamined the much larger issue of tribute to social equity in developing countries. accountability to host governments. The weak- Social equity cannot be “delivered” through the ness of many developing-country governments export of Canadian environmental practices or in dealing with corporate power is well docu- charitable contributions to community organiza- mented. Mining companies are frequently suc- tions. We need to challenge the acceptance of cessful in obtaining the conditions and laws unequal power relationships which underlies they require for investment. The literature of much discussion of the “responsible” corporation. several companies refers to such negotiations: This may be most obvious in dealings with the exoneration of taxes worth $80 million dol- Aboriginal communities. According to lars on a project; changes in the restrictions on Hans Matthews of the Canadian Aboriginal the export of gold bullion; reliance on govern- Minerals Association, there are no mining ments to move communities from properties company “best practices” with respect to designated for development; and so on. Aboriginal peoples. He recommends focusing instead on the processes of interaction between ACCOUNTABILITY MECHANISMS: companies and communities. The issue, he says, SOME RECOMMENDATIONS should not be described as Aboriginal participation in mining company decisions affecting The accountability mechanisms outlined below Aboriginal communities, but the reverse: do not assume a radical restructuring of rela- Aboriginal communities may invite mining tionships between corporations and communi- companies to consult with them about possible ties, unions, and NGOs. Rather, they are modest development on Aboriginal land. approaches already used in many places, that deserve further support or, in some cases, Power is also central to relations between rethinking. unions and management. Judith Marshall of the

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COMMUNITY CONSULTATION AND PARTICIPATION mining companies operate in countries where these rights do not exist or are compromised in It is clear that mining companies should law or in practice. While some may believe they develop consultation and participation bear no further responsibility, they should con- processes for all stages of projects, from begin- sider the current direction of discussion of corpo- ning to end, and require evidence that these rate responsibility. In the US, the Council on have taken place when they assume ownership Economic Priorities recently announced that sev- of a property from another company. These eral companies have agreed to the SA8000 code, processes should not be restricted to environ- which is linked to the International Standards mental matters, but encompass social and eco- Organization (ISO). This code requires companies nomic issues as well. The objective should be to actively support the formation of independent the communities’ real participation and collabo- unions in their own workplaces in situations ration, not co-option. where fundamental rights are denied, and The larger questions about how to identify the promote their respect by governments. stakeholders, the forms of consultation needed Canadian mine workers are also supporting at different stages of exploration and develop- stronger mine workers’ organizations in devel- ment, and the roles of state, company, and oping countries through exchanges such as community were a focus of a 1997 World Bank those described above and by providing finan- consultation in Quito, Ecuador in which a num- cial support for health, safety, and community ber of Canadians participated. They are also projects. For example, the Steelworkers and the being addressed by a group of Latin American Canadian Auto Workers actively work with and Canadian NGOs, coordinated by miners in countries such as South Africa, Chile, CoDevelopment Canada, which has established Brazil, and Peru.81 CIDA provides some support a Community Action Group on Canadian for labour development, on the grounds that Mining in Latin America to find solutions to the trade unions in the South are key forces for lack of company-community consultation, and development and strong civil societies. Given suggest ways of engaging mining companies. the extent of CIDA’s support for the mining A draft proposal for a Community Decision- industry in developing countries,82 it should Making Model has been developed. greatly increase its support for the unions that Some strengthening of community groups, both assert social, environmental, and labour rights North and South, is also taking place through in mining communities. new networks. For example, a Continental Action Network on Canadian Mining Activities CODES OF CONDUCT in the Americas was established at a 1996 Most senior mining companies have environ- meeting in Saskatoon.80 mental codes. Some have also been involved in setting standards for environmental manage- RESPECT FOR WORKERS’ BASIC RIGHTS ment and performance through ISO 14001, Freedom of association and the right to organize dealing with “Environmental Management and are fundamental human rights, and unions are System Specification,” a program of the essential if mining companies are to be truly International Standards Organization established accountable to employees. Many Canadian in 1996. Noranda, for example, already noted

BOX 4 WORKING FOR CHANGE Many Canadian groups carry out research, or support projects and advocacy work about the impact of Canadian mining companies in developing countries. This list excludes government departments and universities, and several groups whose experience in Canada may be relevant, but who are not currently or generally directly involved in mining issues in developing countries. It also excludes international organizations in which Canadians participate.

Canadian Aboriginal Minerals Association Friends of the Earth Canada Canadian Auto Workers International Development Research Centre Canadian Council for International Co-operation Michael Jantzi Research Associates Inc. Canadian Environmental Law Association Mining Association of Canada Canadian Institute for Environmental Law and Policy Prospectors and Developers Association of Canada CoDevelopment Canada Save the Children Canada Common Frontiers Social Investment Organization Environmental Mining Council of British Columbia Taskforce on the Churches and Corporate Responsibility Ethicscan Canada Ltd United Steelworkers of America, Canadian National Office

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for its environmental management and CORPORATE GOVERNANCE reporting systems, began in 1995 to benchmark Communities and other stakeholders in devel- its auditing methodologies against the new ISO oping countries may have little access to the protocols as they were developed. decisionmaking processes in Canadian compa- Surveys suggest that barely half of the major nies. To enhance accountability, companies Canadian mining companies with overseas should adopt corporate governance principles operations have general codes of conduct, and and practices that maximize the access of all even fewer explicitly address issues such as stakeholders to information and the company’s investment in, or trading with repressive decisionmaking processes. Among the informa- regimes.83 Most codes of conduct examined tion that should be available are the results of make only general reference to policies of non- independent audits of environmental and social discrimination and respect for human rights, performance in relation to codes of practice. fair wages, and high standards of safety and Financial, environmental, and other reports—to occupational health. Placer Dome stands out for the standard of best practice for such reports in its special code regarding relations with Canada—should be made available to commu- Aboriginal peoples. No mining company makes nities, employees, and other stakeholders in the provision for independent monitoring and host country, in the language of the country. public reporting, a key feature of codes that are Shareholders can also support communities taken seriously by the public. whose concerns have not been dealt with by Mining industry associations should consider local and headquarters management of publicly assisting their members and others in develop- held companies, by submitting a shareholder ing a common code of conduct for overseas proposal regarding the policy or practice in ques- operations. James Cooney of Placer Dome argues tion. Canadian mining companies have received that country-specific codes would increase the relatively few such proposals, but Alcan, Inco, potential for positive change, based on consis- Placer Dome, Noranda, and Rio Algom Ltd have, tent action by a group of like-minded corpora- in the past, circulated shareholder proposals on tions and input from NGOs.84 There is a social or environmental issues.86 At times, some precedent for such an approach. In 1987-88, companies, such as Inco, however, have used Canadian churches asked a number of mining their power to limit the use of the proposal companies showing renewed interest in invest- mechanism. Moreover, a coalition of companies— ing in Chile (then a military dictatorship) to including Alcan—is seeking further restrictions consider a set of investment guidelines. The to the use of shareholder proposals in proposed guidelines dealt with possible corporate cooper- reforms to the Canada Business Corporations ation in activities aimed at legitimizing the mili- Act.87 A generous, rather than restrictive, tary regime, and cooperation with security approach to the use of the shareholder proposal forces in the arbitrary arrest, kidnapping, tor- should be encouraged. ture, and intimidation of employees. The only response was a statement by one company that T OWARD A CCOUNTABILITY Chile had a strong mining tradition and an acceptable political and social climate.85 These suggestions of some very modest approaches for increasing accountability of Mining company codes should include responsi- mining companies to local communities and bility for the operations of sub-contractors. They workforces are made at the same time as new should also refer to and reinforce the ILO global trade and investment policies are securing Convention and Recommendation on Health the rights of corporations to operate freely and Safety in Mines, adopted in June 1995. wherever they choose. Mining companies have Because ILO conventions are adopted through a contributed to the climate of support for deregula- tripartite process of companies, governments, tion which has eroded the capacity of govern- and unions, they enjoy a high degree of legiti- ments to impose standards. However, even some macy. Moreover, the Canadian government corporate leaders are beginning to worry publicly should assist the development and implementa- that the pendulum has swung too far toward tion of codes of conduct by requiring companies simple reliance on market mechanisms. They to adhere to an independently monitored code foresee a public backlash which will force a as a condition of access to CIDA, the Export reexamination of how issues of social equity and Development Corporation (EDC), and other environmental standards are going to be effec- government programs. tively factored into national and global economic

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structures. The increasing resistance of develop- and development. One approach being examined ing-country communities to mining operations is is the provision of financing for the delivery of one indication of this backlash, and their growing programs by Canadian and host country ability to mobilize support from around the world nongovernmental organizations, in cooperation provides hope that they can insist on and develop with a Canadian mining company, to bring real capacity to decide whether and under what greater economic sustainability and better social conditions mining will take place. The develop- infrastructure to the affected community. ment of protocols for community consultation, But accountability, not the delivery of programs codes of conduct, access to corporate decision- for community economic development, is the makers, and support for the right to organize and key to ensuring that Canadian mining companies bargain collectively in the workplace are all small contribute to social equity. The strong, even contributions to their exercise of the right to dominant, presence of Canadian companies in decide. exploration and development in particular The Canadian government has been involved countries provides an excellent opportunity for for some time in the creation of conditions the Canadian government, supported by civil favourable to the promotion of Canadian society, to press these companies to use their mining interests abroad. Now it appears to be presence to collectively establish new standards moving in the direction of helping companies of accountability as well as of practice. respond to community resistance to exploration

N OTES 1 Canada, Statistics Canada, Canada Year Book 1997, p. 322. This 11 Environmental Mining Council of British Columbia, “The Real does not include the value of coal and oil exports. Story of Mining in Chile,” June 19, 1996 http://www.sunshine.net. 2 Canada, Natural Resources Canada, Mineral Industry Review, Date accessed 02/10/98. Summer 1997, p. 63. 12 André Lemieux, “Canada’s Global Mining Presence,” in Natural 3 Keith J. Brewer and André Lemieux, “Canada’s Global Position in Resources Canada, Minerals and Metals Sector, 1996 Canadian Mining: Canadian Financing of the International Mining Industry.” Minerals Yearbook: Review and Outlook (Ottawa: Natural Resources Metals Finance 4th International Conference, Finance for the Canada, 1997), p. 8.1. Lemieux uses the MIN-MET CANADA database, Global Metals Industry, Toronto, May 7-9, 1997, p. V. developed and maintained by Robertson Info-Data Inc., Vancouver. 13 4 Patrick Whiteway, “Our Annual Survey of Canada’s Top 40 Mining Lemieux, p. 8.2. Companies.” Canadian Mining Journal, 117:4 (1996), p. 8; and 14 Lemieux, p. 8.1. Lemieux’s information on larger Canadian-based Iain Wallace, “Restructuring the Canadian Mining and Minerals companies is based on annual editions of Corporate Exploration Processing Industries,” in John N.H. Britton, ed., Canada and the Strategies: A Worldwide Analysis, published by the Metals Economic Global Economy: The Geography of Structural and Technological Change Group of Halifax, Nova Scotia. (Montreal and Kingston: University of Toronto Press, 1996), 15 Lemieux, p. 8.6. pp. 124-125. 16 James P. Dorian, “Mining, Changing Picture in Transitional 5 Someshwar Rao; Marc Legault; and Ashfaq Ahmad (Industry Economies,” Mining Engineering, 49:1 (1997), 31-36, p. 31. Canada), “Canadian-Based Multinationals: An Analysis of Activities 17 Mining Association of Canada, “Trade Policy Committee,” in and Performance,” in Steven Globerman, ed., Canadian-Based Annual Report 1996-97, Mining Association of Canada Multinationals (Calgary: University of Calgary Press, 1994). Table 3 (http://www.mining.ca) Date accessed: 12/97. on page 84 lists the top 20 firms by foreign assets. Noranda Inc. has 18 lumber and wood as well mining interests. We use “senior” to mean larger diversified production companies and “junior” to designate companies that are focused on 6 Thomas d’Aquino, President of the Business Council on National exploration and initial development. Issues, argues that “Canadian companies are by and large excellent 19 agents of change wherever they go because they carry with them Dorian, p. 35. sound values rooted in their Canadian experience.” In d’Aquino, 20 Young, pp. 3-4. “Globalization, Social Progress, Democratic Development and 21 Brewer and Lemieux, 1997. Human Rights.” Notes for an address, Academy of International 22 Ibid., p. 35. Business, Banff, September 1996, p. 7. 23 Ibid., p. v. 7 Alan Young, “Public Interest Perspectives on Canadian 24 Environmental Mining Issues: A Discussion Paper Presented to the Ibid., p. v. See also Ontario Fair Tax Commission, Fair Taxation in International Development Research Centre Working Group on a Changing World (Toronto: University of Toronto Press, 1993), Ecosystem Health and Mining in Latin America, Caracas, Venezuela, pp. 493-512. July 1997.” Prepared by the Environmental Mining Council of 25 This term originated with descriptions of the effect of petroleum British Columbia for Friends of the Earth-Canada, pp. 8-9. and gas revenues on the economies of Britain and the Netherlands 8 The International Development Research Centre is supporting a in the 1980s. project in Bolivia, Chile, and Peru to examine alternatives to the 26 World Bank, United Nations Environment Programme (UNEP), “command and control” approach, such as the use of the tax sys- United Nations Conference on Trade and Development (UNCTAD), tem to create economic incentives to protect the environment. and International Council on Metals and the Environment (ICME), See Steve Hunt, “The Costs of Mining in Latin America,” “Enhancing the Contribution of the Mineral Industry to Sustainable (http://www.idrc.ca). IDRC Reports, November 22, 1996 (Ottawa: Development: Post Conference Summary.” The International International Development Research Centre, 1996). Date accessed: Conference on Development, Environment and Mining, June 1-3, 06/03/97 1994, p. 4. 9 Calculated from Canada, Statistics Canada, Canada’s International 27 Orlando Caputo Leiva, “World Overproduction of Copper Investment Position, 1995, Cat.67-202, Ottawa, 1996, Tables 4 and 4.5. Created by Chile: Its Impact on the National Economy,” Centre on 10 Michael Knuckey, “Noranda Mining & Exploration: A New World, Transnationalization, Economy and Society, ARCI University, Social A New Direction.” Paper presented to the Prospectors and Developers Research Centre, 1996. For a summary, see Hugh Mackenzie, Association of Canada (PDAC) and the Canadian Institute of Mining “Chile’s Copper Fever.” Americas Update, 18:6 (1997), pp. 8-9. and Metallurgy (CIMM), Toronto Branch, March 13, 1996, p. 2 28 The Social Investment Organization (ed.) and Jessie Sloan, (http://www.noranda.com). Date accessed: 06/05/97. Canadian Mining Industry Focus Report (Toronto: The Social Investment Organization, 1997), p. 41.

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N OTES (continued) 29 Ann Harrison, “The Role of Multinationals in Economic 61 Michael Jantzi Research Associates Inc. Development: The Benefits of FDI.” The Columbia Journal of World 62 Associated Press, “Protest Ends At Canadian-Owned Bolivian Business, 29 (Winter 1994) pp. 7-9. Mine,” The Gazette (Montreal), December 24, 1996. 30 Dennis C. Canterbury, “Consultative Processes in Guyana’s Mineral 63 See an abridged version in Environmental Mining Council of Sector: Bauxite and Gold.” Presented at the World Bank Conference British Columbia, “Best Practices in Mining: Toward Responsible on Mining and the Community, Quito, Ecuador, May 6-8, 1997, p. 13. Development,” Americas Update, 18:6 (1997), p. 4. 31 Dorian, p. 35. 64 Catherine Coumans, “Placer Dome in the Philippines: An 32 Karen Howlett and Madelaine Drohan, “Canadian Miners Living Illustration of the Need for Binding International Regulations on Dangerously,” The Globe and Mail, July 26, 1997. Mining,” in Canadian Mining Industry Focus Report, pp. 63-64. 33 Lemieux, pp. 4-5. 65 The Mining Association of Canada, Environmental Policy, 1995. 34 World Bank, “A Mining Strategy for Latin America and the 66 Lemieux, p. 2. Caribbean: Executive Summary.” World Bank Technical Paper No. 67 George Miller, President of the Mining Association of Canada, 345, Industry and Energy Department, 1996, p. 3, World Bank quoted in The Social Investment Organization, Canadian Mining (http://www.worldbank.org). Date accessed: 06/14/97. Industry National Roundtable Report (Toronto: The Social Investment 35 Ibid., pp. 1-2. Organization, 1997), p. 17. 36 World Bank, UNEP, UNCTAD, and ICME, p. 12. 68 The estimate was made by comparing the list of “industry lead- 37 Environmental issues in international mining, but without the ers” with two databases. The first comparison was with companies community focus, were already being addressed by the Canadian listed by country in Giancola, Canadian Mines Handbook, 1996-97, government. See Natural Resources Canada, Sustainable Development “Companies with International Interests,” pp. 451-462. The second of Minerals and Metals. Sustainable Development in Canada comparison was with the MIN-MET database of exploration and Monograph Series No. 4. (Ottawa: Minister of Public Works and production properties and owners listed on Canadian stock Government Services, 1997), pp. 11-17. exchanges, with calculations based on an estimate that one-third of the properties are not owned by Canadian-based companies. 38 Renate Pratt, In Good Faith: Canadian Churches Against Apartheid (Waterloo: University of Waterloo Press, 1997). 69 Whiteway, p. 8. 39 “Indonesia Woos Firms in Calgary.” The Globe and Mail, August 70 Calculation based on Giancola, Canadian Mines Handbook, 1996-97. 27, 1997. 71 Stelios Loizides and George Khoury, Corporate Responsibility in 40 Karen Howlett and Allan Robinson, “Mining Expert Warns Developing Countries: Key Success Factors (Ottawa: The Conference Board Against Corruption.” The Globe and Mail, March 18, 1997. of Canada. 1996); Michael Jantzi Research Associates Inc., Canadian Social Investment Database; annual and other company reports. 41 These countries score in the bottom 27 of 54 countries, with scores of less than 5 out of 10, in the 1996 Transparency 72 Ian Thomson and Susan A. Joyce, “Mineral Exploration and the International Corruption Perceptions Index. (There are several Challenge of Community Relations,” PDAC Communiqué, 1997, p. 2. countries for which scores are not available.) 73 Thomson and Joyce, pp. 7-8. 42 Howlett and Drohan. 74 Canterbury, pp. 7-10. 43 Alyson Warhurst, “Mining and Community Workshop Report: 75 Ian G. Austin, “Challenges for Mine Development in the Coming Consultative Process.” World Bank Conference on Mining and the Decade.” Presentation to the Mining Finance Forum, Singapore, Community, Quito, Ecuador, May 6-8, 1997, p. 1. May 14, 1997, p. 5 (http://www.placerdome.com). Date accessed: 44 Canterbury, pp. 8-11. 05/25/97. 45 OECD, Trade, Employment and Labour Standards, A Study of Core Worker 76 John Willson, “New Frontiers for Placer Dome and the Mining Rights and International Trade, Paris, 1996, p. 43 and Table 3, pp. 57-58. Industry.” Presentation to the CIM 99th Annual General Meeting, Vancouver, April 28, 1997, p. 3. 46 Moises Labrana, “Chileans Paying for Mining Boom,” The Globe and Mail, July 9, 1996. 77 Willson, p. 4. 47 Steelworkers Humanity Fund, “Bargaining and Borders: The 78 Greenstone Resources, p. 6. Chile Connection,” Toronto, 1997. 79 Interview with Judith Marshall. See also Judith Marshall, “Players 48 George Miller, “Canadian Mining Firms in Chile Follow the on a World Scale: Worker Exchanges between Chilean and Highest Standards,” The Financial Post, 90:21 (May 25/27, 1996), p. 19. Canadian Miners,” Americas Update, 18:6 (1997), pp. 6 - 7. 49 Canterbury, p. 13. 80 Don Kossick, “Way Down in the Mine: Activists Establish a Continental Mining Network,” Briarpatch, 25 :7 (1996), p. 11. 50 Michael Jantzi Research Associates Inc., Canadian Social Investment Database. As part of the research process for information 81 Marshall, p. 6. in the database, each company is asked to respond to a draft profile 82 Figures provided by CIDA in May 1997 show that, since 1978, regarding its operations. See also Public Interest Research Associates, the Industrial Cooperation Division has provided financing to 195 “Class Action Lawsuit Filed in Quebec Court,” March 26, 1997. Canadian companies in the mining sector. Support is also provided 51 Cambior Inc., Press Release, “Cambior to Vigorously Contest through other CIDA programs. Class Action Suit,” Montreal, March 26, 1997. 83 Calculation based on surveys of codes in Craig Forcese, Commerce 52 Center for Environmental Concerns–Philippines, “An Environ- With Conscience? Human Rights and Corporate Codes of Conduct mental Mission: The Marcopper-Placer Dome, Inc. Rehabilitation (Montreal: International Centre for Human Rights and Democratic Strategies for the Boac River System, October 3-7, 1997.” Development, 1997), Table 5, p. 48; “Ethical Performance Comparison: Major Gold Mining Companies,” The Corporate Ethics 53 Calancan Bay Villagers Support Coalition, Newsletter, September 1997. Monitor, 9:1(1997), pp. 2-7; “Ethical Performance Comparison: 54 James Cooney, “Placer Dome: ‘We Are Responsible’,” The Selected Integrated Mining and Metals Companies,” The Corporate Catholic Register, April 28, 1997, p. 17. Ethics Monitor, 9:4 (1997), pp. 50-55; “Ethical Performance 55 “Ethical Performance Comparison: Tier Two Gold Mining Comparison: Tier Two Gold Mining Companies (Part 2),” The Companies (Part 2).” The Corporate Ethics Monitor, 9:2 (1997), Corporate Ethics Monitor, 9:2 (1997), pp. 18-23. pp. 18-23; p. 21. 84 James Cooney, “Corporate Codes of Conduct: Are There 56 Kathleen Anderson, “Mining and Communities: a Discussion Limitations?” Presentation to the Human Rights and Trade Forum, Paper.” Presented at the World Bank Conference on Mining and the Amnesty International, Toronto Organization, November 26, 1996, Community, Quito, Ecuador, May 6-8, 1997. p. 5, (http://www.placerdome.com). Date accessed: 05/25/97. 57 Frank McShane, “‘Soft Skills and Hard Choices? Communities, 85 TCCR, Annual Report, 1987-88, pp. 41-42. Canadian Mining, Policy and Practice,” in SIO (ed.), Canadian 86 Minority shareholder proposals seldom win a majority vote, but Mining Industry Focus Report (Toronto: The Social Investment have sometimes influenced management policy nonetheless. Organization, 1997), p. 81. 87 Moira Hutchinson, “The Promotion of Active Shareholdership 58 Michael Jantzi Research Associates Inc. for Corporate Social Responsibility in Canada.” Submitted to the 59 Michael Jantzi Research Associates Inc. Canadian Friends Service Committee (Toronto: Michael Jantzi 60 Greenstone Resources, “Parameters of Discussion, External Research Associates Inc., 1996), p. 12. Affairs—Ottawa.” Notes for a presentation, December 1, 1996; and Anneli Tolvanen, “Canadian Mining Companies in Nicaragua: The View from the Rocking Chair is Not So Nice,” SHAIR International Forum, January/February 1997, pp.1, 8-9.

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C HAPTER F IVE

PURSUING SUSTAINABLE DEVELOPMENT

I NFRASTRUCTURE AND E NGINEERING

Gail Whiteman and Susan Brandum

G AIL W HITEMAN IS A RESEARCHER AT THE

N ORTH-SOUTH I NSTITUTE, SPECIALIZING IN MARKETS

AND SOCIAL EQUITY ISSUES. SUSAN B RANDUM IS A

WRITER, ENVIRONMENTALIST, AND COMMUNITY

ECONOMIC DEVELOPER.

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PURSUING SUSTAINABLE DEVELOPMENT

T HE 1994 WORLD o longer the sole domain of government unusable. According to the World Bank, the lack Nmonopolies, infrastructure sectors across of proper maintenance is a problem throughout D EVELOPMENT R EPORT the world have opened up to competition and the developing world and publicly operated DEFINITION OF private sector involvement. Developing coun- projects are plagued with waste and lost oppor- tries, in particular, are increasingly turning to tunities. Ineffective public sector management INFRASTRUCTURE the private sector as a means of tapping into a is at the root of many of these problems.10 The INCLUDES ECONOMIC large source of capital, and of introducing problem is compounded by funding agencies’ efficiency into infrastructure. preference for new construction over SERVICES FROM PUBLIC maintenance projects. According to the World Bank, “infrastructure UTILITIES— POWER, represents, if not the engine, then the wheels, The solution for many countries has been to TELECOMMUNICATIONS, of economic activity.”1 Countries need roads, expand the role of the private sector—privatize railways, ports, and airports. They need dams and/or commercialize wasteful, unproductive PIPED WATER SUPPLY, and canals for flood control and irrigation. operations.11 Developing countries in particular SANITATION AND They need energy. They need clean water and are increasingly turning to the private sector sanitation. They need reliable telecommunica- which offers large pools of global capital, as well SEWERAGE, SOLID tions and access to the global information as the management skills often lacking in pub- 12 WASTE COLLECTION AND system.2 licly managed infrastructure projects. In the Brazilian state of São Paulo alone, for example, DISPOSAL, AND PIPED Unfortunately, much of the developing world US$750 million per year (about three-quarters of has limited access to these services. One billion GAS; PUBLIC WORKS— the total state annual forecast) has been ear- people in the South still do not have access to marked for privatized projects in environmental ROADS, DAMS, AND clean water and almost 2 billion lack proper infrastructure over the next three years.13 sanitation facilities.3 Millions have no access to CANALS FOR IRRIGATION Indeed, “greater private participation in infra- a reliable energy source.4 And most of the devel- structure in at least 80 countries has resulted in AND DRAINAGE; AND oping world does not have access to informa- nearly 1,200 projects in telecommunications, tion and communication technologies—a 14 OTHER TRANSPORTATION energy, water, and transport.” prerequisite for competing in the global market- SECTORS— RAILWAYS, place.5 Currently, 1 million people are officially In its 1994 report, Infrastructure for Development, waiting for telephone hook-up6—in many areas, the World Bank strongly encouraged the partici- URBAN TRANSPORT, they may wait for 10 or more years.7 pation of private companies in both the opera-

PORTS AND WATERWAYS, tion and ongoing management of infrastructure The need for infrastructure in developing coun- projects, and encouraged the public sector to AND AIRPORTS. tries is increasing: population growth creates a adopt “commercial” approaches to manage- constant demand for basic services;8 economic ment. It recommended that developing WORLD BANK, WDR 1994, progress spurs demands for additional services; countries: industrial and export growth can modify the INFRASTRUCTURE FOR type of infrastructure required. Liberalization • Manage infrastructure like a business, not a DEVELOPMENT, 1994, P. 2. has opened infrastructure markets and the bureaucracy; increasing export focus of many developing • Introduce competition—directly if feasible, countries has led to an expansion of export- indirectly if not; facilitating infrastructure, such as roads, ports, and communications. Finally, many developing • Give users and other stakeholders a strong countries are actively searching for ways to join voice and real responsibility.15 the global information network.9 Within the global infrastructure market, many What’s more, many developing countries are new opportunities present themselves to corpo- struggling to maintain what little infrastructure rations, particularly as alternative financing and already exists. The road network in sub-Saharan management plans become more widely avail- Africa is a prime example: because of poor main- able: BOT (build-operate-transfer); BOOT (build- tenance, nearly one-third of all roads built over own-operate-transfer); and BOO (build-own- the last 20 years (valued at US$13 billion) are operate).16 Through service and management

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BOX 1 THE BENEFITS OF INFRASTRUCTURE DEVELOPMENT

The developing world invests some US$200 on the natural environment, this can be bene- billion a year in new infrastructure, approxi- ficial, particularly with respect to water treat- mately 20 percent of their total investment.1 ment, sewage, and waste disposal. More Estimates show that this trend will continue: efficient energy sources can also reduce pres- World Bank client countries, for instance, are sure on scarce or delicate biomass resources. expected to spend US$200-250 billion on infrastructure projects in the next decade.2 Solid infrastructure appears intrinsically linked to solid economic development. Without By sector, investments in energy and trans- roads, airports, telecommunications, or a portation dominate the infrastructure agendas reliable energy source, countries cannot of Asia and Latin America and the Caribbean, efficiently operate in the global marketplace. while the provision of clean water and proper The private sector also requires infrastructure sanitation remain a pressing concern in Africa for economic activities and expansion. and the Middle East.3 The exact relationship between infrastructure and a booming economy remains unclear. As ANNUAL REQUIRED INFRASTRUCTURE the World Bank suggests, “many studies on the INVESTMENT BY REGION, 1994-2000 topic have concluded that the role of infrastruc- (US$BILLIONS) Africa and Latin Asia Total ture in growth is substantial, significant, and Middle America and frequently greater than that of investment in East the Caribbean other forms of capital.”5 But it is inconclusive whether the relationship between infrastructure Energy 6245282 and economic growth is correlative or causal. Telecommunications 3102538 While infrastructure intuitively appears to reduce Transportation 6145272 production costs and increase productivity— Water & Sanitation 10 12 14 36 largely because the available workforce spends Total 25 60 143 228 less time on obtaining basics such as water and Source: CIDA, Infrastructure Services Policy: Background Discussion fuel—there is no conclusive answer.6 Other Paper, Sept. 13, 1996, p. 8. studies have also shown that causality actually runs in both directions: infrastructure investment THE BENEFITS TO DEVELOPING COUNTRIES creates economic growth which also fuels future Infrastructure investment offers many social infrastructure investment.

and environmental benefits. The 1994 World N OTES Development Report notes that access to safe water and a reliable source of power alleviates 1 World Bank, World Development Report 1994, p. 1. the workloads of women and children who 2 World Bank, Annual Report, 1997. are often responsible for securing water and 3 These CIDA forecasts reflect the minimum amount of financing required in developing countries to maintain the status quo; these fuel. Reliable power also reduces the produc- figures do not reflect an increase in infrastructure services, nor do tion costs of many manufacturing and ser- they include infrastructure investments that are needed to close vices industries. In addition, safe and reliable the gap between the developed and the developing world. transportation allows women and girls greater 4 World Development Report 1994, p. 1 access to educational programs.4 And while 5 Ibid., p. 15. infrastructure by its very nature has an impact 6 Ibid., pp. 124-26.

contracts, lease contracts, and concessions, cor- infrastructure may reduce inefficiencies, intro- porations now participate in infrastructure produce more effective management practices, and jects that remain publicly owned. Power, transit, improve fiscal accountability. It will not neces- and rail projects are particularly suited to shared sarily address the hidden or external costs of ownership between public and private sectors.17 such projects, however, as infrastructure projects Perhaps most spectacularly, the global market can still have social and environmental side- for information and communication technolo- effects—and in cases like China’s Three Gorges gies (ICTs) is rapidly expanding in developing Dam, the cost-benefit analysis may be countries, fueled primarily by transnational controversial. corporations.18 In this chapter we explore Canadian participa- But increased private sector involvement is not tion and expertise in this sector in developing a panacea—the social and environmental costs countries, focusing on companies committed to incurred under public sector management can sustainable infrastructure development, and on also occur under the private sector. Never- Canadian engineering consultants. theless, increased private sector participation in

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in both industrial and developing countries.19 BOX 2 THE WORLD BANK AND THE PRIVATE SECTOR To be sustainable, development must include In its 1997 Annual Report, the World Bank presents a plan for strategic concern for society and the economy as well as retooling, with four networks at the heart of a “new knowledge-based the environment. Bank.” The third of such networks, titled Finance, Private Sector, and Infrastructure, illustrates the strategic coupling of the private sector and For developing countries, a crucial first step infrastructure development. Following its recommendations for increased toward sustainability is to improve the efficiency commercialization of developing-country infrastructure, the World Bank of existing infrastructure, or sources of supply now specifically evaluates the potential for private sector participation (see Box 3). According to the 1994 World within its International Bank for Reconstruction and Development (IBRD) and International Development Association (IDA) lending programs. Development Report, “maintenance problems that cause water or power losses are even more common and costly...[than] costs due to poor debt IBRD AND IDA LENDING TO SECTORS WITH POTENTIAL management (which are) excessive in about one- FOR PRIVATE SECTOR INVOLVEMENT, FISCAL YEAR 1997 third of World Bank supported infrastructure pro- (US$MILLIONS) jects. [...] Unaccounted for water is typically two TRANSPORTATION OIL AND GAS to three times higher in developing country 28 PROJECTS 4 PROJECTS $3,691 $136 systems than in countries that achieve the indus-

ELECTRIC POWER INDUSTRY try standards. In 1987, one-quarter of the power AND OTHER ENERGY AND MINING 17 PROJECTS 7 PROJECTS utilities in developing countries had losses of $1,889 $517 electricity in the transmission and distribution WATER SUPPLY AND SANITATION network that were twice those in efficiently oper- 13 PROJECTS $683 ated systems. In some African countries, spend- FINANCIAL SECTOR URBAN DEVELOPMENT ing US$1 million to reduce line losses could save 15 PROJECTS 13 PROJECTS $1,195 $808 US$12 million in generation capacity.”20

The search for efficiencies must go beyond exist- Source: World Bank, Annual Report 1997, p 30. ing infrastructure, however, which is predominantly geared to supply. A second step is to find Consistent with this strategic vision, World Bank private participation in more efficient ways of meeting escalating infrastructure (PPI) operations significantly increased in 1997. demand. Studies of expected demands for infrastructure services show considerable opportunities WORLD BANK PPI OPERATIONS, FISCAL YEARS 1988-97 for Canadian companies in a number of areas. Instrument Africa East South Europe Latin Middle Total Asia Asia and America East and IN ENERGY and Central and the North Pacific Asia Caribbean Africa According to the 1997 United Nations Development Programme (UNDP) report, Energy Adjustment: single sector 4001 1 17 Adjustment: multisector 1001 7 110After Rio, “current patterns of the production, Technical Assistance 6 1 1 1 13 0 22 distribution and use of energy are not sustain- Investment Lending 37 24 18 16 26 8 129 able.”21 The UNDP recommends three options: Guarantees 0420 1 18redirect the development of the world energy Total 48 29 21 19 48 11 176 system away from supply to a more efficient use of which: increase in FY97 (7) (6) (3) (3) (14) (5) (38) of energy, especially at the point of end-use; Source: World Bank, Annual Report 1997, Table 2-3, p. 32 increase the use of modern, renewable sources of energy; and maximize use of the next generation of technologies that use fossil fuels. P URSUING S USTAINABLE D EVELOPMENT The UNDP believes that improvements in end- use efficiency “will provide the greatest and Developing sustainable infrastructure relies on most cost-effective opportunities for sustainable the broad principles and practices of sustainable energy development in LDCs.” It argues that development. As defined in Our Common Future, “by shifting to high-quality energy carriers and the 1987 report of the World Commission on by exploiting cost-effective, efficient end-use Environment and Development, sustainable devices, it would be possible to improve living development is “development that meets the standards without significantly increasing per needs of the present without compromising the capita energy use above the present level. For ability of future generations to meet their own instance, the energy requirements for the West needs,” with the caveat that sustainable devel- European standard of living in the mid-1970s opment requires more rapid economic growth

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fuels—and also with hydroelectricity,” they say. BOX 3 TWO STEPS TO SUSTAINABILITY “Indeed, they are already competitive for smaller- David Orr, Dean of Environmental Studies at scale applications and markets are growing.” Oberlin College in Ohio, differentiates between technological and ecological sus- Even without major incentives to renewable tainability. Technological sustainability is a power, wind energy, for example, will supply an belief that society can become more sustain- additional 1,400 to 2,850 MW of power in the able within the modern paradigm through major developing countries between 1994 and P ROJECTED ADDITIONS better technologies and more accurate 2000, according to a 1994 report by Arthur prices. Orr defines ecological sustainability as TO WIND ENERGY “the task of finding alternatives to the prac- D. Little. The same study estimated a US$2 to $3 tices that got us in trouble in the first place.” billion market by 2000. Windpower costs are CAPACITY, 1994-2000 Orr argues that the two approaches can be expected to drop to a standard $0.04/kWh by ( CUMULATIVE) successive: “... these are not necessarily 2000. The Indian Ministry of Nonconventional mutually exclusive. To the contrary, I con- Energy currently estimates the capital costs of COUNTRY CAPACITY MW sider both to be necessary parts of a sustain- new wind energy plants to be about the same as able world. To use a medical analogy, the for new thermal power plants.24 INDIA 700-1,200 vital signs of the heart attack victim must be CHINA 350-1,000 stabilized first or all else is moot. Afterwards The opportunities for Canadian companies MEXICO 150-300 comes the longer-term process of dealing experienced in demand management and in CHILE 100-200 with the causes of the trauma which have to ARGENTINA 100-150 do with diet and lifestyle. If these are not renewable energy technologies are considerable. corrected, however, the patient’s long-term As the Canadian Global Change Program25 Source: Arthur D. Little, [1994, prospects are bleak.”1 reproduced] in IEEE Spectrum, (CGCP) and the Canadian Climate Program November 1995. N OTES Board26 (CCPB) noted in their 1996 submission 1 David W. Orr, Ecological Literacy, Education and the Transition to a Postmodern World (Albany: State University of New York to Canada’s environment and energy ministers, Press, 1992), p. 24. the energy efficiency and fuel switching needed to reduce greenhouse gas emissions require could be as low as 1 kW/capita, only 2 percent technologies that are essential to the informa- higher than the 1986 level in developing coun- tion economy. They need advanced design and tries, if state-of-the-art energy-efficient management of energy demand and supply, and technologies are used.”22 relatively small technologies that are applied at the point of use rather than through large The UNDP also clearly believes that the benefits networks, thus reducing infrastructure and of demand management have yet to be thor- distribution costs. oughly exploited and that they are potentially greater than others suggest: the World Bank The CGCP and CCPB concluded that these noted in its 1992 World Development Report that, could create niche trade opportunities for even with a 25 percent level of savings from Canada in the rapidly industrializing countries energy efficiency—equal to the whole of the of Asia and Latin America. Providing clean world’s energy consumption today—world water and adequate housing to their growing energy demands are likely to double in the next populations—while avoiding atmospheric pollu- 30 years, then treble to 20 billion tons of oil tion—will require the kind of environmentally equivalent energy (TOE) in the next 40 years. friendly, energy-efficient, “green” technologies that Canadian companies may be able to offer.27 Therefore, say World Bank advisors Dennis Anderson and Kulsum Ahmed, global climate IN WATER SUPPLY AND WASTE WATER change and other atmospheric problems associ- MANAGEMENT ated with burning fossil fuels make it critical that renewable and cleaner forms of energy be devel- “Review of current trends indicates that we oped and used. They also point out that “a world are approaching a water crisis in several regions energy market of 20 billion TOE translates into a of the world, most notably in the Middle East market of over US$4.5 trillion per year, more and North Africa,” reports the Canadian 28 than half of which will be in the developing International Development Agency (CIDA). countries and the economic gains from new, “Wars of the next century will be over water, lower cost energy resources would be consider- warned the World Bank at the 1995 Stockholm able.” 23 What is the economic case for business Water Conference [....] Tensions over water com- to be involved in renewables? “The technologies petition where ‘water, not oil, will be the domi- will eventually compete with fossil and nuclear nant resource,’ threaten a military response. Currently 26 countries of about 300 million

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inhabitants suffer from water shortages due to RECOGNIZING THE OPPORTUNITIES drought, overpopulation, and pollution of What are Canadian companies doing to help sources. By the year 2050, water shortages will provide this infrastructure? likely affect 66 countries of 7.7 billion inhabitants representing 65 percent of projected world The focus of most large Canadian companies is population in developing countries,” says CIDA. making technology more efficient and thereby reducing waste while, if possible, improving the The World Bank is equally pessimistic: use of resources. For example, some public “Worldwide, roughly 1 billion people lack access Canadian electricity utilities, such as Manitoba to clean water and more than 1.7 billion do not Hydro, Ontario Hydro, and Hydro-Québec, under- have adequate sanitation. Diarrheal disease, take consultancies, often aimed at improving effi- often caused by contaminated water, represents ciencies in existing or new power supply and one-sixth of the world’s burden of disease. The transmission projects. Domestically, these utilities most widespread contaminant of water is have begun to learn about renewable energy sup- disease-bearing human waste.”29 ply, but have not transferred these lessons to their And according to CIDA, “at the end of the work in developing countries. While most have [1980s], the state of water infrastructure in experience with demand management programs, developing countries was virtually unchanged these have not yet become major components of from that of a decade before.”30 Such water their contracting work in developing countries. shortages create opportunities for Canadian In general, most large Canadian companies companies with experience in reducing demand have not recognized or pursued opportunities in and in establishing less costly water treatment sustainable technologies. Smaller companies, systems. however, have risen to the challenge (see Box 4). Some, often with the assistance and encourage- IN TELECOMMUNICATIONS ment of agencies such as CIDA, have begun to It is impossible to predict the full impact of the address demand management in consultations information revolution on sustainability. and planning with developing-country clients. “However,” says CIDA President Hugette Others are offering their renewable energy tech- Labelle, “knowledge and information now rival nologies. Probyn & Company, a specialist in natural resources and the availability of cheap financing energy and environmentally sensitive labour as key factors of production.[...] infrastructure projects, is supporting a wind- Telecommunications has become much more power project in St Lucia, for example. Conserval than a means of transmitting and receiving sig- Engineering has built Solarwall crop dryers in nals. It is the agent and to a large extent the Malaysia and Indonesia, after bidding on projects empowering and determining factor in national defined by CIDA and the Association of development, making possible the evolution of Southeast Asian Nations (ASEAN). Partnered with competitive, knowledge-based societies [...].”31 CIDA’s Industrial Cooperation Program, it is building another solar dryer in India. Conserval’s According to Labelle, telecommunications are simple, highly efficient technology can displace vital to environmental, economic, social, politi- external supplies of energy, including oil and cal, and cultural sustainability. They can also wood. On a sunny day, each square metre of provide early warnings of environmental degra- Solarwall can displace a half-litre of oil.33 dation; reduce wastage and therefore costs in transportation and communication; improve According to the UNDP’s 1990 Human access to health care and education; foster Development Report, these technologies are not democratic development and the growth of civil only environmentally better, but they are also society; and strengthen cultural identities. more cost-effective. “The recent rekindling of interest in cost-effective technology has been And, says CIDA’s Gerard Kenney, where triggered not only by the financial crisis of the developed countries “have large installations 1980s, but also by the finding that low-cost sunk in outdated technology, many countries technology in many instances is not only with relatively undeveloped information cheaper but better. There are examples of such infrastructures are in a favourable position to technologies in all sectors: oral rehydration catch up with or even leapfrog over more technology and breastfeeding in health, developed countries.”32 improved wood-saving stoves in energy, or rain-harvesting techniques in agriculture.”34

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BOX 4 CANADIAN INNOVATORS: EXAMPLES FROM ECUADOR AND PERU

ENVIRONMENTALLY SENSITIVE WATER TREATMENT Facing shrinking markets here in Canada and increased demand in developing countries, it is natural that Canadian engineering companies like Proctor & Redfern International Ltd are investing time and energy in exporting their expertise. Proctor & Redfern first went to Ecuador in 1985 on a CIDA-funded project. In 1992, the company decided to focus its marketing plan on Latin America and the Caribbean, choosing Ecuador as its base of operations. However, it took several attempts to land the first contract, says Latin America manager, Ricardo Toledo. The company has now won a major contract from the Government of Ecuador to plan and design the water supply and sewerage systems for Puerto Ayora, the main city of the Galapagos. The project is funded by the Inter-American Development Bank. The Galapagos Islands continue to be a site of intensive international scientific research and an important area for ecological conservation. The project therefore had to be compatible with ecological concerns while enhancing living conditions in the city. The keys to Proctor & Redfern’s success, says Toledo, was that the company demonstrated its understanding of the issues and proposed an appropriate technology. Working with local consultants, including computer applications experts, an architect, and an economist who undertook the socioeconomic survey and the feasibility report, Proctor & Redfern proposed a sewerage system that uses the Solar AquaticsTM System, developed by ecological pioneer Dr John Todd, formerly of Hamilton, Ontario and Ecological Engineering Associates of the US. Four systems are in operation in Canada, in addition to plants in the US and Mexico. Described as an ecologically engineered process, the system uses plant, animal, and microbial life to digest organic waste, replicating, under controlled conditions, the water purifying process that occurs in nature. The process produces a clean effluent that can be safely discharged into the environment. The Solar AquaticsTM System is also competitively priced.

DEVELOPMENT THROUGH COMMUNICATIONS In 1997, SR Telecom Inc. of Montreal received a Canadian Award for International Development, in recognition of its work bringing telephone communications to rural Peruvians. The company designs, manufactures, and markets wireless microwave products for rural and remote areas. The company says it “is representative of the type of advanced technology manufacturer upon which Canada relies increasingly for sustained economic growth, job creation, and prosperity at home.”1 A three-time winner of the prestigious Canada Export Award, SR Telecom exports 97 percent of its production outside North America and has systems operating in 80 countries. SR Telecom first went to Peru in 1987, under a CIDA-funded Development Line of Credit facility. Its initial sale of $5 million has since turned into $23 million. Using wireless communications, SR Telecom has connected 1.1 million Peruvians in isolated communities scattered over 250,000 square kilometres to Peru’s telephone system. It delivered the wireless communications systems to Telefónica del Peru, the former state-owned telephone company privatized in 1994. In documents supporting its award application, the company notes, “the strategic targeting of ODA can foster long-term commercial linkages and leverage downstream business for Canada.”2 Mark Lusignan, SR Telecom’s Government Relations Officer, says that “business didn’t go to areas where infrastructure didn’t exist, now new business has enabling infrastructure.”3 He points to numerous other examples in developing countries where telephones have reached into rural areas: in Mexico, for example, 23,000 villages with a population of more than 500 now have a telephone. According to Lusignan, the social, economic, and environmental benefits mount with telephone access. Businesses are able to improve scheduling, there is less wastage of time and of produce, and authorities can respond to emergencies more quickly. CIDA considers that, in addition to making communities less isolated, this particular project had a strong impact on economic development. The Government of Peru felt that the advent of reliable communications technology supported good governance by facilitating more effective delivery and administration of government services and programs. Agricultural sales, marketing, and transportation were transformed, resulting in better scheduling, significant waste reduction, and less consumption of fuels and natural resources. The telephones also allowed people to reach family and friends. Contact with the outside world is especially crucial in times of medical emergencies or natural disasters.

N OTES 1 SR Telecom, Application Form to CIDA 1997 Canadian Awards for International Development. 2 SR Telecom Application to CIDA 1997 Canadian Awards. 3 Personal interview, September 1997.

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T HE BOTTOM LINE IS Renewable energy also better addresses all • The engineering consulting firm of Proctor & aspects of sustainability, including social and Redfern International Ltd is using an innova- THAT SUSTAINABLE economic considerations: “renewable energy is tive waste water treatment system called “a liv-

BUSINESS IS, QUITE two to four times more labour-intensive than ing machine” to treat sewage in the ecologically nonrenewable,”35 says Paul Hawken, author of sensitive Galapagos Islands. The system closely SIMPLY, GOOD The Ecology of Commerce and a pre-eminent mimics nature, reducing resource throughput,

BUSINESS. writer on the relationship between the economy and is inexpensive to operate (see Box 4). and the environment. • In telecommunications, SR Telecom Inc.’s

KEN MCCREADY, FORMER Canadian companies offer many examples of Peru project (see Box 4) demonstrates how an innovative technologies, locally built to a “enabling” rural communications network CEO, TRANSALTA CORP., human scale. Here are a few examples: can serve social, political, developmental,

ADDRESS TO INTERFACE and economic needs. • Zenon Environmental Inc. provides mem-

CONFERENCE, KINGSTON brane products for water and wastewater treatment in areas of the world desperately S ERVING T OMORROW’ S C ITIES ONTARIO, OCTOBER 8, 1997 short of water, including Egypt and the CIDA’s 1997 Sustainable Development Strategy United Arab Emirates. Less costly to build notes that: and operate than conventional systems, they also require fewer chemicals and less energy. A different kind of challenge is posed by Membrane technology, which can often rapid urbanization of the developing remove and isolate contaminants that con- world. Urban growth rates of 6 percent are ventional water treatment systems cannot— not unusual. By the year 2015, urban including nuclear, biological, and chemical dwellers will outnumber rural for the first warfare agents—is able to convert brackish time in history. This trend brings mixed water and seawater into potable water. In blessings for the developing world. Cities 1994, for instance, the company’s system at a are the motor of economic growth and can Rwandan refugee camp purified 40,000 litres offer increased economic activity, greater of polluted, cholera-laden water a day.36 employment, and growing trade. However, the poor are disproportionately threatened • Trojan Technologies Inc. provides ultraviolet in large cities by environmental hazards water disinfection systems that destroy and health risks caused by pollution of microbial and toxic pollutants in South and air, ground, and water, as well as by Central America and throughout Southeast inadequate housing, poor sanitation, Asia. Its process also boasts low chemical, and lack of other basic services.38 capital, and operating costs.37

TABLE 1 Canadian Firms in the Top 200 International Design Firms (1996)

RANKINGa 1996 BILLINGS MARKETS (% BILLINGS) 1997 1996 Company Firm Int’l % ofGeneral Manufac- Power Water Sewer/ Industrial/ Transpor- Hazardous Typeb ($mn) total Building turing Supply Waste Petroleum tation Waste 3 4 SNC-Lavalin International Inc., E 567.00 57 5 1 6 12 3 38 28 1 Montreal, PQ 21 14 AGRA Inc., Oakville, ON EC 215.30 47 10 20 15 2 1 30 4 6 30 32 Simons International Corp. EC 144.90 60 0 28 0 0 0 72 0 0 Vancouver, BC 77 63 Sandwell Inc., Vancouver, BC E 37.80 54 0 1 5 0 0 74 19 0 85 81 Hatch Associates Ltd., E 33.40 33 0 1 0 0 1 83 10 0 Mississauga, ON 93 77 Tecsult Inc., Montreal, PQ E 28.60 43 5 0 20 10 5 5 20 0 108 102 Acres International Ltd., E 20.30 57 1 1 64 3 1 17 8 2 Toronto, ON 109 117 Stanley Technology Group Inc., E 20.00 26 0 0 0 20 20 0 15 0 Edmonton, Alberta 147 141 Cansult Group Ltd., Markham, ON E 9.50 89 35 5 0 5 20 0 35 0 TOTAL CDN INT’L BILLINGS (TOP 9) $1,076.80 Notes: Some markets may not add up to 100% due to omission of “other” miscellaneous market category. a Ranking based on billings for design services performed outside of Canada. b E= Engineer EC=Engineer-Contractor Source: ENR, July 21, 1997.

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According to Jay Jayadev, a renewable energy of consulting services.45 As Table 1 indicates, consultant: nine Canadian companies are in the Top 200 When these villagers move to city areas, international design firms: most of them as they often do, the urban infrastructure is actively participate in international projects. strained in many ways, not the least in its SNC-Lavalin International Inc., for instance, ability to meet the demand for electricity. ranks third in the world in international The International Energy Agency predicts that billings, has permanent offices in close to 30 if city populations in developing countries countries, and active projects in 86 countries.46 double in the next 15 years, energy demand While many Canadian companies enjoy a strong will increase 45 percent even if national presence in the US, they are also active in the income levels and population remain con- developing world. In fact, the activities of the stant. But social and economic problems are top Canadian engineering companies are more caused by such urbanization, which might be concentrated in Asia than in the US (see Table 2). 39 prevented by more rural development. As Waine McQuinn, manager of International The decentralized and appropriate-scale of the Programs at the Association of Consulting new technologies could alleviate these problems Engineers of Canada (ACEC), explains: “Asia is by helping reduce rural-urban migration. It is the largest source of revenues for Canadian con- argued that, if commerce and industry no longer sulting engineers, even though we only rank depend on large power, water, and wastewater fifth in that market.”47 Canadian firms also have grids, they could locate in smaller centres or rural a strong presence in Africa and Latin America, areas. Established as stand-alone systems, renew- ranking second in each in terms of market share. able energy sources could provide power for iso- Engineering consultants tend to export exper- lated villages, where approximately 2 billion of tise developed at home,48 competing effectively the world’s population lives, says Jayadev. And in resource extraction, energy, telecommunica- because a major grid is not needed, the benefits tions, transportation, and basic infrastructure.49 40 relative to costs of renewables soar. SR Telecom’s Canadian engineers are involved globally in microwave relay towers in Peru require energy, for designing buildings, manufacturing plants, example, but this is provided by solar panels, thus power plants, water supply systems, sewage/ enabling a telephone system to be established waste treatment facilities, industrial/petroleum without a companion electrical grid. projects, transportation, and to a lesser extent, Decentralized, renewable energy sources, power- in hazardous waste disposal (see Table 1 for ing high efficiency end-use energy devices for sector breakdowns by company). residential and productive uses, would also contribute to job creation, says the UNDP.41 It sug- THE IMPACT OF CANADIAN ENGINEERING gests that “decentralized rural electrification is a Engineering firms can help provide two key proven competitor to grid extension. benefits to developing countries—an improved Decentralized generation and distribution of quality of life, and increased human capabilities electricity creates more employment in rural through technology transfer. But engineering areas than central generation. Furthermore, projects can also carry particular economic and biomass production could be a major source of environmental costs. jobs and revenues for rural populations.”42

Great opportunities exist for Canadian business in sustainable infrastructure. But it remains to TABLE 2 Geographic Concentration of Top Canadian be seen if they take advantage of domestic Engineering Design Firms innovation and see the potential in the “next Cdn Firmsa % Market Ranking Geographic Concentration industrial revolution.” Geographic region Int’l Billings ($US mn) Share by Region by Region (% of Cdn Billings by Region/Total Cdn Billings) Middle East 64.7 5.0 3 6.0 Asia 288.5 6.0 5 26.8 A ROLE FOR E NGINEERING Africa 182.5 15.6 2 17.0 AND I NFRASTRUCTURE Europe 115.5 2.6 6 10.7 US 283.7 18.1 3 26.3 Engineering permeates every sector of infra- Latin America 141.9 12.9 2 13.2 structure, and Canadian firms are globally com- TOTAL 1,076.8 7.4 4 100.0 43 petitive. Canada is the fourth largest exporter Notes: a Based on nine Canadian firms in the “Top 200 International Design Firms” (1996). of engineering services in the world,44 and in Source: ENR, July 21, 1997. 1996 supplied 7.4 percent of the global exports

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IMPROVING QUALITY OF LIFE tively on the earth’s natural system.”55 “Clearly,” says Gary Wacker, Chair of the Board of the Canadian engineering consultants are reputed for Canadian Council of Professional Engineers their expertise in infrastructure design.50 Well- (CCPE), “engineering has become a societal designed infrastructure can tangibly improve the process as well as a technical activity.”56 quality of life, everywhere. As the Canadian Council of Professional Engineers’ vision state- Canadian companies are sometimes asked by ment puts it: “Ultimately, the engineering profes- clients to provide an objective, broad-based sion contributes to the betterment of the human perspective on sustainable alternatives, or what condition, fosters prosperity and makes the world Acres calls a “master plan.” Master plans aim to a better place in which to live.”51 objectively examine sustainable alternatives alongside traditional options. “We’ve done power Many Canadian companies support these goals sector master plans which would quite openly and engineers have made significant social and take in alternatives,” says Bob Witherell, environmental contributions. Two examples Executive Vice-President of Acres International, can be found at Acres International Ltd and “but because of more private sector involvement, SNC-Lavalin. “We do a lot of training, manage- these master plan studies are getting fewer.” ment reviews, a lot of nonengineering type of Witherell believes that engineering consultants work—institution building really,” says Martin have less influence on the type of project ter Woort, Manager, Development Planning, at designed because “the decision is made by the Acres.52 Corporate giant SNC-Lavalin also [host] government about what exactly is to be undertakes institution-building: most recently studied.”57 SNC-Lavalin Environment spearheaded a CIDA- funded project in Vietnam aimed at strengthen- In general, the best design for an individual pro- ing national and local capabilities to undertake ject does not necessarily translate into the best environmental monitoring, assessment, and system-wide solution from a social or environ- planning.53 mental perspective. Traditionally, social and environmental impacts have not been ade- Determining whether or not the larger goal quately addressed in engineering feasibility of “improving quality of life” is achieved, studies, nor in the design process itself. This has however, depends on whose perspective is also been true in the planning and design of used and what criteria are included in the large-scale hydroelectric projects where social evaluation. In the past, engineering projects— and environmental issues have only relatively like many business activities—were evaluated recently been introduced (see Table 3). solely according to economic and technical criteria: “quality of life”—defined as standard of The most controversial example may be China’s living—improved if the economics demon- Three Gorges Dam project in which a number of strated that it did. Today more sustainable Canada’s top engineering companies—SNC- indices and measurements54 recognize that Lavalin, Agra Monenco Inc., Stanley Technology economics are only one component of “well- Group Inc. (through partially owned Teshmont being” whose measurement must include social Consultants Inc.), and Acres International Ltd— and environmental considerations. have been involved. While most of their involvement ended at the feasibility stage, these Yet, for some Canadian engineers it is still busi- companies were strongly criticized because the ness as usual: one company executive inter- studies provided the foundation for project viewed, for example, felt that it was naive to financing and supported the final decision to expect engineering companies to be concerned proceed. Companies such as Agra Monenco, with anything other than economics or techni- Teshmont, and General Electric Co. have also cal design. There are indications, however, that been involved in later stages, even after agencies Canadian engineering associations are beginning such as the US Export-Import Bank refused to to recognize the technical and social aspects of provide financial assistance. their activities. For instance, the Environmental Code of Conduct developed by the Association China’s Three Gorges Project is the largest of Consulting Engineers of Canada acknowl- hydroelectric project in the world. A multi- edges that: “These [technical] advancements purpose water project, it will deliver 18,200 have greatly enhanced the quality of human life megawatts of power, reduce annual flood risks and contributed to the increased global popula- to 60 million people, and provide jobs for tion. They have also, at times, impacted nega- 35,000.58 Projected benefits also include

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economic development and improved naviga- But the project will also force the permanent tion routes. Flood control is the dam’s main relocation of more than 1.3 million people— justification, however. According to Scott many of whom are resistant to such resettle- Ferguson and Martin ter Woort of Acres, “floods ment 61—and will flood 63,500 hectares of in 1931, 1935, and 1954 drowned 317,000 peo- farmland.62 Environmentalists warn of wide- ple.”59 In 1954, 19 million were also displaced. spread environmental damage. Much contro- “It is estimated that the damages from another versy has surrounded the project, particularly major flood would exceed the $19 billion cost of since experts such as Dr Luna B. Leopold, of the the Three Gorges project,” they say.60 US suggest that sedimentation will seriously impede the project’s effectiveness.63

Canadian engineering companies have been BOX 5 SMALLER IS BEAUTIFUL: involved in Three Gorges since the mid- to late- THE CHANGING SCOPE OF 1980s when a consortium of Canadian compa- INFRASTRUCTURE PROJECTS nies (Acres, SNC-Lavalin, Hydro-Québec, BC In 1994, World Bank research indicated that Hydro) carried out a comprehensive feasibility much of infrastructure investment is wasted study financed by CIDA. They recommended a as a result of inadequate maintenance, misallocation of investment, inefficient operations, 160-metre reservoir pool level because they did unsatisfied user demand, financial inefficien- not feel that resettlement feasibility could be cies, and fiscal drain.1 This is unfortunate demonstrated at higher levels. The Chinese since “Both quantity and quality improve- Panel of Experts recommended a level of 175 ments are essential to modernize and diver- metres, however, citing flood control and the sify production, help countries compete internationally, and accommodate rapid concern over navigation at the upper end of the urbanization.”2 reservoir. “In effect, the Chinese opted to trade If large infrastructure projects—which were off higher resettlement costs to provide more not always effective—were the rule in the economic benefits to Sichuan Province,” say past, the need for appropriately sized and Ferguson and ter Woort. 64 configured infrastructure projects is increasingly recognized, particularly those that can Agra Monenco Inc. also received a $35 million achieve sustainable development objectives. contract to provide a computerized engineering While not an official policy directive, the management system and management training World Bank is now “leaning more toward services to the Three Gorges Development smaller infrastructure projects.”3 As James D. 65 Wolfensohn, President of the World Bank, Corporation (TGDC). Although a company notes: “One of the things that has pushed us more toward small projects is the ownership, control, and capacity of the local govern- TABLE 3 Historical Evolution of 4 ments to deal with small projects.” Transparency and Parti- This may mean that, to obtain financing, cipation in Large Dams: mega-projects will need to demonstrate that Broadening the Consti- they are “environmentally sensible and [...] deal sensitively with indigenous populations.”5 tuency of the Design Team For example, the World Bank and the World Conservation Union recently established an Design Team Members Era (approx) independent commission that will develop 1 Engineers Pre-WWII dams standards for large energy projects as well as 2 Engineers + Economists Post-WWII dams guidelines for countries and investors, and will 3 Engineers + Economists + an Environmental Late 1970s assess alternative approaches.6 However— Impact Statement (after completion of design) despite critics’ requests for a moratorium on 4 Engineers + Economists + Late 1980s contentious projects—construction will con- Environmental & Sociologists tinue on large-scale projects already underway, 5 Engineers + Economists + Environmental & Early 1990s at least until the World Commission on Dams Sociologists + Affected People has completed its two-year review. 6 Engineers + Economists + Environmental & Mid 1990s Sociologists + Affected People + NGOs N OTES 7 Engineers + Economists + Environmental & Sociologists + 1 World Development Report 1994. Affected People + NGOs + Public ‘Acceptance’ Early 2000s? 2 Ibid., p. iii. 3 Tom Ichniowski, “World Bank sets sight on small infrastruc- Source: Robert Goodland, “Environmental Sustainability in ture projects,” ENR, October 7, 1996, p. 20. the Hydro Industry: Disaggregating the Debates, in Tony 4 Ibid., p. 20. Dorcey, ed., Large Dams: Learning from the Past, Looking at the 5 Ibid., p. 20. Future, Workshop Proceedings April 11-12, 1997 (Gland, Switz.: IUCN-The World Conservation Union & The World 6 Kate Dunn, “World Bank joins effort to form dam watchdog,” Bank Group). The Ottawa Citizen, February 17, 1998, p. A20.

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spokesperson denies the claim, Probe International suggests that the system will be BOX 6 CANADIAN ODA SUPPORT OF used to develop the resettlement plan. Agra INFRASTRUCTURE Monenco defends its involvement by citing CIDA identifies four key sectors as infrastruc- economic benefits and the improved efficiency ture services: energy; information and communication technologies (ICTs); trans- 66 of Chinese infrastructure. Agra Monenco portation; and water, irrigation, and sanita- received $12.5 million worth of guarantees from tion. From a private sector perspective, the Export Development Corporation (EDC). infrastructure can also include engineering consulting services and environmental Teshmont has also been involved in engineering technologies, which span all four sectors. studies for transmission lines leading from In Canada in the World, the federal govern- Three Gorges. And GE Canada Inc. will supply ment identified infrastructure services as one turbines and generators, with a contract esti- of six priorities for Canadian official develop- mated at $160 million. The EDC provided an ment assistance (ODA). The provision of undisclosed amount in financial guarantees.67 “environmentally sound infrastructure services, with an emphasis on poorer groups Although Chinese authorities claim that interna- and on capacity building” is a key means by tional standards for environmental assessment which Canadians are helping developing countries reduce poverty and enjoy a safe, and social resettlement are being met and that and equitable environment.1 Canadian social and environmental evaluations were com- government investment in developing- pleted, organizations such as Asia Watch dis- country infrastructure accounted for approxi- agree. In addition to external criticisms, 25 mately 9 percent or $184 million annually of percent of the members of the national People’s our total bilateral ODA budget from 1990 to 1995.2 Infrastructure disbursements by sector Congress abstained from voting on Three Gorges were as follows: and an additional 10 percent voted against the project.68 “The Chinese have decided that it’s CIDA BILATERAL INFRASTRUCTURE worth it because in their view, resettlement is DISBURSEMENTS 1990-91 TO 1994-95 development,” says Martin ter Woort.69

Some fundamental issues arise from the controversy surrounding Three Gorges. Do Canadian engineering consultants have a responsibility to ensure that social and environmental issues are adequately addressed? “Yes,” says ter Woort. It can be argued that the engineers’ job is to plan and make recommendations while it’s up to their pay masters to implement. But ter Woort also believes that engineers can make a difference. In the Three Gorges project, “we spent a great deal of time developing better resettlement cost estimates and arguing strongly that these costs were real and should be funded as project N OTES costs,” he says. “The social and environmental 1 Canada, Canada in the World: A Government Statement (Ottawa: Canada Communications Group, 1995), p. 42. costs of Three Gorges make up one-third of the 2 CIDA, “Infrastructure Services Policy,” September 13, 1996, p. 10. total project. That’s unheard of,” says ter Woort. While financial provisions for environmental have a chance to influence,” says ter Woort. and social impacts are important, a more funda- And such mega-projects may go ahead, with or mental question remains: should Canadian engi- without Canadian involvement. The issue for neering consultants ever undertake projects with Canadian engineers, therefore, is not only such heavy social and environmental costs? whether or not they should participate, but how While Canadians may have helped make a bad they can make a difference. situation better, should they have been involved in the first place? The answer is unclear: while One way to have a beneficial impact is by devel- Canadian corporate participation supports con- oping evaluative approaches that incorporate troversial projects like Three Gorges, its partici- environmental and social, as well as economic pation may open the door to change from the and technical, criteria. For example, Acres inside. “If we’re not sitting at the table, we don’t International recently received an award from the

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ACEC for incorporating social and environmen- that the Chinese government wanted “to form tal criteria in its decisionmaking methodology. as a basis for securing funding from interna- Acres sells this approach to its clients as part of tional institutions.”73 And the EDC provided the normal cycle. In its award-winning study, millions of dollars in loans and guarantees. Acres prepared a detailed screening and ranking Engineering companies openly acknowledge the study for medium-sized hydropower projects in importance of the Canadian public sector in Nepal which included environmental and social obtaining foreign contracts. “The official sup- impacts. The project-ranking matrix directly port of our governments, whether through compared environmental and social scores commercial missions or more private conversa- against technical and economic scores. The tions, has a beneficial and convincing impact Acres study also emphasized transparency and on our international clients,” says Jacques consensus-building through ongoing consulta- Lamarre, President of SNC-Lavalin.74 tion and the participation of a variety of stakeholders: local and international If economics remain the driving force behind nongovernmental organizations, inter-agency public sector decisions, it is not surprising that groups, private sector companies and organiza- they remain paramount for many firms. As tions, individuals, donors, the media, Nepal David Lapp, Director of Professional Affairs at Electricity Authority officials, members of CCPE says: “Engineers can’t always propose the Medium Hydropower Development in Nepal, best solution because it’s too expensive. That and peoples’ representatives. 70 could be the basis for winning or losing that work. We have certain levels of responsibility. “The key,” says Martin ter Woort, “is to make Cost is always going to be a factor. No matter sure you get to the right stakeholders, those how ethical you are, the decision can be taken who actually represent the people.” Yet in the outside your hands. Engineers should partici- Nepal study, a majority of representatives were pate in the debate but the debate is not private sector companies and organizations, and exclusive to engineers.”75 government officials: community representation was significantly lower. Future work in this area But it is not sufficient that engineers simply must address broader representation. aspire to ethical and environmentally sustainable practice. Actions speak louder than words. These methodologies can undoubtedly be Indeed, ACEC’s 1995 Environmental Code of improved,71 but it is encouraging that some Conduct recommends that an engineer refuse Canadian companies are taking the initiative. business which does not “enable him/her to But not all engineering consultants have the fulfill his/her professional responsibilities,” as in-house expertise to carry out social and envi- outlined in the Code76 (see Box 7). But ACEC’s ronmental assessments. Some that don’t, like code has not been widely distributed. One SNC-Lavalin, acquire these skills on a contract senior executive frankly admitted, “I’ve never basis. However, the advantage of having an even heard of it.” However, ACEC’s Waine internal capacity is that social and environmen- McQuinn believes that most member tal perspectives can percolate throughout the companies strive to meet local environmental organization on an ongoing basis. codes.77 Surprisingly, despite these private sector But compliance with standards is often advancements, Canadian funding agencies such problematic. The Environmental Appraisal as the Export Development Corporation do not Committee (EAC) of India’s Ministry of use criteria other than economic payback to Environment and Forests, for example, found assess the viability of funding options. In com- that close to 90 percent of the medium to large parison, the US Export-Import Bank uses envi- dams being built violated the Ministry’s environmental guidelines and has a human rights ronmental and social guidelines. Most often policy, in addition to applying more traditional ignored were criteria dealing with forced reset- criteria of creditworthiness and competitiveness. tlement and compensatory reforestation. In 72 Yet, loan guarantees and public sector contri- some cases, the EAC recommended that con- butions from CIDA and the EDC increase the struction of several dams be stopped. Yet the chances of Canadian engineering consultants Chamera Dam, among others, proceeds as receiving international contracts, particularly planned, without addressing EAC’s concerns. from developing-country governments. Canada’s SNC-Lavalin was a supplier of In the case of Three Gorges, for example, CIDA engineering services to this project.78 provided funding for the feasibility phase—work

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I NFRASTRUCTURE In general, it remains to be seen how codes can Developing countries generally employ external be effectively implemented and monitored. As a consultants for complex engineering projects CAN DELIVER MAJOR US survey of engineering ethics conducted by that they do not yet have the experience to

BENEFITS IN ECONOMIC Civil Engineering pointed out: undertake. As Jacques Lamarre of SNC-Lavalin states: “There are excellent engineers everywhere GROWTH, POVERTY [...] most engineers probably have funda- in the world. It is unthinkable today to try and mentally sound ethical value systems, [but] ALLEVIATION, AND export general engineering services of a low all could probably benefit from specific technical level. The vast majority of countries ENVIRONMENTAL training in ethical decisionmaking have access to those types of services locally, and processes and on how to resolve ethical 82 SUSTAINABILITY— would insist on using them.” Theoretically, the dilemmas. This is a severe shortcoming of country will learn to “independently conduct BUT ONLY WHEN IT engineering undergraduate and continuing the activity (plant operation, survey, design, education[...]79 PROVIDES SERVICES supervision or procurement) that it was sup- This hits at the heart of the engineering profes- posed to have learned from the transferor.”83 THAT RESPOND TO sion: What does it mean to practice as an engi- In reality, this is often not the case. In a study EFFECTIVE DEMAND neer? To improve the quality of life? From of 36 Canadian consulting engineering firms whose perspective? How is the engineer’s profes- AND DOES SO operating in developing countries, Niosi and his sional vision translated into everyday practice? colleagues found that “only a few were very able EFFICIENTLY. What do engineering ethics and ethical deci- or perfectly able to independently execute the sionmaking comprise? How are they applied? activities they were supposedly enabled to WDR 1994, Ultimately, this is an issue of professional devel- conduct through the transfer.”84 While more

INFRASTRUCTURE FOR opment, and one that needs to be addressed than half the clients gained in knowledge or seriously if Canadian engineers hope—in the capability, lasting technology transfer was not DEVELOPMENT, P. 2 words of their vision statement—to “advance realized in most cases. the quality of life.” Niosi found that smaller, more specialized engineering consulting firms with a strong ENHANCING HUMAN CAPABILITIES emphasis on R&D and technical expertise were A seemingly straightforward benefit of Canadian most successful at transferring technology. engineering services is the transfer of technology In addition, joint ventures or other forms of and engineering know-how to developing coun- partnership increased the likelihood of effective tries. Such transfers can represent an important technology transfer.85 investment in the knowledge base of a developing country. As Jorge Niosi et al suggest: “Most H OW C AN E NGINEERS M AKE of the projects involving ECs [engineering A D IFFERENCE? consultants] from developed countries conduct- ing projects in LDCs include some sort of By narrowing the divide between economics technology transfer.” Generally, this is practical: and social and environmental well-being, technological knowledge is transferred from the Canadian engineering consultants can help engineering firm to its clients during the increase the quality of life in both developed project’s execution. It includes “... the learning and developing worlds. But what specifically of the abilities necessary to conduct surveys, can Canadian engineers do? feasibility studies, design, construction super- First, the CCPE recommends a stronger public vision and management of the plant.[...] In a few advocacy role for engineering consultants: cases—where engineering firms conduct research engineers need to take a stronger stance on and development (R&D)—there is some propri- development issues such as social and etary, patented technology transferred from the environmental considerations. This raises a EC to its partner in the developing country.”80 fundamental question about the role of A by-product of the consultancy, such transfers engineers in the decisionmaking process: “Is it can contribute positively to developing coun- possible that engineers could play a more active tries’ knowledge banks. The ACEC role in such engineering decisions to the benefit Environmental Code of Conduct also recom- of the public?” asks Gerry Wacker.86 “To do so mends that engineers strive to achieve the requires us to re-evaluate and change some of “effective transfer of environmental knowledge our basic philosophies and means of interacting and experience.”81 with those we serve, [...] a fundamental adjustment in our role.” Canadian engineers

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BOX 7 AN ENVIRONMENTAL CODE FOR ENGINEERS “Observing a code of conduct is fundamental to the practice of consulting engineering,” notes the Association of Consulting Engineers of Canada in its Environmental Code of Conduct, approved in November 1995. “The goals of consulting engineers should include a commitment to achieve sustainable development.” The code considers that consulting engineers “should combine their traditional skills with broader applications of (...) other disciplines to participate meaningfully on interdisciplinary teams directed at achieving acceptable environmental solutions.” They should also, in conjunction with their clients, “give highest priority to the welfare, health, and safety of the environment, giving appropriate consideration to local, regional, and global cumulative effects of projects.” The code sets out the following goals, general actions, and project actions for ACEC members.

G OALS • careful evaluation of the environmental benefits and adverse impact of proposed projects; • conservation of energy; • reduction in the use of nonrenewable resources and increased reuse of materials; • reduced waste production through improved industrial processes, better transportation and distribution systems, and recycling of waste products; • sound agricultural and other land management practices; • restoration or improvement of damaged land, polluted water supplies, and disturbed ecosystems; and • effective transfer of environmental knowledge and experience.

G ENERAL A CTIONS • keeping informed on global environmental trends and issues; • discussing environmental problems with professionals from other disciplines; • providing information to clients, the public, and government about environmental problems and how adverse effects can be mitigated; • becoming involved in organizational activities, including assistance to governmental authorities, that promote the protection of the environment; • encouraging and promoting appropriate environmental laws and regulations; • actively supporting and participating in all forms of environmental education; and • promoting research and development relevant to protecting and improving the environment.

P ROJECT A CTIONS Consulting engineers must recognize and advise their clients of the importance of: • performing appropriate environmental reviews as part of all projects, this will often require a multidisciplinary approach; • evaluating both positive and negative environmental impacts of alternate solutions so that the most appropriate solution which minimizes adverse environmental impacts is recommended; • the statutory obligations imposed upon the client to prevent or minimize the adverse environmental effects of the project in all phases; • the engineer’s professional responsibilities and environmental regulatory obligations to pursue adequate efforts to evaluate the environmental issues and to mitigate environmental problems. Where the client is not prepared to retain the engineers so as to enable him/her to fulfill his/her professional responsibilities, the engineer should decline to act on behalf of the client. Where, during the course of a project, instructions are given to the engineer which are incompatible with minimizing any adverse environmental impacts, the engineers should refuse to render services on behalf of the client.

Source: Association of Consulting Engineers of Canada, Environmental Code of Conduct, November 3, 1995.

need to publicly support and push for greater moral and technical questions facing modern social and environmental responsibility. society. This goes beyond technical specialization.” 87 Furthermore, as ACEC’s Environmental Second, consulting engineers can actively Code of Conduct recommends, Canadian con- incorporate ACEC’s Environmental Code of sulting engineers should actively “promote Conduct into their corporate mission state- responsible environmental citizenship” and ments and project plans. By becoming leaders “provide leadership in achieving sustainable in environmental management, engineers can development, development that will meet the help clients embrace sustainable development long term needs of future generations of all goals. As Daniel Verreault, President of CCPE, nations without impairing the earth’s urges: “Engineers must take every opportunity ecosystems.”88 to publicly articulate their views on the ethical,

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C ANADIAN ENGINEERS Third, evaluation methodologies that combine business ethics—a move which can incorporate social, environmental, and economic impacts social and environmental ethics into corporate PROVIDE LEADERSHIP TO must be refined and applied in a wide variety of decisionmaking. By emphasizing sustainable

ADVANCE THE QUALITY contexts. Canadian engineers need to involve a development in the accreditation process, the range of stakeholders and convince their devel- engineering profession can develop a new OF LIFE THROUGH THE oping-country clients of the benefits of this generation of practice.

CREATIVE, RESPONSIBLE, approach. A key area for improvement is to Social and environmental issues must be more ensure more equitable representation across AND PROGRESSIVE deeply integrated into engineering education stakeholder groups. A commitment to trans- and practice. On an international level this may APPLICATION OF parency and consultation requires a similar already be underway: the World Business commitment to institution-building and broad ENGINEERING PRINCIPLES Council for Sustainable Development, for exam- exchanges across different (and perhaps ple, is supporting a new initiative focusing on IN A GLOBAL CONTEXT. opposing) groups. engineering graduates and students, in the Fourth, social and environmental corporate hopes of improving environmental literacy.92 VISION STATEMENT FOR THE responsibility must also include some form of Canadian engineers also need to forge links CANADIAN ENGINEERING concrete sustainable accounting or independent across disciplines, sectors, and regions. An monitoring system. Broadened accountability PROFESSION, TORONTO, increased focus on joint partnerships and will instill cultural and practical changes in in-country linkages is an important way of MAY 1996 engineering. “[The] issue has to do with expand- ensuring more effective technology transfer. ing the nature and extent of our accountability Engineers can also emphasize the transfer of as professionals, individually and collectively. social and environmental knowledge through An expanded accountability would include direct consulting and the continued export of educating the public about engineering matters, the Canadian accreditation process. In addition, providing information on the longer-term Canadian engineers need to have greater inter- impacts on society and the environment, action with international organizations such as working toward sustainability,” says CCPE’s the World Engineering Partnership for Wacker.89 It is critical that engineers track Sustainable Development (WEPSD) which is projects beyond the feasibility stage—what are committed to long-term global sustainable the actual social and environmental impacts of development. 93 a given project and how do these differ from the feasibility assessment? Why are there discrepan- Finally, public sector financing of controversial cies? How will future decisionmaking be projects should be reviewed to include more affected? Independent monitoring can help stringent social and environmental criteria. ensure that these concerns are addressed. Public sector financing should also privilege smaller, more specialized engineering firms or Infrastructure project funding presents a fifth those involved in joint partnerships because opportunity. With increased financial involve- they offer the greatest opportunity for ment in infrastructure projects—through BOOT technology transfer. (Build, Own, Operate, Transfer) schemes, for example—engineering firms may have greater These challenges are large. Canadian consulting influence over social and environmental goals. engineers and public sector funding agencies In the past, most Canadian firms have acted as must address these issues at collective and service specialists, not undertaking construction individual levels. The larger societal role of or manufacturing work.90 Consequently, they Canadian engineering companies—and our have had little impact on the way infrastructure engineers as individuals—cannot be ignored. projects are managed in the long term, above “As engineers we have been intimately involved and beyond design recommendations. This is in raising the edifice of technology. As a society, changing with increased privatization. With the we have seen that technology can be a two-edged arrival of BOOT projects, “we are also asked to sword and that has sparked much debate. invest in our own projects,” says Lamarre of Unfortunately, the voices of those who design SNC-Lavalin.91 By having more control over and implement the technologies have not made funding, the engineer can act more directly as themselves heard often enough,” says CCPE’s sustainable change agent. Verreault.94

A sixth area for consideration is the need for By committing themselves to multidisciplinary greater professional development and education thinking, Canadian engineers can utilize their that focuses on sustainable development and complex problem-solving skills to meet sustain-

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able goals. But they need to take the lead and responsibility means declining projects that do find answers to unresolved questions: How can not meet sustainability benchmarks? Canadian their decisionmaking incorporate sustainability engineers have a solid international reputation. benchmarks? How can their designs be sustain- By consistently promoting consideration of able from economic, environmental, and social social and environmental impacts in decision- perspectives? How can they remain financially making, they can achieve remarkable results. successful when social and environmental

N OTES 1 World Bank, World Development Report 1994: Infrastructure for 27 Hugh Morris, “Choosing our path: Canadian business and Development (Washington, D.C.: The Bank, 1994), p. 14. global change,” in Michael Keating, ed., Canada and the State of the 2 UNDP, Human Development Report (New York: Oxford University Planet (Toronto: Oxford University Press, 1997), p. 21. Press, 1997). 28 CIDA, “Infrastructure Services Policy: Background Discussion 3 World Bank, World Development Report 1994. Paper,” September 13, 1996, p. 24. 29 4 CIDA, Infrastructure Services Discussion Paper CIDA World Development Report 1994, p. 82. http://www.acdi-cida.gc.ca 1997. 30 CIDA, 1996, p. 28. 5 International Telecommunications Union (ITU), 31 Hugette Labelle, “Telecommunications and Sustainable Telecommunication Indicators of the Least Developed Countries Development.” Speech to the ITU World Telecommunications (Geneva: ITU, 1995). Development Conference, Buenos Aires, March 21-29, 1994. 6 Due to the long waiting period in many developing countries, the 32 Gerard Kenney, “The Missing Link—Information,” Speech to the official list may significantly underrepresent demand. That is, ITU World Telecommunications Development Conference, Buenos many people who would like telecommunications access do not Aires, March 21-29, 1994. even put themselves on the list because the wait is hopelessly long. 33 Interviews with Conserval officers and company documents, June 1997. 7 ITU, 1995. 34 UNDP, Human Development Report (New York: Oxford University 8 See World Development Report 1994. Press, 1990), p. 82. 9 Thanks to comments by John Kozij, CIDA. 35 Paul Hawken, “Natural Capitalism: The Next Industrial 10 World Development Report 1994. Revolution.” Speech to the National Round Table on the Environment and the Economy, Ottawa, March 21, 1995. 11 Private sector participation encompasses a broad spectrum of 36 management approaches, with full privatization at one end and a Personal interviews; Zenon company documents; Michael Jantzi variety of contractual arrangements at the other. Research Associates Inc. (MJRA), Canadian Social Investment Database, 1996. 12 Thanks to John Kozij for these insights. 37 Personal interviews; Trojan company documents; MJRA, 13 Mary Powers Buckner, “This siren is singing a samba,” ENR, Canadian Social Investment Database, 1996. September 2, 1996, p. 8. 38 CIDA website http://www.acdi-cida.gc.ca 14 World Bank, World Bank Annual Report, Washington, DC, 1997, p. 32. 39 Jayadev, p. 80. 15 World Development Report 1994, p. 2. 40 Ibid., pp. 78-83. 16 While privatization offers corporations many opportunities 41 under BOT, BOO, and BOOT schemes, there are definite risks: in- Reddy et al, Energy After Rio. adequate returns, inflexibility in user fees, depreciation of currency, 42 Ibid., pp. 29-30. cultural barriers, lack of full operational rights, lack of regulatory 43 See “Consulting Engineers: Canadian Position, Main Challenges, frameworks, nonstandard business practices, and political conflicts Strategic Direction, Contacts,” by Strategis: International Business in developing countries. All contribute to a challenging business Information Network, March 20, 1997. Also see “Consulting environment. See Donald D. Liou, “Barricades on the roads,” Civil Engineers,” by Strategis, June 1, 1996. Engineering, April 1997. 44 See the Canadian Council of Professional Engineers website at 17 Ibid., p. 64. http://www.ccpe.ca 18 ITU, 1995. 45 See Peter Reina and Gary J. Tulacz, “The Top 200 International 19 World Commision on Environment and Development, Our Common Design Firms: Big Year, Big Plans,” ENR, July 21, 1997, pp. 39-75. Future (Oxford, New York: Oxford University Press, 1987), p.43. 46 Jacques Lamarre, “The demands of the new world context: A 20 World Development Report 1994, p. 48. time for choices.” Speech delivered to the Board of Trade of 21 Amulya K.N. Reddy; Robert H. Williams; and Thomas B. Metropolitan Montreal, October 15, 1997, SNC-Lavalin website Johansson, Energy After Rio. Prospects and Challenges, Executive http://www.snc-lavalin.com Summary. UNDP, in collaboration with International Energy 47 In correspondence to author Whiteman, October 7, 1997. Intiative and Energy 21, Stockholm Environment Institute, and in 48 Jorge, Niosi; Petr Hanel; and Liette Fiset, “Technology Transfer to consultation with the Secretariat of the UN Commission for Developing Countries Through Engineering Firms: The Canadian Sustainable Development (New York, NY: UNDP, 1997), p. 7. Experience,” World Development, vol. 23 (10) 1995, pp. 1,815-1,825. 22 Ibid., p. 20. 49 See Strategis, 1996, 1997. 23 Dennis Anderson and Kulsum Ahmed, “Where We Stand With 50 Ibid. Renewable Energy,” Finance & Development, June 1993, pp. 40-43. 51 CCPE website at http://www.ccpe.ca 24 Jay Jayadev, “Harnessing the Wind,” IEEE Spectrum, November 52 Personal interview, November 1997. 1995, pp. 78-83. 53 See SNC-Lavalin website http://www.snc-lavalin.com 25 The Canadian Global Change Program is a program of the Royal 54 Society of Canada. Founded in 1985, it brings together research See, for example, UNDP, Human Development Index, 1994. partners from various institutes and universities and is supported 55 ACEC, “Environmental Code of Conduct,” 1995 , p. 1. by the Canadian government and a number of private companies 56 See CCPE website at http://www.ccpe.ca including TransAlta and Hydro-Québec. 57 Personal interview, November, 1997. 26 The Canadian Climate Program Board is responsible for the 58 Scott Ferguson and Martin ter Woort, “Draft: China’s Three Gorges Canadian Climate Program which is an independent body, formed Water Resources Project—An Overview,” Acres International Ltd, in 1979 and comprised of experts from senior levels of the federal company document, 1995. and provincial governments, the private sector, and nongovern- 59 mental organizations. It advises policymakers and decisionmakers Ibid., p. 2. about the impacts of climate change on economic and social 60 Ibid., p. 2. concerns, and on natural ecosystems and resources.

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N OTES (continued) 61 Lawrence R. Sullivan, “Upheaval on the Yangzi: Population relo- 73 CIDA and CIPM Yangtze Joint Venture. “Three Gorges Water cation & the controversy over the Three Gorges Dam,” China Rights Control Project Feasibility Study, Vol 1: Feasibility Report,” Forum, Summer, 1996 http://www.hrichina.org August, 1988, pp.1-4. 62 Ferguson and ter Woort, 1995. 74 Lamarre, 1997. 63 International Rivers Network, “Eminent US dam expert criticizes 75 Interview, November 1997. Three Gorges,” Press Release, April 22, 1996. 76 ACEC, 1995, p. 5. 64 Ferguson and ter Woort, 1995, p. 16. 77 Telephone conversation, November 1997. 65 Laura Eggertson, “Ottawa backs Chinese dam,” The Globe and 78 MJRA, Canadian Social Investment Database, 1996. Mail, Report on Business, September 1, 1997, pp. B1, B6. 79 Stanley H. Goldstein and Robert A. Rubin, “Engineering Ethics,” 66 MJRA, Canadian Social Investment Database, 1996. Civil Engineering, October 1996, pp. 41-44. 67 Eggertson, 1997, pp. B1, B6. 80 Niosi et al, p. 1,816. 68 Ferguson and ter Woort, 1995. 81 ACEC, 1995. 69 Personal interview, November 1997. 82 Lamarre, 1997. 70 L.J.M. Haas, “Medium Hydropower Development in Nepal: 83 Niosi et al, p. 1,817. Results of the Screening and Ranking Study Conducted under The 84 Ibid., p. 1,821. Medium Hydropower Study Project.” Acres International Ltd, 85 company document, 1997. Niosi et al also found that the social and economic environment of the developing country affects the degree of technology transfer. 71 The assumptions behind cost-assessments for social and environ- Specifically, only a “few African projects were successful, while mental impacts can also be critiqued. In particular, the notion that most Latin American or Asian projects of Canadian firms achieved we are able to estimate and aggregate the effects of environmental their goals in terms of technology transfer. The transmission of degradation is seen by some academics as both arrogant and mis- knowledge is also easier, according to the Canadian ECs, when gov- leading. Costing requires a cut-and-dried abstraction away from the ernments in developing countries put fewer restrictions and regula- complex holistic interaction of the ecosystem. This approach also tions on inward technology transfer,” pp. 1,822-823. assumes that these costs can be weighed appropriately against ben- 86 efits in a linear fashion which ignores complex issues of scale and CCPE website at http://www.ccpe.ca dynamic interaction (although assessments of a cascade of 87 Ibid, pp. 1-2. hydropower projects may study cumulative effects). 88 ACEC, 1995, pp. 1-2. 72 The US Export-Import Bank‘s (Ex-Im) human rights policy states 89 CCPE website at http://www.ccpe.ca that: “Ex-Im Bank can deny its financing for human rights reasons 90 Niosi et al, 1995. only if the President, through authority delegated to the Secretary of 91 State, determines that such a denial would be in the national interest. Lamarre, 1997. A specific human rights review is conducted by the State Department 92 Bjorn Stigson, “How business can play a major role in educa- for every transaction over $10 million to determine if it may give rise tion,” Earth Times News Service, 1998. http://www.earthtimes.org to significant human rights concerns. This review examines both the 93 For information about WEPSD, see the American Association of general status of human rights and the effect of the export on human Engineering Societies website at http://sol.asee.org rights in the importing country.” See the Bank’s website at: 94 CCPE website at http://www.ccpe.ca http://www.exim.gov

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C HAPTER S IX

THE BUSINESS OF DEVELOPMENT?

M ANAGEMENT C ONSULTING

Marlene Benmergui

M ARLENE B ENMERGUI IS A JOURNALIST, PRODUCER, AND

WRITER/ BROADCASTER SPECIALIZING IN PUBLIC POLICY

ISSUES.

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C HAPTER S IX M ANAGEMENT C ONSULTING

THE BUSINESS OF DEVELOPMENT?

f the 20th century was noted for the global increased overall sales of services in 1996 by Itrade in goods, the next will be dominated by 8 percent to $38.9 billion. Purchases by Canadian the trade in “invisibles,” those exports we don’t importers advanced at a slightly lower 5 percent see but which are a burgeoning and increasingly to reach $48.8 billion (see Table 1). As shown in lucrative sector of global commerce: business Table 2, the United States continued to be services and rights for which fees and royalties Canada’s major trading partner for services. are paid.1 Do service companies have a particular responsi- According to the World Bank, average annual bility in developing markets? It can be argued growth in trade in services from 1980 to 1993 that, by the very nature of the services they pro- was 7.7 percent, compared with 4.9 percent for vide, these companies have important capacity merchandise trade (in nominal terms). Now building roles: in building capital, in the case of valued at more than US$1,200 billion a year, it financial services; in building physical capacity in accounts for 20 percent of world trade and con- the case of infrastructure and engineering ser- tinues to exhibit strong growth. In 1995, the vices; and in building human capability in the value of world trade in services increased by 14 case of commercial and management services. But percent.2 It will receive a further boost in com- have Canadian management and other consul- ing years as the General Agreement on Trade in tants set this as a goal, or is it a case of ”what’s Services (GATS) opens up prospects of new mar- good for the company is often good for the peo- kets through liberalization and brings the trade ple,” as Jean-Louis Bourbeau, Chairman of under a rules-based multilateral system.3 William Mercer Ltd in Canada, opines?5 There are many in the services sector who share his view. Statistics Canada reports that Canadians set new records in 1996 for the value of services bought and sold in international markets.4 Exporters T HE C ANADIAN I NDUSTRY If Canadian service companies cannot be considered major players in the developing world, TABLE 1 Canada’s International Transactions in Services, 1992-96 their contribution is growing. The growth leader ($MILLIONS) is commercial services,6 which grew an average Category Receipts Payments of 13 percent a year betwen 1990 and 1995. A 1992 1993 1994 1995 1996 1992 1993 1994 1995 1996 number of export markets—many of them Travel 7,898 8,611 9,703 11,026 12,092 14,255 14,359 13,679 13,970 15,122 developing—outpaced the 13 percent annual Transportation 5,232 5,959 6,616 7,234 7,900 7,989 9,833 10,530 10,936 11,027 Commercial Services 11,080 13,065 15,275 16,713 17,971 14,050 16,799 19,461 20,687 21,882 rate: Brazil; Sweden; Republic of Korea; and Government Services 912 868 994 936 923 951 877 735 730 747 Indonesia, Malaysia, Philippines, Singapore, and Total 25,122 28,503 32,587 35,909 38,886 37,245 41868 44,406 46,323 48,778 Thailand as a group (see Table 3). Management Source: Statistics Canada, Canada’s International Transactions in Services 1961-1996, (Catalogue 67-203- consulting has been growing by 10 percent a XPB) (Ottawa: Minister of Industry, 1997), Table 1, p. 73. year overall: for the big players, that figure can reach 30 percent.7

According to Statistics Canada, the international TABLE 2 Canadian Exports of Services by Region and Category, 1996 management consulting business in Canada ($MILLIONS) consists of a relatively few large companies— Category US UK Other Of which some of which may be better known for their Other EU Japan Other OECD All other countries accounting services—and a myriad of smaller Travel 6,506 679 4,907 1,554 719 454 2,180 firms, and covers everything from strategic Transportation 4,237 547 3,116 1,003 580 230 1,303 planning and organizational renewal to forest Commercial Services 11,232 1,244 5,496 1,314 309 764 3,108 management. It also includes internal manage- Government Services 203 15 704 76 26 35 567 ment consulting divisions of corporations Total 22,178 2,485 14,223 3,947 1,635 1,482 7,159 working for third parties and nongovernmental Source: Statistics Canada, Canada’s International Transactions in Services 1961-1996 (Catalogue 67-203- XPB) (Ottawa: Minister of Industry, 1997), Tables 10 to 16, pp. 142-58. organizations (NGOs) that provide advice to developing countries using project funding

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from the Canadian International Development Consulting, $224 million; and Coopers and Agency (CIDA) or the international development Lybrand, an estimated $171 million. But as banks.8 Statistics Canada notes, many large firms are arms of multinationals, linked to global part- A survey by the Canadian Institute of Certified ners. It can be difficult to determine how much Management Consultants, concludes that “for- consulting is carried out abroad since these eign markets as a source of revenue tend to firms mainly serve a Canadian market and pass increase with firm size.”9 Globally in 1996, for T HE CUSTOMER IS KING. international contracts to their affiliates in other example, KPMG earned $242 million; Andersen countries. As Table 4 demonstrates, Canadian B UT K ING CUSTOMER IS firms are estimated to export $215 million of SHOWING SIGNS OF BOX 1 TOWARD FREER TRADE IN management consulting services, with imports SERVICES of slightly more than $125 million.10 BEING BORED WITH THE Produced as part of the final act of the KPMG may be unique among management con- CONSULTANCIES’ Uruguay Round of the GATT negotiations, sulting firms in that it has an ethics and the General Agreement on Trade in SECRECY AND PUT OFF Services (GATS) lays the groundwork for integrity practice. Part of this work involves the movement of capital, technology, and assisting governments and corporations develop BY THE GAUDIER labour across borders, necessary to the a more ethical business environment, essential expedient provision of services. According PRACTITIONERS... to attract trade and promote economic develop- to services analyst Bimal Ghosh, this enhances prospects for the establishment ment. For example, the firm was invited to par- I N ORDER TO REGAIN of new markets in developing countries. ticipate in a United Nations Task Force THE TRUST OF AN The Agreement—of which Canada is a sig- investigating organized crime and corruption in natory—extends multilateral rules and disci- a country of the Middle East, to identify causes INCREASINGLY plines to services. It covers four modes of and formulate recommendations for dealing SKEPTICAL PUBLIC, delivery of services: cross-border supply of with the issues locally.11 data and transport services; foreign direct [ MANAGEMENT investment or representative offices and branches; tourism; and the movement of CONSULTING] NEEDS personnel, that is, consultants. GATS is a sig-

nificant achievement for the sector in many TO BECOME MORE respects, not least of which is the fact that a TABLE 3 Growth in Canada’s Exports framework is now in place which is bound to of Commercial Services by ETHICAL— JUST LIKE open the door to further liberalization. Geographic Area 1990-95 OTHER PROFESSIONS. Some of the GATS basic principles and obligations include: Leading Export 1990 1995 Average TOM PETER QUOTED IN Most favoured nation treatment: Under Market for ($millions) ($millions) annual this general obligation any trade concession Commercial change a “MANAGEMENT CONSULTING: offered to one member country for the sup- Services % ply of a service must be extended to all other Brazil 11 88 51.6 THE ADVICE BUSINESS.” member countries; exemptions are allowed, Sweden 31 202 45.5 however, subject to certain procedures. Republic of Korea 26 161 44.0 THE ECONOMIST, Indonesia, Malaysia, 68 294 34.0 National treatment: Treatment for foreign MARCH 22, 1997 services and service suppliers should be no Philippines, Singapore, less favourable than that accorded to its Thailand services and service suppliers. Ireland 54 174 30.5 Middle East 50 173 28.2 Transparency: Relevant policies and South America 89 247 22.7 measures, including those presenting (except Brazil) barriers to market access and discriminatory Switzerland 127 314 19.9 restrictions, must be published. India 17 42 19.8 Domestic regulation: Measures to autho- Mexico 33 76 18.2 rize supply of services (technical standards, Taiwan 5 11 17.1 leasing requirements) are to be based on Norway 16 33 15.6 objective and transparent criteria and should Germany 183 348 13.7 not be burdensome in ensuring quality. United Kingdom 545 1,019 13.3 Total of above 1,255 3,182 20.5 The GATS also includes principles concerning recognition requirements (for example, Total commercial 9,061 16,713 13.0 educational background and experience) services for the purpose of authorization, licensing Notes: a Countries and areas exceeding the average annual and/or certification in the services area. growth for all commercial services, 1990-95. Source: Statistics Canada, Canada’s International Transactions Source: Bimal Ghosh, Gains from Global Linkages (New York, in Services, 1961-1996, Table 2, p. 15. NY: St Martin’s Press, 1997).

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But according to KPMG partner Norman Inkster, former Commissionner of the Royal Canadian TABLE 4 Canadian International Mounted Police, little of the ethics practice Management Services,a 1990-96 involves developing country clients. KPMG has, Year Exports Imports Balance however, been called on to help both Canadian ($ millions) and developing-country corporations investigate 1990 91 62 +29 fraud and establish standards and regulations to 1991 116 79 +37 prevent its occurrence. And it is now working with 1992 138 65 +73 a large Canadian firm to set up child labour stan- 1993 152 94 +58 dards comparable to those of the International 1994 170 83 +87 Labour Organization, and develop tools to moni- 1995 187 128 +59 1996 215 127 +88 tor developing country suppliers’ adherence to Notes: a These refer to the types of management services those standards. “The aim,” says Inkster, “is to that are exported from Canada, rather than everything the bring about evolutionary rather than revolution- industry produces and sells abroad. ary change. They are taking a very responsible Source: Statistics Canada, Canada’s International Transactions in Services, 1961-1996, p. 36. approach to the issue.” Inkster believes this is the first corporation in Canada to take a “rather aggressive” approach to the problem of child If you ask Murray Glow, partner in charge of labour. Other initiatives on this front by Canadian ARA’s Public Sector Reform Practice, what he and firms, he says, have been in response to pressure his 17 partners actually do, he replies: “We’re from a US parent company (see Chapter 3). human capital builders.” To assist them to do so, For many international management consul- they work with local partners. CIDA obviously tants, developing-country public sector restruc- agrees with their approach. In 1997, ARA turing and legislative and regulatory reform are received a Canadian Award for International generating impressive revenue. “Public sector Development for managing the 10-year Canada organizations around the world are responding Training Awards Project (CTAP) which increased to pressures from deficits and public debt, the managerial capacity and technical skills of changes in the workforce, citizens’ demands for 15,000 people working in agriculture, tourism, improved services, and industry demands for a and education in nine eastern Caribbean coun- business friendly environment that enhances tries. 15 The award recognized ARA’s efforts in their competitiveness in a global marketplace,” incorporating women into the project— explains the ARA Consulting Group Inc. “Many 78 percent of the training officers involved were governments are now seeking smaller, more women, as were more than half the recipients. flexible, streamlined bureaucracies; alternatives “In addition,” says CIDA, “CTAP encouraged for providing services directly; ways to imple- women to participate in nontraditional trades, ment new information technology; and organi- such as construction work, and delivered train- zational and legislative or regulatory reforms ing activities that overcame the obstacles to that allow for their vision of an efficient and women’s participation.” It further notes that effective public service.”12 “the project also helped to strengthen local training and educational resources and con- Much of this work is funded by international tributed to the creation of a rich network of development agencies, including CIDA, the training resources among the islands.”16 World Bank, the regional development banks, and various UN agencies. At the end of 1997, for CIDA is also an important source of contracts example, CIDA listed 76 service contracts worth for Coopers and Lybrand Consulting whose over $263 million in the category of “institu- Ottawa practice is currently working on $110 tional support and management.”13 million worth of CIDA-funded accounting and management projects. “Even though what For Toronto-based ARA, specializing in public Canada offers is small compared to the World and the not-for-profit sector reform has paid off: Bank, the Canadian way of doing things is well the consultancy’s gross revenues are in excess of accepted in developing countries,” says Ottawa- $20 million annually. The firm has been active based partner Ken Parent.17 Coopers and in over 50 countries of the Caribbean, East and Lybrand was among 13 finalists for the 1997 West Africa, Asia, and the Pacific: this interna- Canadian Awards for International Development tional practice accounts for half of ARA’s annual for its management of two projects promoting revenues. Canadian models and structures serve the transfer of Canadian technology through ARA well in their developing-country practice.14

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joint ventures in Thailand and Malaysia. Parent BOX 2 CORPORATE RESPONSIBILITY: reasons that being involved in this type of pro- KEYS TO SUCCESS ject enables Coopers and Lybrand to meet its What factors contribute to increasing a corporate goals and contribute socially. company’s competitiveness while contributing to sustainable development in a For William Mercer Ltd, pension design and host country? An analysis of approaches to administration is its vehicle for exercising its corporate responsibility adopted by five social responsibility, says Jean-Louis Bourbeau. forward-thinking Canadian companies in developing countries,1 carried out by the Mercer developed Chile’s privatized pension Conference Board of Canada in 1996, system in the 1980s. Many argue that pension found they had one thing in common: reform anchored the country’s economic success, they understood that to be successful, the especially the spectacular rise in the national company had to become an integral part savings rate from 8.2 percent of GDP in 1981 to of the community in which it operates. “They view their corporate responsibility 27.6 percent in 1995. As well, its stock market initiatives as long-term strategic invest- capitalization of more than 100 percent of GDP ments that promote their business objec- has boosted the long-term bond market. Those tives and enhance their image as were not the goals, however: “We didn’t go to responsible corporate citizens with key Chile and Argentina to do good deeds, we went stakeholders,” say Stelios Loizides and George Khoury.2 there to do business. But by doing business there is a benefit to society at large, “ says Bourbeau.18 Among the factors they identified that contribute to success: But not everyone agrees. Some have alleged • A strong public and community rela- that private pension plans only serve the tions effort at the earliest stage of a employed and do nothing to bolster those on company’s business development plan. social security rolls or help the unemployed. • A local partner with a reputation for Bourbeau counters by saying that the allocation being a responsible corporate citizen. of the money saved is up to the country itself. • Cross-cultural sensitivity. Mercer can save them money, what they do • Hiring local staff, up to highest levels, with it is a national concern. wherever possible. Certified management consultants are profes- • Human resource development, benefits, health and safety standards comparable sionally bound to adhere to a “uniform code of to those used by the company in professional conduct,” developed by the Institute Canada. of Certified Management Consultants.19 While • Maintaining a relationship with unions this code addresses all areas of professional based on frankness, mutual respect, and practice—disclosure, conflict of interest, and good faith. practical working ethics, for instance—it does not • Positive communications with key stake- cover the complexities of international business. holders to explain the benefits of the Nor do standards outlined in the Vision project company’s operations; and early conflict developed by the Canadian Institute of Chartered resolution. Accountants, says Jim Goodfellow, FCA, National • An internationally recognized environ- Director, at Deloitte and Touche Chartered mental management policy. Accountants and one of the project’s managers. • The establishment of a mechanism to Although it “has been active in international address long-term needs associated with infrastructure, education, and health, as standard-setting activities, the primary focus, well as support of community economic priorities, and member support mechanisms development projects. of the institute remain focused on domestic issues, in isolation from any international N OTES 20 1 Alcan Jamaica Company, Jamaica (Alcan Aluminum considerations.” Limited); Babcock & Wilcox Gama, Turkey (Babcock & Wilcox); Falconbridge Dominica, Dominican Republic But Dorothy Riddle, a Vancouver-based service (Falconbridge Limited); PT International Nickel Indonesia; Indonesia (Inco Limited); Scotia Enterprises, Guyana sector specialist, considers that, for profession- (Scotiabank). als, the matter of corporate social responsibility 2 Stelios Loizides and George Khoury, Corporate Responsibility should be covered in a company’s code of in Developing Countries: Key Success Factors, Report 165-96 (Ottawa: The Conference Board of Canada, 1996). conduct. Difficulties arise when associations only monitor or care about what they do in the domestic market and have not even thought about their ethical behaviour in foreign

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E VERYONE HAS A developing markets.21 James Hunter, Vice- advise foreign governments and international President of KPMG Investigation and Security organizations in the areas of privatization and PARTICULAR MINDSET Inc. in Toronto, concurs: “A critical area for project finance. But as Bob Rae, a partner at the

AND COMES FROM A many Canadian companies expanding overseas Toronto firm of Goodman, Phillips & Vineberg will be their policies on ethics in countries and former Premier of Ontario, points out, PARTICULAR PARADIGM where standards are different from ours,” he “there’s been an interesting shift for ourselves,

THAT INFLUENCES says.22 And as the Conference Board of Canada as well as other Canadian law firms, as we are (CBC) notes, these “policies will need to reflect, getting into issues of civil society, public policy, PATTERNS OF MEANING not only local laws, but also local customs.”23 and governance. Canada’s traditions of both

AND UNDERSTANDING. common and civil law make it well poised to Also an issue for management companies make a contribution,” he says, ”particularly in [...] THE MEANING OF abroad is the choice and use of local partners, large regions like Latin America where the civil which can determine their understanding of 27 RIGHT AND WRONG CAN law system is used.” The firm of McCarthy needs and conditions, and ultimately their Tétrault, for example, was engaged by the BE HIGHLY CULTURE success. Indeed, “selecting an established local International Monetary Fund to rewrite the partner can be one of the most effective ways of DEPENDENT. financial legislation and Central Bank Acts of establishing a presence in a foreign country,” Zambia and Ghana, and has advised the says the CBC.24 While multinational firms such CHONG JU CHOI AND Government of Mexico on the drafting of a as KPMG and Coopers and Lybrand can draw on comprehensive new telecommunications regula- MIHAELA KELEMEN IN their national affiliates, smaller companies must tion. It has also participated in the negotiation seek out firms and individuals that will enable CULTURAL COMPETENCES: and drafting of the United Nations Convention them to make the local connection on a con- on International Bills of Exchange and MANAGING CO-OPERATIVELY tract-by-contract basis. “Getting a local partner Promissory Notes and the Model Law for is more or less a requirement, but we also believe 28 ACROSS CULTURES International Credit Transfers. in the strategy as a company,” says Bob Simpson,

(BROOKFIELD, VT: partner in Development Partnerships Ltd. “Our Individual Canadian lawyers are also working underlying purpose is to ensure a transfer of to increase skills and strengthen the legal system DARTMOUTH PUBLISHING, skills.” Admittedly, since local consultants are in developing countries. A committee of the 1995) often paid at local rates, the strategy also helps Canadian Bar Association, for example, is helping keep costs lower, he adds.25 to train lawyers in emerging democracies. Launched in 1989 as a means of assisting fledg- ling democracies in Eastern and Central Europe, T HE P ROFESSIONALS: it has expanded with CIDA support to include B EYOND B USINESS South Africa, Cambodia, Vietnam, and China. Procedure-driven professions like law are also Lawyers from these regions spend several weeks taking their services globally. Statistics Canada in Canada studying the legal and parliamentary reports that trade in legal services is an evolving, system, and train with Canadian lawyers. Dozens dynamic aspect of the new global economy.26 of lawyers also travel abroad, donating their time In 1996, exports of legal services totaled $263 to work closely with counterparts on simple million. About two-thirds of the total business commercial issues as well as on complex consti- was with the United States; most of the remainder tutional matters. Payment, says committee chair was with Britain and Hong Kong. Jim Klotz, is “a sense of satisfaction from helping lawyers who truly need and crave the help.” Trade in this sector is expected to grow. Global And as Halifax labour lawyer Ronald Pink told trading agreements such as the North American The Globe and Mail: “I just think it’s one of the Free Trade Agreement (NAFTA) have not only best things that the Canadian bar can do: facilitated trade in legal services, but legal ser- transport its knowledge base and its love of a vices themselves have become part of formal good legal system.” 29 international agreements: both the GATS and NAFTA have recognized the role of foreign legal consultants and allowed them to provide advice A SSESSING THE B ENEFITS regarding the law of the country in which the As laudable as these efforts are, are they suffi- lawyer is authorized to practice. cient? Is doing no wrong and offering advan- Most international legal business is in commer- tages such as sporadic training opportunities cial law, supporting Canadian clients in their enough or do service providers have larger social overseas operations as well as foreign interests responsibilities toward the communities in in respect of operations in Canada. Some also which they operate?

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Most Canadian service companies continue to to go beyond issues such as bribery and corrup- see social issues and business objectives as sepa- tion to take a developmental focus. Monitoring rate—their principal focus is business viability. mechanisms must also be built into codes of As Coopers and Lybrand’s Ken Parent puts it: ethics or of social responsibility, and the results a company is in developing countries “as made available to the public. Progress has been business agent and not human rights libera- made on some of these fronts. In Canada, a tor.”30 It is a reflection of what Dorothy Riddle group of Canadian firms launched an describes as “the secondary attention relegated “International Code of Ethics for Canadian to corporate responsibility abroad by most Business” in late 1997 (see Chapter 1, p. 16). companies.”31 And the Organisation for Economic Co-operation and Development has adopted an inter- For management consultants, however, the issue national code to monitor corrupt business may not be that they are doing “business as practices and policies (Chapter 1, p. 15). usual” in developing countries, but that much of “the business” serves development goals. In fact, For the title of “human capital builders” to res- this type of external technical assistance can onate, Canadian service companies need to take help address some of the constraints that devel- a more deliberate, less circumstantial approach oping countries face in strengthening their to training and professional development for services sector and increasing their own local counterparts and employees. They should participation in trade-in-services.32 encourage local business partnerships and, through them, internship opportunities. They As they increasingly work outside Canada, how- should also help developing-country counter- ever, management consultants need to develop parts set up accreditation programs. In regions clear codes of conduct and ethics training pro- where low wage scales provide Canadian grams for both Canadian and local employees— companies with a comparative advantage, they tools with which they can make ethical should consider providing additional alternate decisions that conform with the companies’ forms of compensation, such as better benefits. policies and goals. Moreover, these codes need

N OTES 1 Bruce Little, “The noticeable export gains of invisibles,” The Globe 16 CIDA, “Thirteen Finalists for the Canadian Awards 1997 for and Mail, August 11,1997, p. A6. International Development” website: http://www.acdi-cida.gc.ca 2 World Trade Organization, “Overview of World Trade in 1995 17 Personal interview, September 1997. and Outlook for 1996,” Press/44, March 1996. 18 Personal interview, June 1997. 3 Bimal Ghosh, Gains from Global Linkages (New York, NY: St. 19 Institute of Certified Management Consultants of Canada, Martin’s Press, 1997), p. 2. “Uniform Code of Professional Conduct” website: 4 Canada, Statistics Canada, Canada’s International Transactions in http://www.cmc-consult.org Services 1961 to 1996 (Ottawa: Minister of Industry, June 1997), p. 7. 20 Personal interview, June 1997. 5 Personal interview, June 1997. 21 Personal interview, May 1997. 6 Little, 1997. 22 James Hunter, “Good Ethics Mean Good Business,” Canadian 7 Consultants News, March 1997. Business Review, Spring 1996, pp. 14-17. 8 Statistics Canada, 1997, pp. 32-36 23 Stelios Loizides and George Khoury, Corporate Responsibility in 9 Ibid, p. 33. Developing Countries: Key Success Factors, Report 165-96 (Ottawa: The Conference Board of Canada, 1996), p. 4. 10 Statistics Canada, 1997. 24 Ibid. 11 Telephone interview, March 11, 1998. 25 Personal interview, September 1997. 12 The ARA Consulting Group Inc., “The Public Sector Reform 26 Practice” website: http://www.aragroup.com Statistics Canada, 1997, p. 26 27 13 Canada, CIDA, Service Contracts and Lines of Credit, 1997 Personal interview, September 1997. http://www.acdi-cida.gc.ca 28 McCarthy Tétrault, “International Assignments” website: 14 ARA website at http://www.aragroup.com and personal inter- http://www.mccarthy.ca view with Murray Glow, September 1997. 29 Sean Fine, “Lawyers sign on to train counterparts abroad, 15 CIDA, “Minister Boudria Presents Canadian Awards for ”The Globe and Mail, August 12, 1997, p. B28. International Development,” News Release (97-59), Ottawa, May 30 Personal interview, September 1997. 26, 1997. 31 Personal interview, May 1997. 32 Ghosh, p. 116.

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C HAPTER S EVEN

SELLING CANADIAN VALUES

E NCOURAGING P RIVATE S ECTOR

A CTIVITY IN THE S OUTH

Ted Paterson

T ED P ATERSON IS D IRECTOR OF F INANCE AND

S PECIAL P ROJECTS AT THE N ORTH-SOUTH

I NSTITUTE.

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SELLING CANADIAN VALUES

T HE ACTIONS OF n late January 1998, the first steps were taken The full gamut of Canadian international Itoward the creation of a global university for commercial activity includes exports from CORPORATIONS FLYING Indigenous peoples. More significant than the Canada; imports into Canada; foreign invest- THE C ANADIAN FLAG agreements signed between the Saskatchewan ments made by Canadians; and investments Indian Federated College and two universities in into Canada by foreigners. Canadian govern- HELP DEFINE C ANADA’ S Mexico, was that it occurred during the Team ments at all levels focus their attention on the REPUTATION ABROAD, Canada mission to Latin America. first—promoting exports—plus attracting inward investment by foreign firms. To devel- JUST AS THE ACTIONS OF Saskatchewan Premier Roy Romanow said this oping countries, however, Canada’s import type of arrangement is somewhat of a landmark GOVERNMENTS ESTABLISH policies are far more significant, and the for Team Canada because it shows a real con- economic damage suffered by developing THE POLICY, LEGAL, cern for social as well as economic issues. “The countries because of trade restrictions against shift from the original Team Canada purpose, AND REGULATORY FRAME- agricultural products, textiles, and other low- which is straight business to business, is some- tech manufactured goods likely outweighs by a WORK WITHIN WHICH thing I would encourage and promote with large margin the aid Canada provides. respect to future trade missions and interna- CORPORATIONS ACT. tional trade agreements that are being The promotion of Canadian prosperity is negotiated,” he said.1 clearly the principal objective of most JOE CLARK, “THE BUSINESS OF Canadian policies and programs. But how do Past Team Canada missions have accorded little such efforts relate to Canada’s other foreign HUMAN RIGHTS,” BEHIND THE attention to guaranteeing “that those on the policy goals, including our desire to assist bottom rung of the economic scale benefit from HEADLINES, OCTOBER 1996 developing nations, and the objectives of the annual trade mission.”2 The thrust has Canada’s international aid program? What unabashedly been on business dealmaking. A steps might make Canada’s commercial policies quick tour of statistics shows why. Each billion and programs more consistent with this dollars in exports creates 11,000 jobs,3 and broader set of objectives, and more beneficial Canada’s exports more than doubled over the to countries in the South? past decade, reaching $260 billion in 1996. The ratio of exports to gross domestic product (GDP) In focusing on existing government policies and rose from 25 percent in 1990 to 37 percent in programs, this chapter only skirts the important 1995, a year when net exports accounted for debates between free trade purists and their almost 60 percent of Canada’s overall economic detractors. Whatever the theoretical merits of growth4 and was the only cylinder firing in the the free trade position, few countries actually government’s “Jobs, Jobs, Jobs” engine. Along follow its precepts. As conceded by one promi- with deficit reduction, export performance is nent trade economist: “Anyone who has tried to the Canadian success story of the 1990s. make sense of international trade negotiations eventually realizes that they can only be under- Team Canada missions to the emerging markets stood by realizing that they are a game scored of Asia and Latin America have directed the according to mercantilist rules, in which an spotlight to the role of the Canadian private increase in exports—no matter how expensive sector in developing countries. Government to produce in terms of other opportunities fore- policies and programs designed to stimulate gone—is a victory, and an increase in imports— activity in developing countries by Canada’s no matter how many resources it releases for private sector can be split into two broad other uses—is a defeat.”5 groups: international commercial programs as these relate to developing countries, and international development programs which involve F IRST, AGREE ON THE R ULES the Canadian private sector. The National governments have the authority to commercial programs affect many more restrict the movement of goods and people Canadian firms than the aid program. across their boundaries. They have used this authority to tax imports, encourage “infant”

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ments ban their use by industrialized countries, BOX 1 RECENT TRADE AGREEMENTS which leads governments to find ever more INVOLVING CANADA innovative methods to funnel tax money to Year Name Scope exporters. Rich country governments use official 1989 Free Trade Agreement with the US (FTA) Bilateral development assistance (ODA) to subsidize their 1994 North American Free Trade Agreement (NAFTA) Regional own firms (see Box 2). They can subsidize the Conclusion of the Uruguay Round of GATT Multilateral firms that export rather than the exports them- Commitment to Free Trade in the Pacific Rim Regional selves, including support for research and devel- Commitment to Free Trade in the Americas Regional 1995 Establishment of the World Trade Organization Multilateral opment to develop products that are mainly 1997 Free Trade Agreement with Israel Bilateral exported, such as new aircraft. Governments Free Trade Agreement with Chile Bilateral can provide such support directly, or through “Exchange of Documents” with Mercosur Regional special tax treatment.9 Finally, governments can Telecommunications Services Multilateral subsidize exporters by providing a variety of Information Technology Multilateral services, such as those described below, at give-away prices. industries, withhold the latest technology from 6 competitors, and promote “nation-building.” PROVIDING MARKET INFORMATION One of the basic challenges of trade policy, therefore, is simply securing access for your There are respectable economic reasons for a country’s firms and their products in other government to provide services to overcome nation’s markets. This is done principally information constraints faced by its exporters. through trade negotiations.7 Companies do business in markets they know, and may overlook customers in far-flung or Since the late 1940s, the rules for market access culturally distinct markets. Market information, had been negotiated through the General provided it is timely, may benefit both the firm Agreement on Tariffs and Trade (GATT), where and its potential customers, who might other- via multilateral agreements, each country agrees wise be unable to obtain a suitable product for to exchange “trade concessions” with the other as good a price. Governments already have signatories. But, as Box 1 indicates, there has foreign embassies and, arguably, can collect been an explosion of new trade agreements in some commercial information at less cost than the past decade, many of which have been can industry associations and individual firms.10 bilateral or regional rather than multilateral. Many governments also organize participation In addition, recent negotiations have moved by their nation’s firms in international trade beyond the export of goods to cover service fairs and trade missions to help these firms learn exports (the General Agreement on Trade in about new markets. Services or GATS), and intellectual property rights. The Canadian government also Governments can help reduce commercial intervenes on behalf of individual firms to uncertainty stemming from information protect their access to foreign markets.8 constraints in two other important ways: they can help finance exports to countries the commercial banks don’t serve because they don’t N OW H OW C AN W E C HEAT? know that market (or, sometimes, because they Before market access rules are negotiated, do). They can also insure their firms’ foreign however, most governments have taken steps to sales and investments against certain types of boost the chances of their exporters, through risks, such as payment defaults or expropriation trade promotion programs. These programs resulting from sovereign or “political risk.”11 could be divided into three broad categories: As noted, many countries provide such informa- subsidies to exporting firms (or their customers), tion and insurance services at below market services to improve information about foreign cost, thereby subsidizing exporters. In general, markets, and direct marketing activities. Canada’s subsidization of export finance and insurance appears modest by international stan- 12 SUBSIDIZING EXPORTS dards, but it is more generous than other industrial countries in providing market infor- Within the first, direct export subsidies (that is, mation or support from its trade commissioners “bribing” customers to buy your products) are at no cost (see Box 4). to trade what steroids are to athletics. As such, GATT/World Trade Organization (WTO) agree-

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BOX 2 THE BUSINESS OF AID Most people think that foreign aid is, or at loans to subsidize aid recipients if they pur- dollar value of procurement won by its least should be, directed primarily to those in chase products from the donor country. firms, although it is sixth in terms of total need: poor countries and, ideally, the poor- Reviews show such schemes tend to shift contributions to the Bank. However, these est people in those countries. In fact, much aid from poorer to middle-income countries, same studies indicate that Canadian firms aid is designed to promote businesses in the increase the import content of projects, win over 40 percent of the contracts on donor country. Perversely, because the encourage capital-intensive approaches, which they bid: the major problem may be primary purpose of official development assis- exclude local suppliers and financial institu- simply that not many Canadian firms bid, tance is supposedly development rather than tions, and reduce the money available for whether for lack of interest or because they trade promotion, it is generally exempt from projects designed to benefit the poor. don’t supply the goods and services needed in such development projects.9 For exam- WTO rules. This exemption is broad enough Evidence is also clear that product prices ple, the graph below indicates that Canada to drive a truck through and, indeed, increase when financed by mixed credits, does not export much machinery and Canada and other donors have required aid which means much of the subsidy is cap- transportation equipment except to the US recipients to purchase many such trucks, as tured by the donor-country suppliers rather as part of the integrated auto industry. well as road graders, railway cars, and than the recipient country. Finally, the prolif- airplanes. Significant aid is also tied to the eration of mixed credit schemes has resulted The past couple of years have seen some employment of “development experts” from in “spoiled markets” (i.e., countries where no efforts by the principal aid donors to curtail 1 the donor country. Such tied aid is thought firm can make a sale unless its government their use of associated financing10 and to to reduce benefits by 10-20 percent because kicks in a financial sweetener). It should come increase penalties against firms promoting the recipient country could have purchased as no surprise that there is a good deal of corruption.11 These steps have reduced the better, cheaper, or more appropriate goods overlap between the list of “spoiled markets,” problem of spoiled markets and the most on the international or local market. such as China and Indonesia, created by egregious diversions of aid funds to The cost of tied aid increases when donors donors, and the list of countries criticized by promote commercial objectives. use it to subsidize uncompetitive products donors for high levels of corruption. 2 and firms, which they frequently do. The Other flavours of associated finance are used GRAPH 1 CANADIAN EXPORTS OF Development Assistance Committee (DAC) by donors to help their firms win big capital MACHINERY AND TRANSPOR- of the OECD—the main donors’ club—has projects financed by the international finan- TATION EQUIPMENT, 1994 tried over the years to reduce the percent- cial institutions (IFIs), such as the World Bank 20.00 age of tied aid by publishing figures and Group and the regional development banks.6 18.00 admonishing members to increase the Many donors establish “consultant trust 3 untied proportion. But donors have funds” at the IFIs, which are used by those 16.00 cooked up some particularly unpalatable institutions to hire consultants from the 14.00 variants of tied aid in recent years. donor country to design capital projects.7 12.00 One souped-up version is the provision of The donor country hopes this will give their aid on the condition that the recipient coun- firms a “market intelligence” advantage 10.00 try purchase some entirely different products when the project is put out to tender. Other 8.00

from the donor. An infamous example was donors eschew intelligence for direct bribery, 6.00 Britain’s promise to build the £234 million by providing co-financing (paying part of the Pergau Dam in Malaysia—”a very bad buy” cost of the IFI project) or parallel financing 4.00 according to its own assessment—on the (paying for a different, but closely related 2.00

condition that Malaysia agree to a project), in the hope their firms will win the total of age % as Canada from Imports 0.00 £1.3 billion deal for British fighter planes.4 bid for the IFI project itself.8 US EU JAPAN ALL OTHER Destination

Countries also try to “leverage” their ODA Some argue that Canada doesn’t divert suf- All Imports from Canada as % age of Total by combining it with other funds through a ficient aid money to associated finance to Machinery and Transportation Equipment bewildering number of associated finance allow us to win our “fair share” of IFI- Source: WTO, International Trade: Trends and Statistics, schemes.5 One recipe is mixed credits, in funded procurement. For the World Bank, in Geneva 1995, Tables A.7, A.8, A.9, A.10, A.14. which ODA is blended with commercial 1995 Canada ranked 15th in terms of the Trade data is for 1994.

N OTES 1 For many years, every West African university receiving French aid had to employ a French chef for its cafeteria. 2 Cranford Pratt, Canadian International Development Assistance/Policies: An Appraisal (Montreal: McGill-Queen’s University Press, 1994). 3 Canada ties a higher percentage of its aid (26.7%) than does the average donor (22.1%). 4 “Thoroughly modern mercantilists,” The Economist, February 1, 1997, p. 24. 5 Some donors (e.g., France) use this tactic aggressively, while others, including Canada, claim their associated financing schemes are purely “defensive” and used to match the financing packages put forward by competitors. DAC describes Canada’s use of associated finance—at $57 million or 2% of ODA in 1992—as “modest.” However, a study of Canadian associated financing for IFI projects alone showed $166.4 million spent in 1993-94. (Canada, “Interdepartmental Task Force on IFI Procurement: Final Report,” Ottawa, 1995, p. 18). 6 Big-ticket capital projects are hotly contested. Ron Brown, the late US Commerce Secretary, established the Commerce Department’s Advocacy Centre or a “war room” to track the 100 biggest capital projects overseas and coordinate government support to the large American engineering firms competing for these contracts. Canada has recently established a Capital Projects Action Team (CPAT) to coordinate Canadian government efforts to secure such projects. 7 Donors also use consultant trust funds to encourage IFIs to give more attention to specific development issues, such as the environment or gender. 8 Canadian studies indicate that bribes beat intelligence. Canada, “Interdepartmental Task Force on IFI Procurement: Final Report,” Ottawa, 1995. 9 Seventy-eight percent of World Bank procurement is for equipment (Canada supplies very little of this), 10% is for civil works (Canada does reasonably well) and 9% is consulting services (Canada does very well). Office of Liaison with International Financial Institutions (OLIFI), “Annual Report 1995: Canadian Procurement at the World Bank and the Inter- American Development Bank” (Washington, D.C.: Embassy of Canada, 1996). 10 See ACTIONAID, The Reality of Aid: An Independent Review of International Aid (London: Earthscan,1997), p. 251 and the OECD website on aid and commercial interests: http://www.oecd.org 11 On December 17, 1997, 29 OECD countries signed the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

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BOX 3 NEW OECD RULES FOR EXPORT CREDIT PREMIUM RATES After 19 years, the Export Credit Arrangement Group within the OECD has reached an agreement to eliminate the most egregious subsidies of export credits.1 The new rules (the “Knaepen Package”) are built on the simple proposition that, if a state export insurance agency loses millions of dollars every year, its premiums for country and sovereign risk insurance are not high enough to cover its long-term insurance claims plus operating costs. Such low premiums constitute a trade-distorting subsidy to the country’s exporters, and are incompatible with WTO obligations. But note: • the agreement will not take effect for two years to “…enable participating governments to manage their exporters’ expectations…” (i.e., come to grips with the startling proposition they will not be subsidized by taxpayers); and • the new arrangement will be a “soft law” (i.e., a nonbinding, voluntary agreement).

N OTES 1 OECD, News Release, “New Rules for Export Credit Premium Rates,” Paris, June 26, 1997.

DIRECT MARKETING ASSISTANCE T HE N EW G AME P LAN Canada’s direct marketing efforts on behalf of During the 1993 federal election, the Liberals firms working internationally used to be mod- attacked the cozy relations with the United est, such as having trade commissioners shep- States developed under Prime Minister Brian herd business people around trade fairs. A Mulroney’s government, and promised voters recent article in The Economist noted that, until an independent foreign policy. This commit- recently, it was thought unseemly for a high- ment, plus the priority placed on job creation profile politician to flog merchandise, and that and deficit reduction, resulted in the following “…de Gaulle of France once refused to meet a broad changes:17 Japanese prime minister, dismissing him as a • Trade diversification. To lessen our depen- ‘transistor salesman’.”13 Now the leaders of dence on, and vulnerability to, the US many governments, including Canada’s, place market, the government seeks to diversify trade missions at the top of their agendas. exports. Accordingly, it has pushed ahead In many respects, the new hard sell tactics have with new trade pacts (WTO, Chile, Israel), been an outstanding success. Team Canada mis- and is emphasizing non-US markets in its sions raise our profile in the countries visited, trade promotion programs. especially among local politicians and their • Multilateralism. While it ratified the North bureaucrats. The onslaught of the 11 most American Free Trade Agreement (NAFTA) senior politicians in a country must impress early in its first term, the Liberal government even hard-nosed private sector dealmakers in far- soon switched emphasis to multilateral flung markets. And the government has claimed agreements covering both trade and foreign deals aplenty: the running total before the 1998 investment. Such agreements give middle- mission exceeded $22 billion, with more than power countries such as Canada the option 96 percent of these deals still “in effect.”14 to take trade disputes to an international And now with a tally of 306 signings worth forum so they need not confront such $1.78 billion, Team Canada 1998 inked the economic powers as the US on their own. most deals signed on any trade mission.15 • Better coordination. With shrinking resources, However, the best proof that Team Canada is and under pressure from the private sector to good for Canadian business is that the many hun- reduce confusion caused by duplication, dreds of business people who participate pay their federal departments have agreed to better own way.16 In addition to having senior politi- coordinate among themselves and with the cians open foreign markets for them, participants provincial export promotion units. This, in a Team Canada mission have tremendous confusingly, is also called the Team Canada opportunities for doing business among them- approach.18 There is, however, one overall selves—or perhaps to have a sit down with a strategy, called Canada’s International premier to see what kind of incentives are on offer Business Strategy (CIBS), plus a series of 27 if they move a factory to, say, New Brunswick. more detailed sector strategies. Rising exports, and the public and private sec- • Greater focus. Given shrinking resources and tors and 11 Canadian politicians working hap- the mandate for trade diversification, CIBS pily together: What are we doing right?

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stresses the need to focus on a limited BOX 4 CANADIAN POLICY INITIATIVES AND PROGRAMS FOR number of fast growing, “emerging” markets, INTERNATIONAL TRADE AND INVESTMENT and niches in which Canadian businesses are Securing Market Access internationally competitive. Individual Trade negotiations (multilateral, plurilateral, regional, bilateral) ...... DFAIT “Fronting” private sector companies in deals with foreign governments...... CCC departments also are trying to assess their that wish to deal on a government-to-government basis comparative advantage vis-à-vis other Interventions for specific sectors or markets ...... DFAIT Coordinating Government Policies government bodies to reduce duplication, Canada’s International Business Strategy (CIBS) ...... DFAIT, IC and to put more of their declining resources Coordination with other national policies...... Cabinet into those specific services.19 Subsidies to Exporters (or their overseas customers) Direct export subsidies (loans and insurance)...... EDC1 (Canada Account) ($135 million) Program for Export Market Development (PEMD) ...... DFAIT2 ($11 million) • Increased cooperation with the private sector. Program for International Business Development (PIBD)...... DFAIT3 ($26 million) The overall thrust of the government’s policy CIDA INC...... CIDA4 ($65 million) Private sector development projects...... CIDA5 (total unknown) and program changes is in keeping with the Other tied aid ...... CIDA6 (total unknown) recommendations of a private sector task Consultant trust funds ...... CIDA ($13 million)7 Other subsidies and subsidized services force—the Wilson Report (headed by DFAIT (information & training services in Canada & abroad) ...... $213+ million2 Red Wilson of BCE Inc.)—commissioned to Industry Canada (information & training services in Canada)...... $69 million2 Agriculture & Agri-Firm Canada ...... $27 million2 review Canada’s international business (export credits for agri-food, plus Information & training services in Canada & abroad) development strategy. In addition, the Team Other federal government departments ...... $29+ million2 Provincial governments (information & training services in Canada & abroad) ...... $260 million8 Canada sector strategies are developed in Appropriations to CCC ...... $11 million9 conjunction with representatives from the CSIS (market intelligence; industrial espionage)...... na private sector, academics and, occasionally, Other Subsidies to Firms (not necessarily exporters) R & D co-investment in pre-commercial innovation ...... TPC ($varies)10 union representatives who sit on National R & D for small and medium-sized enterprises...... NRC–IRAP11 Sector Teams, supported by an International Special tax treatment R & D tax credits ...... $1 billion12 Trade Advisory Committee (ITAC)20 and 27 Employment income earned abroad (federal & nine provinces) ...... na Sectoral Advisory Groups on International Employment income earned abroad on CIDA projects (Québec)...... na 21 Other Services to Exporters (Mainly on commercial terms, with little or no subsidy) Trade (SAGITs). Loans to buyers of Canadian products ...... EDC $3,678 million13 Export insurance ...... EDC $18,352 million14 • Promotion of small and medium-sized enterprises. Export finance ...... Business Development Bank of Canada Given shrinking resources and the pressure Export finance...... Various provincial governments Coordination of support for large international capital projects ...... DFAIT (CPAT) to create jobs, a higher percentage of public Services to Canadian Firms Investing Abroad sector resources available through the stan- Foreign investment insurance ...... EDC ($928 million)14 Private investments in developing countries...... CIDA INC4 (see above) dard trade promotion programs are reserved Joint ventures with local firms ...... CIDA (various projects)5 for small and medium-sized enterprises K EY: (SMEs), which are believed to create the bulk CCC:...... Canadian Commercial Corporation EDC: ...... Export Development Corporation of new jobs.22 The target is to double the CIDA: ...... Canadian International Development Agency IC:...... Industry Canada CIDA INC:...... CIDA, Industrial Cooperation Program IRAP:...... Industrial Research Assistance Program number of SMEs which export by the year CPAT:...... Capital Projects Action Team NRC:...... National Research Council 2000. Virtually all departments and agencies DFAIT: ...... Department of Foreign Affairs and International Trade TPC: ...... Technology Partnership Canada involved have developed new “SME-friendly” N OTES 1 The Export Development Corporation provides a range of finance and insurance products to Canadian exporters and products and services. investors, but on commercial terms and according to prudent insurance practices. However, the federal government uses the EDC as a vehicle “…to support Canadian export transactions which, on the basis of prudent risk manage- • Performance measurement. Prodded in part by ment…cannot be supported by the Corporation.” Canada, Report on the Canada Account Study (Ottawa: External the Auditor General, all agencies involved in Affairs, 1992), p.1. This is called the Canada Account, and the figure shown is for concessional loan disbursements and loan provisioning for 1996-97. the International Business Strategy are work- 2 Canada, OAG, Report of the Auditor General of Canada to the House of Commons: Chapter 25—Canada’s Export Promotion ing on new systems to determine whether Activities (Ottawa: Public Works & Government Services, 1996). Figures are for 1995-96. Some grants may be repaid if the firm is successful. their services are delivering value for money. 3 Ibid. There also is increased emphasis on getting 4 Ibid. Note that a significant proportion of CIDA INC funds are to assist Canadian firms invest in, rather than export to, developing countries. repaid when public subsidies assist firms in 5 See CIDA website, http://www.acdi-cida.gc.ca and IFInet. making sales in a new market,23 and even 6 The last DAC review of Canadian development assistance reported that 40% of Canadian bilateral aid is “tied” to the purchase of Canadian goods and services, and another 20% is “partially untied” (i.e., goods and services can be pur- talk of charging companies for at least some chased from developing countries, but not from competitors in industrialized countries), leaving 40% untied, far lower of the services traditionally provided free by than the DAC average of 59%. Other studies indicate 70 cents of every Canadian aid dollar are spent purchasing Canadian goods and services. ACTIONAID, The Reality of Aid: An Independent Review of International Aid (London: the government. Earthscan Publications, 1997), p. 45. 7 About $40 million is available via the vaious Canadian trust funds over a three-year cycle. See also the IFInet web site. • Use of information technology. To cope with 8 Canada, DFAIT, “Review of Financial Assistance for International Business Development,” Ottawa, 1995, p. 1. 9 Canada, 1997-98 Estimates: Part II The Main Estimates. Figure shown for 1996-97. all this coordination, consultation, and 10 Liberal Party of Canada, Securing Our Future Together: Preparing Canada for the 21st Century, Ottawa, 1997. Monies networking, government agencies have invested by Technical Partnerships Canada may be re-couped from royalties. 11 Ibid. The Liberal plan promises an increase of $34 million per year, bringing the total to $130 million. invested heavily in information technology. 12 The Conference Board of Canada, “Canada a Leader in R & D Tax Incentives,” The Inside Edge, vol. 1, no. 2, p. 5. Companies can register with WINexport, a 13 EDC, Annual Report 1997. Figure shown is for total value of loans issued. 13 Ibid. Figure shown is for total value of export insurance issued. database that allows trade commissioners to 14. Ibid. Figure shown is balance of foreign investment insurance outstanding as of 31 December 1996. check on which Canadian companies sell

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which product, and alert them of a possible sale elsewhere. They also can log onto Graph 2 Some 1996 Canadian Export Strategis (the Industry Canada website), and Comparisons: Selected States from there connect to ExportSource (the & Regions of the World Department of Foreign Affairs and

International Trade website), Statistics MICHIGAN Canada, the Alliance of Manufacturers and ALL NON-US COUNTRIES C OMPETITION IS Exporters Canada, and any number of related NEW YORK sites. They can surf the IFInet to study the BECOMING INCREAS- World Bank’s project pipeline, then check ALL DEVELOPING COUNTRIES INGLY FIERCE IN THE what’s on offer from the Canadian CALIFORNIA International Develoment Agency (CIDA). MARKETPLACE AND SO ALL ASIA (except Japan) It appears Canada is on a winning streak, with a YOU HAVE TO DIFFEREN- WISCONSIN steady string of positive annual trade balances, TIATE YOURSELF FROM and is now strategically re-deploying its forces ALL AMERICAS to win the battle for emerging markets. MARYLAND YOUR COMPETITORS.

ALL AFRICA I F YOU ARE WORKING TO A RE W E W INNING Y ET? $0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 C$Millions MAKE A DIFFERENCE IN A closer look at trade statistics paints a different, Source: Industry Canada, "Strategis. Trade Data Online" THE COMMUNITY IN more confusing, picture. What about those high http://strategis.ic.gc.ca profile Team Canada missions to the fast grow- WHICH YOU ARE SELLING ing Asian markets? In fact, Canada’s trade with YOUR PRODUCTS AND the fastest growing markets has been declining best known. The budget for this has been cut as a share both of our total exports, and of their from $19 million to $11.5 million over the past SERVICES, IT DOES total imports.24 Overall, Canada is at the bottom two years.29 This is, quite frankly, small change HELP. GOOD ETHICAL of the list of G-7 countries with respect to trade compared with subsidies to the huge high-tech with developing countries. Meanwhile, our firms, such as Bombardier Inc., Pratt & Whitney PRACTICES DIFFEREN- trade dependence on the US market continues Canada Inc., and Atomic Energy of Canada TIATE YOU AND ADD to increase, with the share of our exports going Limited (AECL).30 And in spite of new products to the US rising from 62 percent in 1980 to 80 tailored to the needs of SME exporters, the vast VALUE TO YOUR percent in 1997. A full 35 percent of these bulk of financing and insurance provided by the PRODUCTS AND exports are accounted for by intra-firm trade EDC flows to huge firms such as Northern between US-controlled firms and their Canadian Telecom Ltd (Nortel), Bombardier Inc., and SERVICES. subsidiaries.25 As Graph 2 depicts, our exports to SNC-Lavalin International Inc.31 Michigan now exceed Canadian exports to all Further shuffling of the data reveals other tough COLIN LATHAM, non-US countries, while exports to Maryland questions. Has our share of exports to the US exceed total exports to all of Africa.26 PRESIDENT & CEO climbed so significantly? One official inter- What then of our strategy to focus on small and viewed mentioned that $1 billion in grain MARITIME TEL. & TEL., IN

medium-sized enterprises? The fact remains that exports to Asia didn’t show up in our export SIO, “THE BEST OF THE TSE while “Canada is a trading nation, we are not a figures to Asia in 1995. Given Canadian nation of traders.” An estimated 70 percent of transportation bottlenecks, it seems likely these 300,” THE FINANCIAL POST

our firms do not export at all, while 70 percent shipments were routed through the US, perhaps 500 MAGAZINE, of our total exports are supplied by fewer than without all the correct paperwork, and then 100 enterprises27 and 95 percent by about 5,000 recorded as exports to the US. No one is sure MAY, 1997,

firms—perhaps one-half of 1 percent of how much trade is wrongly classified, but it P. 30 Canada’s registered enterprises. Fewer than seems reasonable to assume it could total a few 3,000 firms make use of Export Development billion dollars.32 As well, many of the bona fide Corporation (EDC) services, and only 17 percent Canadian exports to the US are components for of EDC’s business volume is accounted for by final products, which are ultimately destined for firms with annual sales of $25 million or less.28 export outside the US.

Of course, SMEs go to the head of the subsidy Another complication is raised when one ques- queue primarily for the government’s standard tions the “nationality” of a Canadian export. If, trade promotion programs, of which the Program for example, a seat frame is manufactured in for Export Market Development (PEMD) is the Mexico, then shipped to Tennessee for uphol-

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A ND WHEREVER stering before being sent to Canada in a German really worry about what specific borders their truck so it can be fitted into a car designed in products cross to get to the final buyer, or do GOVERNMENTS, DO NOT, Japan, with engines from Taiwan that were they simply care whether they make that sale

CANNOT OR SHOULD NOT shipped on a Norwegian boat registered in and record a profit with as little fuss as possible? Panama, should Canadians take credit of the Canadian politicians may be opening doors to ACT, THE BURDEN SHIFTS entire value of the car as an export? Of course we emerging markets, and the Canadian govern-

TO THE MANAGERS OF do, if only because it would be impractical to try ment may be picking up the tab for research to keep track of all the transactions. There are, and development, but it should be clear that the INTERNATIONAL however, various methods used to estimate the game these transnationals are playing has little

COMPANIES TO EXERCISE average “local value-added” in exports of certain to do with the size of Canada’s trade surplus. products or from certain sectors. A recent set of THEIR RESPONSIBILITY AS For such firms, the goal is not to sell exports, but estimates33 indicates that Canada’s much rather to “contest” markets. Making products in MORAL INDIVIDUALS. vaunted trade surplus with the US is much Canada and shipping them to some other coun- smaller if calculated on a value-added basis. As try may be a winning strategy for contesting that JAMES HUNTER, well, much of Canada’s high-tech industry, cov- country’s market at one point in time, but it eted and cosseted precisely because its products THE 1997 BUSINESS might be a complete loser some years later. Some are high value-added, appears so dependent on industries are dominated by giant transnationals ETHICS SURVEY REPORT, imported components that little of the value is competing against one another across the globe. actually added in Canada. It may be that Canada KPMG INVESTIGATION Because the cost of developing new products— does better on average with our traditional such as commercial jets or nuclear reactors— AND SECURITY INC., exports of semi-processed raw materials. then equipping plants to manufacture them, is

TORONTO, 1997 so enormous, the world market will support only W HAT’ S THE G AME A GAIN? a small number of firms, each of which needs a reasonable share of the global market to survive. During the 1996 meeting of world trade minis- Such firms must “go global,” but are forced to ters in Singapore, Prime Minister Mahathir of devise suitable strategies to contest market-by- Malaysia said that he had heard quite enough market. A firm might start in an emerging mar- about “level playing fields.” He wanted to know ket by exporting, but then move to licensing its what game we were meant to play on these technology to a local producer, or forging a joint fields, and if it was American football, he venture with a state enterprise, or building its wanted no part of it. A good throw-away line own plant to manufacture the product locally.35 indeed, but it also shows there are some funda- Or it may form a “strategic alliance” with mental questions concerning Canada’s erstwhile competitors to contest the emerging International Business Strategy in today’s world. market against other strategic alliances. Take, for example, the apparently straightfor- The switch in emphasis from trade balances to ward question: What is a Canadian company? contesting markets is also apparent in the For the vast majority of firms, the answer is per- expanded scope of “trade” negotiations during fectly clear. But the vast majority of Canadian the present Liberal government’s first term. firms don’t export. A few dozen enterprises, NAFTA includes side-agreements on labour and many foreign-owned, account for the bulk of the environment, plus a number of provisions Canadian trade, much of which is simply sales on investments. Canadian negotiators now are between two plants, owned by the same firm, busy working on “mutual recognition agree- located in different countries. Such transnation- ments” on industrial and safety standards, als loom large in the modern global economy. harmonization of customs procedures, Foreign policy analysts in other industrial coun- “nonbinding principles” for government pro- tries are asking similar questions. As one curement practices, and developing “a common recently asked: “...does Northern Telecom, a understanding on competition policy.”36 Canadian firm with substantial manufacturing Finally, the world’s industrialized countries are operations throughout the United States, negotiating rules governing the treatment of deserve the same support from the American foreign investors: the Multilateral Agreement on government as, say, Bell Atlantic?”34 Investment (see Chapter 3, p. 58).35

The next question is: What are these transna- It should be clear that the obsession with grow- tionals trying to do? Do they care about their ing exports and the balance of trade is largely contribution to Canada’s trade balance? Given that—an obsession. As noted by economist Sylvia that they operate in many countries, do they Ostry, Distinguished Research Fellow at the

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Centre for International Studies at the University The government policy statement went on to of Toronto, “the present phase of accelerating summarize the key Canadian values as “respect world integration is dominated less by increasing for human rights, democracy, the rule of law, trade linkages than by growing investment and and the environment.”40 technology linkages facilitated by the exploding Consider how well Team Canada projected financial linkage of the 1980s.”38 The principal Canadian values in its first mission to China links—financial, investment, trade, and technol- in 1994. During their private meeting with ogy—are increasingly situated between and Chinese Premier Li Peng, then Premier of Nova within transnational corporations that are Scotia John Savage couldn’t recall whether contesting markets across the globe. Prime Minister Jean Chrétien even raised Given the complications and connections of the China’s notorious human rights record.41 Our modern global economy, it is impossible to chief salesman refused to meet local human assess the real impact of Team Canada missions. rights activists to avoid anything that would While these missions certainly boost the “publicly embarrass his hosts.”42 Since that approval ratings of the participating politicians mission, Canada has also reversed its long- and benefit some firms, claims concerning standing policy of co-sponsoring the motion “deals” made during these missions would censuring China at the annual meeting of the politely be described as hyperbole39 (see Graph UN Human Rights Commission,43 and, unlike 3). Perhaps the greatest benefit to Canada is the UK or US, sent a minister to attend the much the same as that achieved by the original handover ceremonies in Hong Kong, at which Team Canada, when Paul Henderson scored his time the elected legislature was disbanded and famous goal in Moscow a quarter of a century many laws restricting freedoms came into effect.44 ago: these missions demonstrate to Canadians Team Canada members also failed to project the that they can compete with the best on some of value Canadians place on the environment, sign- the toughest playing surfaces in the world. ing deals with China to participate in the notorious Three Gorges Dam and preparing the groundwork for the subsequent sale of CANDU Graph 3 Team Canada Success reactors—exempted, from environmental impact Claims assessments required by Canadian law.45 This exemption was granted in a Cabinet meeting on

DEALS CLAIMED BY November 6, 1996 and was passed into law the TEAM CANADA following day, although it was not gazetted until $22,000 November 27, the day after the CANDU deal was signed.46 Even if such action is held to be legal, EXPORTS TO ALL TEAM CANADA how does it project Canadian values such as COUNTRIES $7,891 democracy and the rule of law? $0 $5,000 $10,000 $15,000 $20,000 $25,000 Indeed, it seems that the Team Canada mission C$Millions Notes: Covers Team Canada missions of 1994, 1996, 1997. to China racked up quite a bill in exchange for Sources: Industry Canada, "Strategis.Trade Data Online." some trade and investment deals, trading on http://strategis.ic.gc.ca; Government of Canada; and author's calculations. Canada’s integrity and credibility, the hopes of human rights campaigners in China, and, perhaps, global security based on nuclear non- proliferation and environmentally sound A ND W HAT DO THE T ICKETS development.47 This could readily have been C OST? foreseen. Consider the negotiating position of It also is difficult to get a true reckoning of the costs Canada’s prime minister once he agrees to lead associated with Canada’s International Business such a mission. Desperate to deliver on his Strategy, except to say these have been greatly promise of jobs, anxious to diversify exports understated. Look, for instance, at the three pillars away from the US, surrounded by hundreds of of the Liberal government’s foreign policy: influential business leaders hungry for deals, and by Canadian journalists anxious for stories, • The promotion of prosperity and employment; Mr Chrétien is under tremendous pressure to • The protection of our security, within a stable sign agreements. His interlocutors are under no global framework; and pressure to please their citizens, have every • The projection of Canadian values and culture. incentive to stand up to Western pressure so

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they are not seen to be weak, and are perfectly them, not only as exporters of goods and happy to walk away from the table because they services, but also as promoters of Canadian have offers of similar technology, at firesale values and global security. A recent study on prices, from other countries. international business and human rights clearly documents that Canada does little to require or Observers have noted how perilous it is to deal even encourage Canadian businesses to promote with countries such as China. “China did what respect for human rights overseas, lagging America would not. It made human rights a significantly behind the US in this regard.49 It tough part of its policy—but the communist way does not reward Canadian firms for establishing [...] if Western companies said a critical word, or corporate codes of conduct governing their failed to urge appeasement on their govern- international operations,50 nor promote ments, they would lose trade and contracts.”48 independent monitoring of Canadian business Another interesting question is what the activities abroad. Since the international cam- Canadian government requires from the firms paign against the apartheid regime in South it assists, and what actions it takes to prepare Africa, the Canadian government has not

BOX 5 ONE COUNTRY—TWO VIEWS In February 1997, the federal Department of weather conditions, “Colombia’s economy is Foreign Affairs and International Trade one of the most stable and dynamic in Latin (DFAIT) issued a report on Colombia called A America.” Guide for Canadian Exporters and Investors. In DFAIT notes that “the on-going decertifica- October 1997, the Inter-Church Committee tion of Colombia by the United States, which on Human Rights in Latin America (ICCHRLA) has frozen export credits from the US issued a report on Colombia called One Step Export-Import Bank, has opened opportuni- Forward...Three Steps Back, Human Rights in ties for Canadian financial entities such as the Colombia Under the Samper Government. EDC (Export Development Corporation) and Two reports on one country. But if the Canada’s private banks, as well as for US country name in each report was blacked companies that no longer have access to out, the casual reader—say a potential Export-Import Bank credits.” Later it states, exporter or investor—would never know they “EDC views this policy measure (US decertifi- were about the same place. cation) as providing a window of opportunity for new EDC lending in support of Canadian In the ICCHRLA report, the reader would export programs in Colombia.” As a conse- learn that in 1996 the democratically elected quence, “Colombia is the largest market for Liberal government of Ernest Samper Pizano EDC’s Foreign Investment Insurance policies had declared a state of emergency, and that, with over $300 million in exposure, particu- while it was in force, the government had larly in the oil and gas and telecom sectors. proposed a series of reforms which would These policies cover the exporter against the have “maintain(ed) the country under a political risks of war/insurrection, permanent state of emergency.” While the transfer/convertibility and expropriation.” country’s Constitutional Tribunal eventually struck down the state of emergency, “the So which Canadian companies have taken very fact that these reforms were presented advantage of opportunities in this country and defended by significant sectors within that, says DFAIT, has such “excellent credit the government, military and business risk conditions,” “investment grade credits of community is indicative of the erosion of a BBB- from Standard and Poors,” and “stable democratic commitment and the growing economic conditions,” but which, says tendency to seek an authoritarian solution to ICCHRLA, is the worst country in Latin the country’s problems.” America for overall human rights violations and which, says the International And the reader would have learned that Confederation of Free Trade Unions, is the “Colombian human rights monitors have worst in the world for trade union violations? continued to register an average of approxi- They include Canadian Occidental Petroleum mately 10 people killed every day as a result Ltd, TransCanada PipeLines Ltd, of political violence, human rights abuses and Interprovincial Pipe Line Ltd, Bell Canada attacks against marginal sectors of society.” International, Northern Telecom, Bell Could this be a country in which Canadian Helicopters, Bombardier, John Labatt Limited, companies would want to invest, to establish and McCain Foods Ltd, according to DFAIT. businesses, to export into? Well, according Stephen Law at ICCHRLA reports that the to the DFAIT guide, which doesn’t even whis- federal government has said it will review its per a mention of human rights abuses or documents and presentation of Colombia. institutional instability, but does provide

advice on clothing options for particular - SUSAN BRANDUM

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developed guidelines for Canadian firms compensate the losers, and there still would operating in countries in which human rights be a net economic benefit. What can be done violations are prevalent. It does not vet the to ensure the losers from globalization are human rights records of companies participat- compensated, and that the majority of the ing in Team Canada missions or receiving world benefits from this growth? services from our trade commissioners, and Perhaps the most important step is to ensure does not brief companies on local human that market access is not denied to developing . . .CANADA CAN, rights issues as a matter of routine (see Box 5). countries for those products they can produce It provides subsidies to firms operating in INDEED MUST, ACCOM- competitively, such as textiles; many agricul- countries with repressive governments and does tural products, such as sugar; and low-tech MODATE THE PROMOTION not even require that the firms receiving these industrial products. The next step would be to government subsidies adopt or adhere to a OF BOTH EXPORTS AND reverse the decline in aid budgets, increasing corporate code of conduct.51 them until the long promised target of 0.7 per- HUMAN RIGHTS cent of GNP is reached. The third important SIMULTANEOUSLY. P LAYING TO W IN-WIN change is for industrialized nations to stop using developing countries as a battlefield in the Economic integration tends to produce distinct modern trade wars. Perversely, however, because JOE CLARK, “THE BUSINESS winners and losers. Advocates expect big gains GATT/WTO rules have been broadened and as increased competition leads to more rapid OF HUMAN RIGHTS,” been given more teeth while most aid remains innovation, in addition to greater choice and exempt from these rules, the incentive for mer- BEHIND THE HEADLINES, lower prices for consumers. But people do more cantilists to use aid funds as ammunition in the than simply consume: they also work, pay taxes, OCTOBER, 1996 trade wars has increased in recent years. own homes, raise families. If transnationals relo- cate manufacturing to a developing country, Consider aid programs in Canada. The private demand for less-skilled workers declines in sector task force commissioned by the Liberals industrialized countries. This tends to reduce to review trade programs—the Wilson Report— real wages to, or employment of, less-skilled came up with the following, quite remarkable workers, resulting in increased poverty unless recommendations: governments implement compensating mea- Given decreasing demands for conces- sures—better training programs, or reduced pay- sional financing, we recommend that the roll taxes. But such measures are expensive, and Government of Canada trade off $60 mil- increasing globalization is forcing governments lion annually of Canada Account conces- to shift the tax burden from “footloose factors sional funds for an increase in the Canada of production, such as profits and savings, Account nonconcessional facility, where toward consumption and labour […] especially demand is increasing. We further recom- unskilled workers who are least mobile.”52 mend that Canada align itself with its Conversely, globalization implies that the major competitors and use a portion of its better-trained can expect good jobs, better and official development assistance budget to cheaper consumer products, and lower taxes on fund concessional financing. This would their salaries and investments. make available up to $120 million to There are similar implications for developing reduce the deficit.54 countries. Globalization has seen a surge in What does this reveal, other than an interesting private sector investment flows to developing approach to arithmetic?55 There is a claim that countries from $25 billion in 1990 to $129 demand for concessional finance through the billion in 1996, but this is highly concentrated Canada Account at EDC has decreased, and a in the bigger markets and the wealthier market recommendation that Canada should use ODA segments. Countries which, through savvy or to fund concessional financing. The reason is serendipity, were “linkage-intensive” at the start that there are tighter international rules govern- of the 1990s have become the new “growth ing trade-distorting subsidies, but these rules do poles,” awash in private investment.53 not adequately cover aid.56 Assuming proponents of globalization are Such commercial motivations strongly distort the correct that closer economic integration will aid program, biasing it toward markets—larger increase world growth rates, the total economic and relatively richer countries,57 and the better- benefits of integration will exceed the total off in every country—rather than toward the costs. In theory this means the winners could poor. But vastly increased flows of private sector

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BOX 6 THE PRIVATE SECTOR IN DEVELOPMENT: THE GOOD, THE BAD, AND THE UGLY There are persuasive arguments for support the use of aid to help poor vices (usually, to design capital projects involving Canada’s private sector in our nations establish a “propitious environ- with the hope of winning the bid to development program. First, it is ment” for growth of the private sector.3 implement if it should go ahead). A important to recognize that private However, there are very important dif- 1992 evaluation of CIDA INC was gener- sector firms from the North have ferences between: ally positive, but noted that “…because extensive experience in supplying the the program is driven by Canadian firms, goods and services required—they • recognizing that a good deal of project formulation tends to focus first on already transfer far more technology “development” is the result of potential results for the Canadian firm and financial resources to the South commercial activity, and suggesting and secondarily on what development than do governments. But these are that commercial activities should be goals may be attained.”5 It recom- provided through standard commercial subsidized as part of the development mended that CIDA clarify the develop- arrangements such as direct invest- program; ment goals for the program to ensure aid ments, supplier credits, licensing • recognizing the contribution of pri- funds are used to promote development, agreements, and training given by vate firms as suppliers or contractors as well as business, objectives.6 suppliers to their customers. Successful to the development program, and CIDA INC has taken steps to improve the private sector initiatives are then “sus- suggesting private firms should dictate program since 1992, most critically by tainable” in the financial sense because what goods and services are provided giving more support to projects featuring they generate profits needed for through the development program; real investments in developing countries continued operations. • improving the environment for pri- as opposed to subsidizing Canadian firms Second, private firms often are better vate sector growth in a developing looking for contracts on capital projects. equipped than governments or non- country, and subsidizing specific However, a recent survey found that governmental organizations (NGOs) to business ventures by specific firms “In the minds of most [firms receiving provide certain types of services1 that in a donor country. CIDA INC grants], developmental activi- are provided through the official aid ties are clearly peripheral, not integral, to program, ranging from the manage- Official development assistance pro- the advancement of business interests ment of construction projects, through grams are most effective when the even in developing countries.”7 A more management consulting, software intended beneficiaries can determine thorough evaluation is now underway development, and training in many their priorities and then obtain the right which may document what might be technical areas. Third, like NGOs, pri- goods and services to address those done to ensure CIDA INC projects give vate firms often have the flexibility and requirements: such programs are priority to developmental, rather than incentive to be more innovative than “demand driven.” Tied aid typically commercial objectives. At the same government agencies, and there are increases the costs of these aid programs time, however, CIDA has recently many examples of excellent projects by restricting the choice of available announced that Canadian private firms which, simultaneously, have promoted goods and services, and may even make could propose projects for funding by development and Canadian commercial specific projects ineffectual because the the bilateral program, in addition to the interests.2 As well, the fate of Canada’s donor country does not supply the $65 million available via CIDA INC.8 appropriate goods.4 But trying to pro- aid program ultimately depends on the There are other “aid” projects which support of the Canadian public, includ- mote commercial interests through the aid program can do even greater dam- are clearly designed to promote ing those working or investing in Canadian exports. One example is the private firms. age: it can create a “supply driven” program in which we no longer ask what Programme fonds de développement Finally, many donors, including developing countries need, but rather du secteur privé (PFDSP) that seeks to Canada, now include private sector look first to what we have on offer. “respond to the needs of Morocco’s pri- development as one of the explicit vate sector entrepreneurs by providing objectives of their aid program. While For example, the CIDA INC (Industrial access to Canadian know-how and not universally accepted, many devel- Cooperation Division) program provides technology” by providing 25 percent to opment experts in both the North and money ($65 million in 1995-96) to 30 percent subsidies for Canadian tech- South agree that a healthy private sec- Canadian firms for feasibility studies, nology and “shared-cost interventions” tor is necessary for development, and investment support, and professional ser- for training and consultancy services.9

N OTES 1 Most of the development budget is spent on goods, such as transportation equipment, pumps, or wheat, rather than on services. Obviously, private firms supply the bulk of these goods. 2 Each year CIDA grants a number of “CIDA Awards” to private firms for projects that promote certain development objectives, such as environmental protection or gender equity. As well, many Canadian firms have first proven themselves in a new market by successfully managing a CIDA-funded project, and then gone on to win other contracts in that country, whether financed by the IFIs, the host government, or the local private sector. 3 The work of Douglass C. North, the Nobel Prize-winning economic historian, has been particularly influential in demonstrating the fundamental importance of institutions to development. See North, Institutions, Institutional Change, and Economic Performance (Cambridge, UK: Cambridge University Press, 1990). 4 For example, in the 1970s and 1980s, thousands of Canadian handpumps were installed in West Africa. Designed for single-family farms or cottages, these pumps were installed on what was often the only well servicing a village, and quickly broke down when used hours each day. 5 One could wonder what the business community would do in a similar situation. For example, what if a program designed to, say, increase the supply of software engineers couldn’t show how many people were adequately trained but defended itself by documenting that a dozen classrooms were equipped with computers? 6 Consulting and Audit Canada, “Audit and Evaluation Summary Report: Industrial Cooperation Program/Division—CIDA,” Ottawa, 1992. 7 “Canadian International Development Agency, Industrial Cooperation Program (INC) Survey,” Ottawa, Toronto, COMPAS Inc., June 1997, p. iii. 8 This type of “responsive” mechanism has long been available to NGOs, some of which have undoubtedly proposed projects first because they were good for the organization and second because they addressed the priority needs of the poor in a developing country. Still, workers in the not-for-profit sector face very different incentives from those in private firms. As well, it is illegal for charities to make donations to political parties or candidates, while private firms are not so restricted. While private firms undoubtedly will propose some excellent development projects, the danger of political patronage and corruption is greatly increased. 9 “PFDSP in Morocco” on the CIDA website http://www.acdi-cida.gc.ca

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investment are already flowing to the larger and the richer. These are market opportunities that Graph 4 Canadian 1996 Export are being addressed by market mechanisms. Comparisons: Selected US It would be wrong, however, to conclude that States and Countries aid should not support private sector development, or that the Canadian private sector MISSOURI should be excluded from our aid program (see CHINA

Box 6). However, after years of aid budget cuts, NORTH DAKOTA it is crucial that Canada’s aid program reasserts TAIWAN the priority of developmental, rather than commercial, objectives. Scarce aid dollars should SOUTH CAROLINA

be increasingly targeted to basic education, BRAZIL health, and social services which benefit the ARKANSAS poor but are not commercially viable, to the poorest countries which are overlooked by INDONESIA private investors, and to rural areas far from OKLAHOMA

new growth poles. THAILAND

DELAWARE

P OST G AME H IGHLIGHTS ALGERIA

Officially, Canada’s foreign policy has three $0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 objectives: prosperity, security, and the projec- C$Millions tion of Canadian values. In its first term, the Source: Industry Canada, "Strategis. Trade Data Online" http://strategis.ic.gc.ca present government’s actions were clearly biased toward the first, with trade considerations dominating the policy agenda. and—in some eyes at least—respect for the rule In turn, trade policy has been predicated on two of law. Canada’s politicians have ample oppor- principal objectives: increasing benefits accruing tunities to promote Canadian exports without to Canadian firms from the existing process of providing succour to repressive regimes. globalization, and slowing down the rate of economic integration with the United States. Budget cuts to trade promotion programs As such, the government has pressed ahead with and tighter rules relating to trade-distorting trade negotiations at both the multilateral level subsidies also increase the pressure from those and with blocs of emerging markets in Asia and who wish to use the aid budget to promote Latin America. It also has refocused its assis- Canada’s commercial interests. This diverts tance toward the bigger emerging markets. But funds available to the poorest countries and the total amount of financial assistance has peoples, whose interests have already been been cut and the sums available, however well damaged by massive cuts to Canada’s aid pro- targeted, seem inadequate to significantly influ- gram. These same people and countries are also ence the aggregate export and investment plans the least likely to benefit from the increased of the Canadian corporate sector and measurably trade and investment flows brought about by decrease our dependence on the US market. globalization. In place of money, Canadian politicians have substituted their prestige to directly promote S OME M ODEST P ROPOSALS Canadian products and firms via Team Canada A recent international poll found that Canada missions. In spite of the seemingly impressive is seen as a country of natural beauty, where figures for “deals” signed during those missions, people enjoy personal freedom, good health it remains far from clear that this approach will care, and a peaceful, albeit frigid, environment. have a significant and sustained impact on the Canadians are seen as honest, friendly, and pattern of Canada’s international commercial polite. Canadian businesses have a solid reputa- activity. At the same time, the pressure to make tion for reliability and honesty, although the Team Canada missions appear successful opinions vary widely whether our products are seems to have led to the sacrifice of other policy technologically advanced or competitively objectives, including environmental security, priced.58 Solid and stolid. the promotion of human rights and democracy

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Such perceptions offer a significant competitive Canadian businesses have a significant advan- advantage. Canadian CEOs confirm that we are tage in many developing countries and within well regarded overseas, and that our main multilateral organizations because of Canada’s shortfall is “lack of aggressiveness.”59 A review international reputation, and because our firms of Canadian procurement through IFIs found have a reputation for honest dealings. Canadian consulting firms were well accepted in How to capitalize on this potential competitive developing countries, and that Canadian politi- advantage? The answer cannot be for Canada’s cal support and financial assistance were held in current government to undermine the country’s high esteem.60 Almost all International Trade favourable reputation, built-up over decades. and CIDA officers interviewed mentioned that Just as a government subsidy to one company results in higher taxes for the rest of us, pander- ing to repressive regimes to promote the BOX 7 RECOGNIZING SUCCESS interests of a few firms imposes costs on other “Active and successful in the developing world?” asks a brochure from Canadians who must live and travel in a less the Canadian International Development Agency and the Alliance of secure world. Other Canadian firms competing Manufacturers and Exporters Canada. “Be recognized for your achieve- in international markets may also have to ment—apply for an International Development Award.” overcome the negative publicity that inevitably Launched in 1992, the annual national awards recognize “the important accompanies a story in which a leader of a contribution that Canadian businesses make to international development,” says Don Boudria, former Minister for International Cooperation. democratic country provides tacit support to “Their activities promote the transfer of skills and technology to develop- repressive regimes. Finally, even the short-term ing countries. This is beneficial for their economies and strengthens our commercial victories may prove pyrrhic if a 1 commercial ties with them.” corrupt regime is overthrown and the new To date, 23 companies have been recognized. Each award is sponsored by government decides to favour companies and a Canadian corporation and recognizes achievements in particular cate- countries that did not aid and abet its gories—improving physical or social infrastructure, for example, the devel- predecessor. opment of an industrial base, the promotion of gender equity, natural resource conservation, and so forth. And while firms may apply on their Canada should, at all costs, maintain its reputa- own, most anyone can nominate a company. The winners are selected by tion of an international stance of enlightened a panel representing government, industry, and the NGO community. self-interest. To achieve this, the government WINNERS IN 1997 should simply follow through on its stated foreign Company Sector Country Sponsor policy objectives. Some modest proposals follow: AGRA Earth & Improvement of social infrastructure Russia Babcock Environmental Ltd and environmental protection & Wilcox 1 FOR THE DEPARTMENT OF FOREIGN AFFAIRS ARA Consulting Inclusion of women in development Caribbean Bank of AND INTERNATIONAL TRADE Group Montreal CPCS Transcom Ltd Growth of industrial sector Kenya General Motors • Our department of foreign affairs prepares of Canada human rights evaluations, but does not (Diesel Division) release these, in spite of the Liberal promise SR Telecom Inc. Improvement of physical infrastructure Peru SNC-Lavalin while in opposition, to publish annual report Thiessen Equipment Advancement of technical capability Chile Nortel cards on the human rights performance of PREVIOUS WINNERS2 foreign governments. These should be published, along with the criteria used in grading 1996: Agrodev Canada Inc.; Cowater International Inc.; Dessau International Ltd; 61 Ocelot Energy Inc. & TransCanada Pipelines Ltd; Southern Alberta Institute of human rights performance. Technology. 1995: Associated Engineering International Limited; John Van Nostrand Associates Limited; 2 FOR TEAM CANADA Canadian Fishery Consultants Limited; Engine Control Systems Limited; Deloitte & Touche • That the Prime Minister no longer lead trade Management Consultants; Vitronov Inc. missions to countries whose policies are 1994: Agrodev Canada Inc.; N.D. Lea International Ltd; Roche International; inconsistent with fundamental Canadian The Bank of Nova Scotia. values, as documented in the annual human 1993: Champion Road Machinery Limited; MacDonald Dettwiler & Associates Ltd; rights evaluation. Mitel Corporation; Sundel Laboratories. 1992: Canac International Inc.; Cartier Group Limited; Coopers & Lybrand; Novaport; • That the government compile a report on Reid Crowther International Ltd. local human rights and environmental con-

N OTES cerns for all countries to be visited on Team 1 CIDA, News Release (97-59), “Minister Boudria Presents Canadian Awards for International Canada missions, and distribute this in Development,” Ottawa, May 26, 1997. advance to all participants. 2 CIDA and AMEC, Canadian Awards for International Development 1997.

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3 FOR OTHER TRADE AND INVESTMENT • That cuts to the international aid program be PROMOTION PROGRAMS reversed and the government make a credible commitment to reaching the long-standing • That direct government finance62 should not target of allocating 0.7 percent of Canada’s be used in any way to support commercial GNP to aid. activities in countries whose policies are inconsistent with fundamental Canadian values, as • That Canada allocate at least 50 percent of documented in the annual human rights eval- any future increases in its aid budget to pro- uation, or for projects that do not meet mini- grams addressing poverty and basic needs in mum Canadian standards legislated for developing countries.64 environmental impact assessment. • That CIDA support for “private sector devel- • That firms receiving public subsidies63 in sup- opment” focus on measures to promote a pro- port of international activities be required to pitious environment for the private sector in sign codes of conduct specifying corporate developing countries rather than specific responsibilities with respect to basic human commercial projects. rights and the environment.64

• That the government work with human T HREE S TAR S ELECTION rights organizations, labour groups, and busi- A final suggestion—the government sponsors nesses to develop country-specific guidelines many awards that recognize significant achieve- indicating how businesses should operate to ments of the many Canadian firms promoting avoid contributing to human rights abuses or prosperity in the international arena. Why not unnecessary environmental degradation.65 recognize three stars, giving recognition as well • That the government compile information on to those firms that best “protect our security local human rights abuses and include this in within a stable global framework” and “project the information provided to Canadian compa- Canadian values” encompassing respect for nies investigating business opportunities in human rights, democracy, the rule of law, and foreign markets. the environment? Three awards might remind us all that Canadian foreign policy has three 4 FOR THE AID PROGRAM goals—prosperity, security, and values—and that Team Canada can only be truly successful if it In addition, adoption of the following proposals maintains a modicum of balance among these. would ensure that Canada’s development assistance program, which has done so much to enhance Canada’s reputation, is not subverted by short-term commercial interests.

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N OTES 1 David Vienneau, “Indigenous peoples university planned,” 18 In reality, the Team Canada approach is one strategy (we’re all The Toronto Star, January 21,1998, p. A7 one team) with two components. Domestically, the public sector 2 Ibid. agencies (federal, provincial, and municipal) try to coordinate better among themselves and with the private sector. Internationally, 3 James McCormack, “The Impact of Exports: An Input-Output federal and provincial political leaders agree to work together first Analysis of Canadian Trade.” Policy Staff Paper No. 94/24 (Ottawa: to “sell Canada” as a prelude to selling Canadian products. Department of Foreign Affairs and International Trade, 1994). 19 For example, the Department of Foreign Affairs and International 4 Canada, Office of the Auditor General (OAG), Report of the Trade has determined that its niche is on-the-ground support in for- Auditor General to the House of Commons: Chapter 25—Canada’s eign markets. Accordingly, it is deploying more trade commission- Export Promotion Activities (Ottawa: Public Works & Government ers overseas, cutting back services in Canada which can be done by Services, 1996). Industry Canada, the Business Development Bank, provincial and 5 Paul Krugman, Development, Geography, and Economic Theory municipal governments, or trade associations. (Cambridge, Mass: The MIT Press, 1995), p. 114. 20 In October 1997, the ITAC was replaced by a “Team Canada Inc. 6 From the “National Policy” of John A. MacDonald, to Pierre Advisory Board,” chaired by Red Wilson. Apparently the ITAC, Trudeau’s “Third Option,” Canadian governments have used trade which included representatives from labour, was considered too policy to keep the country from becoming integrated into the large and unwieldy (i.e., too many interests were represented). United States. Such policies were heartily endorsed by our manufac- 21 There are some revealing omissions in the coverage of these. For turing sector, the main beneficiary of protection from US competi- example, there is no SAGIT for the banking sector because (in the tion, until the mid-1980s when many of the larger firms decided words of one trade official) “Canadian banks have never lacked our domestic markets were too small and they needed to protect channels for policy input.” their access to the US market through a free trade agreement. 22 It is not clear that this belief is correct. See for example, G. Picot; 7 Governments also work to develop internationally accepted standards J. Baldwin; and R. Dupuy, “Small Firms and Job Creation—A to secure access to foreign markets. Most of these are through the Reassessment,” Canadian Economic Observer, January 1995, pp. 3.1- International Standards Organization (ISO), but some are bilateral (e.g., 3.18. in January 1998 Canada and the European Union signed the “Agreement on International Humane Trapping Standards” which will 23 Budget estimates for the Department of Trade target a 50 percent allow Canada to continue exporting furs to Europe, which purchases increase, to $5.55 million, from such repayments. CIDA INC. has 75 percent of Canadian furs. Susan Smith, “Trapping accord ensures EU just begun to collect significant repayments from its successful market for Canadian furs,” The Globe and Mail, January 7, 1998, p. B12. clients; one such repayment totalled $700,000 for two projects. 8 See, for example, Laura Eggertson, “Chrétien seeks probe in 24 The share of Canada’s total exports destined for Pacific Rim Mexico,” The Globe and Mail, September 29, 1997, pp. B1, B5. countries fell from 13 percent in 1988 to 9 percent in 1996; Canada supplied only 1.7 percent of China’s 1996 imports, down 9 The major tax “incentives” are provided to corporations for capi- from 5.5 percent in 1981. “Canada’s share of exports to Asia falls,” tal investment and R & D purposes, but there are dozens of other The Globe and Mail, June 17, 1997, p. B5. It should be noted that schemes. For example, the Government of Canada and, by exten- the decision to provide enhanced attention to the emerging mar- sion, the nine provinces for which the federal government collects kets in Asia is recent, and extra staff are only now being deployed personal income taxes, waive income tax on salaries paid by to those countries. It will take some years before an assessment can Canadian firms to their Canadian employees working overseas on be made whether this new strategy is meeting its objectives. development projects financed by multilateral agencies. This allows firms to pay lower salaries and undercut foreign competitors. 25 OAG, 1996. Quebec matches this, and gives the same treatment to Quebec resi- 26 Trade within Canada is even more important to our country’s dents working on CIDA projects. This allows Quebec firms to prosperity: “...the provinces carry out 14 times as much trade with undercut salaries paid by other Canadian firms by perhaps 10-15 each other as they do with US states of comparable size and dis- percent for CIDA-funded projects. See Revenue Canada, tance.” John McCallum, “The Role of the Nation-State,” Tradewinds, “Interpretation Bulletin IT-497R: Overseas Employment Tax Credit,” 1997 http://www.tradewinds-tv.com Ottawa, 1985 and Ministère du Revenu du Québec, “Guide to the 27 Andrew Griffith, “From A Trading Nation to a Nation of Traders: Statement of Employment Income Earned Outside Canada,” 1990. Toward a Second Century of Canadian Trade Development,” Policy 10 Many governments also have spy networks left over from the Planning Staff Paper, No. 92/5 (Ottawa: DFAIT, 1995). Cold War, giving them another comparative advantage over pri- 28 Export Development Corporation, Annual Report, 1996. vate market intelligence providers. As well, at least some govern- 29 The budget for the Program for International Business ments enlist state enterprises in the effort to obtain market Development, which covers activities such as trade shows initiated intelligence—for example, in the early 1990s, Air France reportedly by DFAIT, and which may include SMEs on a cost-shared basis, has bugged first-class seats and employed state intelligence officers as similarly been cut from $34 million to $16 million. Total DFAIT attendants in the first-class section. Jonathan Calof, “What’s Your expenditures have been cut by about 70 percent over the past Competitive Intelligence Quotient (CIQ)?” Working Paper: 96-48 decade. (Ottawa: University of Ottawa, 1996), p. 11. 30 Bombardier Inc. received $144 million in 1996 to defray develop- 11 Of course, private insurers could also do this. But governments ment costs for new models of planes, with a primary view to the may have a comparative advantage in insuring political risk as export market, and may have received $1.2 billion from the they are in direct dialogue with foreign officials and may be better Canadian government over the past 15 years. The Economist, able to assess and monitor risks relating to currency restrictions, “Subway to the sky,” August 23, 1997, p. 52. In 1997, Pratt & expropriation, and selective tax measures, and are better at Whitney received $147 million for R & D on an engine to go into a enforcing contract compliance by foreign governments. Bombardier plane. “Pratt & Whitney gets federal handout,” The 12 Toni Haniotis and S. Schich, “Should Governments Subsidize Globe and Mail, January 10, 1997, p. A1. These handouts, which are Exports through Export Credit Insurance Agencies?” UNCTAD repayable if the products are successful in the market, came from Discussion Papers, No. 103 (Geneva: UNCTAD, 1995). the Technology Partnerships Canada program administered by 13 “Thoroughly modern mercantilists,” The Economist, February 1, Industry Canada. Canada also provided a subsidy to AECL of $172 1997, p. 23. million for 1996-97 alone, and by some estimates had provided a 14 A cautionary note: international trade boffins employ a some- total of $13 billion in subsidies over the life of the corporation. In what cavalier use of the word “deal,” and many of these agree- addition, in 1996 it funnelled a $1.5 billion loan via EDC to the ments will never culminate in large sales or investments. China National Nuclear Corporation to purchase two CANDU reactors. David Martin, Exporting Disaster: The Cost of Selling CANDU 15 Vincent Chetcuti, “Small is Big News in Exporting!” Reactors (Ottawa: Campaign for Nuclear Phaseout, 1996). Government of Canada Information Supplement inserted in MacLean’s, March 23, 1998. 31 For example, Nortel and Bell Canada International, both subsidiaries of BCE Inc., received between them 49.8 percent of the 16 The sum was $13,000 for the 1998 mission to Mexico, Brazil, $643 million in loans disbursed in fiscal years 1988-89 and 1989- Argentina, and Chile. Heather Scoffield, “Trade mission to sail 90 under the Canada Account administered by the EDC. Canada, again,” The Globe and Mail, January 8, 1998, pp. B1, B8. Report on the Canada Account Study (Ottawa: Department of 17 See also Claire T. Sjolander, “International Trade as Foreign External Affairs and International Trade, 1992). As well, financing Policy: Anything for a Buck,” in Gene Swimmer, ed., How Ottawa airplane sales has taken so much of EDC’s money that it has estab- Spends 1997-98—Seeing Red: A Liberal Report Card (Ottawa: lished a joint venture subsidiary with Bombardier, called CRJ Carleton University Press, 1997). Capital Corporation, to handle this business.

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32 Most countries, including the US, keep statistics on “re-exports,” conduct. See for example the remarks of Thomas d’Aquino, or goods that enter their country but are then shipped to a third President of the Business Council on National Issues, in “Summary country with little value-added. In principle therefore, Statistics Report—Globalization, Trade and Human Rights: The Canadian Canada could obtain such figures from their counterparts in the US. Business Perspective” (Montreal: ICHRDD, February 22). 33 James McCormack, “The Impact of Exports: An Input-Output 51 Unlike Canada’s EDC, the US Overseas Private Investment Analysis of Canadian Trade,” Policy Staff Paper, No. 94/24 (Ottawa: Corporation (OPIC) is required by law “...to withold investment DFAIT, 1994). insurance to projects in countries that fail to take steps to adopt 34 Jeffrey Garten, “Business and Foreign Policy,” Foreign Affairs, laws that extend internationally recognized worker rights to its May/June 1997, p. 71. employment force.” Forcese, 1997, p. 83. 52 35 See John H. Dunning, Multinational Enterprises and the Global “Disappearing Taxes,” The Economist, May 31, 1997, p. 23. Economy (Wokingham; Addison Wesley, 1993), on “the eclectic 53 OECD, DAC, Development Co-operation Annual Report, 1997. See paradigm” of international production, which seeks to explain especially section II-7, “Development cooperation investments to transnational business operations in terms of Ownership, support linkage intensive development.” Of course, the recent Locational, and Internalization advantages (OLI). financial meltdown in a number of Asian countries shows that pri- 36 Quotes taken from “Canada’s International Market Access vate foreign capital can exit even faster than it enters, devastating Priorities” found on the DFAIT website. economies dependent on these funds. 54 37 The MAI will entail two core obligations: “national treatment” Canada, International Business Development Review Report, “The or the obligation to provide equal treatment between foreign and Wilson Report,” September 30, 1994, p. ii. domestic investors; and “most-favoured nation treatment” or the 55 “Concessional” financing is money provided at below-market obligation to treat all foreign investors and investors the same way. rates of interest. The difference between the market-rate of interest The government advertises MAI both as a means to protect the and the interest-rate specified in the financing deal is a subsidy, interests of Canadians investing abroad, and as a way of making the cost of which is borne by taxpayers and which must therefore Canada more attractive to foreign investors. Opponents bill the be shown as a “budgetary” item by the government. A “trade off” MAI as “NAFTA on steroids.” of $60 million concessional for an equal amount of nonconces- 38 Quoted in Alan Alexandroff, “Global Economic Change: sional funds would reduce the reported budget deficit by $60 mil- Fashioning Our Own Way,” in Maureen Molot and H. von lion as the government must show the concessional finance on its Riekhoff, eds, Canada Among Nations: A Part of the Peace (Ottawa: consolidated budget while nonconcessional finance is “nonbud- Carleton University Press, 1994), p. 39. getary.” How this then adds up to $120 million remains unclear. 56 39 As of June 1996, only $3 billion (35 percent) of the $8.6 billion There is a “nonbinding” agreement to limit the most egregious in deals from the 1994 Team Canada mission to China had materi- abuses called the “Helsinki disciplines.” alized. As of June 1997, the comparable figures for the 1996 mis- 57 The proportion of CIDA funding going to relatively richer countries sion are $2.45 billion (28 percent) of the claimed total of $8.72 of special interest to Canadian businesses has increased from 10 per- billion. See Scoffield, “Trade Mission to Sail Again.” Analysis of the cent in 1975, to 20 percent in 1978, and 25 percent a decade later. 1997 mission to South Korea, the Philippines, and Thailand has Cranford Pratt, “Canadian Development Assistance: A Profile,” in not been completed, but the financial crisis in those countries does Pratt, ed., Canadian International Development Assistance Policies: An not bode well. Appraisal (Montreal and Kingston: McGill-Queen’s University Press, 40 Canada, Canada in the World: Government Statement (Ottawa: 1994), p. 18. Canada Communication Group, 1995). 58 All from Angus Reid Group: 1997. 41 The Amnesty International 1997 summary for China: 59 Susan Bourette, “Corporate Canada lacks aggression, new study “Hundreds, possibly thousands, of suspected opponents of the finds,” The Globe and Mail, July 15,1997, p. B2. government were arrested during the year, while thousands of 60 R. D. Gladu, “Strategic Review: Consultant Trust Funds at the political prisoners detained in previous years remained imprisoned. World Bank” (Ottawa: CIDA, 1994). Some were sentenced after unfair trials. Others were administra- 61 Jeff Sallot, “Election agenda: a foreign policy for the 1990s,” tively detained without charge or trial. Torture and ill-treatment The Globe and Mail, April 26, 1997, pp. D1, D9. continued to be widespread...” Amnesty International, Annual 62 Report 1997, p. 118. This would include any funds supplied via the Canada Account of EDC. 42 Sjolander, 1997. 63 This would include concessional financing via the Canada 43 Germany and France also refused to co-sponsor, making a com- Account, PEMD, and CIDA INC. mon EU position impossible. “A suitable target for foreign policy?” 64 The Economist, April 12, 1997, p. 15. The German Chancellor has While Foreign Affairs Minister Lloyd Axworthy came out in also led trade missions to China. vocal support of the International Code of Ethics for Canadian Business (see Chapter 1), the EDC has declined to become a signa- 44 See David Cozac and Melanie Gruer. Don’t Shoot the Messenger: A tory of that code as “...it needs to in time adapt to allow more Guide for Canadian Journalists on Promoting Press Freedom. (Ottawa: commercial enterprises to subscribe to that as well.” Quote from The North-South Institute, 1997). evidence given by A. Ian Gillespie President of EDC, to the 45 The Sierra Club has launched a suit against four government Standing Committee on Foreign Affairs and International Trade, ministers on this issue. November 6, 1997. 46 Stephen Dale, “Canada Shanghais its own law,” Canadian Forum, 65 General codes of conduct may not give sufficient guidance for March 1997, p. 18. specific firms working in specific countries, and country-specific 47 Of course, similar observations could be made about missions to codes may be more useful. See for example James Cooney, Indonesia. “International Ethical Business Conduct: The Issue of Self- 48 A.M. Rosenthal, “Laughing in Beijing,” The Globe and Mail, Regulation.” Presentation to the Conference on International July 7, 1997. Business Ethical Conduct, University of Ottawa, Human Rights Research and Education Centre, February 27, 1997. 49 Craig Forcese, Putting Conscience into Commerce: Strategies for 66 Making Human Rights Business as Usual (Montreal: International As recently as February 1995, Canada committed itself to allo- Centre for Human Rights and Democratic Development, 1997). cate 25 percent of its ODA to basic human needs—a target it has not yet achieved. Alison Van Rooy, A Partial Promise? Canadian 50 An earlier study indicated only 14 percent of large Canadian Support to Social Development in the South (Ottawa: The North-South businesses operating abroad have codes of conduct covering mini- Institute, 1995). This commitment, until it is reached, should take mal human rights standards (Forcese, 1997, p. 8). Recently how- clear priority over other interests served by Canada’s aid program. ever, business leaders have been vocal in their support for codes of

133 Pages a-138 (152) 4/24/98 6:11 PM Page 134 Pages a-138 (152) 4/24/98 6:12 PM Page 135

LIST OF CONTACTS Pages a-138 (152) 4/24/98 6:12 PM Page 136

LIST OF CONTACTS

A number of organizations in Canada and abroad carry out research and advocacy on issues of corporate social and environmental responsibility. For more information, contact:

I N C ANADA

Caledon Institute of Social Policy International Centre for Human Rights and Democratic 1600 Scott Street, Suite 620 Development Ottawa, Ontario K1Y 4N7 63, rue de Brésoles Tel: (613) 729-8778 Montreal, Quebec H2Y 1V7 Fax: (613) 729-3896 Tel: (514) 283-6073 E-mail: [email protected] Fax: (514) 283-3792 Website: www.cyberplus.ca/~caledon E-mail: [email protected] Website: www.ichrdd.ca The Canadian Centre for Business in the Community The Conference Board of Canada KPMG Ethics and Integrity Services 255 Smyth Road PO Box 31 Ottawa, Ontario K1H 8M7 Commerce Court Postal Station Tel: (613) 526-3280 Toronto, Ontario M5L 1V2 Fax: (613) 526-4857 Tel: (416) 777-8500 Website: www.conferenceboard.ca Fax: (416) 777-8818 E-mail: [email protected] Canadian Centre for Ethics and Corporate Policy Website: www.kpmg.ca 50 Baldwin Street Toronto, Ontario M5T 1L4 Michael Jantzi Research Associates Inc. Tel: (416) 348-8691 372 Bay Street, Suite 1906 Fax: (416) 348-8689 Toronto, Ontario M5H 2W9 E-mail: [email protected] Tel: (416) 861-0403 Website: www.ethicscentr.com Fax: (416) 861-0183 E-mail: [email protected] The Clarkson Centre for Business Ethics Faculty of Management The National Round Table on the Environment and the University of Toronto Economy 105 St George Street 344 Slater Street, Suite 200 Toronto, Ontario M5S 3E6 Ottawa, Ontario K1R 7Y3 Tel: (416) 978-4930 Tel: (613) 992-7189 Fax: (416) 978-4629 Fax: (613) 992-7385 E-mail: [email protected] E-mail: [email protected] Website: www.mgmt.utoronto.ca/~stake Website: www.nrtee-trnee.ca EthicScan Canada Ltd Public Information Advocacy Centre Lawrence Plaza Postal Station 1 Nicholas Street, Suite 1204 PO Box 54034 Ottawa, Ontario K1N 7B7 Toronto, Ontario M6A 3B7 Tel: (613) 562-4002 Tel : (416) 783-6776 Fax: (613) 562-0007 Fax: (416) 783-7386 E-mail: [email protected] E-mail: [email protected] Website: www.web.net/piac Website: www.interactive.yorku.ca/ethicscan Social Investment Organization Human Rights Research and Education Centre 366 Adelaide Street East, Suite 443 University of Ottawa Toronto, Ontario M5A 3X9 57 Louis Pasteur Tel: (416) 360-6047 Ottawa, Ontario K1N 6N5 Fax: (416) 360-6380 Tel: (613) 562-5775 E-mail: [email protected] Fax: (613) 562-5125 E-mail: [email protected] Taskforce on the Churches and Corporate Responsibility Website: www.uottawa.ca/~hrrec 129 St Clair Avenue West, Suite 21 Toronto, Ontario M4V 1N5 Institute for Research on Environment and Economy Tel: (416) 923-1758 University of Ottawa Fax: (416) 927-7554 5 Calixa Lavallée Street Website: [email protected] PO Box 450, Station A Ottawa, Ontario K1N 6N5 Transparency International Tel: (613) 562-5895 Business Ethics Fax: (613) 562-5873 200F Schulich School of Business E-mail: [email protected] York University Website: www.web.net/iree 4700 Keele Street North York, Ontario M3J 1P3 Tel: (416) 736-5809 Fax: (416) 736-5762 E-mail: [email protected] Website: www.transparency.de 136 Pages a-138 (152) 4/24/98 6:12 PM Page 137

C ANADIAN D EVELOPMENT R EPORT 1998

O UTSIDE C ANADA

Business for Social Responsibility Interfaith Center on Corporate Responsibility 609 Mission Street, 2nd floor 475 Riverside Drive, Room 550 San Francisco, California 94105-3506 New York, New York 10115 USA USA Tel: (415) 537-0888 Tel: (212) 870-2296 Fax: (415) 537-08889 E-mail: [email protected] E-mail: [email protected] Website: www.bsr.org The Multinational Monitor PO Box 19405 Centre for Social and Environmental Accounting Washington, DC 20036 Research USA University of Dundee Tel: (202) 387-8030 Dundee DD1 4HN Fax: (202) 927-4178 Scotland E-mail: [email protected] Tel: 44 (0) 138 234-4789 Website: www.essential.org/monitor Fax: 44 (0) 138 222-4419 E-mail: [email protected] The Prince of Wales Business Leaders Forum Website: www.dundee.ac.uk/accountancy/csear 15-16 Cornwall Terrace Regents Park, London NW1 4QP Coalition for Environmentally Responsible Economies England 711 Atlantic Avenue E-mail: [email protected] Boston, Massachusetts 02111 Website: www.oneworld.org/pwblf USA Tel: (617) 451-0927 The Rocky Mountain Institute Fax: (617) 482-2028 1739 Snowmass Creek Road E-mail: [email protected] Snowmass, Colorado 81654-9199 Website: www.ceres.org USA Tel: (970) 927-3851 Corporate Watch Fax: (970) 927-4178 Website only: www.corpwatch.org E-mail: [email protected] Website: www.rmi.org Council for Ethics in Economics 125 East Broad Street Social Venture Network Columbus, Ohio 43215-3605 PO Box 29221 USA San Francisco, California 94129-0221 Tel: (614) 221-8661 USA Fax: (614) 221-8707 Tel: (415) 561-6501 E-mail: [email protected] Fax: (415) 561-6435 Website: www.businessethics.org E-mail: [email protected] Council on Economic Priorities Website: www.svn.org 30 Irving Place Stockholm Environment Institute NY, New York 10003 Lilla Nygatan 1 USA Box 2142, S-103 14 Tel: (212) 420-1133 Stockholm, Sweden Fax: (212) 420-0988 Tel: 46 (8) 412-1400 E-mail: [email protected] Fax: 46 (8) 713-0248 Website: http://www.-2.realaudio.com E-mail: [email protected] Global Futures Foundation Website: www.sei.se 801 Crocker Road UN Research Institute for Social Development Sacramento, California 95864 Palais des Nations USA CH - 1211 Tel: (916) 486-5999 Geneva 10, Switzerland Fax: (916) 486-5990 Tel: 41(22) 798-8400 E-mail: [email protected] Fax: 41(22) 740-0791 Website: www.globalff.org E-mail: [email protected] Institute for Global Ethics Website: www.unrisd.org PO Box 563 World Business Council for Sustainable Development Camden, Maine 04843 Strandveien 37 USA PO Box 301 Tel: (800) 729-2615 1324 Lysaker Fax: (207) 236-4014 Oslo, Norway E-mail: [email protected] Tel: 47 (6) 758-1800 Website: www.globalethics.org Fax: 47 (6) 758-1875 Institute for Social and Ethical Accountability E-mail: [email protected] 112-116 Whitechapel Road Website: www.wbcsd.ch/foundation London, E1 1JE England Tel: 44 (0) 171 377-5866 Fax: 44 (0) 171 377-5720 E-mail: [email protected] Website: www.accountability.org.uk

137 Pages a-138 (152) 4/24/98 6:12 PM Page 138 STATISTICAL ANNEX

Andrew Clark and Lawrence Latim with Kerry Max

T HE D ATA IN THIS S TATISTICAL A NNEX FOR THE 1998

C ANADIAN D EVELOPMENT R EPORT WAS A SSEMBLED AND

A NALYZED BY A T EAM OF R ESEARCHERS AND A SSOCIATES

FROM T HE N ORTH-SOUTH I NSTITUTE, LED BY S ENIOR

R ESEARCHER A NDREW C LARK. 140 TABLE OF CONTENTS

TABLE 1 CANADA AND OTHER HIGH HUMAN DEVELOPMENT 142 ECONOMIES: SELECTED INDICATORS

TABLE 2 THE DEVELOPING COUNTRIES: SELECTED INDICATORS 144

TABLE 3 CANADIAN OFFICIAL DEVELOPMENT ASSISTANCE: 148 BASIC DATA (1995-96)

TABLE 4 CANADIAN BILATERAL ODA BY CHANNEL AND BY COUNTRY 152 (1995-96)

TABLE 5 CANADIAN MULTILATERAL ODA BY AGENCY AND BY 156 COUNTRY (1995-96)

TABLE 6 CANADIAN BALANCE OF TRADE WITH DEVELOPING 160 COUNTRIES (1996)

TABLE 7 TRADE: TOP EXPORTS AND IMPORTS WITH DEVELOPING 164 COUNTRIES (1996)

TABLE 8 CANADIAN FINANCIAL RELATIONS WITH DEVELOPING 168 COUNTRIES (1996)

TABLE 9 MOVEMENT OF PEOPLES 172

TABLE 10 HUMAN LINKAGES BETWEEN CANADA AND THE 176 DEVELOPING WORLD

TABLE 11 CANADA-DEVELOPING COUNTRY LINKAGE INDICES 180

TECHNICAL NOTES 184

141 T ABLE 1

CANADA AND OTHER HIGH HUMAN DEVELOPMENT ECONOMIES: SELECTED INDICATORS

his first table puts into context some ratios of 0.8 or better, the most gener- Tof Canada’s relations with develop- ODA as a percentage of ous continued to be the Scandinavian ing countries which are covered in later the GNP of Members of the countries and the Netherlands. Least tables. It does so by comparing Canada Development Assistance generous was the United States, at 0.12, with other high human development Committee (1996) followed by Italy and Japan. countries, that is, those countries with a Denmark 1.04 Other aspects of aid help indicate its human development index (HDI) of Norway 0.85 Netherlands 0.83 effectiveness. As a general rule, the 0.890 or greater in 1994. Developed by Sweden 0.82 higher the share of aid going through the United Nations Development France 0.48 Luxembourg 0.41 multilateral channels, the less it is tied Programme (UNDP), the HDI measures Belgium 0.35 Finland 0.34 to domestic procurement. In 1995 countries’ level of development by tak- Switzerland 0.34 Germany 0.32 exactly one-third of Canada’s aid was ing health and education indicators into Canada 0.31 Ireland 0.30 delivered through multilateral channels account, as well as per capita income. Australia 0.29 such as the United Nations and the As column 1 shows, Canada achieved Austria 0.28 United Kingdom 0.27 multilateral banks, a figure slightly the highest ranking in the world with a Spain 0.22 New Zealand 0.21 lower than in the past but still above HDI index of 0.960 out of a theoretical Portugal 0.21 Italy 0.20 the OECD average of 31.1 percent maximum of 1.000. Significantly, this Japan 0.20 United States 0.12 (column 7). While most European table also includes countries, such as South Korea 0.03 Union (EU) countries had a significantly Barbados, Cyprus, and Greece, whose Taiwan 0.03 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0 higher multilateral share, much of this achievements in health and education was channeled through EU aid have earned them a high HDI despite programs which, being restricted to EU relatively low per capita incomes. cern. In 1996, Canada’s aid program donors, are only partially multilateral. Column 2 shows that Canada ranks recorded a precipitous decline in real Australia, New Zealand, the US, and sixteenth on the GNP per capita scale: terms of 15 percent over the previous France delivered the largest part of their at US$19,380 in 1995, Canada’s GNP year: only in Portugal and Japan did aid aid through bilateral channels. per capita was significantly lower than levels fall more sharply. This fall was Most countries delivered their aid as the high human development country sufficient to move Canada from sixth to grants rather than as subsidized or “soft” average of US$25,100. However, if one eleventh most generous donor, placing loans: the most important exceptions took cost of living into account, Canada it in the bottom half of the OECD’s 21 were Japan, Spain, Germany, France, would again rank near the top in terms donor countries for the first time since and Austria. Significantly, the percent- of standard of living. the 1960s. Canada’s ODA/GNP ratio of age of Canadian aid provided as grants 0.31—the lowest since 1969—was the The following seven columns (3 to 9) fell from 100 to 94 percent in 1995, result of repeated cuts in the aid budget present some of the main features of largely because a significant amount of since 1992. Another sobering compari- each country’s aid program, the most Export Development Corporation soft son: Canada, with a population of 30 important policy tool that governments loans were recorded as aid. million, had an aid program in absolute target toward developing countries. dollar terms only US$9 million larger The share of aid going to the poorest Column 3 shows that a total US$55.1 than Denmark’s whose population countries is another indicator of aid billion in official development assis- numbers 5 million. Moreover, the programs’ effectiveness. While more tance (ODA) was disbursed in 1996, a decline in Canada’s ODA/GNP ratio will than half of Canadian aid still went to drop of US$3.9 billion over the past continue for at least another two years middle-income countries in 1994-95, year. Japan remained the largest donor if announced cuts are implemented. recent cuts in ODA in Canada, as in in absolute volume with US$9.4 billion, other OECD countries, have tended to a drop of US$5 billion since 1995. The In general, aid declined across the board increase the concentration of aid United States rose from fourth to second by 4.2 percent in real terms during among the poorest countries. The OECD place, followed by Germany and France 1996, and the overall weighted average average in 1994-95 was 52.1 percent in third and fourth place, respectively. ODA/GNP ratio fell to 0.25—the lowest (column 9); Canada was slightly below level ever recorded. This overall decline Comparing Canada to other well estab- average at 46.5 percent. masked considerable differences in indi- lished donor country members of the vidual donors’ aid budgets: 10 donors In terms of its share of trade with devel- OECD in terms of ODA as a percentage increased their contributions while 11 oping countries (columns 10 and 11), in of GNP (column 5) gives cause for con- registered decreases. With ODA/GNP 1995 as in 1994, Canada had the lowest

142 C ANADIAN D EVELOPMENT R EPORT 1998

share of its exports (8.1 percent) directed Belgium and Sweden, from) developing countries to industrial-country to these markets. This was slightly higher countries through fast-growing foreign governments and their agencies, than the previous year’s 6.9 percent, direct investment, portfolio capital such as export/import banks or bilateral and reflects the high concentration of investment, and private transfers development banks. Canada again Canadian trade with other industrialized through NGOs.1 In 1995, this amounted ranked seventh among creditors, with countries, particularly the US. A slightly to almost US$98 billion, or 56 percent US$10.6 billion in official debts. higher share (13.8 percent) of Canada’s more than net aid flows. Canada, with imports came from developing coun- net long-term private flows of some 1 The figures on net long-term private financial flows to developing countries shown in this table, taken tries, placing Canada sixth lowest and US$2.4 billion, ranked seventh among from the OECD, are substantially lower than figures on well below the average of 30.8 percent. high human development countries. financial flows recently released by the World Bank. This is partly because both organizations measure Column 12 shows the net amount of pri- Column 13 gives Eurodad’s estimate of different things and use different sources. It also reflects a considerable statistical discrepancy among vate capital flowing to (or, in the cases of the debt owed in 1994 by developing international agencies on the magnitude of these flows.

TABLE 1 CANADA AND OTHER HIGH HUMAN DEVELOPMENT ECONOMIES: SELECTED INDICATORS OF RELATIONS WITH DEVELOPING COUNTRIES

Net Private Official Share Financial Bilateral Total Net % Change Share of Share of Total Flows to Debt Stocks UNDP Official Over ODA/GNP Multilateral Grant Net ODA of Total Imports Developing Owed by Human GNP Development Previous Rank Among Share Share to Low Exports to from Countries Developing Development Per Capita Assistance Year ODA/GNP DAC as % of of Total Income Developing Developing (long-term) Countries to Index (US$) (US$ millions) (real terms) Ratio Countries Net ODA ODA Countries Countries Countries (US$ millions) (US$ millions) Country 1994 1995 1996 1996/95 1996 1995 1995 1995 1994-95 1995 1995 1995 1994

12345678910111213

Australia 0.931 18,720 1,093 -15.1 0.29 13 22.4 100.0 48.8 47.8 29.0 1,341 1,228 Austria 0.932 26,890 640 -14.0 0.28 14 27.0 80.0 50.1 25.7 15.3 59 7,401 Bahamas 0.894 11,940 0 na na na na na na 15.1 31.7 ~ ~ Barbados 0.907 6,560 0 na na na na na na 41.0 15.9 ~ ~ Belgiuma 0.932 24,710 937 -6.4 0.35 7 50.3 98.0 49.6 17.7 14.3 (1,493) 4,043 Canada 0.960 19,380 1,782 -15.4 0.31 11 33.0 94.3 46.5 8.1 13.8 2,360 10,635 Cyprus 0.907 ~ 0 na na na na na na 54.0 22.2 ~ ~ Denmark 0.927 29,890 1,773 10.5 1.04 1 44.9 100.0 59.2 19.3 13.3 26 1,874 Finland 0.940 20,580 409 9.3 0.34 8 43.3 98.7 58.5 26.5 19.4 57 707 France 0.946 24,990 7,430 -11.3 0.48 5 23.9 82.0 37.9 22.8 18.2 4,417 42,804 Germany 0.924 27,510 7,515 3.8 0.32 10 36.0 79.5 58.4 25.0 25.3 12,835 53,917 Greece 0.923 8,210~~~na~~~36.3 21.0 ~ ~ Iceland 0.942 24,950~~~na~~~5.911.7 ~ ~ Ireland 0.929 14,710 177 14.5 0.30 12 42.5 100.0 69.2 10.3 16.7 94 ~ Israel 0.913 15,920 0 na na na na na na 22.3 11.5 ~ ~ Italy 0.921 19,020 2,397 33.9 0.20 19 50.3 91.6 58.6 27.1 25.9 145 14,508 Japan 0.940 39,640 9,437 -24.7 0.20 19 28.1 46.8 61.5 52.2 52.8 22,262 121,028 Luxembourga 0.899 41,210 77 21.6 0.41 6 33.8 100.0 52.4~~6 ~ Netherlands 0.940 24,000 3,303 6.2 0.83 3 30.4 99.7 48.1 14.7 22.1 3,478 7,920 New Zealand 0.937 14,340 122 -7.3 0.21 17 21.1 100.0 34.1 34.3 20.9 44 ~ Norway 0.943 31,250 1,311 3.1 0.85 2 27.1 99.2 58.2 9.0 13.7 273 1,040 Portugal 0.890 9,740 221 -15.6 0.21 17 33.9 100.0 81.8 9.5 16.9 35 645 Singapore 0.900 26,730 0 na na na na na na 57.1 46.9 ~ ~ South Korea 0.890 9,700 116 ~ 0.03 na~~~46.4 29.4 ~ ~ Spain 0.934 13,580 1,258 -8.6 0.22 16 39.5 71.5 38.9 18.9 21.2 623 8,757 Sweden 0.936 23,750 1,968 7.6 0.82 4 30.2 100.0 50.1 18.4 11.6 465 2,799 Switzerland 0.930 40,630 1,021 -1.6 0.34 8 28.0 100.0 53.3 22.8 9.8 (160) 3,173 Taiwan ~ 12,780 92 ~ 0.03 na~~~~~~~ United Kingdom 0.931 18,700 3,185 -0.8 0.27 15 47.1 97.1 59.8 21.4 18.5 12,119 10,862 United States 0.942 26,980 9,058 20.6 0.12 21 23.8 97.5 45.5 42.5 44.4 38,991 41,773

Total 0.934 25,100 55,114 -4.2 0.25 na 31.1 77.1 52.1 27.2 30.8 97,977 335,114

Notes: a Called Belgium-Luxembourg in the Direction of Trade Statistics. Sources: OECD, Development Assistance Committee (DAC), Press Release, June 1997; DAC, Annual Report 1997; World Bank, WDR 1997; UNDP, Human Development Report 1997; IMF, Direction of Trade Statistics Yearbook 1997; Eurodad, World Credit Tables 1996.

143 T ABLE 2

THE DEVELOPING COUNTRIES: SELECTED INDICATORS

his table offers a context for Canada- load in relation to its GNP was double developing country relations by that of any other region. Nine countries T Key Economic Indices 1995 providing a quick statistical snapshot of had long-term debts in excess of 200 developing countries themselves. It 90 percent of their GNP, and in 1993-94, 80 includes such basic information as 19 African countries spent more—some- 70 population, GNP per capita, economic 60 times three and four times more—on growth rates, adult literacy rates, and 50 servicing their debt than on education. under-5 mortality rates. 40 While Asia’s debt load was quite low at 30 32 percent, Syria and Laos had debts in The first two columns provide two ver- 20 excess of 100 percent of their GNP, and sions of the UNDP’s human development 10 Indonesia, Pakistan, the Philippines, and index (as explained in Table 1): the basic 0 AFRICA AMERICAS ASIA Jordan spent more than twice as much human development index (HDI) and ADULT LITERACY RATE on debt service as on education. And one adjusted to take into account the EXTERNAL DEBT/GNP AID/GNP while the Americas’ debt as a share of situation of women—the gender-related GNP was low, most countries spent more development index (GHDI). In 1994, the on debt service than on education. GHDI was lower than the unadjusted this gap is narrowing, however: between Guyana and Nicaragua had the dubious index in every country, indicating that 1985 and 1995, developing countries’ honour of having two of the world’s men are better off than women through- GNP per capita grew at an average rate of most unsustainable debt/GNP ratios: out the world. As column 1 shows, the 2.9 percent annually, compared to an well in excess of 300 percent. disparity between women and men was average growth of 2.0 percent in high greatest in Asia and the least marked in human development countries. There is Africa’s aid/GNP ratio was almost 10 per- Africa, although Asian women were little cause for great optimism since this cent, compared to 2 percent in the “better off” in absolute terms than their growth was concentrated in a few coun- Americas and 1 percent in Asia. In Asia, African counterparts. Saudi Arabia tries. Three of the top five performers Cambodia, Laos, and Mongolia were showed the greatest gender disparity as were in Asia: Thailand (8.4 %), China highly aid-dependent. Nicaragua and measured by the difference between the (8.3 %), and Indonesia (6.0 %). Haiti also were heavily dependent with basic HDI and the GHDI. Botswana and Chile tied at 6.1 percent. aid/GNP ratios of more than 36 percent. Column 3 shows that, in 1995, the GNP On a continent-wide basis, the disparities Column 12 highlights an increasingly per capita varied much more widely in per capita income growth were quite important North-South issue: per capita between countries than did the HDI. marked. During the past decade, Eastern emissions of CO2—the world’s most Incomes per person ranged from a low of European economies collapsed at a rate important greenhouse gas. The UN US$80 to more than US$17,000 in some of 4.6 percent annually. This trend is Framework Convention for Climate oil-exporting developing countries of the tentatively starting to reverse as countries Change calls for limits and eventual

Middle East. On a regional basis, the complete the difficult transition from reductions in the world’s CO2 emissions. Americas had the highest income per centrally planned to market economies. At 11.9 tons per capita, the heavily indus- person at US$3,320, followed by Eastern The situation is more distressing in Africa trialized high HDI countries emitted

Europe at US$2,260; Asia and Africa were where incomes continued to fall from almost five times as much CO2 per capita well behind at US$710 and US$490, already very low levels, although more as developing countries. Africa’s emissions respectively. Interestingly, Eastern recent positive per capita growth provides were the lowest at 0.9 tons. Emissions in Europe’s level of development, as reason for cautious optimism. Asia con- developing countries are increasing measured by the HDI, was slightly tinued to grow at 4.7 percent per capita rapidly, however. The challenge will be to higher than that of the Americas, largely annually, although some economies, adopt a much cleaner growth path than because of higher attainments in health notably in the Middle East and Central did the already “developed” countries. and education. Asia, encountered negative growth. The Eastern Europe’s relatively high per capita Americas’ annual per capita growth rate emissions are expected to decline as less The income disparity between high was barely positive at 0.3 percent. efficient, dirty industries are cleaned up. human development economies and Only a few oil-exporting developing developing countries is stark: on average, In terms of dependence on external loans countries had per capita emissions higher the high HDI economies had incomes and foreign aid (columns 9, 10, and 11), than industrialized countries’. Canada per capita some 23 times larger than Africa was by far the most dependent. At was among the top five emitters of CO developing countries. Column 4 shows 82 percent, the continent’s 1995 debt 2 per capita in the world.

144 C ANADIAN D EVELOPMENT R EPORT 1998

TABLE 2 THE DEVELOPING COUNTRIES: SELECTED INDICATORS

UNDP GNP/Capita Under-5 Debt

Gender- UNDP Growth Adult Mortality Service Paid CO2 Related Human GNP Average Literacy Rate External as % of Emissions Development Development Per Capita Per Year GDP Population Rate 1995 Debt/GNP Aid/GNP Expenditure Per Capita Index Index 1995 (1985-95) 1995 (millions) 1994 (per 1,000 1995 1995 on Education (metric tons) Country 1994 1994 (US$) (%) (US$ millions)) mid-1995 (%) live births) (%) (%) 1993-94 1992

AFRICA 1234 56789101112

Algeria 0.614 0.737 1,600 -2.4 41,435 28.0 59.4 61 83.1 0.8 287.2 3.00 Angola ~ 0.335 410 -6.1 3,722 10.8 42.5 292 274.9 10.2 ~ 0.44 Benin 0.349 0.368 370 -0.3 1,522 5.5 35.5 142 81.8 14.0 ~ 0.11 Botswana 0.652 0.673 3,020 6.1 4,318 1.5 68.7 52 16.3 2.2 27.7 1.65 Burkina Faso 0.206 0.221 230 -0.2 2,325 10.4 18.7 164 55.0 21.1 49.1 0.07 Burundi 0.233 0.247 160 -1.3 1,062 6.3 34.6 176 110.1 27.4 105.6 0.04 Cameroon 0.444 0.468 650 -6.6 7,931 13.3 62.1 106 124.4 5.9 161.0 0.18 Cape Verde 0.523 0.547 960 ~ 365 0.4 69.9 73 56.4 ~ 43.2 ~ Central African Republic 0.338 0.355 340 -2.4 1,128 3.3 57.2 165 ~ ~ 56.2 0.07 Chad 0.270 0.288 180 0.6 1,138 6.4 47.0 152 81.4 21.4 77.2 0.04 Comoros 0.402 0.412 470 -1.4 235 0.5 56.7 124 89.2 17.9 ~ ~ Congo - Brazzaville ~ 0.500 680 -3.2 2,163 2.6 73.9 108 365.8 7.6 230.0 1.69 Congo - Kinshasa (Zaire) ~ 0.381 120 ~ ~ 43.9 76.4 185 255.2 ~ ~ 0.11 Côte d’Ivoire 0.341 0.368 660 ~ 10,069 14.0 39.4 150 251.7 16.1 ~ 0.48 Djibouti ~ 0.319 ~ ~ ~ 0.6 45.0 158 ~ ~ 52.5 ~ Egypt 0.555 0.614 790 1.1 47,349 57.8 50.5 51 73.3 4.3 109.0 1.54 Equatorial Guinea 0.441 0.462 380 ~ 152 0.4 77.8 175 195.5 22.5 68.3 0.33 Eritrea ~ 0.269 ~ ~ ~ 3.6 25.0 195 ~ 21.8 ~ ~ Ethiopia 0.233 0.244 100 -0.3 5,287 56.4 34.5 195 99.9 17.0 ~ 0.04 Gabon 0.546 0.562 3,490 -8.2 4,691 1.1 62.6 148 121.6 3.9 -185.7 4.51 Gambia 0.263 0.281 320 ~ 384 1.1 37.2 110 ~ ~ 312.8 0.22 Ghana 0.459 0.468 390 1.4 6,315 17.1 63.4 130 95.1 10.6 176.2 0.22 Guinea 0.250 0.271 550 1.4 3,686 6.6 34.8 219 91.2 11.7 ~ 0.18 Guinea-Bissau 0.276 0.291 250 2.0 257 1.1 53.9 227 353.7 46.9 ~ 0.22 Kenya 0.458 0.463 280 0.1 9,095 26.7 77.0 90 97.7 9.7 190.5 0.22 Lesotho 0.446 0.457 770 1.2 1,029 2.0 70.5 154 44.6 7.8 135.9 ~ Liberia ~ ~ ~ ~ ~ 2.7 ~ 216 ~ ~ ~ 0.11 Libya 0.655 0.801 ~ ~ ~ 5.4 75.0 63 ~ ~ ~ 8.10 Madagascar ~ 0.350 230 -2.2 3,198 13.7 45.8 164 141.7 10.0 123.5 0.07 Malawi 0.310 0.320 170 -0.7 1,465 9.8 55.8 219 166.8 33.8 ~ 0.07 Mali 0.218 0.229 250 0.8 2,431 9.8 29.3 210 131.9 23.4 133.2 0.04 Mauritania 0.341 0.355 460 0.5 1,068 2.3 36.9 195 243.3 22.8 ~ 1.36 Mauritius 0.752 0.831 3,380 5.4 3,919 1.1 82.4 23 45.9 ~ ~ 1.25 Morocco 0.515 0.566 1,110 0.9 32,412 26.6 42.1 75 71.0 1.6 224.1 1.03 Mozambique 0.262 0.281 80 3.6 1,469 16.2 39.5 275 443.6 84.8 ~ 0.07 Namibia ~ 0.570 2,000 2.9 3,033 1.5 40.0 78 ~ 6.2 ~ 9.90 Niger 0.193 0.206 220 ~ 1,860 9.0 13.1 320 91.2 15.1 138.0 0.15 Nigeria 0.372 0.393 260 1.2 26,817 111.3 55.6 191 140.5 0.9 458.4 0.84 Rwanda ~ 0.187 180 -5.4 1,128 6.4 59.2 139 89.1 62.9 ~ 0.07 São Tomé and Principe ~ 0.534 350 -2.1 45 0.1 67.0 81 693.2 ~ ~ ~ Senegal 0.309 0.326 600 ~ 4,867 8.5 32.1 110 82.3 ~ ~ 0.37 Seychelles ~ 0.845 6,620 ~ 490 0.1 88.0 20 34.3 2.7 53.3 ~ Sierra Leone 0.155 0.176 180 -3.6 824 4.2 30.3 284 159.7 26.9 ~ 0.11 Somalia ~ ~ ~ ~ ~ 9.5 ~ 211 ~ ~ ~ 0 South Africa 0.681 0.716 3,160 -1.1 136,035 41.5 81.4 67 ~ 0.3 ~ 7.29 Sudan 0.306 0.333 ~ ~ ~ 26.7 44.8 115 ~ ~ ~ 0.15 Swaziland 0.563 0.582 1,170 -1.4 1,053 0.9 75.2 107 24.0 5.3 38.9 0.33 Tanzania 0.352 0.357 120 1.0 3,602 29.6 66.8 160 207.4 ~ 118.6 0.07 Togo 0.342 0.365 310 -2.7 981 4.1 50.4 128 121.2 15.5 39.5 0.18 Tunisia 0.668 0.748 1,820 1.9 18,035 9.0 65.2 37 57.3 0.4 265.3 1.61 Uganda 0.318 0.328 240 2.7 5,655 19.2 61.1 185 63.7 14.8 228.6 0.04 Zambia 0.362 0.369 400 -0.8 4,073 9.0 76.6 203 191.3 56.8 435.3 0.29 Zimbabwe 0.503 0.513 540 -0.6 6,522 11.0 84.7 74 78.9 8.0 137.6 1.76

Total Africaa 0.374 0.380 490 -1.1 416,639 710.6 55.9 175 81.3 9.6 ~ 0.90 ➤

145 T ABLE 2 (CONTINUED)

UNDP GNP/Capita Under-5 Debt

AMERICAS 1234 56789101112

Antigua and Barbuda ~ 0.892 ~ ~ ~ 0.1 96.0 22 ~ ~ ~ ~ Argentina 0.777 0.884 8,030 1.8 281,060 34.7 96.0 27 33.1 0.1 65.4 3.52 Belize ~ 0.806 2,630 3.9 568 0.2 70.0 40 46.9 2.9 82.2 1.32 Bolivia 0.557 0.589 800 1.8 6,131 7.4 82.5 105 90.6 11.9 120.3 0.88 Brazil 0.728 0.783 3,640 -0.8 688,085 159.2 82.7 60 24.0 0.1 176.8 1.39 Chile 0.785 0.891 4,160 6.1 67,297 14.2 95.0 15 43.3 0.3 211.1 2.56 Colombia 0.811 0.848 1,910 2.6 76,112 36.8 91.1 36 28.2 0.3 156.7 1.83 Costa Rica 0.825 0.889 2,610 2.8 9,233 3.4 94.7 16 42.5 0.3 146.1 1.21 Cuba 0.699 0.723 ~ ~ ~ 11.0 95.4 10 ~ ~ ~ 2.64 Dominica ~ 0.873 2,990 4.1 218 0.1 94.0 21 42.7 11.0 ~ ~ Dominican Republic 0.658 0.718 1,460 2.1 11,277 7.8 81.5 44 36.5 1.1 226.3 1.36 Ecuador 0.675 0.775 1,390 0.8 17,939 11.5 89.6 40 84.1 1.4 220.4 1.72 El Salvador 0.563 0.592 1,610 2.8 9,471 5.6 70.9 40 27.0 3.2 263.1 0.66 Grenada ~ 0.843 2,980 ~ 271 0.1 98.0 33 42.2 3.8 ~ ~ Guatemala 0.510 0.572 1,340 0.3 14,489 10.6 55.7 67 22.3 1.5 151.0 0.59 Guyana 0.615 0.649 590 0.6 493 0.8 97.9 59 377.2 15.8 451.1 1.03 Haiti 0.332 0.338 250 -5.2 2,043 7.2 44.1 124 39.8 36.1 14.2 0.11 Honduras 0.544 0.575 600 0.1 3,937 5.9 72.0 38 124.6 11.2 310.4 0.55 Jamaica 0.726 0.736 1,510 3.6 4,406 2.5 84.4 13 134.9 3.4 307.8 3.26 Mexico 0.770 0.853 3,320 0.1 250,038 91.8 89.2 32 69.9 0.2 110.5 3.77 Nicaragua 0.515 0.530 380 -5.4 1,911 4.4 65.3 60 589.7 42.0 302.3 0.62 Panama 0.802 0.864 2,750 -0.4 7,413 2.6 90.5 20 101.4 0.7 100.3 1.69 Paraguay 0.649 0.706 1,690 1.2 7,743 4.8 91.9 34 29.4 1.9 126.6 0.59 Peru 0.656 0.717 2,310 -1.6 57,424 23.8 88.3 55 54.1 0.8 ~ 0.99 St Kitts and Nevis ~ 0.853 5,170 4.8 212 0 90.0 40 27.0 1.9 ~ ~ St Lucia ~ 0.838 3,370 3.9 532 0.2 82.0 22 24.4 9.0 ~ ~ St Vincent/Grenadines ~ 0.836 2,280 3.8 253 0.1 82.0 23 83.5 19.2 54.1 ~ Suriname ~ 0.792 880 3.5 ~ 0.4 92.7 32 ~ 21.7 ~ 4.58 Trinidad and Tobago 0.841 0.880 3,770 -1.7 5,327 1.3 97.9 18 53.6 0.5 296.0 16.30 Uruguay 0.842 0.883 5,170 3.1 17,847 3.2 97.1 21 32.4 0.5 156.8 1.61 Venezuela 0.792 0.861 3,020 0.5 75,016 21.7 91.0 24 49.0 0.1 130.6 5.75

Total Americas 0.722 0.761 3,320 0.3 1,553,737 473.4 86.2 47 41.0 1.7 ~ 2.30

ASIA 1234 56789101112

Afghanistan ~ ~ ~ ~ ~ 23.5 ~ 257 ~ ~ ~ 0.07 Armenia 0.647 0.651 730 -15.1 2,058 3.8 98.8 31 17.6 10.3 ~ 1.21 Azerbaijan 0.628 0.636 480 -16.3 3,475 7.5 96.3 50 9.2 3.1 0.1 8.76 Bahrain 0.742 0.870 7,840 0.2 4,524 0.6 84.4 20 ~ 1.1 ~ ~ Bangladesh 0.339 0.368 240 2.1 29,110 119.8 37.3 115 56.3 4.4 102.0 0.15 Bhutan ~ 0.338 420 4.9 292 0.7 41.1 189 29.3 24.8 ~ 0.07 Burma 0.469 0.457 ~ ~ ~ 45.1 82.7 150 ~ ~ ~ 0.11 Cambodia ~ 0.348 270 ~ 2,771 10.0 35.0 174 73.5 20.5 ~ 0.04 China 0.617 0.626 620 8.3 697,647 1,200.2 80.9 47 17.2 0.5 84.4 2.27 Georgia 0.630 0.637 440 -17.0 2,325 5.4 94.9 26 51.6 9.1 19.5 2.53 India 0.419 0.446 340 3.2 324,082 929.4 51.2 115 28.2 0.5 88.3 0.88 Indonesia 0.642 0.668 980 6.0 198,079 193.3 83.2 75 56.9 0.7 680.0 0.95 Iran ~ 0.780 ~ -1.5 63,716 64.1 68.6 40 ~ ~ ~ 3.81 Iraq 0.433 0.531 ~ ~ ~ 20.1 56.8 71 ~ ~ ~ 3.33 Jordan ~ 0.730 1,510 -4.5 6,105 4.2 85.5 25 126.2 8.5 282.8 2.64 Kazakhstan 0.698 0.709 1,330 -8.6 21,413 16.6 97.5 47 23.5 0.4 3.2 17.48 Kuwait 0.769 0.844 17,390 1.1 26,650 1.7 77.8 14 ~ 0 ~ 8.10 Kyrghzstan 0.628 0.635 700 -6.9 3,028 4.5 97.0 54 20.2 9.3 3.8 3.41 Laos 0.444 0.459 350 2.7 1,760 4.9 55.8 134 124.9 18.0 74.3 0.07 Lebanon 0.708 0.794 2,660 ~ 11,143 4.0 92.0 40 25.5 1.6 92.3 3.88 ➤

146 C ANADIAN D EVELOPMENT R EPORT 1998

UNDP GNP/Capita Under-5 Debt

ASIA(continued) 1234 56789101112

Malaysia 0.782 0.832 3,890 5.7 85,311 20.1 83.0 13 42.6 0.1 159.5 3.74 Maldives 0.600 0.611 990 5.9 250 0.3 93.0 77 61.6 22.3 52.8 ~ Mongolia 0.650 0.661 310 -3.8 861 2.5 82.2 74 61.5 24.9 87.5 4.03 Nepal 0.321 0.347 200 2.4 4,232 21.5 27.0 114 53.3 ~ 66.4 0.07 North Korea ~ 0.765 ~ ~ ~ 23.9 95.0 30 ~ ~ ~ 11.21 Oman ~ 0.718 4,820 0.3 12,102 2.2 35.0 25 29.5 0.6 135.7 6.12 Pakistan 0.392 0.445 460 1.2 60,649 129.9 37.1 137 49.5 1.3 208.1 0.59 Papua New Guinea 0.508 0.525 1,160 2.3 4,901 4.3 71.2 95 53.3 8.2 ~ 0.55 Philippines 0.650 0.672 1,050 1.5 74,180 68.6 94.4 53 51.5 1.2 328.3 0.77 Qatar 0.713 0.840 11,600 -4.2 7,447 0.6 78.9 23 ~ 0 ~ ~ Saudi Arabia 0.581 0.960 7,040 -1.9 125,501 19.0 61.8 34 ~ 0 ~ 13.85 Sri Lanka 0.694 0.711 700 2.6 12,915 18.1 90.1 19 64.4 4.3 113.0 0.29 Syria 0.646 0.755 1,120 0.9 16,783 14.1 69.8 36 134.8 2.2 ~ 3.19 Tajikistan 0.575 0.580 340 ~ 2,009 5.8 96.7 79 35.0 3.4 0.3 0.70 Thailand 0.812 0.833 2,740 8.4 167,056 58.2 93.5 32 34.9 0.5 147.7 2.02 Turkey 0.737 0.772 2,780 2.2 164,789 61.1 81.6 50 44.1 0.2 183.5 2.49 Turkmenistan 0.712 0.723 920 ~ 5,156 4.5 97.7 85 10.0 0.7 2.3 10.96 United Arab Emirates 0.727 0.866 17,400 -2.8 39,107 2.5 78.6 19 ~ 0 ~ 42.28 Uzbekistan 0.655 0.662 970 -3.9 21,590 22.8 97.2 62 7.5 0.4 3.3 5.75 Vietnam 0.552 0.557 240 ~ 20,351 73.5 93.0 45 130.2 ~ ~ 0.29 West Bank and Gaza ~~~~ ~2.0~~~~ ~~ Yemen ~ 0.361 260 ~ 4,790 15.3 41.1 110 155.2 4.4 ~ 0.81 Oceania ~ 0.663 1,370 0.7 2,608 1.7 78.8 46 ~ ~ ~ ~

Total Asia 0.530 0.644 710 4.8 2,230,766 3,231.9 64.8 82 31.9 0.9 ~ 1.85

EASTERN EUROPE 1234 56789101112

Albania 0.643 0.655 670 ~ 2,192 3.3 85.0 40 31.6 8.1 12.9 1.21 Belarus 0.792 0.806 2,070 -5.2 20,561 10.3 97.9 20 7.9 na 4.4 9.89 Bosnia Herzegovina ~ ~ ~ ~ ~ 4.4 ~ 17 ~ ~ ~ 3.37 Bulgaria 0.772 0.780 1,330 -2.6 12,366 8.4 93.0 19 92.3 na 107.9 6.08 Croatia 0.741 0.760 3,250 ~ 18,081 4.8 97.0 14 ~ ~ ~ 3.33 Czech Republic 0.859 0.882 3,870 -1.8 44,772 10.3 99.0 10 37.0 na 98.5 13.04 Estonia 0.764 0.776 2,860 -4.3 4,007 1.5 99.0 22 6.7 na 10.3 13.19 Hungary 0.837 0.857 4,120 -1.0 43,712 10.2 99.0 14 72.8 na 194.3 5.72 Latvia 0.702 0.711 2,270 -6.6 6,034 2.5 99.0 26 7.6 na 4.9 5.53 Lithuania 0.750 0.762 1,900 -11.7 7,089 3.7 98.4 19 10.1 na 11.1 5.86 Macedonia, FYR 0.726 0.748 860 ~ 1,975 2.1 94.0 ~ ~ ~ 87.7 1.98 Moldova 0.608 0.612 920 ~ 3,518 4.3 98.9 34 17.8 na 3.5 3.26 Poland 0.818 0.834 2,790 1.2 117,663 38.6 99.0 16 36.1 na 49.6 8.90 Romania 0.733 0.748 1,480 -3.8 35,533 22.7 96.9 29 19.5 na 55.8 5.24 Russian Federation 0.778 0.792 2,240 -5.1 344,711 148.2 98.7 30 37.6 na 19.3 14.11 Slovak Republic 0.859 0.873 2,950 -2.8 17,414 5.4 99.0 15 33.5 na 114.4 7.00 Slovenia 0.866 0.886 8,200 ~ 18,550 2.0 96.0 8 ~ na 51.5 2.75 Ukraine 0.681 0.689 1,630 -9.2 80,127 51.6 98.8 24 10.7 na 2.8 11.72 Ex-Yugoslavia ~ ~ ~ ~ ~ 10.5 ~ 23 ~ ~ ~ 3.63

Total Eastern Europe ~ 0.775 2,260 -4.6 778,305 344.8 98.3 25 32.3 ~ ~ 10.71

Total Developing Countries 0.555 0.576 1,090 3.1 4,979,448 4,760.7 69.7 99 40.0 2.4 ~ 2.40

Total High Human Development Countries 0.902 0.934 25,100 2.0 22,506,618 878.0 98.6 8 na 0 na 11.91

Notes: a Most totals for Africa are for sub-Saharan Africa only. Sources: World Bank, World Development Report 1997, Global Development Finance 1997; UNDP, Human Development Report 1997; UNICEF, State of the World’s Children 1997; World Resources Institute, World Resources 1996-97: OECD, Geographical Distribution of Financial Flows to Aid Recipients, 1991/95.

147 T ABLE 3

CANADIAN OFFICIAL DEVELOPMENT ASSISTANCE: BASIC DATA (1995-96)

n 1995-96—the latest year for which Although the allocation by continent data is available—Canadian ODA of multilateral and bilateral aid was I Distribution of Bilateral Aid totaled $2.68 billion, an unprecedented approximately the same, the imputed by Sector 1995-96 13 percent drop from the previous year, value of Canadian contributions to reflecting the impact of budget cuts to HEALTH & POPULATION 16% multilateral aid agencies sometimes AGRICULTURE 9% the aid program. Indeed, Canadian aid TRANSPORTATION/COMMUNICATIONS 6% exceeded Canada’s bilateral presence in as a proportion of the country’s GNP INDUSTRY 6% that country. While that is often the ENERGY/MINING 5% was 0.36 percent, the first time it has case in a number of small countries, in fallen below 0.40 percent since 1970.1 1995-96 it was also true in some larger Of that amount, one-third, or $900 mil- economies such as Zambia, Kenya, lion, was delivered through multilateral Uganda, Colombia, Honduras, and channels, such as the international Vietnam. financial institutions (IFIs) and the UN This allocation of Canada’s bilateral aid system. The remaining two-thirds were by sector was remarkably stable over delivered through Canadian institutions the past decade, with one exception: or bilateral channels. support to the energy sector declined in The top three recipients of Canadian aid favour of health and population, which in 1995-96 were China ($139 million), in 1995-96 received 16 percent of Zambia ($128 million), and Bangladesh Canada’s bilateral aid. As the chart ECONOMIC & FINANCIAL SUPPORT 27% ($112 million). The top 10 recipient HUMAN RESOURCE DEVELOPMENT 31% illustrates, almost one-third of Canada’s countries absorbed almost 43 percent of bilateral aid was allocated to human the allocated aid in 1995-96. Half of the resource development—education and top 50 beneficiaries of Canadian aid Canada’s ranking among other bilateral institutional support—although a too were in Africa, 15 were in Asia, nine in donors (column 4) gives a sense of high percentage went to tertiary the Americas, and one in Eastern Canada’s potential leverage in a given (university and college level) rather Europe.2 The geographical distribution country—the likelihood that our aid, or than primary and basic education. More of aid was as follows: Africa, 48 percent; other influence, will engender change. than 25 percent was allocated in the Asia, 34 percent; the Americas, 16 percent; Our most important presence was in the form of economic and financial support and Eastern Europe, 2 percent. Caribbean, although Canada was the top or nonproject aid (including monetized donor in only one country, St Lucia. food aid) designed to assist countries Cuts to Canada’s foreign aid budget And while Canada was the world’s restructure their economies. Of the during the past decade have meant that seventh largest donor in 1995, in only remaining, 9 percent went to agriculture only a few countries saw the real value 16 of 129 aid-eligible developing coun- (including forestry and fisheries); of bilateral aid increase. In Africa these tries did we rank among the top five 6 percent each to transportation/com- included Côte d’Ivoire, Egypt, Ghana, donors. Canadian aid was widely munications and industry; and Malawi, Mozambique, and South Africa; dispersed for many reasons: we were 5 percent to the energy/mining sector. in the Americas, Bolivia and Nicaragua; present in a large number of countries; a and in Asia, China, the Philippines, and large—and increasing—percentage of aid Vietnam. Several former major recipi- was allocated on a regional rather than ent countries saw Canadian aid fall 1 This figure differs from the ODA/GNP ratio given on a country basis, particularly in Africa abruptly, whether for political reasons for Canada in Table 1 because it corresponds to the and Asia; and because a large part, also 1995-96 fiscal year. The Table 1 figure corresponds to such as Congo-Kinshasa (Zaire) and the 1996 calendar year. increasing, was not allocable by country, Niger, or for budgetary reasons such as 2 Most Eastern European countries, apart from Albania as in the case of refugee support, scholar- and countries of the former Yugoslavia, are not eligible Kenya, Tanzania, Sri Lanka, and ships, and other foreign student costs. to receive aid. This is indicated in the table as “na” for Jamaica. “not applicable.” Assistance to these countries in In some cases, the recipient country was transition is tracked separately. not specified.

148 C ANADIAN D EVELOPMENT R EPORT 1998

TABLE 3 CANADIAN OFFICIAL DEVELOPMENT ASSISTANCE: BASIC DATA (1995-96)

(IN MILLIONS OF C ANADIAN DOLLARS)

B I L A T E R A L Rank of Recipient Total Total Percent Rank of Canada Total Total Country for Total Bilateral Bilateral Change Among Bilateral Multilateral Canadian Aid Canadian Aid (all sources) (all sources) Per Year Donors in Recipient (all agencies) (all sources) (including multilateral) Country 1995-96 1985-86 1986-96 Country (1995) 1995-96 1995-96 (if in top 50) 1995-96

AFRICA 123 4 5 6 7

Algeria 3.89 6.00 -4.2 9 0.25 4.14 Angola 4.07 1.40 11.3 11 6.45 10.51 40 Benin 15.52 0.59 38.7 7 2.89 18.41 26 Botswana 1.94 4.65 -8.4 8 1.17 3.10 Burkina Faso 11.68 16.82 -3.6 7 8.45 20.13 25 Burundi 5.57 1.50 14.0 9 2.80 8.37 46 Cameroon 20.45 16.27 2.3 3 9.67 30.12 12 Cape Verde 0.59 0.31 6.6 13 0.87 1.46 Central African Republic 1.30 0.17 22.6 8 2.95 4.25 Chad 0.72 1.45 -6.8 8 5.53 6.25 Comoros 0 0.31 -100.0 5 1.15 1.15 Congo - Brazzaville 0.19 1.05 -15.7 7 4.77 4.96 Congo - Kinshasa (Zaire) 0.99 17.22 -24.8 13 1.66 2.65 Côte d’Ivoire 31.72 14.35 8.3 5 35.77 67.49 6 Djibouti 0.18 0.05 13.7 7 0.38 0.56 Egypt 89.24 10.51 23.8 5 3.96 93.20 5 Equatorial Guinea 0.14 0.14 0 4 0.26 0.40 Eritrea 5.23 na na 13 0.53 5.76 Ethiopia 18.47 56.70 -10.6 14 11.06 29.53 14 Gabon 3.26 3.11 0.5 6 0.50 3.76 Gambia 0.72 0.87 -1.9 10 0.88 1.60 Ghana 30.91 17.17 6.1 7 12.52 43.43 7 Guinea 5.98 8.15 -3.0 7 7.23 13.21 35 Guinea-Bissau 0.73 0.52 3.5 11 1.33 2.07 Kenya 7.71 31.90 -13.2 10 9.59 17.29 28 Lesotho 0.97 4.16 -13.5 13 0.93 1.90 Liberia 2.06 0.27 22.5 6 3.24 5.30 Libya 0 ~ ~ ~ 0 0 Madagascar 1.51 0.70 8.0 9 3.37 4.88 Malawi 13.51 2.78 17.1 6 7.39 20.90 23 Mali 19.88 19.07 0.4 6 9.71 29.59 13 Mauritania 1.05 5.62 -15.4 6 6.14 7.19 50 Mauritius 0.33 0.43 -2.6 8 0.81 1.14 Morocco 9.15 3.16 11.2 6 0.89 10.05 42 Mozambique 19.16 3.26 19.4 16 13.20 32.36 11 Namibia 1.38 0.09 31.4 14 0.42 1.80 Niger 4.93 26.74 -15.6 5 3.68 8.62 44 Nigeria 2.23 1.20 6.4 10 3.87 6.09 Rwanda 17.47 12.19 3.7 6 3.32 20.78 24 São Tomé and Principe 0.21 0 ~ 7 0.46 0.67 Senegal 19.62 22.90 -1.5 6 13.04 32.65 10 Seychelles 0.64 0.20 12.3 5 0.99 1.62 Sierra Leone 0.64 0.66 -0.3 11 4.34 4.98 Somalia 1.63 1.08 4.2 11 1.02 2.65 South Africa 16.43 2.19 22.3 9 0.26 16.69 30 Sudan 4.67 29.62 -16.9 8 2.25 6.92 Swaziland 0.85 3.29 -12.7 7 0.74 1.60 Tanzania 11.98 26.81 -7.7 8 10.90 22.88 22 Togo 0.94 10.88 -21.7 10 4.89 5.84 Tunisia 0.02 -1.55 ~ 7 7.56 7.58 49 Uganda 2.23 1.86 1.8 16 12.27 14.50 34 Zambia 11.35 18.56 -4.8 9 116.22 127.57 2 Zimbabwe 16.68 17.29 -0.4 10 10.01 26.69 18 Regional Africa 54.66 24.92 8.2 na 8.96 63.62

Total Africa 497.39 449.59 1.0 11 383.51 880.89a ➤

149 T ABLE 3 (CONTINUED)

AMERICAS 123 4 5 6 7

Antigua and Barbuda 0.03 0.39 -22.6 ~ 0.34 0.38 Argentina 2.14 2.06 0.4 7 3.71 5.84 Belize 0.35 4.74 -22.9 7 1.18 1.53 Bolivia 19.85 2.93 21.1 10 13.34 33.18 9 Brazil 5.80 6.35 -0.9 9 6.05 11.85 38 Chile 2.16 4.33 -6.7 11 0.48 2.64 Colombia 4.97 8.07 -4.7 9 9.83 14.81 33 Costa Rica 3.89 8.70 -7.7 7 0.83 4.71 Cuba 1.88 0.14 29.7 7 0.20 2.07 Dominica 1.19 7.62 -16.9 3 1.29 2.47 Dominican Republic 0.44 2.22 -14.9 14 2.20 2.64 Ecuador 3.65 1.56 8.9 10 3.22 6.87 El Salvador 2.45 1.80 3.1 13 3.15 5.60 Grenada 0.06 6.85 -37.7 6 0.79 0.85 Guatemala 4.40 1.99 8.3 11 1.31 5.70 Guyana 3.69 0.89 15.3 3 3.99 7.69 48 Haiti 30.80 7.67 14.9 4 4.98 35.77 8 Honduras 7.20 4.35 5.2 9 8.00 15.20 32 Jamaica 7.54 34.07 -14.0 4 2.02 9.57 43 Mexico 4.96 4.52 0.9 7 1.59 6.55 Nicaragua 18.32 8.24 8.3 12 7.33 25.65 19 Panama 0.72 0.64 1.2 8 1.10 1.81 Paraguay 0.34 0.23 4.0 11 1.86 2.20 Peru 25.82 18.84 3.2 6 3.21 29.04 15 St Kitts and Nevis 0.04 0.85 -26.3 4 0.84 0.88 St Lucia 5.30 1.00 18.1 1 1.31 6.61 St Vincent/Grenadines 0 2.82 -100.0 5 0.87 0.87 Suriname 0.10 0.05 7.2 6 0.01 0.11 Trinidad and Tobago 1.60 -0.43 ~ 2 0.46 2.06 Uruguay 1.85 0.84 8.2 7 0.63 2.48 Venezuela 1.26 0.06 35.6 5 0.29 1.55 Regional Caribbean 17.12 23.82 -3.2 na 0.02 17.14 Regional Latin America 17.80 2.96 19.7 na 4.96 22.76 Other Americas 0.28 4.23 -23.8 ~ 1.60 1.88

Total Americas 197.97 175.40 1.2 9 92.97 290.95

ASIA 123 4 5 6 7

Afghanistan 6.14 ~ ~ 5 4.30 10.45 41 Armenia 0 na na 9 0.34 0.34 Azerbaijan 0.05 na na 11 0.15 0.19 Bahrain 0 ~ 0 ~ 0 0 Bangladesh 74.22 103.53 -3.3 7 38.00 112.23 3 Bhutan 0.34 0.22 4.4 10 0.47 0.81 Burma 0.18 3.03 -24.6 11 1.01 1.19 Cambodia 3.52 ~ ~ 11 9.57 13.09 36 China 70.86 21.80 12.5 7 68.51 139.38 1 Georgia 0.06 na na 15 0.17 0.23 India 51.74 52.45 -0.1 10 48.30 100.04 4 Indonesia 22.31 77.49 -11.7 9 1.63 23.93 21 Iran 0 ~ ~ 9 0.46 0.46 Iraq 2.10 ~ ~ 9 0.96 3.06 Jordan 12.94 0.65 34.9 7 2.88 15.82 31 Kazakhstan 1.12 na na 6 0.09 1.21 Kuwait 0 ~ ~ ~ 0.14 0.14 Kyrghzstan 0.06 na na 13 5.61 5.67 Laos 1.34 ~ ~ 13 4.53 5.87 Lebanon 4.16 1.48 10.9 8 1.69 5.84 ➤

150 C ANADIAN D EVELOPMENT R EPORT 1998

ASIA (continued) 123 4 5 6 7

Malaysia 4.52 3.19 3.5 5 0.80 5.31 Maldives 0.03 0.02 4.1 8 0.43 0.46 Mongolia 0.04 ~ ~ ~ 1.29 1.33 Nepal 6.09 8.87 -3.7 10 4.84 10.93 39 North Korea 0.10 ~ ~ ~ 0.17 0.27 Oman 0 ~ ~ ~ 0 0 Pakistan -0.06 73.19 ~ 12 17.39 17.33 27 Papua New Guinea 0.08 0.56 -17.7 13 0.51 0.59 Philippines 22.84 8.06 11.0 7 1.40 24.24 20 Qatar 0 ~ 0 ~ 0 0 Saudi Arabia 0 ~ 0 ~ 0.24 0.24 Sri Lanka 7.74 27.99 -12.1 9 4.52 12.26 37 Syria 0 0.20 -100.0 10 1.17 1.17 Tajikistan 0.03 na na 7 0.06 0.09 Thailand 16.43 15.55 0.6 7 0.65 17.08 29 Turkey 4.93 -1.73 ~ 9 0.32 5.25 Turkmenistan 0.02 na na ~ 0 0.02 United Arab Emirates 0 ~ ~ ~ 0 0 Uzbekistan 0.02 na na ~ 0.13 0.15 Vietnam 12.39 0 ~ 11 15.30 27.68 17 West Bank and Gaza 2.00 0.38 18.1 na 6.48 8.48 45 Yemen 0.72 0.52 3.3 10 2.27 2.99 Oceania 4.13 1.62 9.8 9 3.57 7.70 47 Asia Regional 36.09 9.17 14.7 na 6.74 42.83 Other Asia 1.83 1.48 2.1 ~ 0.68 2.51

Total Asia 371.11 409.72 -1.0 9 257.76 628.85

EASTERN EUROPE 123 4 5 6 7

Albania 0.13 ~ ~ 16 2.69 2.82 Belarus na na na na na na Bosnia Herzegovina ~ ~ ~ ~ ~ ~ Bulgaria na na na na na na Croatia ~ ~ ~ ~ ~ ~ Czech Republic na na na na na na Estonia na na na na na na Hungary na na na na na na Latvia na na na na na na Lithuania na na na na na na Macedonia, FYR ~ ~ ~ ~ ~ ~ Moldova na na na na na na Poland na na na na na na Romania na na na na na na Russian Federation na na na na na na Slovak Republic na na na na na na Slovenia ~ ~ ~ ~ ~ ~ Ukraine na na na na na na Ex-Yugoslavia 19.46 ~ ~ 11 8.90 28.36 16 Other Europe -0.02 0 ~ ~ 0.58 0.56

Total Eastern Europe 19.57 0 ~ ~ 12.17 31.74

Total 1,086.04 1,034.71 0.5 746.41 1,832.43 Countries not Specified 262.93 159.32 5.1 158.51 421.45 Unallocable by Country 430.42 115.34 14.1 0 430.42

Total Developing Countries 1,779.39 1,309.37 3.1 7 904.92 2,684.31

Notes: a Due to rounding, column totals may not match row totals. Sources: CIDA, Statistical Report 1995-96; CIDA, Annual Report 1985-86; OECD, Geographic Distribution of Financial Flows to Developing Countries 1991/95. 151 T ABLE 4

CANADIAN BILATERAL ODA BY CHANNEL AND BY COUNTRY (1995-96)

f debt forgiveness is excluded, Canada Development Corporation as the Idevoted 28 percent of its government- Distribution of Bilateral ODA government guaranteed their loans. to-government assistance to the by Channel 1995-96 Canada still holds approximately following five countries: Bangladesh at $1 billion of bilateral debt with the $73 million, China at $62.2 million, BILATERAL FOOD AID 8% world’s poorest countries. India at $43.9 million, Ghana at OFFICIAL BILATERAL DEBT RELIEF 5% PARTNERSHIP BRANCH 16% In 1995-96, CIDA’s Partnership Branch $29.7 million, and Haiti at $25.5 IHA 3% delivered 16 percent of Canada’s bilateral million. The next five—Peru, Bolivia, IDRC 5% aid: more than 75 percent was disbursed the Philippines, Cameroon, and Mali— REFUGEE COSTS IN CANADA 8% ADMINISTRATIVE through the not-for-profit sector—uni- comprised another 12 percent. These COSTS 9% versities and colleges, nongovernmental contributions best reflect the intended OTHER 7% organizations (NGOs), and churches. focus of Canadian assistance because The remainder was channeled through government-to-government is the the private sector by CIDA’s Industrial channel over which the Canadian Cooperation Program (CIDA INC). government has the greatest control. Although most of the funding to the In the top 10 recipients, seven are not-for profit sector is not country- among the poorest developing coun- specific, a study carried out by the tries and three (Bolivia, Peru, and the Canadian Council for International Philippines) are middle-income coun- Co-operation and CIDA’s Policy Branch tries. This concentration of aid on the has shown that 45 percent of this aid poorest countries has increased as went to Africa, 33 percent to the Canada’s aid budgets have been reduced. Americas, and 23 percent to Asia. Aid The cuts have also resulted in reductions GOVERNMENT-TO-GOVERNMENT AID 39% (excluding Bilateral Food Aid) channeled through CIDA INC has in government-to-government aid: in tended to go to middle-income or fast- 1995-96 only six countries have govern- growing economies such as China or ment-to-government aid programs in WFP (see Table 5), largely because the Indonesia. excess of $20 million, compared to world experienced fewer emergency 19 countries only five years before. food shortages. In 1995-96, the main Finally, note that part of the large recipients of humanitarian assistance amount of bilateral aid not allocable by Canada is a large contributor of food were the former Yugoslavia, Rwanda, country is spent in Canada rather than aid (column 3), composed mainly of Burundi, Sudan, and Haiti, all countries in developing countries. In 1995-96 this wheat. Also in the basket are vegetable in political conflict. amounted to $430.4 million. Some oils, pulses, and fish products. In $153 million or 8 percent of total bilateral 1995-96, Canada’s contributions, Worth noting is the amount of ODA that aid was spent on the resettlement of including food aid delivered through took the form of debt forgiveness in refugees from developing countries in the World Food Programme (WFP), Africa, almost all to Egypt ($71.5 million) Canada and another 4 percent totaled $260 million, or close to and Côte d’Ivoire ($18.8 million). In ($69 million) was spent on the direct 10 percent of total Canadian aid. This 1995-96, 5.1 percent of total bilateral aid and indirect costs of supporting students year, however, the amount of food aid was debt forgiveness, largely in the form from developing countries in Canada. delivered through bilateral channels of cash paid out to the Canadian Wheat exceeded that channeled through the Board (CWB) and the Export

152 C ANADIAN D EVELOPMENT R EPORT 1998

TABLE 4 CANADIAN BILATERAL OFFICIAL DEVELOPMENT ASSISTANCE BY CHANNEL AND BY COUNTRY (1995-96)

(IN MILLIONS OF C ANADIAN DOLLARS) PARTNERSHIP BRANCH International Int’l Centre Government-to- Rank Official Industrial International Development Human Rights Government Aid of Recipient Bilateral Institutional Nongovernmental Cooperation Humanitarian Research and Democratic (including bilateral Country Bilateral Debt Cooperation Organizations Program Assistance Centre Development Country food aid) (if in top 30) Food Aid Relief (ICDS) (NGOs) (CIDA INC) (IHA) (IDRC) (ICHRDD) Total

AFRICA 12345 67891011

Algeria 3.60 2.78 0 0.02 0 0.260003.89 Angola 0.36 0.05 0 0 0.06 0 3.65 0 0 4.07 Benin 13.82 18 0 0.04 0.22 0 0.84 0.05 0.55 0 15.52 Botswana 1.77 0 0 0 0 0.08 0 0.09 0 1.94 Burkina Faso 10.56 25 0 0 0.20 0.06 0.02 0 0.84 0 11.68 Burundi 0.62 0 0 0 0 0.20 4.72 0.03 0 5.57 Cameroon 19.279000.33 0 0.44 0 0.40 0 20.45 Cape Verde 0.56 0 0 0 0 0.040000.59 Central African Republic 1.25 0 0 0 0 0.050001.30 Chad 0.60 0 0 0 0 0.120000.72 Comoros 0 0 0 0 0 00000 Congo - Brazzaville 0.14 0 0 0 0 0 0 0.04 0 0.19 Congo - Kinshasa (Zaire) 0.37 0 0 0 0.01 0 0.60 0.02 0 0.99 Côte d’Ivoire 12.24 20 0 18.80 0.03 0 0.45 0 0.21 0 31.72 Djibouti 0.18 0 0 0 0 00000.18 Egypt 12.17 21 0.04 71.46 0.06 0.16 4.32 0 1.08 0 89.24 Equatorial Guinea 0.14 0 0 0 0 00000.14 Eritrea 4.65 3.13 0 0 0 0.08 0.40 0 0.11 5.23 Ethiopia 16.21 15 12.90 0 0.02 0.02 0.77 0.40 1.06 0 18.47 Gabon 3.23 0 0 0 0 0.030003.26 Gambia 0.40 0 0 0.19 0.13 00000.72 Ghana 29.73 4 3.97 0 0.35 0.01 0.34 0 0.48 0 30.91 Guinea 5.67 0 0 0.15 0 0.150005.98 Guinea-Bissau 0.67 0 0 0 0 0.05 0 0.01 0 0.73 Kenya 5.77 0 0 0.39 0.11 0.35 0 1.06 0.02 7.71 Lesotho 0.75 0 0 0 0.21 00000.97 Liberia 1.08 1.08 0 0 0 0 0.98 0 0 2.06 Libya 0 0 0 0 0 00000 Madagascar 1.16 1.69 0 0 0.01 0.28 0 0.06 0 1.51 Malawi 12.75 19 2.33 0 0.05 0.36 0.15 0 0.20 0 13.51 Mali 18.86 10 0 0 0.03 0.04 0.12 0.50 0.33 0 19.88 Mauritania 1.05 0 0 0 0 00001.05 Mauritius 0.14 0 0 0.07 0 0.110000.33 Morocco 6.75 30 0 0 0.27 0 1.65 0 0.48 0 9.15 Mozambique 18.67 11 11.23 0 0.26 0 0.08 0 0.15 0 19.16 Namibia 1.13 0.03 0 0.21 0 0.040001.38 Niger 4.93 0 0 0 0 00004.93 Nigeria 0.94 0 0 0.44 0 0.04 0.05 0.75 0.01 2.23 Rwanda 9.27 27 0.21 0 0 0 0 7.78 0.25 0.17 17.47 São Tomé and Principe 0.21 0 0 0 0 00000.21 Senegal 17.01 14 0 0.14 0.08 0 0.44 0 1.94 0 19.62 Seychelles 0.64 0 0 0 0 00000.64 Sierra Leone 0.18 0 0 0.21 0 0 0.25 0 0 0.64 Somalia 0.11 0 0 0 0 0 1.50 0.01 0 1.63 South Africa 10.79 23 0 0 1.02 0.32 1.50 0.75 2.06 0 16.43 Sudan 0.52 0.06 0 0 0 0.29 3.85 0 0 4.67 Swaziland 0.85 0 0 0 0 0 0 0.01 0 0.85 Tanzania 10.75 24 0 0 0.12 0.01 0.33 0 0.71 0.07 11.98 Togo 0.78 0 0 0 0 0.06 0 0.05 0.05 0.94 Tunisia -0.86 0 0 0.04 0 0.53 0 0.30 0 0.02 Uganda 1.03 0 0 0.27 0.18 0.14 0 0.62 0 2.23 Zambia 9.76 26 0.54 0 0.01 0.02 0 1.00 0.56 0 11.35 Zimbabwe 14.79 16 1.81 0 0.13 0.06 0.64 0.32 0.74 0 16.68 Regional Africa 49.44 6.00 0 0.32 0.95 0.70 0.45 2.58 0.22 54.66

Total Africa 337.46 47.85 90.44 5.52 2.71 15.69 27.25 17.67 0.63 497.38a ➤

153 T ABLE 4 (CONTINUED)

PARTNERSHIP BRANCH International Int’l Centre Government-to- Rank Official Industrial International Development Human Rights Government Aid of Recipient Bilateral Institutional Nongovernmental Cooperation Humanitarian Research and Democratic (including bilateral Country Bilateral Debt Cooperation Organizations Program Assistance Centre Development Country food aid) (if in top 30) Food Aid Relief (ICDS) (NGOs) (CIDA INC) (IHA) (IDRC) (ICHRDD) Total

AMERICAS 12345 67891011

Antigua and Barbuda 0.03 0 0 0 0 00000.03 Argentina 0.25 0 0 0.14 0 1.14 0 0.60 0 2.14 Belize 0.30 0 0 0.03 0.01 0 0 0.01 0 0.35 Bolivia 19.30 7 2.34 0 0.01 0.05 0.35 0 0.13 0 19.85 Brazil 1.90 0 0 1.33 0.40 1.03 0 1.14 0 5.80 Chile 0.04 0 0 0.30 0 1.25 0 0.57 0 2.16 Colombia 2.00 0 0 0.01 0.07 1.53 0.35 1.01 0 4.97 Costa Rica 1.88 0 0 0.40 0.03 0.39 0 1.19 0 3.89 Cuba 0.36 0 0 0.05 0.36 0.70 0 0.40 0 1.88 Dominica 1.12 0 0 0.05 0 0.010001.19 Dominican Republic -0.02 0 0 0.04 0.23 0 0 0.19 0 0.44 Ecuador 2.27 0 0 0.13 0.04 0.85 0 0.36 0 3.65 El Salvador 1.71 0 0 0.05 0.19 0.44 0 0 0.06 2.45 Grenada 0 0 0 0 0.02 0.030000.06 Guatemala 2.96 0 0 0.01 0.28 0.87 0 0.21 0.07 4.40 Guyana 3.38 0 0.05 0 0 0.16 0 0.10 0 3.69 Haiti 25.81 5 5.07 0 0.02 0.90 0.94 3.05 0 0.08 30.80 Honduras 5.57 0 0.55 0.29 0.09 0.54 0 0.17 0 7.20 Jamaica 6.72 0 0 0.55 0.05 0.08 0 0.14 0 7.54 Mexico 0.37 0 0 0.47 0.01 3.42 0.10 0.45 0.14 4.96 Nicaragua 17.76 12 0 0 0.12 0.16 0.06 0 0.22 0 18.32 Panama 0.24 0 0 0 0.03 0.440000.72 Paraguay 0.16 0 0 0 0 0 0 0.18 0 0.34 Peru 22.57 6 5.91 0 0.35 0.01 1.19 0 1.61 0.10 25.82 St Kitts and Nevis 0.04 0 0 0 0 00000.04 St Lucia 4.91 0 0 0.30 0 0.09 0 0.01 0 5.30 St Vincent/Grenadines 0 0 0 0 0 00000 Suriname 0.10 0 0 0 0 00000.10 Trinidad and Tobago 1.10 0 0 0.31 0 0.18 0 0.01 0 1.60 Uruguay 0.32 0 0 0 0 0.88 0 0.64 0 1.85 Venezuela 0.32 0 0 0.01 0 0.65 0 0.28 0 1.26 Regional Caribbean 16.29 0 0 0.06 0.06 0.43 0.26 0.03 0 17.12 Regional Latin America 13.45 0 0 0.10 0.09 1.70 0.60 1.52 0.36 17.80 Other Americas 0.10 0 0 0 0 0.16 0 0.04 0 0.28 Total Americas 153.26 13.32 0.60 5.14 3.10 19.48 4.36 11.23 0.81 197.97

ASIA 12345 67891011

Afghanistan 0.64 0 0 0 0 0 5.50 0 0 6.14 Armenia 0 0 0 0 0 00000 Azerbaijan 0.05 0 0 0 0 00000.05 Bahrain 0 0 0 0 0 00000 Bangladesh 73.03 1 19.98 0 0.21 0 0.52 0 0.46 0 74.22 Bhutan 0.25 0 0 0.02 0 0 0 0.07 0 0.34 Burma 0 0 0 0 0 0 0 0 0.18 0.18 Cambodia 2.17 0 0 0.27 0 0.34 0 0.74 0 3.52 China 62.222001.05 0.01 6.09 0.10 1.39 0 70.86 Georgia 0.06 0 0 0 0 00000.06 India 43.88 3 32.49 0 0.16 2.19 3.12 0.50 1.88 0 51.74 Indonesia 17.16 13 0 0 0.26 0 4.21 0.35 0.33 0 22.31 Iran 0 0 0 0 0 00000 Iraq 0 0 0 0 0 0 2.10 0 0 2.10 Jordan 11.90 22 0 0 0.13 0.02 0.59 0 0.31 0 12.94 Kazakhstan 1.12 0 0 0 0 00001.12 Kuwait 0 0 0 0 0 00000 Kyrghzstan 0.06 0 0 0 0 00000.06 Laos 0.22 0 0 0 0.02 0.56 0 0.53 0 1.34 Lebanon 2.55 0 0 0 0.04 0.21 1.13 0.22 0 4.16 Malaysia 3.40 0 0 0.03 0 0.94 0 0.15 0 4.52 Maldives 0.03 0 0 0 0 00000.03 ➤

154 C ANADIAN D EVELOPMENT R EPORT 1998

ASIA (continued) 12345 67891011

Mongolia 0 0 0 0 0 0 0 0.04 0 0.04 Nepal 4.93 0 0 0.19 0.23 0.16 0 0.57 0.01 6.09 North Korea 0 0 0 0 0 0 0.10 0 0 0.10 Oman 0 0 0 0 0 00000 Pakistan -1.04 0 0 0.01 0.04 0.63 0 0.25 0.06 -0.06 Papua New Guinea 0 0 0 0 0 0.080000.08 Philippines 19.278000.08 0.14 2.23 0.08 1.04 0.01 22.84 Qatar 0 0 0 0 0 00000 Saudi Arabia 0 0 0 0 0 00000 Sri Lanka 4.58 0 0 0.22 0 0.81 1.92 0.20 0 7.74 Syria 0 0 0 0 0 00000 Tajikistan 0.03 0 0 0 0 00000.03 Thailand 14.76 17 0 0 0.15 0.07 0.88 0.08 0.41 0.07 16.43 Turkey 2.87 0 0 0 0 1.97 0 0.09 0 4.93 Turkmenistan 0.02 0 0 0 0 00000.02 United Arab Emirates 0 0 0 0 0 00000 Uzbekistan 0.02 0 0 0 0 00000.02 Vietnam 7.84 28 0 0 1.18 0.08 2.78 0 0.51 0 12.39 West Bank and Gaza 0 0 0 0.13 0.08 0.15 1.20 0.44 0 2.00 Yemen 0.15 0 0 0 0 0.48 0 0.10 0 0.72 Oceania 3.91 0 0 0.20 0.02 00004.13 Asia Regional 34.02 2.00 0 0.43 0.35 0 0.07 1.13 0.10 36.09 Other Asia 0.33 0 0 1.00 0 0 0 0.50 0 1.83 Total Asia 310.43 54.47 0 5.72 3.26 26.75 13.13 11.36 0.43 371.09

EASTERN EUROPE 12345 67891011

Albania 0.13 0 0 0 0 00000.13 Belarus na na na na na na na na na na Bosnia Herzegovina ~ ~ ~ ~ ~ ~~~~~ Bulgaria na na na na na na na na na na Croatia ~ ~ ~ ~ ~ ~~~~~ Czech Republic na na na na na na na na na na Estonia na na na na na na na na na na Hungary na na na na na na na na na na Latvia na na na na na na na na na na Lithuania na na na na na na na na na na Macedonia, FYR ~ ~ ~ ~ ~ ~~~~~ Moldova na na na na na na na na na na Poland na na na na na na na na na na Romania na na na na na na na na na na Russian Federation na na na na na na na na na na Slovak Republic na na na na na na na na na na Slovenia ~ ~ ~ ~ ~ ~~~~~ Ukraine na na na na na na na na na na Ex-Yugoslavia 6.94 29000 0012.52 0 0 19.46 Other Europe -0.03 0 0 0 0.01 0000-0.02 Total Europe 7.04 0 0 0 0.01 0 12.52 0 0 19.58

Country not Specified 18.41 18.41 0 75.07 115.02 1.74 1.76 47.44 3.51 262.93

Refugee Costs in Canada na na na na na na na na na na 153.02 Scholarships na na na na na na na na na na 8.90 Imputed Foreign Student Costs na na na na na na na na na na 68.66 Administrative Costs na na na na na na na na na na 157.68 Other (See Technical Notes) na na na na na na na na na na 42.18 Total not Allocable by Country 430.42

Total Developing Countries 826.60 134.05 91.04 91.45 124.11 63.66 59.02 87.69 5.38 1,779.39

Notes: a Due to rounding, column totals may not match row totals. Source: CIDA, Statistical Report 1995-96. 155 T ABLE 5

CANADIAN MULTILATERAL ODA BY AGENCY AND BY COUNTRY (1995-96)

ith the exception of Canada’s Less than 30 percent of our multilateral Wcontribution to the World Food Distribution of Canadian contributions, or 10 percent of all 1 Programme (WFP), multilateral aid is Multilateral ODA by Canadian aid, was allocated to United completely untied to donor-country Organization 1995-96 Nations agencies, with slightly less than goods, and international competitive half going to the Rome-based WFP. And WORLD BANK 31% bidding practices usually allow for an INTERNATIONAL MONETARY FUND 20% although the UNDP, with field offices in efficient administration of aid. There is REGIONAL DEVELOPMENT BANKS 4% virtually every developing country, a further benefit in that multilateral aid UNSPECIFIED IFIs 7% received the second highest allocation WFP 14% goes to many countries where Canada UNDP 5% at $43 million, this was $10 million less does not have a substantial bilateral OTHER UN AGENCIES 9% than the previous year. Funding program, for instance in Central Africa OTHER MULTILATERAL 10% increased, however, to the UN’s special- and Oceania. ized agencies, such as the Food and Agriculture Organization, the World Table 5 imputes Canada’s contributions Health Organization, and the to specific countries by allocating International Labour Organization. Canada’s portion for 1995-96 according These agencies were spared from the to individual agencies’ overall spending. cuts which were effected in other sectors For example, the World Bank (column 2) of ODA because they rely on member- allocated 1 percent of its concessional ship assessments rather than voluntary resources to Madagascar and Nigeria, and contributions. Canada’s contribution was computed proportionately. As a major multilateral Other multilateral channels were also donor, Canada sits on the governing able to avoid cuts in 1995-96 and councils and executive boards of these accounted for 10 percent of multilateral agencies, and has a say in the allocation aid disbursed. Comprised mainly of until recently only lent funds at market of funds. Commonwealth and La Francophonie rates of interest, has become, through its agencies such as the Commonwealth Where did Canada’s multilateral contri- concessional lending window, ESAF (the Fund for Technical Cooperation and butions go in 1995-96? More than Enhanced Structural Adjustment Facili- l’Agence de coopération culturelle et 60 percent went to the international ty), a major provider of development technique, these channels help give financial institutions (IFIs): the World assistance. The Regional Development Canada standing among these Bank , the International Monetary Fund Banks continue to be an important organizations’ member countries, an (IMF), and the Regional Development source of aid funds, but as column 4 important political consideration. Banks (one each for Africa, Asia, the shows, Canada made no new commit- Americas, and the Caribbean). Canada’s ments to the soft-window funds of the World Bank and IMF contributions— African or Asian Banks as replenishments administered by the Department of to these funds were under negotiation. Finance—were the first and second Negotiations have since been completed, 1 Most of the aid contributed by Canada to the WFP is largest channels for Canadian multi- so funding will resume to these chan- in the form of Canadian food products and is therefore lateral aid, respectively. The IMF, which nels, if at a much reduced level. directly tied to Canadian procurement.

156 C ANADIAN D EVELOPMENT R EPORT 1998

TABLE 5 CANADIAN MULTILATERAL OFFICIAL DEVELOPMENT ASSISTANCE BY AGENCY AND BY COUNTRY (1995-96)

(ESTIMATED IN MILLIONS OF C ANADIAN DOLLARS)

Total OF WHICH International Regional Total OF WHICH Other Financial World IMF Development UN Other UN Multilateral Country Institutions Bank (ESAF) Bank Agencies WFP UNDP UNICEF Agencies Channels Total

AFRICA 123 4 56789 1011

Algeria 0 0 0 0.0000 0.23 0 0.02 0.01 0.20 0.02 0.25 Angola 1.52 1.52 0 0.0000 4.23 3.60 0.07 0.33 0.24 0.70 6.45 Benin 2.44 1.30 1.14 -0.0004 0.36 0 0.17 0.05 0.14 0.09 2.89 Botswana 0 0 0 0.0000 0.28 0 0.16 0.02 0.11 0.88 1.17 Burkina Faso 5.75 3.56 2.19 -0.0003 1.28 0.66 0.34 0.08 0.20 1.42 8.45 Burundi 1.27 1.27 0 -0.0002 1.11 0.03 0.10 0.09 0.90 0.42 2.80 Cameroon 8.15 8.15 0 0.0000 0.21 0 0.06 0.03 0.11 1.31 9.67 Cape Verde 0.22 0.22 0 -0.0001 0.47 0.25 0.04 0.03 0.16 0.18 0.87 Central African Republic 1.82 1.82 0 0.0000 0.26 0 0.10 0.03 0.14 0.86 2.95 Chad 2.75 1.71 1.03 -0.0002 1.75 1.32 0.26 0.05 0.11 1.04 5.53 Comoros 0.33 0.33 0 0.0000 0.17 0 0.11 0.01 0.04 0.65 1.15 Congo - Brazzaville 4.59 4.59 0 0.0000 0.10 0 0.03 0.02 0.06 0.09 4.77 Congo - Kinshasa 0.06 0.06 0 0.0000 1.22 0 0.26 0.14 0.83 0.38 1.66 Côte d’Ivoire 35.09 20.28 14.80 0.0000 0.31 0 0.07 0.04 0.19 0.38 35.77 Djibouti 0.06 0.06 0 -0.0001 0.12 0 0.05 0.02 0.06 0.20 0.38 Egypt 2.27 2.27 0 -0.0002 1.56 0.57 0.41 0.10 0.48 0.13 3.96 Equatorial Guinea 0.11 0.11 0 0.0000 0.12 0 0.05 0.02 0.05 0.03 0.26 Eritrea 0 0 0 0.0000 0.53 0 0.14 0.12 0.27 0 0.53 Ethiopia 7.51 7.51 0 -0.0014 3.16 1.28 0.46 0.37 1.05 0.39 11.06 Gabon 0 0 0 0.0000 0.07 0 0.03 0.01 0.03 0.43 0.50 Gambia 0.41 0.41 0 -0.0001 0.24 0 0.12 0.02 0.10 0.22 0.88 Ghana 11.46 8.04 3.42 -0.0004 0.58 0 0.17 0.08 0.33 0.48 12.52 Guinea 5.37 2.85 2.53 -0.0002 1.31 0.79 0.16 0.06 0.30 0.55 7.23 Guinea-Bissau 0.69 0.50 0.20 -0.0001 0.35 0 0.25 0.03 0.07 0.29 1.33 Kenya 4.39 4.39 0 -0.0007 4.67 3.00 0.38 0.30 0.99 0.53 9.59 Lesotho 0.28 0.28 0 -0.0002 0.21 0 0.10 0.03 0.09 0.44 0.93 Liberia 0 0 0 0.0000 3.22 2.94 0.06 0.11 0.11 0.02 3.24 Libya 0 0 0 0.0000 00000 00 Madagascar 2.71 2.71 0 0.0000 0.55 0 0.25 0.14 0.16 0.11 3.37 Malawi 3.62 2.68 0.94 -0.0003 3.58 2.72 0.42 0.08 0.37 0.19 7.39 Mali 7.89 4.23 3.66 -0.0008 0.54 0 0.26 0.13 0.15 1.29 9.71 Mauritania 3.35 1.58 1.78 -0.0001 2.55 2.19 0.14 0.04 0.19 0.23 6.14 Mauritius 0 0 0 0.0000 0.08 0 0.02 0.01 0.05 0.73 0.81 Morocco 0 0 0 0.0000 0.55 0 0.11 0.03 0.40 0.34 0.89 Mozambique 7.99 7.99 0 -0.0007 5.02 2.09 1.72 0.35 0.85 0.20 13.20 Namibia 0 0 0 -0.0001 0.32 0 0.13 0.07 0.12 0.10 0.42 Niger 1.99 1.99 0 0.0000 0.68 0 0.24 0.08 0.36 1.01 3.68 Nigeria 2.71 2.71 0 -0.0003 0.87 0 0.26 0.26 0.35 0.29 3.87 Rwanda 0.53 0.53 0 -0.0004 2.08 0.16 0.13 0.58 1.22 0.71 3.32 São Tomé and Principe 0.30 0.30 0 -0.0001 0.13 0.06 0.03 0.01 0.03 0.02 0.46 Senegal 9.22 2.43 6.79 -0.0001 1.55 0.68 0.28 0.14 0.46 2.27 13.04 Seychelles 0 0 0 0.0000 0.03 0 0.01 0 0.02 0.96 0.99 Sierra Leone 3.35 1.71 1.64 -0.0005 0.46 0 0.24 0.06 0.16 0.53 4.34 Somalia 0 0 0 0.0000 0.96 0 0.44 0.32 0.20 0.07 1.02 South Africa 0 0 0 0.0000 0.26 0 0 0.04 0.22 0 0.26 Sudan 0.33 0.33 0 -0.0005 1.61 0 0.35 0.72 0.54 0.31 2.25 Swaziland 0 0 0 -0.0001 0.40 0.29 0.04 0.02 0.05 0.34 0.74 Tanzania 8.29 8.29 0 -0.0004 1.58 0 0.27 0.21 1.10 1.02 10.90 Togo 3.98 1.27 2.70 -0.0001 0.17 0 0.08 0.02 0.07 0.74 4.89 Tunisia 4.57 0 4.57 0.0000 2.60 2.41 0.04 0.02 0.13 0.39 7.56 Uganda 10.06 10.06 0 -0.0004 1.36 0.06 0.41 0.29 0.59 0.86 12.27 Zambia 112.02 8.43 103.59 -0.0003 3.32 2.75 0.15 0.13 0.30 0.88 116.22 Zimbabwe 8.73 4.59 4.15 0.0000 0.68 0 0.17 0.09 0.42 0.59 10.01 Regional Africa 0 0 0 -0.0002 5.51 0 0.35 0.01 5.14 3.46 8.96

Total Africa 288.18 133.05 155.12 -0.01 65.54 27.83 10.68 6.04 20.99 29.81 383.51 ➤

157 T ABLE 5 (CONTINUED)

AMERICAS 123 4 56789 1011

Antigua and Barbuda 0.01 0 0 0.0059 0.010000 0.33 0.34 Argentina 0.77 0 0 0.7694 2.89 0 2.78 0.04 0.08 0.04 3.71 Belize 0.76 0 0 0.7579 0.10 0 0.03 0.01 0.05 0.32 1.18 Bolivia 8.10 3.59 2.08 2.4232 5.17 3.97 0.45 0.12 0.64 0.07 13.34 Brazil 2.42 0 0 2.4207 3.51 0 2.96 0.22 0.33 0.11 6.05 Chile 0 0 0 0.0000 0.45 0 0.34 0.02 0.10 0.02 0.48 Colombia 0.46 0 0 0.4647 9.35 7.10 1.97 0.02 0.25 0.02 9.83 Costa Rica 0 0 0 0.0000 0.74 0.30 0.13 0.01 0.29 0.09 0.83 Cuba 0 0 0 0.0000 0.20 0 0.09 0.03 0.08 0 0.20 Dominica 0.27 0.01 0 0.2675 0.04 0 0.01 0 0.04 0.97 1.29 Dominican Republic 1.53 0 0 1.5314 0.65 0.16 0.32 0.02 0.15 0.02 2.20 Ecuador 2.63 0 0 2.6305 0.57 0 0.23 0.06 0.28 0.02 3.22 El Salvador 1.34 0 0 1.3415 1.79 1.09 0.54 0.03 0.13 0.02 3.15 Grenada 0.36 0 0 0.3634 0.010000.01 0.41 0.79 Guatemala 0.78 0 0 0.7819 0.48 0 0.30 0.03 0.15 0.04 1.31 Guyana 2.75 0.55 1.12 1.0805 0.22 0.06 0.11 0.01 0.03 1.02 3.99 Haiti 3.32 0 0 3.3175 1.06 0.67 0.08 0.09 0.23 0.60 4.98 Honduras 7.40 2.87 2.52 2.0110 0.55 0.08 0.20 0.02 0.26 0.04 8.00 Jamaica 1.03 0 0 1.0260 0.28 0 0.19 0.04 0.05 0.71 2.02 Mexico 0 0 0 0.0000 1.53 0.73 0.24 0.06 0.49 0.07 1.59 Nicaragua 6.41 2.35 0 4.0644 0.83 0 0.42 0.06 0.34 0.09 7.33 Panama 0.23 0 0 0.2323 0.84 0.45 0.33 0.01 0.05 0.02 1.10 Paraguay 1.31 0 0 1.3090 0.55 0.13 0.32 0.03 0.07 0 1.86 Peru 0 0 0 0.0000 3.08 0 2.61 0.12 0.35 0.13 3.21 St Kitts and Nevis 0.68 0.01 0 0.6738 0.02 0 0.02 0 0 0.14 0.84 St Lucia 1.10 0.01 0 1.0925 0.02 0 0.01 0 0.01 0.19 1.31 St Vincent/Grenadines 0.57 0 0 0.5680 0.02 0 0.01 0 0.01 0.28 0.87 Suriname 0 0 0 0.0012 0.010000.01 0 0.01 Trinidad and Tobago 0.22 0 0 0.2244 0.04 0 0.02 0 0.02 0.20 0.46 Uruguay 0.03 0 0 0.0300 0.58 0 0.45 0.02 0.11 0.02 0.63 Venezuela 0 0 0 0.0000 0.27 0 0.17 0.02 0.08 0.02 0.29 Regional Caribbean 0 0 0 0.0000 0.02 0 0.02 0 0 0 0.02 Regional Latin America 0.55 0 0 0.5527 3.16 0 0.82 0.15 2.19 1.24 4.96 Other Americas 0.90 0 0 0.9000 0.06 0 0.03 0 0.03 0.64 1.60

Total Americas 45.95 9.38 5.72 30.84 39.08 14.74 16.21 1.23 6.90 7.94 92.97

ASIA 123 4 56789 1011

Afghanistan 0 0 0 0.0000 4.08 2.99 0.61 0.15 0.33 0.22 4.30 Armenia 0.25 0.25 0 0.0000 0.09 0 0 0.04 0.05 0 0.34 Azerbaijan 0 0 0 0.0000 0.15 0 0 0.03 0.11 0 0.15 Bahrain 0 0 0 0.0000 00000 00 Bangladesh 19.67 18.65 0 1.0224 18.21 15.46 0.82 0.66 1.27 0.12 38.00 Bhutan 0.07 0.06 0 0.0148 0.36 0 0.21 0.04 0.11 0.04 0.47 Burma 0.30 0.30 0 0.0000 0.64 0 0.38 0.12 0.14 0.07 1.01 Cambodia 5.39 1.74 3.48 0.1644 4.19 1.99 1.05 0.19 0.95 0 9.57 China 30.82 30.76 0 0.0630 37.42 34.68 1.35 0.40 1.00 0.27 68.51 Georgia 0.06 0.06 0 0.0000 0.12 0 0 0.03 0.08 0 0.17 India 43.73 43.72 0 0.0176 3.56 0 0.97 1.21 1.38 1.00 48.30 Indonesia 0.24 0 0 0.2357 1.26 0 0.53 0.21 0.52 0.13 1.63 Iran 0 0 0 0.0000 0.46 0 0.07 0.02 0.36 0 0.46 Iraq 0 0 0 0.0000 0.96 0 0.03 0.52 0.40 0 0.96 Jordan 0 0 0 0.0000 2.83 0.18 0.08 0.02 2.55 0.04 2.88 Kazakhstan 0.02 0 0 0.0218 0.07 0 0 0.02 0.05 0 0.09 Kuwait 0 0 0 0.0000 0.14 0 0.14 0 0 0 0.14 Kyrghzstan 5.51 1.60 3.77 0.1445 0.10 0 0.04 0.02 0.03 0 5.61 Laos 2.90 1.22 1.46 0.2297 1.55 1.00 0.24 0.07 0.25 0.07 4.53 ➤

158 C ANADIAN D EVELOPMENT R EPORT 1998

ASIA (continued) 123 4 56789 1011

Lebanon 0 0 0 0.0000 1.65 0 0.11 0.04 1.49 0.04 1.69 Malaysia 0.01 0 0 0.0069 0.20 0 0.12 0.01 0.07 0.59 0.80 Maldives 0.27 0.25 0 0.0204 0.09 0 0.05 0.02 0.02 0.07 0.43 Mongolia 0.98 0.77 0 0.2019 0.31 0 0.10 0.02 0.19 0 1.29 Nepal 3.65 3.43 0 0.2223 1.06 0 0.34 0.17 0.54 0.13 4.84 North Korea 0 0 0 0.0000 0.15 0 0.10 0.01 0.04 0.02 0.17 Oman 0 0 0 0.0000 00000 00 Pakistan 15.88 14.62 0 1.2668 1.37 0 0.44 0.28 0.65 0.13 17.39 Papua New Guinea 0.06 0 0 0.0597 0.23 0 0.16 0.02 0.05 0.22 0.51 Philippines 0.40 0.19 0 0.2056 0.89 0 0.14 0.16 0.59 0.11 1.40 Qatar 0 0 0 0.0000 00000 00 Saudi Arabia 0 0 0 0.0000 0.22 0 0.20 0 0.02 0.02 0.24 Sri Lanka 3.84 3.51 0 0.3297 0.47 0 0.22 0.06 0.20 0.21 4.52 Syria 0 0 0 0.0000 1.14 0 0.08 0.02 1.05 0.02 1.17 Tajikistan 0 0 0 0.0000 0.06 0 0 0.04 0.02 0 0.06 Thailand 0.01 0 0 0.0148 0.52 0 0.11 0.06 0.34 0.11 0.65 Turkey 0 0 0 0.0000 0.27 0 0.06 0.03 0.18 0.04 0.32 Turkmenistan 0 0 0 0.0000 00000 00 United Arab Emirates 0 0 0 0.0000 00000 00 Uzbekistan 0 0 0 0.0000 0.13 0 0.03 0.03 0.08 0 0.13 Vietnam 13.41 5.69 7.50 0.2144 1.70 0 0.53 0.27 0.91 0.19 15.30 West Bank and Gaza 0 0 0 0.0000 6.48 0 0.73 0.05 5.70 0 6.48 Yemen 1.66 1.66 0 0.0000 0.45 0 0.15 0.07 0.23 0.16 2.27 Oceania 0.18 0.14 0 0.0389 0.19 0 0.08 0 0.11 3.20 3.57 Asia Regional 0.07 0 0 0.0718 4.67 0 0.36 0.05 4.27 1.99 6.74 Other Asia 0.15 0.08 0 0.0632 0.48 0 0.25 0.03 0.20 0.06 0.68

Total Asia 149.52 128.69 16.21 4.63 98.92 56.30 10.92 5.17 26.53 9.32 257.76

EASTERN EUROPE 123 4 56789 1011

Albania 2.46 1.58 0.89 na 0.23 0 0.05 0.02 0.16 0 2.69 Belarus na na na na na na na na na na na Bosnia Herzegovina na na na na na na na na na na na Bulgaria na na na na na na na na na na na Croatia na na na na na na na na na na na Czech Republic na na na na na na na na na na na Estonia na na na na na na na na na na na Hungary na na na na na na na na na na na Latvia na na na na na na na na na na na Lithuania na na na na na na na na na na na Macedonia, FYR na na na na na na na na na na na Moldova na na na na na na na na na na na Poland na na na na na na na na na na na Romania na na na na na na na na na na na Russian Federation na na na na na na na na na na na Slovak Republic na na na na na na na na na na na Slovenia na na na na na na na na na na na Ukraine na na na na na na na na na na na Ex-Yugoslavia 3.62 3.62 0 na 5.28 0 0.03 0.37 4.88 0 8.90 Other Europe 0 0 0 na 0.19 0 0.02 0 0.17 0.39 0.58

Total Eastern Europe 6.08 5.20 0.89 0 5.70 0 0.10 0.39 5.21 0.39 12.17

Country not Specified 64.43 0.01 0 0 51.59 27.47 5.36 1.36 17.39 42.49 158.51

Total Developing Countries 553.96 276.33 177.94 35.26 260.83 126.34 43.27 14.19 77.03 89.94 904.92

Source: CIDA, Statistical Report 1995-96.

159 T ABLE 6

CANADIAN BALANCE OF TRADE WITH DEVELOPING COUNTRIES (1996)

n 1996, Canada’s trade with develop- Countries exporting commodities to ing countries totaled $39.5 billion in Canada faced low tariff rates—the aver- I Total Canadian Trade with imports and exports, almost 15 times age tariff for imports from Africa was Developing Countries by Canada’s aid disbursements of only 0.7 percent. However, tariffs on Continent 1996 $2.3 billion.1 This represented 31 per- imports from 26 developing countries— EASTERN EUROPE 5% cent of Canada’s trade with countries AFRICA 9% in most cases dominated by clothing, other than the United States. Our top AMERICAS 39% textiles, and footwear (see Table 7)— five developing-country trading part- ASIA 47% averaged more than 10 percent. Devel- ners were China ($7.8 billion), Mexico oping countries have a comparative ($7.2 billion), Brazil ($2.5 billion), advantage principally in these areas, Malaysia ($2.1 billion), and Thailand and it is in those very categories that ($1.6 billion). Next in importance were Canada and other industrialized coun- Indonesia, Saudi Arabia, Venezuela, tries continue to maintain their protec- Algeria, and India. tionist walls. Revenue Canada collected $360 million in duties on imports from Canada’s trade with developing coun- China, and almost $70 million on tries has evolved significantly over the imports from Mexico. These tariffs— past 10 years. Developing countries’ if we assume that half are borne by share of Canadian total trade has grown developing country producers—place a from 6.5 to 8.0 percent, largely at the heavy burden on poorer countries, par- expense of non-US developed countries. ticularly those in South Asia where it While Canadian exports to and imports might have reached $53 million. Even from developing countries have both stagnated, increasing by 4 percent only. these numbers understate the problem grown in real terms, imports have Exports to Eastern Europe collapsed, since they say nothing about the non- grown at a rate of 13 percent per year, declining at a rate of almost 6 percent a tariff barriers faced by these countries. or twice as quickly as exports, which year since the end of the Cold War. grew at an annual rate of 6.5 percent. More recently, however, Canadian Because detailed figures on trade in The net result is that Canada has moved exports and imports to both Africa and services are not available, the figures in from a trade surplus with developing Eastern Europe have begun to increase this table represent only trade in goods countries of $1.2 billion in 1986 to a as these regions’ economies show signs with developing countries. Canada’s deficit of $9.3 billion in 1996. However, of renewed growth. two-way trade in services with develop- Canadian exports to industrialized ing countries was approximately Columns 9 and 10 show tariff revenue countries grew more than 20 percent $5.5 billion in 1996, or roughly collected on developing country faster than exports to developing 14 percent of its trade in goods: its imports in 1996. In column 10, this countries over the past decade. exports, such as engineering consulting revenue is expressed as a percentage of and insurance services, totaled approx- Broken down by continent, this trade total imports to arrive at the average imately $3.1 billion in 1996, largely to was dominated by Asia (47 percent of tariff rate these countries faced. In gen- the Americas. Canada enjoyed a small total trade), followed by the Americas at eral, the 3.4 percent tariff rate faced by surplus in its trade in services with 39 percent, Africa at 9 percent, and all developing countries’ imports was developing countries while running a Eastern Europe at 5 percent (see chart). three times the rate faced by developed fairly large deficit in trade in services As in the previous year, growth in countries—although this latter figure is with industrialized countries. Canadian export markets reflected the distorted by the large share of duty-free relative economic dynamism of these imports from the United States. This regions: exports to Asia increased by compares favourably with last year’s fig- 1 It should be noted that South Korea and Singapore, 10 percent a year and to the Americas ures which indicated a rate almost four both major Canadian trading partners, are no longer by 7 percent, while exports to Africa times higher for developing countries. classified as developing countries.

160 C ANADIAN D EVELOPMENT R EPORT 1998

TABLE 6 CANADIAN BALANCE OF TRADE WITH DEVELOPING COUNTRIES (1996)

(IN THOUSANDS OF C ANADIAN DOLLARS) % Change % Change Total Tariff Average Total Total Balance Total Total Balance Per Year Per Year Revenue Tariff Exports Imports of Trade Exports Imports of Trade Exports Imports Collected Rate Country 1996 1996 1996 1986 1986 1986 1986-96 1986-96 1996 1996

AFRICA 123456789 10

Algeria 418,206 738,067 (319,860) 193,531 11,502 182,029 8.0 51.6 46 0.01 Angola 7,398 165,626 (158,227) 1,248 42,428 (41,180) 19.5 14.6 0 0 Benin 3,073 28 3,045 2,388 12 2,376 2.6 8.9 0 0.48 Botswana 23,779 1,005 22,774~~~~~17617.49 Burkina Faso 2,720 4 2,716~~~~~07.04 Burundi 2,641 114 2,527~~~~~00.10 Cameroon 11,672 1,077 10,595 12,771 304 12,467 -0.9 13.5 6 0.55 Cape Verde 294 30 264~~~~~00.55 Central African Republic 332 896 (564)~~~~~60.72 Chad 56 61 (5)~~~~~00.40 Comoros 14 113~~~~~03.06 Congo - Brazzaville 567 127 440~~~~~10.69 Congo - Kinshasa (Zaire ) 11,283 20,984 (9,700) 16,614 33,945 (17,331) -3.8 -4.7 5 0.02 Côte d’Ivoire 12,838 35,221 (22,383) 7,310 15,760 (8,450) 5.8 8.4 2 0.01 Djibouti 1,064 1 1,063~~~~~00 Egypt 125,886 19,282 106,604 133,107 5,118 127,989 -0.6 14.2 2,117 10.98 Equatorial Guinea 36 224 (189)~~~~~00 Eritrea 0 0 0 na na na na na 0 ~ Ethiopia 21,379 6,754 14,625 31,549 2,156 29,393 -3.8 12.1 3 0.05 Gabon 5,344 319 5,025 12,630 5,770 6,860 -8.2 -25.1 11 3.34 Gambia 425 195 231 61 84 (23) 21.4 8.8 0 0.22 Ghana 74,595 2,661 71,934 28,778 65 28,713 10.0 44.9 16 0.59 Guinea 10,116 25,474 (15,358) 2,766 15,169 (12,403) 13.8 5.3 5 0.02 Guinea-Bissau 47 19 28~~~~~00 Kenya 33,170 18,540 14,630 49,255 20,868 28,387 -3.9 -1.2 271 1.46 Lesotho 355 5,751 (5,396)~~~~~1,219 21.20 Liberia 3,440 106 3,334 2,459 1,260 1,199 3.4 -21.9 5 4.79 Libya 137,298 0 137,297 74,123 22,727 51,396 6.4~0~ Madagascar 567 5,616 (5,049) 1,398 7,848 (6,450) -8.6 -3.3 111 1.98 Malawi 6,484 2,105 4,379 847 1,560 (713) 22.6 3.0 36 1.72 Mali 11,710 2,935 8,775~~~~~150.50 Mauritania 242 251 (9) 268 24 244 -1.0 26.5 36 14.43 Mauritius 3,583 18,863 (15,280) 987 13,474 (12,487) 13.8 3.4 3,516 18.64 Morocco 199,206 82,145 117,060 154,590 19,358 135,232 2.6 15.6 1,199 1.46 Mozambique 17,595 718 16,877 6,531 110 6,421 10.4 20.6 0 0.01 Namibia 1,204 49,972 (48,769) na na na na na 1 0 Niger 11,871 14,849 (2,978)~~~~~540.36 Nigeria 41,964 311,094 (269,130) 18,943 368,210 (349,267) 8.3 -1.7 23 0.01 Rwanda 4,550 100 4,450~~~~~21.98 São Tomé and Principe 49 0 49~~~~~05.22 Senegal 19,479 1,670 17,809 15,167 58 15,109 2.5 39.9 5 0.32 Seychelles 228 436 (208)~~~~~40.86 Sierra Leone 1,007 14,875 (13,869) 156 8,211 (8,055) 20.5 6.1 142 0.96 Somalia 207 105 102 1,817 78 1,739 -19.5 3.0 0 0.37 South Africa 224,750 439,574 (214,824) 151,529 373,241 (221,712) 4.0 1.6 4,996 1.14 Sudan 8,530 91 8,439 23,112 27 23,085 -9.5 13.0 0 0.26 Swaziland 97 1,188 (1,091)~~~~~373.14 Tanzania 18,306 1,402 16,904 25,108 3,062 22,046 -3.1 -7.5 1 0.06 Togo 906 44,132 (43,226) 4,798 3,182 1,616 -15.4 30.1 1 0 Tunisia 40,898 3,716 37,181 75,550 9,359 66,191 -6.0 -8.8 350 9.43 Uganda 11,970 12,588 (618) 1,311 2,360 (1,049) 24.8 18.2 4 0.03 Zambia 5,794 5,310 484 12,532 84 12,448 -7.4 51.4 4 0.07 Zimbabwe 8,905 13,231 (4,326) 7,558 6,737 821 1.7 7.0 274 2.07 Other Africa na na na 211,793 46,180 165,613 na na na na

Total Africa 1,548,130 2,069,546 (521,416) 1,070,792 994,151 76,641 3.8 7.6 14,704 0.71 ➤

161 T ABLE 6 (CONTINUED)

% Change % Change Total Tariff Average Total Total Balance Total Total Balance Per Year Per Year Revenue Tariff Exports Imports of Trade Exports Imports of Trade Exports Imports Collected Rate Country 1996 1996 1996 1986 1986 1986 1986-96 1986-96 1996 1996

AMERICAS 123456789 10

Antigua and Barbuda 27,668 1,858 25,810~~~~~150.83 Argentina 189,600 186,434 3,166 60,015 87,269 (27,254) 12.2 7.9 5,579 2.99 Belize 2,840 7,954 (5,113) 3,973 1,211 2,762 -3.3 20.7 23 0.29 Bolivia 26,118 17,613 8,504 8,926 9,591 (665) 11.3 6.3 39 0.22 Brazil 1,335,890 1,133,560 202,330 656,046 821,500 (165,454) 7.4 3.3 30,717 2.71 Chile 398,902 342,231 56,671 90,550 127,480 (36,930) 16.0 10.4 2,644 0.77 Colombia 459,182 296,960 162,223 160,692 124,153 36,539 11.1 9.1 5,422 1.83 Costa Rica 49,624 146,678 (97,054) 26,402 56,557 (30,155) 6.5 10.0 4,267 2.91 Cuba 260,473 401,164 (140,691) 364,549 71,310 293,239 -3.3 18.9 4,492 1.12 Dominica 2,161 1,181 981~~~~~605.07 Dominican Republic 76,267 91,910 (15,642) 52,980 36,049 16,931 3.7 9.8 4,761 5.18 Ecuador 71,691 128,736 (57,045) 78,718 92,227 (13,509) -0.9 3.4 1,197 0.93 El Salvador 10,869 27,766 (16,897) 11,261 64,188 (52,927) -0.4 -8.0 1,999 7.20 Grenada 4,249 559 3,690~~~~~335.89 Guatemala 67,010 103,239 (36,229) 15,065 40,362 (25,297) 16.1 9.8 2,267 2.20 Guyana 11,137 204,033 (192,897) 4,517 27,161 (22,644) 9.4 22.3 1,421 0.70 Haiti 29,763 2,948 26,815 20,788 12,245 8,543 3.7 -13.3 369 12.51 Honduras 16,295 51,049 (34,755) 13,971 20,678 (6,707) 1.6 9.5 3,367 6.59 Jamaica 85,335 239,099 (153,763) 70,026 149,903 (79,877) 2.0 4.8 4,537 1.90 Mexico 1,211,489 6,033,751 (4,822,261) 397,438 1,176,504 (779,066) 11.8 17.8 69,690 1.16 Nicaragua 16,379 9,764 6,615 22,683 34,111 (11,428) -3.2 -11.8 571 5.84 Panama 45,292 23,827 21,464 40,624 27,965 12,659 1.1 -1.6 135 0.56 Paraguay 5,842 2,917 2,925 2,386 7,243 (4,857) 9.4 -8.7 22 0.75 Peru 172,460 126,359 46,101 110,918 65,668 45,250 4.5 6.8 1,690 1.34 St Kitts and Nevis 2,616 2,959 (343)~~~~~1204.04 St Lucia 5,389 1,602 3,786~~~~~221.37 St Vincent/Grenadines 3,204 139 3,066~~~~~75.21 Suriname 4,988 26,181 (21,193) 1,308 1,665 (357) 14.3 31.7 35 0.13 Trinidad and Tobago 79,606 46,575 33,031 85,984 53,736 32,248 -0.8 -1.4 640 1.37 Uruguay 23,987 33,550 (9,563) 12,653 14,862 (2,209) 6.6 8.5 712 2.12 Venezuela 461,314 725,884 (264,570) 323,186 523,936 (200,750) 3.6 3.3 1,600 0.22

Total Americas 5,157,640 10,418,479 (5,260,839) 2,635,659 3,647,574 (1,011,915) 6.9 11.1 148,449 1.42

ASIA 123456789 10

Afghanistan 448 224 224 132 45 87 13.0 17.4 13 5.87 Armenia 416 37 379 na na na na na 0 0.91 Azerbaijan 381 58 323 na na na na na 0 0.29 Bahrain 14,815 1,479 13,336 7,604 3,594 4,010 6.9 -8.5 235 15.87 Bangladesh 62,065 87,659 (25,593) 101,296 18,492 82,804 -4.8 16.8 14,810 16.90 Bhutan 392 5 387~~~~~00.55 Burma 1,755 14,587 (12,832) 319 1,556 (1,237) 18.6 25.1 1,809 12.40 Cambodia 1,664 1,337 327 28 35 (7) 50.4 43.9 258 19.29 China 2,827,843 4,925,856 (2,098,013) 1,118,969 566,083 552,886 9.7 24.2 360,281 7.31 Georgia 747 437 310 na na na na na 16 3.63 India 346,382 603,968 (257,586) 352,359 165,405 186,954 -0.2 13.8 56,642 9.38 Indonesia 900,938 625,838 275,100 251,953 114,189 137,764 13.6 18.5 48,271 7.71 Iran 560,876 237,855 323,021 35,683 236,062 (200,379) 31.7 0.1 578 0.24 Iraq 771 0 771 105,435 815 104,620 -38.9 -65.4 0 0 Jordan 34,424 1,438 32,986 6,857 1,633 5,224 17.5 -1.3 188 13.08 Kazakhstan 12,980 4,988 7,992 na na na na na 2 0.03 Kuwait 74,830 208 74,623 24,366 293 24,073 11.9 -3.4 32 15.18 Kyrghzstan 27,235 351 26,883 na na na na na 73 20.72 Laos 19 1,107 (1,088)~~~~~24221.81 Lebanon 56,445 5,612 50,833 17,623 1,060 16,563 12.3 18.1 314 5.59 Malaysia 510,239 1,580,086 (1,069,847) 104,397 150,204 (45,807) 17.2 26.5 37,262 2.36 ➤

162 C ANADIAN D EVELOPMENT R EPORT 1998

ASIA (continued) 123456789 10

Maldives 19,647 185 19,462~~~~~3318.05 Mongolia ~~~~~~~~103~ Nepal 3,041 4,354 (1,314) 1,175 813 362 10.0 18.3 579 13.31 North Korea 454 86 368 1,273 614 659 -9.8 -17.9 29 33.18 Oman 11,011 599 10,412 5,906 4,380 1,526 6.4 -18.0 209 34.97 Pakistan 84,099 165,283 (81,184) 65,053 146,858 (81,805) 2.6 1.2 23,519 14.23 Papua New Guinea 6,369 733 5,637 11,762 563 11,199 -5.9 2.7 1 0.15 Philippines 285,377 552,636 (267,259) 49,477 109,411 (59,934) 19.2 17.6 27,094 4.90 Qatar 17,429 371 17,058 7,642 594 7,048 8.6 -4.6 80 21.46 Saudi Arabia 627,719 650,736 (23,017) 211,985 186,894 25,091 11.5 13.3 203 0.03 Sri Lanka 51,830 71,466 (19,636) 30,447 35,824 (5,377) 5.5 7.2 9,159 12.82 Syria 21,251 29,155 (7,904) 12,307 48 12,259 5.6 89.8 188 0.65 Tajikistan 24 0 24 na na na na na 0 0 Thailand 514,608 1,043,309 (528,701) 107,290 150,267 (42,977) 17.0 21.4 47,704 4.57 Turkey 259,057 151,778 107,279 201,848 56,753 145,095 2.5 10.3 9,173 6.04 Turkmenistan 439 12 427 na na na na na 2 18.77 United Arab Emirates 160,271 14,660 145,611 24,278 2,100 22,178 20.8 21.4 0 0 Uzbekistan 8,125 18,323 (10,198) na na na na na 25 0.14 Vietnam 44,219 97,783 (53,564) 2,845 6,671 (3,826) 31.6 30.8 10,957 11.21 West Bank and Gaza na na na na na na na na na na Yemen 5,721 11,179 (5,458) 15,653 77 15,576 -9.6 64.5 1 0.01 Oceania 5,858 10,486 (4,628) ~~~~~3373.21

Total Asia 7,562,213 10,916,263 (3,354,049) 2,875,962 1,961,333 914,629 10.2 18.7 633,803 5.81

EASTERN EUROPE 123456789 10

Albania 1,923 138 1,785 49 39 10 44.3 13.5 14 10.32 Belarus 3,281 5,393 (2,112) na na na na na 11 0.20 Bosnia Herzegovina 2,781 153 2,629 na na na na na 8 5.41 Bulgaria 11,202 49,740 (38,539) 53,987 9,318 44,669 -14.6 18.2 2,833 5.70 Croatia 18,191 12,562 5,629 na na na na na 1,096 8.73 Czech Republic 67,577 95,686 (28,110) 13,265 62,438 (49,173) 17.7 4.4 4,306 4.50 Estonia 14,397 7,188 7,209 na na na na na 251 3.49 Hungary 41,685 47,742 (6,057) 11,094 42,053 (30,959) 14.2 1.3 2,590 5.42 Latvia 7,577 6,240 1,337 na na na na na 27 0.43 Lithuania 8,678 14,033 (5,354) na na na na na 154 1.10 Macedonia, FYR 2,720 4,009 (1,290) na na na na na 553 13.80 Moldova 644 4,629 (3,985) na na na na na 620 13.39 Poland 160,655 144,300 16,355 19,487 67,931 (48,444) 23.5 7.8 6,410 4.44 Romania 96,830 50,378 46,452 130,443 56,118 74,325 -2.9 -1.1 5,314 10.55 Russian Federation 313,410 449,163 (135,754) 1,215,585 25,448 1,190,137 -12.7 33.3 7,681 1.71 Slovak Republic 15,684 20,024 (4,340) na na na na na 1,686 8.42 Slovenia 27,487 55,062 (27,575) na na na na na 1,550 2.82 Ukraine 33,366 16,394 16,971 na na na na na 1,231 7.51 Ex-Yugoslavia 5,712 2,727 2,986 40,872 45,443 (4,571) -17.9 -24.5 305 11.19

Total Eastern Europe 833,799 985,563 (151,763) 1,484,782 308,788 1,175,994 -5.6 12.3 36,021 3.65

Total Developing Countries 15,101,783 24,389,850 (9,288,067) 8,067,195 6,911,846 1,155,349 6.5 13.4 832,977 3.42

Total Other Countries 244,311,078 208,723,870 35,587,209 108,666,190 105,599,599 3,066,591 8.4 7.1 2,269,351 1.09

World 259,412,862 233,113,720 26,299,141 116,733,385 112,511,445 4,221,940 8.3 7.6 3,102,328 1.33

Sources: Statistics Canada; Department of Finance; Canada, Public Accounts of Canada.

163 T ABLE 7

TRADE: TOP EXPORTS AND IMPORTS WITH DEVELOPING COUNTRIES (1996)

his table reveals the nature of to this trend—Mexico, Brazil, China, Canada’s trade in 1996 by listing the Philippines, and Malaysia—are all T Canadian Military Exports the top three exports to and imports countries which rank among our most to Non-US Markets from each developing country, by value. important developing-country trading 1996 total: $459 million Items in mauve account for 75 percent partners. THAILAND 1.0% or more of total bilateral trade with that TURKEY 1.3% The last two columns show that Canada country. The magnitude and nature of MALAYSIA 4.0% registered direct military sales to 53 direct Canadian military exports is also BOTSWANA 4.6% OTHER DEVELOPING COUNTRIES 4.0% developing countries, worth $264 million shown.1 SAUDI ARABIA 42.5% in 1996 according to figures supplied by REMAINING NON-US MARKETS 42.6% Canada’s exports to developing coun- the Department of Foreign Affairs and tries are generally quite predictable and International Trade (DFAIT). While the reflect our traditional natural wealth: in value of military exports to non-US 1996, agricultural and fisheries products markets dropped by 1 percent in 1996, were among the top three exports to 58 exports to Africa more than doubled— of 129 developing countries. Wheat a 224 percent increase—while sales to dominated these exports to 20 develop- the Americas and Asia increased by ing-country markets and ranked in the 35 percent and 14 percent, respectively.2 top three exports to seven others. Sales to all developing countries Developing countries took a dispropor- accounted for close to 60 percent of tionately large share—more than 75 total Canadian military exports to percent—of Canada’s total exports of countries other than the United States. wheat. Milk and dairy products, on the By far Canada’s largest military market, other hand, were among the top the United States imported an estimated exports to only five countries: interest- $500 million worth of Canadian mili- ingly, Canada imported milk powder Cambodia. Mineral ores from 41 coun- tary goods. (Indirect sales of military from Lithuania. Also important were tries included uranium, bauxite, tin, equipment and firearms through third exports of newsprint and paper prod- gold, diamonds, and oil. The diversity countries, such as the US are not ucts, ranking as the top export to 16 of trade is reflected in some of the less included.) The sale to Saudi Arabia of countries and among the top three conventional goods that found their light armoured vehicles and parts, air- exports to 30 countries. In 1996, way into Canada, including musical craft parts, targets, and radios accounted Canada also had significant exports of instruments from Burkina Faso, baking for 74 percent of the value of all mili- telecommunications equipment to 17 equipment from Lebanon, antiques tary exports to developing countries. developing countries. from Ubzbekistan, and waste paper Other important buyers included from the Ukraine. On the Canadian Botswana, Malaysia, Turkey, and In 1996, Canadian imports were domi- side, unusual exports included camera Thailand. In 1995, Canada was the nated by agricultural commodities, parts to the Gambia, casks and barrels world’s tenth largest arms supplier to clothing and textiles, and mineral ores to St Vincent and the Grenadines, key- the developing world, accounting for and oil. As many as 66 developing board instruments to Paraguay, and almost 1 percent of total arms exports.3 countries, mainly in Africa and the peat to Bosnia Herzegovina. Americas, exported agricultural goods to 1 These figures, particularly for smaller developing Canada: coffee, tea, cocoa, cotton, and Surprisingly, considering the publicity countries, may not be as accurate and complete as tropical fruits and nuts. Most of the 44 given to inexpensive manufactured and similar figures for developed countries because a large part of Canadian trade with developing countries, countries which supplied us with cloth- high-tech goods from developing particularly exports, is channeled through the United ing and textiles were in Asia. Paradoxi- countries, these products were among States. It is thus sometimes included in exports to cally, used clothing from Canada the top three imports from relatively the US. 2 Comparisons are based on DFAIT’s revised figures for ranked as one of the top three exports few developing countries. It should be 1995 military exports. to 18 countries in Africa, as well as to noted that most of the major exceptions 3 Project Ploughshares, Armed Conflicts Report 1997.

164 C ANADIAN D EVELOPMENT R EPORT 1998

TABLE 7 TRADE: TOP EXPORTS AND IMPORTS WITH DEVELOPING COUNTRIES (1996)

Top Three Domestic Exports from Canada, 1996 Top Three Imports into Canada, 1996 Total Military Top Military Exports 1996 Exports from Country 123123(Cdn dollars) Canada

AFRICA 123456 78

Algeria wheat milk powder lentils crude petroleum petroleum products dates 45,442 simulator parts Angola used clothing asbestos canola oil crude petroleum low value imports ~ 0 Benin cigarettes used clothing books, printed matter returned goods low value imports ~ 0 Botswana aircraft medicine machine parts men’s shirts nonindustrial diamonds men’s trousers 20,952,471 aircraft Burkina Faso transmitters books, printed matter mining equipment low value imports statuettes musical instruments 28,059 firearms, ammunition Burundi prefabricated buildings used clothing lentils coffee returned goods low value imports 0 Cameroon canola oil paper fertilizers other natural rubber tech. specified natural rubber cotton 0 Cape Verde iron/steel articles spectrometers beans ploughs electric trains equipment static electric converter 0 Central African Republic machine parts boring machinery telephone parts fruits, vegetable juice cashew nuts punched juices 1,805 firearms Chad used clothing pipe/iron fittings printed matter rubber processors pineapples engines & motors 0 Comoros data processing machines tires ~ sweet potatoes jewellery essential oils 0 Congo - Brazzaville rolled iron products data processing machines taps, cocks, valves nonindustrial diamonds low value imports stuffed toys 0 Congo - Kinshasa (Zaire) used clothing canola oil lentils unwrought cobalt cobalt ores industrial diamonds 0 Côte d’Ivoire medicine paper potassium chloride cocoa beans cocoa butter, fat & oil veneer 0 Djibouti lentils used clothing food preparations electric pressure appliances low value imports ~ 0 Egypt bituminous coal newsprint lumber iron or nonalloy bars t-shirts, singlets & vests women’s trousers 785,161 aircraft & ammunition parts Equatorial Guinea bulldozer blades telephone parts ~ cocoa butter, fat & oil tuna bananas 0 Eritrea ~~~~~~ 0 Ethiopia wheat turbo propellers parts for turbo-jets coffee aircraft undercarriages oil seeds 40,786 aircraft parts Gabon tractors prefabricated structures chicken cuts flowers & flower buds mechanical appliances paper & pulp 534 firearm parts, ammunition Gambia insulating glass plastic articles camera parts aircraft parts parts of calculators metal moulds 0 Ghana locomotives used clothing fuses cocoa beans industrial diamonds sweet potatoes 0 Guinea transmitters coal or rock cutters mechanical appliances aluminum ores tech. specified natural rubber other natural rubber 0 Guinea-Bissau sauce preparations machine parts telephone parts coffee low value imports ~ 0 Kenya wheat used clothing helicopters salmonide dried fish cuttings & slips 82,848 aircraft parts Lesotho medicine scientific instruments stamps, cheques, certificates women’s trousers men’s trousers other garments 0 Liberia peas canola oil used clothing silk products women’s trousers gold powder 0 Libya durum wheat milk & creams other wheat & meslin low value imports ~~ 0 Madagascar aircraft parts parts for turbo-jets metal rolling mills vanilla beans resinoids pullovers, cardigans 200 firearms Malawi books, printed matter used clothing maize black tea nuts & seeds men’s shirts 0 Mali wheat transmitters mining equipment cotton cathode ray tubes:bipolar metal cathode ray tubes: metal 0 Mauritania parts of data processors printing machinery used clothing t-shirts, singlets & vests preserved olives women’s trousers 0 Mauritius telephone sets lentils telephone parts women’s blouses women’s trousers men’s shirts 0 Morocco wheat sulphur butter mandarins fluorspar petroleum products 232,400 simulator parts Mozambique wheat used clothing milk powder cashew nuts live animals low value imports 0 Namibia medical equipment machine parts mechanical appliances natural uranium chemical plants other aircraft parts 3,248 firearms & parts Niger scientific instruments telephone parts cobalt natural uranium needles organic derivatives 0 Nigeria polyethylene electrical switches wheat crude petroleum cocoa beans noncrude petroleum 0 Rwanda used clothing lentils contractors’ equipment black tea soya sauce vegetables 0 São Tomé and Principe bovine meat beans telephone parts low value imports ~~ 0 Senegal sulphur aircraft paper storage units fresh or chilled fish data processing machines 0 Seychelles agricultural equipment electrical switches parts of data processors aircraft parts input or output units cinnamon 0 Sierra Leone soya bean oils asphalt used clothing aluminum oxide parts of data processors crystal lead glassware 0 Somalia contractor’s equipment used clothing medicine parts of data processors grapes, fresh input or output units 0 South Africa sulphur chemical wood pulp wheat platinum oranges other ferro-chromium 180,123 firearms, rockets & parts Sudan disc harrows machine parts mechanical appliances coffee iron/steel pipe arrowroot, tubers 0 Swaziland magnesium ~ ~ fresh/dried oranges fresh/dried grapefruit signal generators 0 Tanzania wheat used clothing tobacco coffee black tea green tea 4,040 ammunition, firearms Togo used clothing paper agricultural machinery phosphates frozen shrimp, prawns live animals 0 Tunisia sulphur construction machinery wheat spectacles, goggles, etc. dates pullovers, cardigans 0 Uganda used clothing potato seeds heterocyclic compounds coffee air heaters activated carbon 0 Zambia used clothing tractors for semi-trailers shovel loaders unwrought cobalt ash & ash residues tobacco 3,057 firearms Zimbabwe parts for turbo-jets construction machines parts rock drilling tools tobacco granite refined sugar 641,525 aircraft, firearms

Total Africa 23,001,699 ➤

165 T ABLE 7 (CONTINUED)

Top Three Domestic Exports from Canada, 1996 Top Three Imports into Canada, 1996 Total Military Top Military Exports 1996 Exports from Country 123123(Cdn dollars) Canada

AMERICAS 123456 78

Antigua and Barbuda aircraft prefabricated buildings aircraft parts cotton groundnuts bovine & equine leather 0 Argentina newsprint telephone parts electric conductors bovine & equine leather groundnuts grape juice 9,598 firearms & parts Belize lubricants meat, meat offals malt raw sugar lobsters, crawfish sea bass 0 Bolivia wheat transmitters taps, cocks, valves unalloyed/unwrought tin silver ores lead ores & concentrates 79,908 aircraft parts Brazil wheat newsprint potassium chloride frozen orange juice motor veh. radio receiver footwear 1,437,591 aircraft & helicopter parts Chile wheat telephone parts bituminous coal copper ores fresh grapes grape wines 753,870 aircraft parts, aerial targets, firearms Colombia wheat copper wires/bars newsprint coffee bananas flowers 0 Costa Rica paper newsprint malt bananas coffee brassieres 19,961 firearms & parts Cuba peas maize chicken cuts nickel oxide sinters raw sugar cane lobsters, crawfish 0 Dominica lumber low value exports tires coffee ceramic ware cathode ray tubes 0 Dominican Republic newsprint smoked herring fish gold coffee men’s shirts 0 Ecuador wheat newsprint barley bananas frozen shrimp, prawns flowers & flower buds 0 El Salvador newsprint potassium chloride films & sheets coffee pullovers, cardigans electrical capacitors 0 Grenada whisky low value exports lumber nutmeg mace low value imports 0 Guatemala wheat newsprint potassium chloride coffee raw sugar cane sesame seeds 0 Guyana ammonium sulphate carpets dielectric transformers nonmonetary gold aluminum ores rum & tafia 2,625 firearms Haiti transmitters smoked herring beans sacks & bags copper waste sisal binders 0 Honduras newsprint office furniture potassium chloride coffee bananas fresh melons 0 Jamaica newsprint telephone parts low value exports aluminum oxide rum & tafia t-shirts, singlets & vests 0 Mexico rape or colza seeds wheat motor vehicle parts automobiles ignition wiring sets engines, spark-ignition 304,818 ammunition, gas-mask parts Nicaragua urea polyethylene newsprint gold men’s trousers shrimp & prawns 0 Panama petroleum oils malt lentils gold coffee shrimp & prawns 0 Paraguay low value exports graders & levelers keyboard instruments hybrid integrated circuits cathode ray tubes: metal integrated circuits: bipolar metal oxide semiconductors 360,678 body-armour, helmets Peru telephone parts durum wheat other wheat & meslin lead ores & concentrates flour, meal, fish pellets coffee 9,979 body-armour St Kitts and Nevis fish low value exports juice electrical switches low value imports circuit breakers 0 St Lucia groceries printed matter medicine paper & paper articles tin articles picture frames 0 St Vincent/Grenadines casks, barrels sacks & bags low value exports men’s shirts preserved fruits & nuts low value imports 850 firearms Suriname bovine meat meat, meat offals yeast nonmonetary gold frozen fish furniture parts 0 Trinidad and Tobago newsprint wheat or meslin flour potatoes petroleum products iron or nonalloy bars urea 0 Uruguay newsprint paper potato seeds bovine & equine leather woven fabrics (heavy) woven fabrics (light ) 0 Venezuela other wheat & meslin durum wheat newsprint crude petroleum petroleum products iron/nonalloy steel 723,686 aircraft parts, body-armour

Total Americas 3,703,564

ASIA 123456 78

Afghanistan paper canola oil flat rolled iron products carpets antiques hand-woven rugs 0 Armenia ethyl alcohol whisky paper knotted carpets not knotted carpets pears & quinces: fresh 0 Azerbaijan contractors’ equipment telephone parts taps, cocks, valves returned goods semiconductor devices aircraft parts 0 Bahrain newsprint chemical wood pulp paper men’s shirts women’s trousers aluminum alloy 25,928 aircraft & radar parts Bangladesh mustard seeds poles newsprint men’s anoraks men’s shirts (cotton) men’s shirts (man-made) 81,810 sonar parts & firearms Bhutan bulldozer blades ~ ~ voltage instruments oil seeds articles of silver 0 Burma pumps low value exports equipment to be re-exported shrimp & prawns t-shirts, singlets & vests men’s shirts 0 Cambodia low value exports used clothing medical instruments men’s anoraks men’s swimwear men’s shirts 0 China wheat chemical wood pulp telephone parts toys footwear parts of data processors 149,941 radar parts Georgia tobacco lumber furskin parts of work trucks metal carbide plates parts of paper machines 0 India newsprint asbestos peas t-shirts, singlets & vests men’s shirts women’s blouses 2,440,177 ship for scrap, sonars, bomb-disposal suits Indonesia wheat ethylene glycol wood pulp tech. specified natural rubber other natural rubber sportswear 1,658,426 aviation-related equipment, aircraft parts Iran wheat & meslin durum wheat barley crude petroleum carpets pistachios 0 Iraq low value exports ~~low value imports ~~ 0 Jordan aircraft automobiles logs, poles men’s shirts aircraft parts turbo propellers 1,160,184 aircraft software & parts Kazakhstan machine parts laboratory equipment mechanical appliances natural uranium ferro chromium flat rolled iron/nonalloy 0 Kuwait automobiles paper taps, cocks, valves women’s garments men’s shirts pullovers, cardigans 542,325 radios, aircraft parts, ammunition Kyrghzstan machine parts coal or rock cutters drilling machines women’s dresses & pyjamas plain woven cotton fabrics returned goods 0 Laos vaccines telephone parts ~ men’s shirts (man-made fibers) men’s shirts (cotton) men’s anoraks 0 Lebanon aluminum machine parts milk & creams nuts & seeds virgin olive oil bakery machinery 1,177 aircraft parts Malaysia newsprint potassium chloride aircraft cathode ray tubes integrated circuits sound reproducing apparatus 18,231,512 aircraft parts, simulators, rockets ➤

166 C ANADIAN D EVELOPMENT R EPORT 1998

Top Three Domestic Exports from Canada, 1996 Top Three Imports into Canada, 1996 Total Military Top Military Exports 1996 Exports from Country 123123(Cdn dollars) Canada

ASIA (continued) 123456 78

Maldives aircraft contractors’ equipment aircraft parts t-shirts, singlets & vests men’s shirts low value imports 0 Mongolia ~~~~~~ 0 Nepal aircraft parts cartridges transmitters men’s shirts carpets pullovers, cardigans 0 North Korea fish shrimp & prawns bovine tongues, edible offal ceramic ware plastic ware. paper (rolls or sheets) 0 Oman automobiles contractors’ equipment machine parts women’s trousers men’s shirts men’s anoraks 896,488 aviation-related parts, ammunition Pakistan bituminous coal peas machine parts cotton yarn toilet & kitchen linen men’s shirts 2,569,082 radios, fire-control systems Papua New Guinea taps, cocks, valves parts of electric motors graders & levelers coffee parts for turbo-jets other aircraft parts 0 Philippines wheat copper oreszinc other integrated circuits cathode ray tubes: metal storage units 2,940,826 propellants, aircraft parts, ammunition parts Qatar helicopters automobiles carpets men’s shirts (cotton) women’s garments men’s garments (synthetic) 0 Saudi Arabia armoured vehicles barley aircraft crude petroleum acyclic ethers crude granite 195,303,965 LAV’s & parts, aircraft parts, targets, radios Sri Lanka wheat asbestos printed matter tires, tire treads & tire flaps men’s anoraks footwear 31,500 bomb-disposal suits Syria aluminum poles impregnated fabrics crude petroleum petroleum products t-shirts, singlets & vests 0 Tajikistan paper ~~low value imports ~~ 0 Thailand wheat asbestos chemical wood pulp frozen shrimp, prawns storage units tuna, skipjack & bonito 4,814,385 rockets & parts, firearms, APC & tank parts Turkey railway coaches tobacco bituminous coal small worsted fabrics dried grapes worsted fabrics 5,989,711 navigation systems, aircraft parts Turkmenistan pressing/punching tools motor vehicle parts mechanical appliances printed woven fabrics cathode ray tubes low value imports 0 United Arab Emirates helicopters aluminum automobiles buoys, beacons stainless steel bars jewellery 24,504 firearms, ammunition Uzbekistan telephone answering machines transmitters electrical parts (for telephones) natural uranium cotton antiques 0 Vietnam artificial filament tow wood pulp potassium chloride coffee shrimp & prawns plastic containers 18,850 radios, firearm parts Yemen paper printed matter furniture petroleum products coffee biscuits, waffles, wafers 0

Total Asia 236,880,791

EASTERN EUROPE 123456 78

Albania stamps, cheque, certificates machine parts printed matter women’s blouses essential oils statuettes 0 Belarus ethyl alcohol (<80% vol.) vaccines ethyl alcohol (>80% of vol.) flight simulators milk powder casein 0 Bosnia Herzegovina diesel trucks peat doors, windows perfumes & toilet water orange juice bolts/screws 0 Bulgaria zinc ores static converters parts of signaling apparatus copper ores grape wines women’s jackets/blazers 190 firearms Croatia refined sugar scientific appliances asphalt ferro-chromium soups & broth footwear, outer sole 0 Czech Republic impregnated fabrics pet food asphalt boring machine wheeled tractors tubes, pipe & hollow profiles 70,905 bomb-disoposal suits, firearms, aircraft parts Estonia dump trucks copper ores mink furskins shrimp & prawns ophthalmic instruments products of benzoic acid 5,350 firearms Hungary medicine swine cuts cinematographic projectors parts of electric filaments, lamps grape wines storage units 19,365 body-armour, firearms Latvia transmitters ethyl alcohol prefabricated structures frozen shrimp, prawns crude petroleum plywood 0 Lithuania maize laboratory equipment veneer frozen shrimp, prawns frozen fish milk powder 0 Macedonia, FYR transmission apparatus impregnated fabrics chicken, capon cuts, offal footwear, outer sole bedroom furniture ferro-silicon 0 Moldova fuel pumps centrifugal pumps tents apple juice men’s shirts women’s blouses & shirts 0 Poland wheat purifying machinery ham cuts mechanical appliances parts for turbo-jets bars, rods (copper-zinc) 8,684 bomb-disposal suits, firearms Romania aircraft bituminous coal sawing machines other footwear footwear (covering ankles) taps, cocks, valves 2,810 firearms Russian Federation swine cuts tobacco low value exports natural uranium frozen cod petroleum products 12,490 body-armour, firearms Slovak republic gas supply meters purifying machinery remote control lathes heterocyclic compounds petroleum products 43,445 bomb-disposal suits, firearms Slovenia low value exports lumber asbestos heterocyclic compounds swine leather furniture parts 3,347 firearms Ukraine low value exports other structures & parts prefabricated buildings low value imports paintings, drawings waste paper 8,085 firearms Ex-Yugoslavia low value exports articles of peat electrical switches raspberries, mulberries men’s trousers & shirts women’s anoraks 0

Total Eastern Europe 174,671

Total Developing Countries 263,760,725

Total Other Countries (Other than US) 195,652,839

Total World (Other than US) 459,413,564

Notes: Items in mauve contributed to at least 75 percent or more of total bilateral trade with Canada. Source: Statistics Canada, International Trade Division.

167 T ABLE 8

CANADIAN FINANCIAL RELATIONS WITH DEVELOPING COUNTRIES (1996)

his table offers a glimpse of Canada’s of 2 percent from last year. While the financial relations with the develop- Wheat Board does not release detailed T Official Debt Owed to ing world. Despite the importance of country figures, Russia, Algeria, and Canada by Agency these linkages, figures for private or Brazil most likely accounted for the 1996 total: $16.9 billion commercial debt are difficult to obtain, lion’s share of the outstanding debt. as reflected by the number of gaps in the CANADIAN GOVERNMENT (CIDA) 10% UNKNOWN 11 % Column 11 provides a rough breakdown table. Similarly, statistics on yearly flows CANADIAN WHEAT BOARD 34% of Canada’s foreign direct investment can at best be estimated, and then only EXPORT DEVELOPMENT CORPORATION 45% (FDI) stock—direct investment or owner- for the largest developing countries. ship in companies—in developing coun- In 1996, total claims by Canadian public tries. FDI is held in another country’s agencies and Canadian banks on devel- physical assets as opposed to financial oping country institutions and indivi- assets, such as stocks or bonds. Canada duals were estimated to have reached held approximately $16.1 billion in FDI $43.5 billion, an increase of $10 billion in developing countries. Fully 63 percent over the previous year. Information of this was located in the Americas: supplied by the Bank of Canada to the Chile, Brazil, and Mexico were in the top Bank for International Settlements indi- four developing-country recipients of cates that Canadian banks alone held Canadian FDI. (The Caribbean nations 56 percent of these debts, representing of the Bahamas and Barbados, both high claims of $24.5 billion on residents of human development countries, account- developing countries (both private sec- ed for another large share of Canadian tor and sovereign lending). Much of $65 million. Because most of the debt FDI.) Next in importance was Asia, this lending—75 percent—was to the owed by the poorest countries had particularly Indonesia, followed distantly Americas with most of the remainder to already been forgiven, the remaining debt by Thailand and China. Developing Asia. Most indebted to Canada were was concentrated in Asia—notably in country companies, in turn, had some Mexico, Brazil, China, and Argentina. India, Pakistan, Indonesia, and Sri Lanka. $1.4 billion invested in Canada. In Individual Canadian banks had only The rest of Canada’s official debt with percentage terms, some 10 percent of limited exposure to “problem” develop- developing countries was held by two Canada’s total FDI stock was invested in ing-country debtors as designated by crown corporations: the Export Develop- developing countries while developing the Office of the Superintendent of ment Corporation (EDC) and the countries accounted for less than Financial Institutions. The Bank of Canadian Wheat Board (CWB) which, 1 percent of FDI in Canada. Nova Scotia was most exposed, with for reasons of commercial confidentiality, Although of growing importance, little much of its $1.5 billion in loans are not required to release detailed information is available about Canadian considered not to be fully collectible. information on their lending practices. portfolio investment in developing- At approximately $19 billion in 1996, the In 1996, the EDC held approximately country stocks and bonds. The popu- debt owed by developing countries to the $8.5 billion in outstanding loans from larity of mutual funds, large pools of Canadian government or its agencies developing countries, mainly on its pension savings, and low interest rates was substantial, though marginally nonconcessional corporate account. The have contributed to a rapid increase in higher than in 1995. (It should be noted, EDC’s gross exposure through the corpo- this form of investment: Canadian however, that 1996 figures are based on rate account was significantly lower than portfolio investment in non-OECD more complete information than those a year earlier, especially in Africa as a countries was some $10 billion in 1996, in 1995 and hence comparisons should result of debt forgiveness through the a four-fold increase since 1990. While be made with caution.) Of this total, Paris Club and debt write-downs. Loans much of this was probably invested in only 10 percent—1.9 billion—was debt outstanding under the EDC’s “Canada emerging markets such as Singapore, owed directly to the government of Account” (some of it concessional and South Korea, Hong Kong, and Taiwan, Canada, mostly in the form of conces- guaranteed by the Canadian govern- an increasing amount undoubtedly sional debt owed to CIDA. As CIDA no ment) were up slightly, mainly because reached developing countries. longer provides bilateral loans, the out- of a $93 million loan to China.1 1 The Canada Accounts are loans by the EDC authorized standing debt will decrease year by year: The Canadian Wheat Board held $6.5 by the Government of Canada to foreign customers nonetheless, in fiscal year 1995-96, debt where the liability is for a term, or in an amount in billion in outstanding credit grain sales excess of that normally assumed by the EDC. Financed servicing to the Canadian government to 13 developing countries, a reduction directly by the Canadian government, these loans are cost developing countries more than administered by the EDC on the government’s behalf.

168 C ANADIAN D EVELOPMENT R EPORT 1998

TABLE 8 CANADIAN FINANCIAL RELATIONS WITH DEVELOPING COUNTRIES (1996)

(IN MILLIONS OF C ANADIAN DOLLARS)

P UBLIC OR O FFICIAL D EBT P RIVATE OR C OMMERCIAL D EBT T OTAL FDI Export Development Export Development Export Stock of Stock of Corporation Corporation Development Total Bank of Total Foreign Foreign Government Canada Account Canada Account Corporation Canadian Official Royal Bank Nova Scotia Total Canadian Direct Direct of Canada Section 23 Section 23 Corporate Wheat Debt Gross Exposure Canadian Debt Claims Investment Investment (CIDA) Nonconcessional Concessional Account Board (Estimate) (Designated LDCs only) Bank Claims (Estimate) Abroad in Canada Country 31-Mar-96 31-Mar-96 31-Mar-96 31-Dec-96 31-Jul-96 1996 31-Oct-96 31-Oct-96 30-Sept-96 1996 1996 1996

AFRICA 123456789101112

Algeria 49.52 16.50 12.90 435.00 > zero 747.00 ~ ~ ~ ~ ~ ~ Angola 0 0 0 ~ 0 6.80 ~ ~ ~ ~ ~ ~ Benin 0 0 0 ~ 0 1.00 ~ ~ ~ ~ ~ ~ Botswana 0 0 0 ~ 0 1.10 ~ ~ ~ ~ ~ ~ Burkina Faso 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ Burundi 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ Cameroon 0 14.75 21.85 ~ 0 403.60 ~ ~ ~ ~ ~ ~ Cape Verde 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ Central African Republic 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ Chad 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ Comoros 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ Congo - Brazzaville 0 0.40 3.51 ~ 0 61.20 ~ ~ ~ ~ ~ ~ Congo - Kinshasa (Zaire) 0 0 0 ~ 0 36.00 ~ ~ ~ ~ ~ ~ Côte d’Ivoire 0 0 0 >zero 0 251.00 ~ ~ 0 ~ ~ ~ Djibouti 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ Egypt 54.54 4.08 19.01 >zero > zero 468.80 ~ ~ 0 468.80 ~ ~ Equatorial Guinea 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ Eritrea 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ Ethiopia 0 0 0 ~ > zero 1.80 ~ ~ ~ ~ ~ ~ Gabon 0 22.66 12.36 ~ 0 112.40 ~ ~ 0 112.40 ~ ~ Gambia 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ Ghana 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ Guinea 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ Guinea-Bissau 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ Kenya 0 13.37 10.36 ~ 0 120.60 ~ ~ ~ ~ ~ ~ Lesotho 0 0 0 ~ 0 ~ ~ ~ ~ ~ ~ ~ Liberia 0 0 0 ~ 0 4.10 ~ ~ ~ ~ ~ ~ Libya 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ Madagascar 0 0 24.42 ~ 0 42.60 ~ ~ ~ ~ ~ ~ Malawi 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ Mali 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ Mauritania 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ Mauritius 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ Morocco 14.69 151.05 139.96 ~ 0 397.60 ~ ~ 0 397.60 ~ ~ Mozambique 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ Namibia 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ Niger 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ Nigeria 0 0 0 ~ 0 0 ~ ~ 0 ~ ~ ~ Rwanda 0 6.12 0 ~ 0 6.30 ~ ~ ~ ~ ~ ~ São Tomé and Principe 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ Senegal 0 0 0 ~ 0 8.80 ~ ~ ~ ~ ~ ~ Seychelles 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ Sierra Leone 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ Somalia 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ South Africa 0 0 0 ~ 0 50.60 ~ ~ ~ ~ 154 197 Sudan 0 8.96 0 ~ 0 13.00 ~ ~ ~ ~ ~ ~ Swaziland 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ Tanzania 0 0 37.29 ~ 0 87.00 ~ ~ ~ ~ ~ ~ Togo 0 0 0 ~00~~~~~~ Tunisia 92.98 0 0 ~ 0 114.20 ~ ~ ~ ~ ~ ~ Uganda 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ Zambia 0 0 8.06 ~ > zero 86.40 ~ ~ ~ ~ ~ ~ Zimbabwe 0 0 0 ~ 0 0 ~ ~ ~ ~ 20 ~ Total Africa 211.73 237.89 289.73 1,249.59 > zero 3,021.90 ~ 22 480.86 3,502.76 684 197 Memorandum Items: Africa unspecified 0 0 0 814.59 0 814.59 ~ 22 480.86 ~ 510 ~ ➤ 169 T ABLE 8 (CONTINUED)

AMERICAS 123456789101112

Antigua and Barbuda 0 0 0 ~ 0 29.90 ~ ~ ~ ~ ~ ~ Argentina 0.40 147.50 21.58 ~ 0 612.20 183 293 1,627.83 2,240.03 1,260 ~ Belize 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ Bolivia 0 0 0 ~ 0 0 ~ ~ 0 0 67 ~ Brazil 7.46 11.30 0 499.00 > zero 658.60 576 577 3,167.12 3,825.72 2,747 240 Chile 2.63 0 1.15 ~ 0 116.40 ~ ~ 790.08 906.48 2,757 ~ Colombia 18.65 0 0 408.00 0 426.65 ~ ~ 0 426.65 391 ~ Costa Rica 20.44 0 0 ~ 0 28.10 ~ ~ ~ 28.10 50 ~ Cuba 9.55 23.76 0 ~ 0 33.90 ~ ~ 0 33.90 99 ~ Dominica 0 0 0 ~ 0 0.30 ~ ~ ~ ~ ~ ~ Dominican Republic 1.50 0 0 ~ 0 1.50 0 ~ ~ 1.50 111 ~ Ecuador 7.85 7.35 0 ~ 0 44.20 ~ ~ 0 44.20 43 ~ El Salvador 2.62 0 0 ~ 0 4.10 ~ ~ ~ 4.10 ~ ~ Grenada 0 0 0 ~ 0 1.00 ~ ~ ~ ~ ~ ~ Guatemala 3.09 0 0 ~ 0 21.30 ~ ~ ~ 21.30 ~ ~ Guyana 0 0 0 ~ 0 7.40 ~ ~ ~ ~ ~ ~ Haiti 0 0 0 ~ > zero 8.00 ~ ~ ~ ~ ~ ~ Honduras 24.76 0 0 ~ 0 60.90 ~ ~ ~ 60.90 ~ ~ Jamaica 22.82 10.25 9.98 ~ > zero 85.60 ~ ~ 0 85.60 261 ~ Mexico 0.06 5.95 21.85 528.00 0 578.00 ~ ~ 4,111.12 4,689.12 1,266 239 Nicaragua 16.02 0 0 ~ 0 16.90 ~ ~ ~ 16.90 ~ ~ Panama 0 0 0 ~ 0 3.70 ~ ~ 543.52 547.22 96 91 Paraguay 0 0 0 ~ 0 0 ~ ~ ~ 0 ~ ~ Peru 0.08 1.04 0 574.00 > zero 617.60 ~ ~ 164.83 782.43 217 ~ St Kitts and Nevis 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ St Lucia 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ St Vincent/Grenadines 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ Suriname 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ Trinidad and Tobago 0 0 0 ~ 0 60.10 ~ ~ ~ ~ ~ ~ Uruguay 0 0 0 ~ 0 0 ~ ~ 0 ~ ~ ~ Venezuela 0 0 0 333.00 0 338.70 0 269 746.49 1,085.19 362 ~ Total Americas 137.94 207.14 54.55 2,418.74 > zero 3,755.05 759 1,396 18,461.90 22,216.95 10,217 570 Memorandum Items: Caribbean Unspecified 0 0 0 ~ 0 ~ ~ 41 ~ ~ ~ ~ Latin America Unspecified 0 0 0 ~ 0 0 ~ 216 ~ ~ ~ ~ Americas Unspecified 0 0 0 76.74 0 ~ ~ ~ 7,310.93 7,387.67 490 ~

ASIA 123456789101112

Afghanistan 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ Armenia 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ Azerbaijan 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ Bahrain 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ Bangladesh 0 0 0 ~ 0 1.50 ~ ~ ~ ~ ~ ~ Bhutan 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ Burma 8.31 0 0 ~ 0 8.31 ~ ~ ~ ~ ~ ~ Cambodia 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ China 49.43 93.50 537.61 1,113.00 0 1,842.90 ~ ~ 820.04 2,662.94 368 242 Georgia 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ India 567.29 0 69.19 ~ 0 964.60 ~ ~ 504.01 1,468.61 196 9 Indonesia 234.56 0 43.97 428.00 0 706.53 ~ ~ 0 706.53 1,410 ~ Iran 0 0 0 115.00 > zero 319.20 ~ ~ ~ ~ ~ ~ Iraq 0 0 0 ~ > zero 525.50 ~ ~ ~ ~ ~ ~ Jordan 0 0 0 ~ 0 22.80 ~ 0 ~ ~ ~ ~ Kazakhstan 0 15.36 0 ~ 0 17.80 ~ ~ ~ ~ 234 ~ Kuwait 0 0 0 ~ 0 26.40 ~ ~ ~ ~ ~ ~ Kyrghzstan 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ ➤

170 C ANADIAN D EVELOPMENT R EPORT 1998

ASIA (continued) 123456789101112

Laos 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ Lebanon 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ Malaysia 6.76 0 0 ~ 0 7.50 ~ ~ 700.17 707.67 123 41 Maldives 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ Mongolia 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ Nepal 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ North Korea 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ Oman 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ Pakistan 479.62 0 10.27 ~ > zero 592.60 ~ ~ ~ ~ ~ ~ Papua New Guinea 0 0 0 ~ 0 0 ~ ~ ~ ~ 213 ~ Philippines 3.15 0 0 ~ 0 80.00 ~ ~ 521.72 601.72 349 ~ Qatar 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ Saudi Arabia 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ 40 Sri Lanka 136.00 0 0 ~ 0 140.20 ~ ~ ~ ~ ~ ~ Syria 0 0 0 ~ 0 0 ~ ~ 0 ~ ~ ~ Tajikistan 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ Thailand 28.80 0 30.24 ~ 0 341.10 ~ ~ 1,191.93 1,533.03 556 ~ Turkey 11.40 0 141.61 174.00 0 327.01 ~ ~ 0 327.01 ~ ~ Turkmenistan 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ United Arab Emirates 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ Uzbekistan 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ Vietnam 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ West Bank and Gaza 0 0 0 ~0~~~~~~~ Yemen 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ Oceania 0 0 0 ~0~~~~~~~ Total Asia 1,525.33 108.86 832.89 2,049.07 > zero 5,923.95 ~04,555.20 10,479.15 4,697 332 Memorandum Items: Asia Unspecified 0 0 0 219.07 0 ~ ~ ~ 817.32 1,036.39 1,248 ~

EASTERN EUROPE 123456789101112

Albania 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ Belarus 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ Bulgaria 0 0 0 ~ 0 51.10 ~ ~ ~ ~ ~ ~ Czech Republic 0 0 0 ~ 0 28.70 ~ ~ ~ ~ ~ ~ Estonia 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ Hungary 0 0 0 ~ 0 11.30 ~ ~ ~ ~ ~ ~ Latvia 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ Lithuania 0 6.78 0 ~ 0 6.78 ~ ~ ~ ~ ~ ~ Moldova 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~ Poland 0 0 42.41 ~ > zero 3,600.20 ~ ~ ~ ~ ~ ~ Romania 0 316.56 0 ~ 0 319.80 ~ ~ ~ ~ ~ ~ Russian Federation 0 82.05 0 ~ > zero 2,098.40 ~ ~ ~ ~ 408 12 Slovak Republic 0 0 0 ~ 0 3.70 ~ ~ ~ ~ ~ ~ Ukraine 0 4.00 0 ~ 0 22.40 ~ ~ ~ ~ ~ ~ Ex-Yugoslavia 0 0 0 ~ 0 128.10 ~ ~ ~ ~ ~ ~ Total Eastern Europe 0.70 409.39 42.41 566.80 > zero 6,270.48 ~ 123 ~ ~ 475 12 Memorandum Items: Europe Unspecified 0.70 0 0 566.80 0 ~ ~ 123 ~ ~ 67 ~

Total Developing Countries 1,875.69 963.28 1,219.58 6,284.20 6,521.86 18,971.38 794 1,541 24,529.14 43,500.52 16,073 1,446 Memorandum Items: Developing Country Unspecified 00006,521.86 ~ 35 0 1,031.19 7,553.05 0 335

Notes: Amounts listed under Memorandum Items are contained in regional totals but not attributed to individual countries. Sources: Canada, Public Accounts of Canada 1995-96; Export Development Corporation, Canadian Wheat Board, Royal Bank, and Bank of Nova Scotia 1996 Annual Reports; Statistics Canada, Balance of Payments Division; EDC, Government Relations and Corporate Policy Division; Department of Finance, International Finance and Economic Analysis Division; and World Bank, Financial Flows and the Developing Countries May 1997.

171 T ABLE 9

MOVEMENT OF PEOPLES

o smooth out what can be fairly Entrepreneurs and investors admitted to large year-to-year fluctuations, the Canada under the business class made T Developing Country figures in Table 9 present averages for up only 10 percent of all immigrants in Immigration by Class 1994-96 1994-96, the last three years for which 1994-96 and only one-quarter of those data is available. During this period, FAMILY CLASS 53% were from developing countries. The BUSINESS 3% approximately two-thirds of immigrants REFUGEE 18% largest number were from the Middle to Canada came from developing coun- INDEPENDENT 25% East, with Saudi Arabia, Kuwait, the tries, roughly the same proportion as 10 United Arab Emirates, Egypt, Jordan, and years before. Total immigration Iran providing 50 percent of developing- increased an average of 8 percent a year, country business class immigrants. from its historically low levels of a Overall, during 1994-96, women were decade ago. Developing countries in slightly better represented than men Asia, Africa, and Eastern Europe among immigrants to Canada, making accounted for the largest part of the up 52 percent of the total. Arrivals from increase—an average of 10 percent developing countries were also well annually—while immigration from the balanced, with women accounting for Americas remained fairly constant. 51 percent. Within immigration classes By region, Asia provided the most immi- the gender balance tipped slightly: grants—60 percent—but proportionately women made up 55 percent of the family fewer than its share of the developing class but only 45 percent of refugees. world population (68 percent). The top again had the most family class mem- But while men are preponderant in the three sending countries in 1994-96 were bers accepted, followed by Vietnam. refugee class, their spouses sometimes India (18,201), the Philippines (15,707), Independents made up 25 percent of enter later under the family class. Men and China (14,067). Next in importance new immigrants from developing coun- and women were represented almost were Sri Lanka, Bosnia Herzegovina, tries to Canada while refugees account- equally in the business class, suggesting Pakistan, Vietnam, Iran, Jamaica, and ed for 18 percent. More than 95 percent that men and women are paired in this Romania. The Americas and Eastern of refugees to Canada came from devel- category. Among independent entrants, Europe were overrepresented in terms of oping countries in 1994-96, mainly women slightly outnumbered men their percentage of developing-world from Bosnia Herzegovina, Sri Lanka, because of the large numbers of women population, each accounting for 15 per- and Iraq—all countries torn by conflict. who enter Canada as domestic workers: cent of developing country immigration Surprisingly, Africa—home to one-third in 1994-96, the Philippines and China to Canada. Africa was underrepresented: of the world’s refugees—accounted for were the leading developing countries of with 15 percent of developing country only 13 percent of refugees to Canada. origin for independent migrants. population, it accounted for just 10 percent of Canadian immigration, a ratio which has risen slightly over the past Numbers of Immigrants by Continent of Origin 1986 and 1994-96 decade. Significant drops in immigration (averaged) were noted from only a few areas: 100,000 Indo-China and Central America because 90,000 of declines in refugee flows, and some of 80,000

the wealthier countries of Eastern 70,000

Europe, notably the Czech Republic, 60,000

Poland, and Hungary. 50,000 There are four broad classes of immi- 40,000 grants—independent, refugee, business, 30,000 and family class (that is, sponsored by a 20,000 relative who arrived earlier). Family 10,000 class arrivals made up 53 percent of all 0 AFRICA AMERICAS ASIA EASTERN EUROPE OTHER immigrants from developing countries in 1994-96: India and the Philippines 1986 AVERAGE 1994-96

172 C ANADIAN D EVELOPMENT R EPORT 1998

TABLE 9 MOVEMENT OF PEOPLES: IMMIGRATION TO CANADA FROM DEVELOPING COUNTRIES BY IMMIGRATION CLASS AND GENDER

(AVERAGE OF LAST THREE YEARS AVAILABLE 1994-96)

AVERAGE 1994-1996 Total % Change FAMILY REFUGEE BUSINESS INDEPENDENT AVERAGE TOTAL IMMIGRATION Immigration Per Year 1986 Country Male Female Total Male Female Total Male Female Total Male Female Total Male Female Total 1986 to 1994-96

AFRICA 1234567891011121314151617

Algeria 77 117 194 188 98 286 9 8 17 297 241 538 571 463 1,035 87 28.09 Angola 0 1 1 12 5 170000011361942(7.63) Benin 336213000325851468.58 Botswana 3584140009816161329421.91 Burkina Faso 24700000011235972.16 Burundi 4 9 13 95 93 1881123351031052081134.17 Cameroon 26 24 50 14 10 24 9 8 17 31 20 51 80 62 142 14 26.07 Cape Verde 24 16 40 17 10 2700025174266431091125.78 Central African Republic 134000000101235~~ Chad 12311111210244880 Comoros 32582900010111415222.32 Congo - Brazzaville 101102000011314114.87 Congo - Kinshasa (Zaire) 59 71 130 204 157 361426119202792395177720.98 Côte d’Ivoire 537213000101841252(13.88) Djibouti 22 26 483470001122631571216.86 Egypt 329 398 727 48 43 91 190 164 354 816 555 1,371 1,383 1,159 2,542 510 17.43 Equatorial Guinea ~~~~~~~~~~~~~~~1~ Eritrea 13 36 49235000101163954nana Ethiopia 188 356 544 235 229 4642341713304416011,042 989 0.52 Gabon 3360001133257714129.89 Gambia 5 5 1010200041510616512.57 Ghana 451 568 1,019 94 62 15610271631356176941,311 235 18.76 Guinea 11 12 23 10 4 14000325231841621.19 Guinea-Bissau 01110100000011218.84 Kenya 224 272 496 78 70 147 15 19 33 56 59 115 373 419 792 359 8.24 Lesotho 12311200011234738.84 Liberia 4 3 7 25 13 392121013217491017.14 Libya 15 19 34 22 5 27 5 6 11 52 36 89 95 66 161 28 19.14 Madagascar 6 7 1300000045910122242(6.40) Malawi 437124000325981696.14 Mali 14 10 24729000538251541235.15 Mauritania 1014380001116410126.31 Mauritius 34 49 830001232421455972131312(8.29) Morocco 200 248 449 4 6 10 13 17 30 178 153 331 396 424 819 403 7.35 Mozambique 01111201110123536(18.48) Namibia 12300011121344839.84 Niger 2031012023258311127.10 Nigeria 98 85 183 64 35 99 8 7 15 75 54 129 245 181 426 154 10.71 Rwanda 8 10 18 63 65 12811134775791544513.09 São Tomé and Principe ~~~~~~~~~~~~~~~1~ Senegal 20 13 33 6 5 10 5 5 10 18 12 30 49 35 84 12 21.43 Seychelles 7 6 13549000224151226128.18 Sierra Leone 8 14 22 9 6 1511164102425491413.27 Somalia 109 152 261 469 440 910000149235936011,194 54 36.29 South Africa 301 375 67642774691436446001,244 1,024 1,046 2,070 942 8.19 Sudan 18 41 59 200 124 3245272216392461844295522.81 Swaziland 2242350001126612314.55 Tanzania 87 97 183347161026222345128134261343(2.68) Togo 951411516000548251439817.16 Tunisia 40 52 92 7 6 131018339122131972286313.73 Uganda 13 17 29 11 7 18112651131306182(2.97) Zambia 27 25 5254932436347070651353913.22 Zimbabwe 13 16 29437112121022303060511.58

Total Africa 2,500 3,190 5,690 1,951 1,540 3,491 373 330 703 2,577 2,043 4,621 7,402 7,103 14,505 5,169 10.87 ➤

173 T ABLE 9 (CONTINUED)

AMERICAS 1234567891011121314151617

Antigua and Barbuda 9 13 2200001121312152757(7.32) Argentina 77 101 177 36 31 67 47 49 96 74 70 144 234 251 485 244 7.10 Belize 10 12 22113123225141832252.50 Bolivia 24 22 46 10 8 1911233639337280(1.05) Brazil 95 150 245 2 4 6 30 30 60 140 122 262 267 306 573 241 9.05 Chile 2,221 117 2,337 29 28 572132024442,271 170 2,441 639 14.34 Colombia 79 142 221 19 16 35 6 9 15 44 53 97 148 219 367 262 3.44 Costa Rica 26 44 69 4 6 101011213254363106138(2.60) Cuba 99 156 254 106 72 178 00055920923244113312.74 Dominica 22 24 4500000041116263561482.48 Dominican Republic 153 159 311 347000610151611723333220.35 Ecuador 135 170 305 19 22 41437911201672073742504.12 El Salvador 212 300 512 166 148 314 0 0 0 20 16 37 398 465 863 3,198 (12.28) Grenada 104 121 225 2130002063831251853112422.53 Guatemala 116 159 274 216 181 397 0 0 0 17 13 31 349 353 702 1,322 (6.14) Guyana 1,504 1,740 3,244 8 9 17357411091501,556 1,862 3,419 3,925 (1.37) Haiti 756 873 1,629 133 144 277 2 1 3 32 51 83 923 1,069 1,992 1,734 1.40 Honduras 70 97 166 50 44 943361171813315128410510.46 Jamaica 1,523 1,617 3,1400335491202733931,648 1,897 3,545 4,665 (2.71) Mexico 242 366 608 19 22 42 20 19 39 120 109 229 401 517 918 592 4.48 Nicaragua 28 45 73 19 15 340111611276471135733(15.54) Panama 16 21 36 9 7 16 6 4 105383535702112.74 Paraguay 97 133 230 123 132 255 7 6 13 33 37 70 260 308 568 70 23.28 Peru 71 102 172 57 53 110 0 0 0 16 28 45 144 183 328 628 (6.30) St Kitts and Nevis 55 69 124 011000134154681111794614.55 St Lucia 23500011200044795(22.60) St Vincent/Grenadines 26 27 5300000041721304474207(9.78) Suriname 16 19 351242143482327501314.34 Trinidad and Tobago 895 1,001 1,896 6 8 14 18 22 40 192 219 411 1,111 1,250 2,361 942 9.62 Uruguay 29 31 60 21 16 3711327265378741521371.07 Venezuela 66 106 171 55 54 109 16 17 33 63 58 121 199 235 434 229 6.59

Total Americas 8,776 7,934 16,710 1,115 1,034 2,149 176 182 358 1,074 1,412 2,486 11,141 10,562 21,703 21,343 0.17

ASIA 1234567891011121314151617

Afghanistan 80 153 234 588 532 1,12010164106756891,364 597 8.61 Armenia 12 20 32 6 7 1321311920313768nana Azerbaijan 347448001438121224nana Bahrain 38 44 822132022421301142431901813711537.83 Bangladesh 417 559 976 311 183 494 14 14 27 184 129 313 926 885 1,811 459 14.71 Bhutan 000101000000101~~ Burma 19 21 40 52 26 782138101781571391425.77 Cambodia 51 137 188 15 14 29000123671532191,751 (18.76) China 2,795 4,385 7,180 809 539 1,348 227 223 451 2,621 2,467 5,088 6,453 7,614 14,067 1,916 22.06 Georgia 8 10 18 5 5 1100112921262450nana India 6,974 7,888 14,862 436 245 681 107 95 202 1,446 1,010 2,456 8,963 9,238 18,201 6,971 10.07 Indonesia 37 64 101 4 6 11 40 42 82 14 15 29 96 127 222 142 4.59 Iran 478 715 1,193 759 554 1,313 250 242 492 577 474 1,050 2,063 1,984 4,047 2,000 7.30 Iraq 99 171 270 866 494 1,360 47 41 88 62 54 115 1,074 760 1,834 243 22.40 Jordan 122 176 299 48 40 88 191 162 353 176 139 315 538 517 1,055 104 26.07 Kazakhstan 4 9 12 17 20 37122131428354579nana Kuwait 66 67 133 96 60 156 286 241 527 251 224 474 698 593 1,291 228 18.93 Kyrghzstan 022112000325458nana Laos 8 20 28538000111132437641(24.75) Lebanon 439 804 1,243 185 130 315 59 49 109 282 178 461 965 1,162 2,127 2,364 (1.05) Malaysia 119 207 326 14 14 28 13 13 26 47 50 97 193 285 478 418 1.34 ➤

174 C ANADIAN D EVELOPMENT R EPORT 1998

ASIA (continued) 1234567891011121314151617

Maldives 000000001000101~~ Mongolia 001000000112123111.61 Nepal 6 7 131112342824523634711219.40 North Korea 101000001000112~~ Oman 41 40 8120353775701461231142371135.92 Pakistan 1,059 1,138 2,197 337 230 567 235 198 433 1,205 751 1,956 2,837 2,317 5,154 647 23.06 Papua New Guinea 2460112133257815317.20 Philippines 5,029 4,791 9,820 25 20 45 132 129 261 1,539 4,042 5,581 6,725 8,982 15,707 4,131 14.29 Qatar 24 21 45 7 5 12 31 31 62 80 70 149 142 127 269 18 31.04 Saudi Arabia 225 157 382 63 29 92 277 228 505 776 629 1,405 1,341 1,043 2,384 361 20.78 Sri Lanka 934 1,880 2,815 2,350 1,816 4,167 9 6 15 123 117 240 3,416 3,820 7,236 1,775 15.09 Syria 107 182 289 48 28 77 56 46 101 229 157 386 440 413 853 401 7.84 Tajikistan 011011000213235nana Thailand 42 104 146 44 19 63 6 5 11 16 35 51 108 163 271 86 12.16 Turkey 158 239 397 84 47 130 20 18 38 112 81 193 374 385 758 251 11.69 Turkmenistan 000000000112112nana United Arab Emirates 204 183 387 16 12 28 223 214 437 478 433 911 921 842 1,763 233 22.43 Uzbekistan 3696612000101020192241nana Vietnam 1,253 2,432 3,685 279 230 5090001213251,545 2,675 4,220 6,804 (4.67) West Bank and Gaza na na na na na na na na na na na na na na na na na Yemen 10 18 28 13 11 24 7 6 14 11 7 18 41 42 83 3 39.43 Oceania 325 385 711 12 10 21 4 5 10 12 15 27 353 416 769 367 7.68

Total Asia 21,193 27,045 48,238 7,513 5,346 12,859 2,269 2,041 4,310 10,563 11,366 21,929 41,538 45,798 87,336 32,967 10.23

EASTERN EUROPE 1234567891011121314151617

Albania 6 16 22 8 7 15001221537373875434.00 Belarus 16 21 373361234637826663128nana Bosnia Herzegovina 98 117 215 2,588 2,543 5,1310014037772,726 2,698 5,424 na na Bulgaria 80 105 185 73 73 1454481811583393383406784232.07 Croatia 114 165 279 229 219 4481237367140418453871nana Czech Republic 39 91 129224112427011284164247840(11.5) Estonia 7 18 25 23 20 431121716334955104159.1 Hungary 70 126 196 8 8 17 7 5 11 71 76 147 156 215 371 706 (6.2) Latvia 13 22 35 13 14 272353936756776143nana Lithuania 9 25 3311233691322224264nana Macedonia, FYR 58 77 1354480002018388299181nana Moldova 11 20 31 68 64 1322131411249596191nana Poland 734 1,375 2,108 25 21 46 6 4 10 228 197 424 993 1,596 2,589 5,245 (6.82) Romania 317 475 792 145 88 2333471,281 1,174 2,455 1,746 1,741 3,487 868 14.92 Russian Federation 163 265 428 106 117 224 30 24 54 567 529 1,097 867 935 1,802 107 32.63 Slovak Republic 22 48 7011312434508458101160nana Slovenia 6 12 18 6 6 121239716232649nana Ukraine 208 337 545 74 102 176 13 12 24 605 572 1,176 899 1,022 1,921 na na Ex-Yugoslavia 364 474 838 305 256 561 11 8 20 791 694 1,485 1,471 1,432 2,903 483 19.65

Total Eastern Europe 2,334 3,788 6,122 3,684 3,550 7,234 88 79 167 4,090 3,775 7,865 10,197 11,191 21,388 8,296 9.93

Total Developing Countries 34,803 41,957 76,760 14,264 11,469 25,733 2,906 2,632 5,538 18,304 18,596 36,900 70,277 74,654 144,931 67,775 7.90

Total Other Countries 12,946 18,339 31,285 573 591 1,164 8,865 8,650 17,516 12,843 12,366 25,209 35,228 39,946 75,174 32,163 8.86

Total World 47,749 60,296 108,045 14,837 12,060 26,897 11,772 11,282 23,054 31,147 30,962 62,109 105,505 114,600 220,105 99,938 8.22

Source: Canada, Department of Citizenship and Immigration.

175 T ABLE 10

HUMAN LINKAGES BETWEEN CANADA AND THE DEVELOPING WORLD

he linkages that Canada has with developing country, Cuba, the Domini- students. As in previous years, male Tdeveloping countries go beyond can Republic, and Jamaica. In fifth, students dominated this enrolment aid, trade, and investment. Perhaps sixth, and seventh place were more dis- and the gender gap shows no sign of more meaningful are the numbers of tant locales: China, Malaysia, and Thai- narrowing: this year as last, women people in each other’s country, whether land, likely business destinations. students accounted for only 33 percent as visitors, students, or workers. This Canada, however, welcomed 11 percent of developing-country students. table gives some indication of how fewer developing-country visits: 745,098 As shown in column 7, Canada was rep- strong the human links have become. in 1996 compared to 834,627 in 1995. resented by an in-country embassy or In 1996, for instance, 76,444 Canadians Our most frequent guests were from high commission in only 74 developing were registered with our diplomatic Mexico, China, India, and Brazil, which countries. Others were covered by a missions as working or living in devel- together accounted for 37 percent of mission located in a neighbouring oping countries; 14,505 students from developing-country visitors. And with country. We had diplomatic representa- developing countries attended Canadian the notable exception of 14 countries, tion in a further 25 embassies located in universities and colleges; and Canadians including Brazil, Argentina, Kuwait, high human development countries. made more than 2 million trips to the Saudi Arabia, India, and Pakistan, more The 806 Canadian diplomats posted in developing world while Canada Canadians visited each country than we developing countries represented 56 received 745,098 visits. received visitors from there—not surpris- percent of all Canadian diplomats ing given the cost of international travel. In 1996, the number of Canadians regis- abroad at the end of December 1996. tered with our embassies or high com- While the number of students from And while the average Canadian mission missions was 17 percent higher than the middle- and high-income countries rose for a developing country consists of a previous year. Of the 76,444 Canadians slightly in 1996, the number from staff of 11 Canadians, actual numbers in developing countries, 5,346 were in developing countries declined by 8 per- vary—from China with an embassy staff South Africa, which replaced Saudi Arabia cent, a reflection of rising university of 55 to the several countries with only as the country with the largest Canadian and college tuition costs and a slightly a single official posted in a Canadian contingent. Mexico, Haiti, and India appreciated Canadian dollar. They Development Cooperation Office. also had sizeable Canadian communities. nevertheless accounted for almost half Although 90 developing countries had It is interesting to note that not many of all foreign students in Canada. As in missions in Canada with an average more Canadians were living in Asia than 1995, the greatest numbers were from staff of eight, they tended to be smaller. in Africa (24,756 compared to 20,899), China (1,839), Malaysia (1,171), Iran A notable exception was China which although Canadian residents in Africa (874), and India (808). Some 25 percent maintained 88 diplomats in Canada— might have been more likely to register of the students were from member the same number as the United States. with a mission. A small caveat: the figures countries of La Francophonie, roughly Other developing countries with a rela- for Canadian residents living abroad are proportionate to the population share tively strong diplomatic presence in unlikely to be completely accurate as of francophones in Canada. It is also Canada included Mexico (46), Russia Canadians are not required to register at interesting to note the relatively large (40), India (23), and Indonesia (23). a mission. Most who do are working in proportion (35 percent) of African that country in private industry or as aid workers, or are concerned about security. The figures can also be distorted by visitors Numbers of Foreign Students by Gender and Continent of Origin 1996 who registered although they stayed 8,000 only a few days. 7,000 Excluding visits to the United States, 6,000 Canadians headed for developing coun- 5,000 tries 36 percent of the time. The number 4,000 of visits by Canadians to developing 3,000

countries increased by almost 4 percent 2,000

during the past year. The top four desti- 1,000

nations were tourist havens close to 0 home: Mexico, which received more AFRICA AMERICAS ASIA EASTERN EUROPE OTHER than twice as many visits as any other MALE FEMALE

176 C ANADIAN D EVELOPMENT R EPORT 1998

TABLE 10 HUMAN LINKAGES BETWEEN CANADA AND THE DEVELOPING WORLD

Canadian Number of Country Number of Canadians Visits to Foreign Students Embassy or High Diplomatic Embassy or High Diplomatic Registered Canadian Canada Enrolled from Commission Staff in Commission Staff in Abroad in Visits to from (1995-96) in Country Country in Canada Canada Country (April 1997) (1996) (1996) Male Female Total (Dec 1996) (Dec 1996) (Dec 1996) (Dec 1996)

AFRICA 123456 7 8 9 10

Algeria 280 1,400 1,235 112 25 137 • 11 • 7 Angola 132 ~ 135 6 1 7 Benin 101 2,600 171 74 26 100 • 6 Botswana 183 5,700 286 39 13 52 Burkina Faso 124 2,000 266 44 41 85 • 2 • 5 Burundi 115 ~ 103 56 20 76 • 2 Cameroon 380 800 469 184 95 279 • 6 • 8 Cape Verde 7 600 13 0 0 0 Central African Republic 72 200 37 14 9 23 Chad 57 ~ 55 45 4 49 Comoros 9 ~ 7 6 7 13 Congo - Brazzaville 37 100 120 30 12 42 Congo - Kinshasa (Zaire ) 311 500 739 146 49 195 Office 1 • 7 Côte d’Ivoire 853 3,500 1,051 193 90 283 • 13 • 6 Djibouti 34 700 102 6 4 10 Egypt 835 18,300 5,404 91 34 125 • 20 • 17 Equatorial Guinea 8 ~ 21 0 0 0 Eritrea 105 ~ ~ 0 0 0 Office 1 Ethiopia 402 600 587 49 16 65 • 6 • 3 Gabon 308 600 508 135 67 202 • 2 • 5 Gambia 29 ~ 48 11 7 18 Ghana 683 1,500 1,163 159 45 204 • 11 • 5 Guinea 614 800 597 73 36 109 • 3 • 8 Guinea-Bissau 27 ~ 38 0 0 0 Kenya 1,559 7,500 3,072 162 117 279 • 20 • 9 Lesotho 290 ~ 99 9 5 14 Liberia 15 ~ 101 4 1 5 Libya 935 700 1,821 142 18 160 Madagascar 102 500 243 25 19 44 • 3 Malawi 453 1,900 207 18 14 32 • 4 Mali 105 1,300 424 55 27 82 • 2 • 3 Mauritania 8 ~ 53 18 5 23 • 3 Mauritius 57 1,800 1,030 64 35 99 Morocco 943 22,800 6,071 458 178 636 • 7 • 16 Mozambique 200 800 122 5 0 5 • 1 Namibia 20 2,300 203 2 2 4 Niger 117 ~ 81 31 16 47 Office 1 • 3 Nigeria 843 3,800 1,723 110 34 144 • 5 Rwanda 265 ~ 161 33 24 57 Office 2 • 2 São Tomé and Principe 12 ~ 0 3 1 4 Senegal 363 800 971 202 112 314 • 8 • 6 Seychelles 25 1,400 75 3 2 5 Sierra Leone 8 200 65 17 9 26 Somalia 6 ~ 123 51 27 78 South Africa 5,346 24,400 20,903 43 32 75 • 17 • 15 Sudan 62 ~ 152 18 8 26 • 3 Swaziland 292 900 118 3 5 8 • 5 Tanzania 777 3,300 864 86 51 137 • 6 • 4 Togo 88 900 163 48 17 65 • 4 Tunisia 452 17,600 2,261 329 111 440 • 8 • 9 Uganda 414 1,400 522 30 23 53 • 4 Zambia 753 6,000 414 35 7 42 • 3 Zimbabwe 683 10,300 1,329 59 58 117 • 16 • 7 Other Africa na 1,200 na 4 1 5

Total Africa 20,899 151,700 56,526 3,540 1,560 5,100 23 171 30 180 ➤

177 T ABLE 10 (CONTINUED)

AMERICAS 123456 7 8 9 10

Antigua and Barbuda 97 13,200 1,158 17 14 31 •a 5 Argentina 2,386 14,100 27,873 52 41 93 • 12 • 14 Belize 892 7,900 445 5 6 11 Consulate 1 Bolivia 1,759 4,800 733 6 0 6 • 4 Brazil 2,171 18,400 61,124 172 137 309 • 25 • 16 Chile 1,224 20,500 11,682 40 27 67 • 10 • 9 Colombia 982 39,000 10,651 60 50 110 • 16 • 8 Costa Rica 885 46,000 6,043 17 11 28 • 8 • 5 Cuba 141 222,800 2,479 29 16 45 • 11 • 13 Dominica 68 18,900 874 14 11 25 Dominican Republic 311 124,600 2,979 5 2 7 Office 1 Consulate 2 Ecuador 278 7,600 1,924 20 9 29 • 2 • 7 El Salvador 210 2,500 1,670 0 2 2 Consulate 1 • 6 Grenada 105 26,500 1,763 4 7 11 Guatemala 924 14,100 2,107 8 4 12 • 10 • 7 Guyana 278 6,400 3,759 25 16 41 • 4 • 7 Haiti 3,061 29,200 5,323 56 40 96 • 13 • 7 Honduras 300 12,300 801 8 10 18 Office 1 • 7 Jamaica 674 102,400 20,074 37 50 87 • 15 • 10 Mexico 3,063 541,400 87,932 209 160 369 • 27 • 46 Nicaragua 74 9,200 525 6 6 12 Office 1 • 4 Panama 0 16,900 1,637 2 2 4 • 2 • 7 Paraguay 2 700 1,049 3 4 7 • 2 Peru 1,059 6,600 4,858 38 21 59 • 13 • 11 St Kitts and Nevis 55 6,500 555 7 8 15 St Lucia 122 20,100 1,541 26 35 61 St Vincent/Grenadines 120 11,600 1,720 5 5 10 Consulate 1 Suriname 5 300 165 0 1 1 Trinidad and Tobago 3,376 23,300 16,588 106 122 228 • 13 • 11 Uruguay 571 1,600 2,783 8 13 21 • 1 • 3 Venezuela 1,115 41,100 11,937 81 82 163 • 13 • 11

Total Americas 26,308 1,410,500 294,752 1,066 912 1,978 21 199 26 224

ASIA 123456 7 8 9 10

Afghanistan 13 ~ 137 4 0 4 Armenia 4 ~ 216 ~ ~ 0 • 3 Azerbaijan 4 ~ 69 0 0 0 Bahrain 177 100 867 18 14 32 Consulate 2 Bangladesh 349 1,300 1,472 88 33 121 • 9 • 4 Bhutan 43 ~ 22 8 3 11 Burma 2 600 245 7 1 8 • 5 Cambodia 9 800 246 0 0 0 • 1 China 762 89,000 63,562 1,238 601 1,839 • 55 • 88 Georgia 5 ~ 145 ~ ~ 0 India 2,716 40,000 61,835 616 192 808 • 49 • 23 Indonesia 1,979 28,600 15,631 244 116 360 • 15 • 23 Iran 580 1,100 4,950 725 149 874 • 10 • 10 Iraq 117 1,700 213 10 5 15 • 4 Jordan 708 11,100 1,803 60 17 77 • 11 • 3 Kazakhstan 24 1,400 399 1 0 1 • 2 Kuwait 915 1,600 3,178 55 14 69 • 4 • 4 Kyrghzstan 89 1,500 109 0 1 1 Laos 17 800 80 4 1 5 Lebanon 1,863 5,200 4,441 101 30 131 • 5 • 3 Malaysia 1,048 46,400 27,199 667 504 1,171 • 11 • 13 Maldives 9 2,900 61 2 0 2 ➤

178 C ANADIAN D EVELOPMENT R EPORT 1998

ASIA (continued) 123456 7 8 9 10

Mongolia 1 1,200 47 ~ ~ 0 Nepal 451 5,200 418 37 13 50 North Korea 0 ~ 54 49 23 72 Oman 20 900 764 5 0 5 Pakistan 945 7,100 12,241 142 35 177 • 22 • 6 Papua New Guinea 203 200 477 1 1 2 Philippines 1,772 34,200 34,364 45 44 89 • 27 • 18 Qatar 5 800 686 5 0 5 Saudi Arabia 4,374 4,200 12,233 285 32 317 • 16 • 14 Sri Lanka 330 9,200 3,103 99 50 149 • 8 • 5 Syria 790 4,200 1,304 14 1 15 • 18 Tajikistan 2 ~ 71 1 1 2 Thailand 1,138 46,400 27,951 62 87 149 • 17 • 11 Turkey 803 32,000 5,135 64 32 96 • 12 • 13 Turkmenistan 0 ~ 19 2 2 4 United Arab Emirates 1,692 11,800 4,280 6 1 7 • 6 Uzbekistan 4 100 63 15 19 34 Vietnam 328 15,400 1,954 59 35 94 • 9 • 8 West Bank and Gaza ~~~134 Yemen 316 ~ 211 5 0 5 • 5 Oceania 123 14,700 2,362 4 5 9 Other Asia 26 na na 8 7 15

Total Asia 24,756 421,700 294,617 4,757 2,072 6,829 20 307 21 265

EASTERN EUROPE 123456 7 8 9 10

Albania 9 1,700 115 5 1 6 Belarus 0 ~ 873 0 0 0 Bosnia Herzegovina 29 ~ ~ 1 1 2 • 1 Bulgaria 17 2,400 1,079 27 25 52 • 3 Croatia 360 10,500 2,613 3 3 6 • 2 • 4 Czech Republic 302 36,400 15,295 9 5 14 • 10 • 12 Estonia 78 5,200 1,091 3 5 8 Hungary 318 35,900 14,696 30 22 52 • 8 • 8 Latvia 95 1,900 998 3 2 5 • 2 • 3 Lithuania 178 2,800 889 2 3 5 • 2 Macedonia, FYR 93 ~ ~ 0 0 0 Moldova 5 ~ 56 0 2 2 Poland 642 16,700 23,776 57 35 92 • 16 • 28 Romania 640 7,100 5,415 51 41 92 • 10 • 12 Russian Federation 790 18,000 14,672 91 59 150 • 50 • 40 Slovak Republic 29 10,100 3,746 4 1 5 • 5 Slovenia 9 9,100 3,439 5 7 12 • 3 Ukraine 333 12,100 5,032 25 20 45 • 11 • 10 Ex-Yugoslavia 554 9,400 5,418 24 26 50 • 19 • 4

Total Eastern Europe 4,481 179,300 99,203 340 258 598 10 129 13 134

Total Developing World 76,444 2,163,200 745,098 9,703 4,802 14,505 74 806 90 803

Total Other Countries ~ 3,874,700 4,040,204 7,271 6,791 14,062 24 455 26 371 (excluding US)

US ~ 15,301,000 12,909,000 1,437 1,431 2,868 1 175 1 88

Total World ~ 21,338,900 17,694,302 18,411 13,024 31,435 99 1,436 117 1,262

Notes: a Antigua and Barbuda, Dominica, Grenada, St Lucia, St Kitts and Nevis are represented by the Canadian Offices of the Organization of Eastern Caribbean States (OECS). Source: Statistics Canada; Department of Citizenship and Immigration.

179 T ABLE 11

CANADA-DEVELOPING COUNTRY LINKAGE INDICES

rawing on the previous tables, this Asia Africa Americas The Caribbean islands’ high ranking is table highlights Canada’s human, 1 China Egypt Mexico due largely to the relatively high pro- D 2 India South Africa Brazil political, and economic linkages with 3 Philippines Algeria Haiti portion of their citizens who emigrate developing countries through two 4 Bangladesh Ghana Jamaica to Canada, as shown in the immigra- indices: columns 1 to 4 rank the impor- 5 Indonesia Côte d’Ivoire Chile tion index (column 5). Because this 6 Malaysia Ethiopia Venezuela tance of each developing country to 7 Sri Lanka Morocco Peru index measures emigration to Canada Canada; columns 5 to 8 present the 8 Thailand Cameroon Guyana in terms of total population, countries importance of Canada to each country.1 9 Saudi Arabia Senegal Colombia such as China and India have lower 10 Iran Mali Cuba rankings despite high emigration levels. Both indices represent a composite of It is interesting to note the even distribu- In terms of trade (the index measures three separate indices—for immigration, tion of countries across Asia. In addition imports from and exports to Canada as trade, and aid—each accounting for a to China, four were from Southeast Asia, a share of that country’s GDP), Guyana third of the composite index and serv- two from the Middle East, and three is a clear front runner: its trade with ing as a statistical representation of from the Indian sub-continent. While Canada accounted for 32 percent of people linkages, economic ties, and most had fairly strong immigration links, GDP. Caribbean and African countries political ties, respectively. The formula- only China, India, and the Philippines also rank highly on the aid index which tion of each index differs, depending on had both strong trade and aid linkages. measures bilateral aid received from whether it attempts to measure the The remaining either had strong trade Canada as a share of total aid. importance of the developing country links— Malaysia, Thailand, Saudi Arabia, 2 On a continent by continent basis, to Canada or vice versa. (See “Technical Indonesia, and Iran—or strong aid Canada was most important to the Notes,” p. 184) links—Sri Lanka and Bangladesh. following countries: THE IMPORTANCE OF DEVELOPING In Africa, the better-off countries of Asia Africa Americas COUNTRIES TO CANADA North Africa and the Republic of South 1 Maldives Ghana Guyana Africa were clearly the most important 2 Malaysia Angola Jamaica In 1994-96, China, India, the Philippines, 3 Bangladesh Niger St Lucia to Canada, largely because of trade link- and Sri Lanka were most important to 4 Philippines Benin Costa Rica ages. The seven sub-Saharan countries Canada in “people” terms, as shown in 5 Oceania Togo Trinidad and Tobago tended to have strong aid links and rel- 6 Thailand Mali St Kitts and Nevis column 1 which measures the immigra- 7 China Egypt Dominica atively weak immigration and trade tion from each country as a percentage of 8 Jordan Tanzania Grenada links. Also notable is the presence of six total developing-country immigration. 9 Lebanon Cameroon Peru members of La Francophonie. 10 Sri Lanka Zimbabwe Haiti China was equally important to Canada in terms of trade, as was Mexico: their Trade linkages dominated Canada’s rela- Many of the 10 Asian countries for whom trade indices (column 2, which presents tions with six of the Americas’ top 10: Canada is very important are equally each country’s imports and exports as a the large economies of Brazil and important to Canada: Bangladesh, the percentage of Canada’s trade with all Mexico, as well as Chile, Venezuela, Philippines, Thailand, China, Malaysia, developing countries in 1996) were three Colombia, and Cuba. Aid was the most and Sri Lanka. Overall, however, the times as high as Brazil’s and Malaysia’s, in important linkage with Peru and Haiti, indices for most Asian countries are third and fourth place, respectively. while immigration was key to Canada’s quite low compared to Africa and the China, Egypt, and Bangladesh were ties with Jamaica and Guyana. Notable Americas. There is also significant ranked at the top of the aid index (col- was the absence of Central American overlap between the leading African umn 3) which measures each country’s countries and of Argentina, the region’s countries, although Togo and Benin proportion of bilateral aid in 1995-96. second largest economy. scored relatively low in the “importance to Canada” index. Of the Americas’ top Averaging the three indices shows that THE IMPORTANCE OF CANADA TO 10, eight are in the Caribbean. China was by far the most “important” DEVELOPING COUNTRIES developing country to Canada: at 0.1196, its composite index was almost There is little doubt of Canada’s impor- 1 Of course these indices do not, nor do they intend twice as high as the next most importance to the countries of the Caribbean, to, cover all the many, often subtle and complex, ways in which countries are linked to Canada. One should tant, India. Asia ranked as the most from human, trade, and aid perspec- use these indices with caution, not weighting any one important continent. On a continent by tives. Guyana tops the list, followed by country’s specific ranking too heavily, but rather using them for what they indicate more generally about continent basis, the most important Jamaica and St Lucia. Of 10 countries Canada-developing country relations. countries to Canada were as follows: for which Canada is most important, 2 Countries from the former Soviet Union and Eastern seven are from the Caribbean, one from Europe are not included in the index as information relating to Canadian official finance to these countries Central America, and two from Asia. was not available.

180 C ANADIAN D EVELOPMENT R EPORT 1998

TABLE 11 CANADA-DEVELOPING COUNTRY LINKAGE INDICES

I MPORTANCE OF D EVELOPING C OUNTRY TO C ANADA I MPORTANCE OF C ANADA TO D EVELOPING C OUNTRY Composite Composite Linkage Linkage Immigration Trade Aid Index Immigration Trade Aid Index Country Index Index Index 33/33/33 Country Index Index Index 33/33/33 1234 5678 1 China 0.0971 0.1963 0.0652 0.1196 1 Guyana 0.0409 0.3204 0.0396 0.1337 2 India 0.1256 0.0241 0.0476 0.0657 2 Jamaica 0.0142 0.0541 0.0662 0.0448 3 Mexico 0.0063 0.1835 0.0046 0.0649 3 St Lucia 0.0005 0.0096 0.1057 0.0386 4 Philippines 0.1084 0.0212 0.0210 0.0502 4 Costa Rica 0.0003 0.0156 0.0748 0.0302 5 Egypt 0.0175 0.0037 0.0822 0.0344 5 Trinidad and Tobago 0.0182 0.0174 0.0350 0.0235 6 Bangladesh 0.0125 0.0038 0.0683 0.0282 6 St Kitts and Nevis 0.0437 0.0193 0.0000 0.0210 7 Brazil 0.0040 0.0625 0.0053 0.0240 7 Maldives 0.0000 0.0582 0.0000 0.0194 8 Indonesia 0.0015 0.0387 0.0205 0.0203 8 Malaysia 0.0002 0.0180 0.0391 0.0191 9 Malaysia 0.0033 0.0529 0.0042 0.0202 9 Dominica 0.0084 0.0113 0.0333 0.0177 10 Sri Lanka 0.0499 0.0031 0.0071 0.0200 10 Grenada 0.0341 0.0130 0.0000 0.0157 11 Thailand 0.0019 0.0394 0.0151 0.0188 11 Ghana 0.0008 0.0090 0.0347 0.0148 12 Saudi Arabia 0.0164 0.0324 0.0000 0.0163 12 Peru 0.0001 0.0038 0.0393 0.0144 13 Iran 0.0279 0.0202 0.0000 0.0161 13 Angola 0.0000 0.0341 0.0090 0.0144 14 South Africa 0.0143 0.0168 0.0151 0.0154 14 Niger 0.0000 0.0105 0.0322 0.0143 15 Vietnam 0.0291 0.0036 0.0114 0.0147 15 Haiti 0.0028 0.0118 0.0252 0.0132 16 Haiti 0.0137 0.0008 0.0284 0.0143 16 Benin 0.0000 0.0015 0.0362 0.0126 17 Pakistan 0.0356 0.0063 -0.0001 0.0139 17 Togo 0.0001 0.0337 0.0032 0.0123 18 Algeria 0.0071 0.0293 0.0036 0.0133 18 Mali 0.0000 0.0044 0.0299 0.0115 19 Jamaica 0.0245 0.0082 0.0069 0.0132 19 Egypt 0.0004 0.0023 0.0313 0.0113 20 Ghana 0.0090 0.0020 0.0285 0.0131 20 Bangladesh 0.0002 0.0038 0.0297 0.0112 21 Ex-Yugoslavia 0.0200 0.0002 0.0179 0.0127 21 Tanzania 0.0001 0.0040 0.0288 0.0110 22 Chile 0.0168 0.0188 0.0020 0.0125 22 Philippines 0.0023 0.0083 0.0220 0.0109 23 Venezuela 0.0030 0.0301 0.0012 0.0114 23 Oceania 0.0277 0.0046 0.0000 0.0108 24 Peru 0.0023 0.0076 0.0238 0.0112 24 Cameroon 0.0001 0.0012 0.0297 0.0103 25 Guyana 0.0236 0.0054 0.0034 0.0108 25 Mexico 0.0001 0.0213 0.0095 0.0103 26 Côte d’Ivoire 0.0001 0.0012 0.0292 0.0102 26 Venezuela 0.0002 0.0116 0.0185 0.0101 27 Colombia 0.0025 0.0191 0.0046 0.0088 27 Zimbabwe 0.0001 0.0025 0.0254 0.0093 28 Ethiopia 0.0072 0.0007 0.0170 0.0083 28 Seychelles 0.0036 0.0010 0.0231 0.0092 29 Cuba 0.0030 0.0168 0.0017 0.0072 29 Rwanda 0.0002 0.0030 0.0236 0.0090 30 Morocco 0.0057 0.0071 0.0084 0.0071 30 South Africa 0.0005 0.0036 0.0228 0.0090 31 Trinidad and Tobago 0.0163 0.0032 0.0015 0.0070 31 Honduras 0.0005 0.0126 0.0136 0.0089 32 Turkey 0.0052 0.0104 0.0045 0.0067 32 Senegal 0.0001 0.0032 0.0211 0.0081 33 Cameroon 0.0010 0.0003 0.0188 0.0067 33 Guatemala 0.0007 0.0086 0.0149 0.0081 34 Jordan 0.0073 0.0009 0.0119 0.0067 34 Algeria 0.0004 0.0205 0.0032 0.0080 35 Lebanon 0.0147 0.0016 0.0038 0.0067 35 Thailand 0.0000 0.0068 0.0168 0.0079 36 Bolivia 0.0005 0.0011 0.0183 0.0066 36 China 0.0001 0.0082 0.0152 0.0078 37 Senegal 0.0006 0.0005 0.0181 0.0064 37 Malawi 0.0000 0.0043 0.0191 0.0078 38 Mali 0.0003 0.0004 0.0183 0.0063 38 Nicaragua 0.0003 0.0100 0.0122 0.0075 39 Nicaragua 0.0009 0.0007 0.0169 0.0061 39 Côte d’Ivoire 0.0000 0.0035 0.0183 0.0073 40 Mozambique 0.0000 0.0005 0.0176 0.0060 40 Botswana 0.0002 0.0042 0.0174 0.0073 41 Rwanda 0.0011 0.0001 0.0161 0.0057 41 Bolivia 0.0001 0.0052 0.0163 0.0072 42 United Arab Emirates 0.0122 0.0044 0.0000 0.0055 42 Belize 0.0015 0.0140 0.0062 0.0072 43 Zimbabwe 0.0004 0.0006 0.0154 0.0054 43 Jordan 0.0025 0.0043 0.0148 0.0072 44 Afghanistan 0.0094 0.0000 0.0057 0.0050 44 Ecuador 0.0003 0.0082 0.0123 0.0069 45 Argentina 0.0033 0.0095 0.0020 0.0050 45 Morocco 0.0003 0.0064 0.0141 0.0069 46 Iraq 0.0127 0.0000 0.0019 0.0049 46 Colombia 0.0001 0.0073 0.0130 0.0068 47 Benin 0.0001 0.0001 0.0143 0.0048 47 Chile 0.0017 0.0081 0.0100 0.0066 48 Nigeria 0.0029 0.0089 0.0021 0.0046 48 Lebanon 0.0053 0.0041 0.0095 0.0063 49 Kenya 0.0055 0.0013 0.0071 0.0046 49 Sri Lanka 0.0040 0.0070 0.0072 0.0061 50 Tanzania 0.0018 0.0005 0.0110 0.0044 50 Burkina Faso 0.0000 0.0009 0.0166 0.0058 51 Guatemala 0.0048 0.0043 0.0041 0.0044 51 Guinea 0.0001 0.0071 0.0103 0.0058 52 Malawi 0.0001 0.0002 0.0124 0.0043 52 Uruguay 0.0005 0.0024 0.0145 0.0058 53 Zambia 0.0009 0.0003 0.0105 0.0039 53 Panama 0.0003 0.0068 0.0102 0.0058 54 Ecuador 0.0026 0.0051 0.0034 0.0037 54 Namibia 0.0001 0.0124 0.0048 0.0057 55 Burkina Faso 0.0001 0.0001 0.0108 0.0036 55 Indonesia 0.0000 0.0057 0.0113 0.0057 56 Kuwait 0.0089 0.0019 0.0000 0.0036 56 St Vincent/Grenadines 0.0067 0.0097 0.0000 0.0055 57 Honduras 0.0020 0.0017 0.0066 0.0034 57 Sierra Leone 0.0001 0.0141 0.0015 0.0052 58 Somalia 0.0082 0.0000 0.0015 0.0032 58 Tunisia 0.0003 0.0018 0.0126 0.0049 59 Oceania 0.0053 0.0004 0.0038 0.0032 59 Nigeria 0.0000 0.0097 0.0047 0.0048 60 Costa Rica 0.0007 0.0050 0.0036 0.0031 60 Mozambique 0.0000 0.0092 0.0053 0.0048

181 T ABLE 11 (CONTINUED)

I MPORTANCE OF D EVELOPING C OUNTRY TO C ANADA I MPORTANCE OF C ANADA TO D EVELOPING C OUNTRY Composite Composite Linkage Linkage Immigration Trade Aid Index Immigration Trade Aid Index Country Index Index Index 33/33/33 Country Index Index Index 33/33/33 1234 5678 61 El Salvador 0.0060 0.0010 0.0023 0.0031 61 Mauritius 0.0012 0.0042 0.0090 0.0048 62 Angola 0.0001 0.0044 0.0037 0.0028 62 Swaziland 0.0001 0.0009 0.0126 0.0045 63 Sudan 0.0030 0.0002 0.0043 0.0025 63 Kenya 0.0003 0.0042 0.0089 0.0045 64 Syria 0.0059 0.0013 0.0000 0.0024 64 Vietnam 0.0006 0.0051 0.0074 0.0044 65 Dominican Republic 0.0023 0.0043 0.0004 0.0023 65 Dominican Republic 0.0004 0.0109 0.0016 0.0043 66 Guinea 0.0003 0.0009 0.0055 0.0022 66 Tajikistan 0.0000 0.0000 0.0124 0.0041 67 Burundi 0.0014 0.0001 0.0051 0.0022 67 Iran 0.0006 0.0092 0.0016 0.0038 68 Nepal 0.0005 0.0002 0.0056 0.0021 68 Zambia 0.0002 0.0020 0.0092 0.0038 69 Congo - Kinshasa (Zaire) 0.0036 0.0008 0.0009 0.0018 69 Brazil 0.0000 0.0026 0.0079 0.0035 70 Niger 0.0001 0.0007 0.0045 0.0018 70 United Arab Emirates 0.0071 0.0033 0.0000 0.0034 71 Eritrea 0.0004 0.0000 0.0048 0.0017 71 Nepal 0.0000 0.0013 0.0087 0.0033 72 St Lucia 0.0001 0.0002 0.0049 0.0017 72 India 0.0002 0.0022 0.0075 0.0033 73 Cambodia 0.0015 0.0001 0.0032 0.0016 73 Gambia 0.0001 0.0012 0.0084 0.0032 74 Libya 0.0011 0.0035 0.0000 0.0015 74 Kuwait 0.0076 0.0021 0.0000 0.0032 75 Paraguay 0.0039 0.0002 0.0003 0.0015 75 Burundi 0.0003 0.0019 0.0073 0.0032 76 Uruguay 0.0011 0.0015 0.0017 0.0014 76 Ethiopia 0.0002 0.0039 0.0052 0.0031 77 Gabon 0.0001 0.0001 0.0030 0.0011 77 Bahrain 0.0064 0.0026 0.0000 0.0030 78 Uganda 0.0004 0.0006 0.0021 0.0010 78 Lesotho 0.0000 0.0044 0.0044 0.0029 79 Bahrain 0.0026 0.0004 0.0000 0.0010 79 Saudi Arabia 0.0013 0.0075 0.0000 0.0029 80 Panama 0.0005 0.0018 0.0007 0.0010 80 Cambodia 0.0002 0.0008 0.0074 0.0028 81 Tunisia 0.0016 0.0011 0.0000 0.0009 81 Kazakhstan 0.0000 0.0006 0.0069 0.0025 82 Namibia 0.0001 0.0013 0.0013 0.0009 82 Pakistan 0.0004 0.0030 0.0040 0.0025 83 Botswana 0.0002 0.0006 0.0018 0.0009 83 El Salvador 0.0015 0.0030 0.0026 0.0024 84 Liberia 0.0003 0.0001 0.0019 0.0008 84 Cape Verde 0.0029 0.0007 0.0036 0.0024 85 Grenada 0.0021 0.0001 0.0001 0.0008 85 Argentina 0.0001 0.0010 0.0058 0.0023 86 Qatar 0.0019 0.0005 0.0000 0.0008 86 Mauritania 0.0000 0.0003 0.0065 0.0023 87 Togo 0.0003 0.0011 0.0009 0.0008 87 Kyrghzstan 0.0000 0.0067 0.0000 0.0022 88 Kazakhstan 0.0005 0.0005 0.0010 0.0007 88 Gabon 0.0001 0.0009 0.0055 0.0022 89 Oman 0.0016 0.0003 0.0000 0.0006 89 Madagascar 0.0000 0.0014 0.0049 0.0021 90 Mauritius 0.0009 0.0006 0.0003 0.0006 90 Qatar 0.0042 0.0018 0.0000 0.0020 91 Madagascar 0.0001 0.0002 0.0014 0.0006 91 Yemen 0.0001 0.0026 0.0029 0.0018 92 Yemen 0.0006 0.0004 0.0007 0.0006 92 Uganda 0.0000 0.0032 0.0019 0.0017 93 Dominica 0.0004 0.0001 0.0011 0.0005 93 Bhutan 0.0000 0.0010 0.0041 0.0017 94 Burma 0.0010 0.0004 0.0002 0.0005 94 Guinea-Bissau 0.0000 0.0002 0.0042 0.0015 95 Laos 0.0003 0.0000 0.0012 0.0005 95 Armenia 0.0002 0.0002 0.0032 0.0012 96 St Kitts and Nevis 0.0012 0.0001 0.0000 0.0005 96 Paraguay 0.0012 0.0008 0.0014 0.0011 97 Sierra Leone 0.0003 0.0004 0.0006 0.0004 97 Chad 0.0000 0.0001 0.0032 0.0011 98 Cape Verde 0.0008 0.0000 0.0005 0.0004 98 Central African Republic 0.0000 0.0008 0.0024 0.0011 99 Central African Republic 0.0000 0.0000 0.0012 0.0004 99 Laos 0.0001 0.0005 0.0026 0.0010 100 Suriname 0.0003 0.0008 0.0001 0.0004 100 Syria 0.0006 0.0022 0.0003 0.0010 101 Lesotho 0.0000 0.0002 0.0009 0.0004 101 Turkey 0.0001 0.0018 0.0010 0.0010 102 Mauritania 0.0001 0.0000 0.0010 0.0003 102 Comoros 0.0003 0.0001 0.0023 0.0009 103 Uzbekistan 0.0003 0.0007 0.0000 0.0003 103 Congo - Brazzaville 0.0000 0.0002 0.0016 0.0006 104 Antigua and Barbuda 0.0002 0.0007 0.0000 0.0003 104 Oman 0.0011 0.0007 0.0000 0.0006 105 Swaziland 0.0001 0.0000 0.0008 0.0003 105 Papua New Guinea 0.0000 0.0011 0.0000 0.0004 106 Belize 0.0002 0.0003 0.0003 0.0003 106 Uzbekistan 0.0000 0.0009 0.0000 0.0003 107 Kyrghzstan 0.0001 0.0007 0.0001 0.0003 107 Albania 0.0002 0.0007 0.0000 0.0003 108 Gambia 0.0001 0.0000 0.0007 0.0003 108 Georgia 0.0001 0.0004 0.0000 0.0002 109 Seychelles 0.0002 0.0000 0.0006 0.0003 109 Azerbaijan 0.0000 0.0001 0.0000 0.0000 110 Chad 0.0001 0.0000 0.0007 0.0002 110 Turkmenistan 0.0000 0.0001 0.0000 0.0000 111 Guinea-Bissau 0.0000 0.0000 0.0007 0.0002 111 Congo - Kinshasa (Zaire) ~~~~ 112 Albania 0.0005 0.0001 0.0001 0.0002 112 Djibouti ~~~~ 113 St Vincent/Grenadines 0.0005 0.0001 0.0000 0.0002 113 Equatorial Guinea ~~~~ 114 Djibouti 0.0004 0.0000 0.0002 0.0002 114 Eritrea ~~~~ 115 Maldives 0.0000 0.0005 0.0000 0.0002 115 Liberia ~~~~ 116 Armenia 0.0005 0.0000 0.0000 0.0002 116 Libya ~~~~ 117 Georgia 0.0003 0.0000 0.0001 0.0001 117 São Tomé and Principe ~~~~ 118 Papua New Guinea 0.0001 0.0002 0.0001 0.0001 118 Somalia ~~~~ 119 Bhutan 0.0000 0.0000 0.0003 0.0001 119 Sudan ~~~~ 120 Azerbaijan 0.0002 0.0000 0.0000 0.0001 120 Antigua and Barbuda ~~~~ 121 Congo - Brazzaville 0.0000 0.0000 0.0002 0.0001 121 Cuba ~~~~ 122 North Korea 0.0000 0.0000 0.0001 0.0000 122 Suriname ~~~~ 123 Comoros 0.0001 0.0000 0.0000 0.0000 123 Afghanistan ~~~~

182 C ANADIAN D EVELOPMENT R EPORT 1998

183 C ANADIAN D EVELOPMENT R EPORT 1998

TECHNICAL NOTES

G ENERAL C OMMENTS population of 1.7 million: Fiji, Kiribati, Nauru, the Solomon Islands, Tonga, Tuvalu, Vanuatu, Virtually all data shown in these tables is avail- and Western Samoa. The small island states of able or derived from existing publicly accessible the Caribbean were not similarly grouped information put out by the Government of because Canada has significant bilateral Canada, the Organisation for Economic relations with them. Co-operation and Development (OECD), and United Nations agencies. The North-South YEAR OF COVERAGE Institute selected the data presented in this annex chiefly for its development interest. The data given is generally for the latest However, the availability of data, as well as its calendar year for which a more or less complete ability to be updated yearly, were also important data set exists, normally 1996. However, in factors. It is hoped that future Canadian the case of Official Development Assistance Development Reports will contain expanded, (ODA) numbers in Tables 3, 4, and 5, the data more complete statistical annexes. is forfiscal year 1995-96 (April 1, 1995 to March 31, 1996).

SELECTION OF DEVELOPING COUNTRIES S YMBOLS Tables 2 through 10 list a common set of developing countries. For this report, countries were na = “not applicable” classified as “developing” if their United ~ = “not available” Nations Development Programme (UNDP) 0 = zero human development index (HDI) in 1994 (the Unless otherwise indicated, figures are in latest year available) was below 0.890. This list Canadian dollars. of developing countries therefore includes such relatively well-off countries as Argentina and Kuwait, but excludes the Bahamas and Israel. TABLE 1 CANADA AND OTHER HIGH HUMAN As well, since last year’s report, three countries— DEVELOPMENT ECONOMIES: SELECTED South Korea, Singapore, and Barbados—have INDICATORS been removed from the list of developing coun- Countries included in this table had an HDI of tries as their HDI now exceeds the cut-off point. 0.890 or greater in 1994. The HDI is taken from (At time of writing, South Korea was undergoing the UNDP’s Human Development Report 1997. severe economic upheaval and was embarking The GNP/capita numbers are from the World on an IMF-imposed program of austerity.) The Bank’s World Development Report 1997. Data on selection of the HDI cut-off point is arbitrary, foreign aid and net private financial flows is but consideration is given to having a list that is taken from the DAC’s Development Cooperation as inclusive as possible and corresponds with Review 1996. Numbers on export and import most people’s perceptions of what constitutes a shares to and from developing countries are developing country. The use of the HDI as a from the International Monetary Fund’s development indicator was thought preferable Direction of Trade Statistics Yearbook 1996; and to an indicator based solely on per capita the information on Official Bilateral Debt Stocks income, which would have excluded a number comes from Eurodad’s World Credit Tables 1996. of oil-rich developing countries. All countries listed are independent and not TABLE 2 THE DEVELOPING COUNTRIES: overseas territories or administrations of other SELECTED INDICATORS countries. However, two countries classified in these tables and identified in italics—the West Figures on the HDI, the Gender-Related Devel- Bank and Gaza, and Oceania—are not, strictly opment Index, and the Adult Literacy Rate are speaking, “independent.” Oceania comprises taken from the UNDP’s Human Development eight Pacific island micro-states with a total Report 1997. Figures on GNP per Capita, its 10-

184 C ANADIAN D EVELOPMENT R EPORT 1998

year growth rate, total GDP, Population, and the multilateral agencies are allocated to each Aid/GNP Ratio are taken or derived from the country. The figures tend to understate how World Bank’s World Development Report 1997. much multilateral aid goes to relatively small The Under-5 Mortality Rate comes from developing countries. Please note that, except UNICEF’s State of the World’s Children 1997. for Albania and ex-Yugoslavia, countries in The External Debt/GNP Ratio comes from Global Eastern Europe are not eligible for ODA and are Development Finance 1997 (a World Bank publi- considered to be “countries in transition” cation). Debt Service Paid as a Percentage of rather than developing countries. Expenditure on Education was derived by the North-South Institute from information con- TABLE 6 CANADIAN BALANCE OF TRADE WITH tained in the Global Development Finance tables DEVELOPING COUNTRIES (1996) and the UNDP’s Human Development Report.

Finally CO2 Emissions per Capita for 1992 are taken from World Resources 1996-97, published TABLE 7 TRADE: TOP EXPORTS AND IMPORTS by the World Resources Institute. Regional WITH DEVELOPING COUNTRIES (1996) totals for Africa in this table generally relate to The data on exports and imports was obtained sub-Saharan Africa only, excluding North Africa. from Statistics Canada Catalogues # 65-003 and #65-006 for 1996 and 1986. The information TABLE 3 CANADIAN OFFICIAL DEVELOPMENT on Tariff Revenue Collected on imports from ASSISTANCE: BASIC DATA (1995-96) developing countries was provided by the Department of Finance, and the Average Tariff Rate was calculated by the North-South Institute TABLE 4 CANADIAN BILATERAL OFFICIAL by dividing the total tariff revenue collected by DEVELOPMENT ASSISTANCE BY CHANNEL AND BY total imports for each country and expressing COUNTRY (1995-96) this as a percentage. The world total of customs revenue was taken from the Public Accounts of TABLE 5 CANADIAN MULTILATERAL OFFICIAL Canada 1995-96, prepared by the Receiver DEVELOPMENT ASSISTANCE BY AGENCY AND BY General of Canada. The information on the Top COUNTRY (1995-96) Three Exports and Imports was obtained using a Statistics Canada database (TIERS) for 1996 and The basic data on Canadian official development sorting imports and exports by value at the six- assistance in Tables 3, 4, and 5 is taken directly digit level of the Harmonized System (HS) of from, or derived from, the Canadian Interna- commodity classification. Some of the category tional Development Agency’s (CIDA) Statistical names have been simplified for presentation Report on Development Assistance for fiscal year purposes. The data on Military Exports is taken 1995-96. This report is put out by CIDA’s Inter- directly from the Department of Foreign Affairs national Development Information Centre. and International Trade and its 1996 Annual Specifically, most of the information in the Report on “The Export of Military Goods from tables is taken from “Table M. Total Disburse- Canada.” ments by Country.” Information on Canada’s rank among other bilateral donors in recipient countries is derived from the OECD’s Geographic TABLE 8 CANADIAN FINANCIAL RELATIONS WITH Distribution of Financial Flows to Aid Recipients DEVELOPING COUNTRIES (1996) 1991/1995. Under the classification “Other” at Data on stock of Canadian government debt the bottom of Table 4 on Bilateral ODA are and the debt of the “Canada Account” of the included imputed interest costs, other govern- Export Development Corporation (EDC) is ment department costs and services, provincial taken directly from the Public Accounts of government support to development, and Canada 1995-96, Volume 1, Chapter 9, “Loans, CIDA’s Public Outreach (Development Investments and Advances.” Updated aggregate Information) Program. information on the stock of Canadian govern- Finally, the imputed shares of Canadian Multi- ment and agency debt was provided by the lateral Assistance by Agency and Country were International Finance and Economic Analysis computed from supplementary information to Division of the Department of Finance. Data on the Statistical Report provided to the North- the Corporate Account of the EDC is derived South Institute by CIDA. These figures are esti- from the EDC’s 1996 Annual Report and supple- mates only of how general Canadian funds to mentary information provided by the EDC.

185 T ECHNICAL N OTES

Data on the developing country debt stock of TABLE 11 CANADA-DEVELOPING COUNTRY the Canadian Wheat Board is derived from the LINKAGE INDICES Board’s 1996 Annual Report. The information on Two composite indices have been designed to the debt stocks of the Royal Bank of Canada measure the linkages between Canada and and the Bank of Nova Scotia are from their developing countries. The first composite index annual reports and is for sovereign debt with measures the “importance” of each developing “Designated Less Developed Countries” only. country to Canada. The second index measures These are countries identified by the the “importance” of Canada to each developing Superintendent of Financial Institutions as country. Countries are then ranked according countries where full sovereign debt repayment to each index. Both indices are a simple average is at risk. The column on Total Canadian Bank of three sub-indices—trade relations, immigra- Claims is taken from information published in tion, and aid relations—which are also indicated the World Bank’s Financial Flows and the in the table for each developing country. Developing Countries, May 1997, which is in turn derived from data provided to the Bank for The sub-indices for the first composite index International Settlements. These claims include measuring the “importance” of a developing both lending to governments and the private country to Canada are calculated as follows: sector in developing countries and bond holdings. • The Immigration Index is the share of the Finally, numbers on Canadian foreign direct country’s immigration to Canada as share of investment in developing countries and foreign total immigration from developing countries direct investment (FDI) by developing countries to Canada for the period 1994-96. in Canada were provided by Statistics Canada’s Balance of Payments Division. • The Trade Index is the share of a country’s two-way trade with Canada as a share of total developing country two-way trade with TABLE 9 MOVEMENT OF PEOPLES Canada in 1996. • The Aid Index is the share of Canada’s TABLE 10 HUMAN LINKAGES BETWEEN CANADA bilateral aid with that country as a share of AND THE DEVELOPING WORLD Canada’s total bilateral aid for the fiscal year Information on Immigration to Canada From 1996. All data is taken directly from Tables Developing Countries by Immigration Class and 1 through 10. Gender was provided by the Department of The sub-indices for the second composite index Citizenship and Immigration. For presentation measuring the “importance” of Canada to a given purposes, the North-South Institute simplified developing country are calculated as follows: the immigration classes to four: “Family Class” includes “CR8 dependents” and assisted rela- • The Immigration Index is the share of the tives; “Refugee Class” includes both Convention country’s immigration to Canada 1994-96 as refugees and “Designated Class;” “Business a share of the country’s total population in Class” includes both the investor and entrepre- 1995. Ideally, the denominator for this index neur classes; and “Independent Class” covers all would be total emigration from this country other classes, including live-in caregivers, self- to the world, but data is not readily available. employed, and retired. To smooth out year- Because the resulting number is so small— over-year fluctuations, the North-South Institute and in order for the immigration index to calculated average immigration levels over the have an impact on the composite index last three years available (1994-96). rankings—the immigration index was grossed up across the board by a factor of 10. Data on Canadian Visits To and Visits to Canada From, as well as foreign student enrol- • The Trade Index reflects each country’s total ment, was provided by Statistics Canada. Data two-way trade with Canada as a share of that on Canadians Registered Abroad was provided country’s GDP. by the Department of Foreign Affairs and Inter- • The Aid Index measures total bilateral aid national Trade, as was the information on diplo- from Canada to that country as a share of the matic representation in Canada and abroad. total aid received by that country in 1995. Data for this aid index was taken from the OECD publication Geographic Distribution of Financial Flows to Aid Recipients 1991-95.

186 C ANADIAN D EVELOPMENT R EPORT 1998

The data sets for both these indices are incom- plete. In particular, figures on Canada’s official finance to countries in transition in Eastern Europe and the former Soviet Union were not available. As well, GDP data for several developing countries, required for the second trade index, was not available. Where such data was not available, no index was calculated; these countries were moved to the bottom and listed as not available (~).

187

C ANADIAN D EVELOPMENT R EPORT 1998 C

C ANADIAN ANADIAN C ORPORATIONS AND S OCIAL R ESPONSIBILITY C ANADIAN

The private sector now

dominates North-South D EVELOPMENT C ORPORATIONS relations. But are trade and investment substitutes for foreign aid? What should S OCIAL corporations contribute to AND the welfare of the global

community, particularly its R ESPONSIBILITY

EPORT R poorest citizens? How should government trade promotion programs 1998 support their efforts?

In addition, a 45-page ISBNstatistical 1-896770-17-7 annex analyzes Printedthe infull Canada range of Canada’s relations with countries in the South.