Canadian Corporations and Social Responsibility

CANADIAN

CORPORATIONS

AND SOCIAL

RESPONSIBILITY

CA

NA

DIA

ND

EV

EL

OP

ME

NT

RE

PO

RT

19

98

CANADIAN

CORPORATIONS AND

SOCIAL RESPONSIBILITY

The private sector now

dominates North-South

relations. But are trade and

investment substitutes for

foreign aid? What should

corporations contribute to

the welfare of the global

community, particularly its

poorest citizens? How

should government trade

promotion programs

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

statistical annex analyzes

the full range of Canada’s

relations with countries in

the South.

ISBN 1-896770-17-7

Printed in Canada

CANADIAN DEVELOPMENT REPORT 1998

CANADIAN

CORPORATIONS

AND SOCIAL

RESPONSIBILITY

EDITED BY

M I C H E L L E H I B L E R

AND

R O W E N A B E A M I S H


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THE NORTH-SOUTH INSTITUTE

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

The contents of these essays represent the views and findings of the authors alone and not necessarily those of theNorth-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.

HD60.5.D48C36 1998 306.3’4’091724 C98-900501-1

Editorial Team Rowena Beamish, Michelle Hibler (Editors)Anne Chevalier (Translation and Production Coordination)

Design Paul Edwards DesignPrinting The Lowe-Martin Group

© The North-South Institute/L’Institut Nord-Sud, 1998

Price $35.00CD ROM $15.00

Available from Renouf Publishing Co. Ltd5369 Canotek RoadOttawa, ON K1J 9J3Tel.: (613) 745-2665 Fax: (613) 745-7660World Wide Web: http://www.renoufbooks.com

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T H E N O R T H - S O U T H I N S T I T U T E

G R A T E F U L L Y A C K N O W L E D G E S

T H E G E N E R O U S F I N A N C I A L S U P P O R T

O F T H E F O L L O W I N G D O N O R S I N

T H E P U B L I C A T I O N O F T H E C A N A D I A N

D E V E L O P M E N T R E P O R T 1 9 9 8

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CRDI

C A N A D A

IDRC

Canadian InternationalDevelopment Agency

Agence canadienne dedéveloppement international

INTERNATIONAL DEVELOPMENT RESEARCH CENTRE

CENTRE DE RECHERCHES POUR LE DÉVELOPPEMENT INTERNATIONAL

P A T R O N S

(DONATIONS OF $10,000 OR MORE)

General Motors of Canada Limited

POWER CORPORATION OF CANADA

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AGA KHAN FOUNDATION CANADA

FONDATION AGA KHAN CANADA

Department of Foreign Affairsand International Trade

Ministère des Affaires étrangèreset du Commerce international

R. HOWARD WEBSTER FOUNDATION

LA FONDATION R. HOWARD WEBSTER

S U P P O R T E R S

(DONATIONS BETWEEN $5,000 AND $9,999)

Pages a-138 (152) 4/24/98 4:05 PM Page f

C O N T R I B U T O R S

(DONATIONS BETWEEN $1,000 AND $4,999)

Steelworkers Humanity FundFonds Humanitaire des Métallos

SOCIAL JUSTICE FUND

LE FONDS DE JUSTICE SOCIALE

CANADIAN LABOUR CONGRESS

CONGRÈS DU TRAVAIL DU CANADA

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C A N A D I A N D E V E L O P M E N T R E P O R T 1 9 9 8

FOREWORD iThe Right Honourable Joe Clark

ACKNOWLEDGEMENTS iiiRoy Culpeper

OVERVIEW 1

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

CHAPTER TWO MAKING ECONOMIES SERVE PEOPLE 35T H E F I N A N C I A L S E C T O R

Robert Walker and Marc de Sousa-Shields

CHAPTER THREE ETHICS IN THE MARKETPLACE 55T H E M A N U F A C T U R I N G S E C T O R

Ann Weston

CHAPTER FOUR BEYOND BEST PRACTICE 73T H E M I N I N G S E C T O R

Moira Hutchinson

CHAPTER FIVE PURSUING SUSTAINABLE DEVELOPMENT 91I N F R A S T R U C T U R E A N D E N G I N E E R I N G

Gail Whiteman and Susan Brandum

CHAPTER SIX THE BUSINESS OF DEVELOPMENT? 109M A N A G E M E N T C O N S U L T I N G

Marlene Benmergui

CHAPTER SEVEN SELLING CANADIAN VALUES 117EN C O U R A G I N G PR I VAT E SE C T O R AC T I V I T Y I N T H E SO U T H

Ted Paterson

LIST OF CONTACTS 135

STATISTICAL ANNEX 139

TABLE OF CONTENTS

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There has recently been much discussion asto what constitutes appropriate behaviour

for Canadian corporations operating interna-tionally. The actions of corporations flying theCanadian flag help define Canada’s reputationabroad, just as the actions of governmentsestablish the policy, legal, and regulatory framework within which corporations act.

As the capacity of nation-states becomes morerestricted, however, the imprint of global business is becoming more pronounced. Giventhat the role and influence of multinational corporations continue to grow, and that thepower of governments to compel is diminishing,the question arises as to whether or not the responsibility of business should grow concomitantly with its influence.

This edition of the North-South Institute’sCanadian Development Report considers the question of corporate responsibility in the global marketplace to be a leading issue for the21st century. The report focuses on the activitiesof Canadian corporations in the developingworld, where the challenges of social and environmental responsibility are apt to be mostacute. In keeping with the Institute’s approach,the report seeks a balanced judgment on bothwhat Canadian firms have achieved in the pastand what they may strive to achieve in thefuture. It does this by lauding the good corpo-rate practices (and there are many examples) as well as identifying the bad. And it makes several recommendations to corporations, governments, and the Canadian public, aimedat enhancing the social and environmental performance standards of Canadian businesses.

Striving for higher levels of social and environ-mental performance does come at a cost. Somemight say that such efforts impair the competi-tiveness of Canadian businesses in the globalmarketplace. To be sure, there are profits to be

made by adhering to the lowest possible standards for workers, the community, or thenatural environment. And there may, indeed, belost commercial opportunities in adhering tohigher standards. But there are two extremelygood reasons for aiming considerably higherthan the lowest common denominator.

The first relates to our values as Canadians. At home, we treat issues such as human rights,workplace standards, and responsible stewardshipover the natural environment very seriously. Theimportance we attach to these values is integralto our international reputation as a fair anddemocratic society. It is no doubt also reflectedin Canada’s consistently high ranking at or nearthe top of the United Nations’ HumanDevelopment Index. In our conduct abroad,our standards should be no less than those westrive to achieve at home. Indeed, what coun-tries are better placed than Canada to defendthese values in the global marketplace?

Second, ethically and environmentally respon-sible conduct can actually be good for business.Canada is a trusted country, a respected country,and those attributes are of benefit to corporationsdoing business in its name. More to the point,however, firms striving to enhance their work-place, community, and environmental standardsactually strengthen the climate for business.By contributing to the well-being of their stakeholders and the sustainability of the natural environment, firms invest in their own long-term profitability.

The Canadian Development Report 1998 conveysthese and related messages with insight, convic-tion, and considerable persuasion. I commendthe Institute’s staff and collaborating authors fora timely and highly useful contribution to a setof issues that is bound to attract the increasingattention of corporate decisionmakers, publicpolicymakers, and citizens in general.

The Right Honourable Joe Clark

i

FOREWORD

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ii

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This second volume in the North-SouthInstitute’s annual series investigating

Canada’s dynamic relationship with the developing world, the Canadian DevelopmentReport (CDR) 1998: Canadian Corporations andSocial Responsibility forms part of the Institute’sbroader research on the theme of markets andsocial equity.

Because this was the Institute’s first major enter-prise examining the role of the corporate sectorin sustainable development, the volume’s plan-ning, writing, and production required the activeparticipation and support of a great number ofindividuals and organizations. We would like tothank all those who offered their advice andsuggestions, particularly members of the NSIBoard of Directors and the CDR’s advisory committee—The Right Honourable Joe Clark,Ghislain Paradis, and Deborah Turnbull—whohelped determine the project’s overall directionand content. For their advice in the planningstages of this work, we would also like to thankJohn Robinson at the Canadian InternationalDevelopment Agency (CIDA); Chris Greenshieldsand Ross Snyder of the Department of ForeignAffairs and International Trade; and David Sevigny of the Department of Finance.

This report has required a great effort on thepart of the Institute’s staff. Vital support wasprovided by all members of Research,Communications, and Administration whoinvested a great deal of energy individually andcollectively to ensure this volume’s success. In particular, we would like to thank Karen Gervais for administrative and logisticalsupport and Sanjiv Mehta for valuable researchassistance. Institute Communications staffmember, Anne Chevalier provided logistical andtechnical support and coordinated translationand production. Another member of the Com-munications team, Melanie Gruer, contributededitorial and logistical assistance. A specialthank you goes out to lead translator HervéRombaut and to Michel Limbos and Sylvie Leeet associés for their painstaking work, as well asto Paul Edwards of Paul Edwards Design.

Each member of staff who contributed a chapteris acknowledged as its author, although in each

case, the final text was a product of internal andexternal peer review and much internal discus-sion. We were fortunate to have retained theservices of accomplished researchers and writerswho authored or co-authored four of the chapters in this report. The collaboration ofMichael Jantzi of Michael Jantzi ResearchAssociates Inc. was crucial in research and datagathering, as were the efforts of NSI InformationSpecialist Gail Anglin who provided backgroundresources for the text and data. For their insightful comments on early drafts of the text, we would like to thank Charles Barrett,Vicky Berry, Gerald K. Helleiner, Andrew Jackson,Robert Kerton, John Kozij, Jim Moore, Nigel Roome, and Jessie Sloan.

The data in this year’s CDR was assembled bySenior Researcher Andrew Clark, who has sinceleft the Institute to join CIDA. He was assistedby Lawrence Latim who completed an intern-ship at the Institute before returning to his post at the Ministry of Works, Transport, andCommunications in Uganda, and Kerry Maxwho joined the Institute as Researcher inDecember 1997. The Institute would like to thankthe many government officials from StatisticsCanada; the Departments of Finance, ForeignAffairs and International Trade, Citizenship andImmigration; and the Export DevelopmentCorporation who helped us compile the data for the statistical annex. In particular, we wouldlike to thank Lucie Laliberté, Director, Balanceof Payments Division at Statistics Canada andCIDA statistical analysts Jean-Willy Ileka andHélène Mainville.

A very special thank you is reserved for thedozens of Canadian companies who gaveresearchers and writers of their time and sharedvaluable insights and information. We parti-cularly acknowledge the generous financial contributions of the CDR donors, listed at thebeginning of the report, for their support of thismajor endeavour.

Roy CulpeperPresidentThe North-South Institute

iii

ACKNOWLEDGEMENTS

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iv

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OVERVIEW

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In recent years, we have witnessed a burgeoning

interest by private investors in the developing

world. As a result, Canada’s trade and investment

now dwarfs its aid to the South. But are trade and

investment substitutes for foreign aid? What

should corporations contribute to the welfare of the

global community, particularly its poorest citizens?

What should they contribute to environmental

sustainability?

In tackling these questions, the Canadian

Development Report 1998 (CDR) surveys the

activities of Canadian corporations in developing-

country markets, explores social responsibility issues,

and examines the need for public and private sectors

to work together for development. Because nothing

inspires like an example, this volume follows author

Paul Hawken’s advice: “Rather than simply going

after irresponsible companies,” he advised, “we

should be contributing to making the responsible

corporations so successful that we will shame the

others into joining in.”1 Thus, in this volume, we

“give credit where credit is due” and highlight

incidences of positive social responsibility—best

practices so to speak. The list of examples cited is

by no means exhaustive.

This second volume in the North-South Institute’s

annual series investigating Canada’s dynamic

relationship with the developing world, CDR 1998

forms part of the Institute’s broader research on the

theme of markets and social equity.

Corporate social and environmental responsibil-ity is becoming the business issue of the 21stcentury. During the past few years, corporateleaders such as Courtney Pratt of Noranda Inc.have spoken publicly about the need to makesocial and environmental concerns a part ofeveryday business. Meanwhile, corporations ofall kinds, on all continents, are commissioningindependent “social audits” to monitor and ver-ify their social and evironmental performance.Others are distributing their ethical manifestosby post, fax, and e-mail. Still others are joiningassociations and displaying symbols certifyingthat production complies with environmentalor labour standards. For a growing number ofCanadian and international firms, socialaccountability is part of their mission statements and operating culture.

While corporate responsibility may occupy centre stage in a number of Canadian corporateboardrooms, it has also invaded Canadians’ living rooms. During the past few months, forexample, radio ads for ethical funds have askedif your investment dollars supported repressivemilitary regimes and child labour. Newspaperheadlines reported on “Buying goods, with aside of ethics”2 while Ottawa city councildebated a donation from Nike Inc. because ofthe company’s poor labour record in developingcountries. Many Canadians flocked to theatresto watch the inept hero of the Hollywood comedy Billy Madison triumph when his businesscompetitor fails to define “business ethics.”

Why has the spotlight turned on corporate socialand environmental responsibility? First, becauseof globalization. The United Nations, for instance,reports that transnational corporations—45,000firms and 280,000 foreign affiliates—account fortwo-thirds of the world’s trade in goods and services and employ some 73 million people.3

In the post-Cold War era, global markets havemade it possible, even desirable, for firms to dobusiness on six continents, 24 hours a day.

As Roy Culpeper, President of the North-SouthInstitute, and NSI Researcher Gail Whitemanexplain in the first chapter of this report, privatecapital flows have increased five-fold during the 1990s, and now account for more than

2

OVERVIEW

C O R P O R A T E S O C I A L

R E S P O N S I B I L I T Y I S T H E

O V E R A L L R E L A T I O N S H I P

O F T H E C O R P O R A T I O N

W I T H A L L O F I T S S T A K E -

H O L D E R S . T H E S E

I N C L U D E C U S T O M E R S ,

E M P L O Y E E S ,

C O M M U N I T I E S , O W N E R S /

I N V E S T O R S , G O V E R N -

M E N T, S U P P L I E R S A N D

C O M P E T I T O R S .

E L E M E N T S O F S O C I A L

R E S P O N S I B I L I T Y

I N C L U D E I N V E S T M E N T I N

C O M M U N I T Y O U T R E A C H ,

E M P L O Y E E R E L A T I O N S ,

C R E A T I O N A N D M A I N T E -

N A N C E O F E M P L O Y M E N T,

E N V I R O N M E N T A L

R E S P O N S I B I L I T Y A N D

F I N A N C I A L P E R F O R -

M A N C E .

CANADIAN CENTRE FOR

BUSINESS IN THE COMMUNITY,

THE CONFERENCE BOARD OF

CANADA

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BOX 1 GETTING MORE THAN WE GIVE

Are developing countries dependent on aid from Canada and other industrialized countries? Notmore so than we are on them. Canada and other rich countries reap enormous material benefitfrom 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 devel-oping world, the increase in Canada’s earnings from the developing world is highly revealing.

CANADIAN LOANS AND INVESTMENTS IN DEVELOPING COUNTRIES

1996 1995

Debt owed to public agencies .............................................. $12.81 ........$14.88Debt to chartered banks..........................................................24.53 ..........13.34Bonds........................................................................................1.79 ............1.68Stocks .......................................................................................8.23 ............5.73Foreign direct investment........................................................16.07 ..........16.02Total..................................................................................... $63.43 ........$51.65

Sources: Canada, Public Accounts of Canada, 1996; World Bank, Financial Flows and the Developing Countries, May1997; 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 isalso worth noting that the outstanding investment in portfolio equity (stocks or shares) grew bymore 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( $ B I L L I O N S ) 1996 1995

Debt owed to public agencies ................................................ $0.74 ..........$1.02Debt to chartered banks............................................................1.42 ............0.91Bonds........................................................................................0.12 ............0.08Stocks .......................................................................................0.53 ............0.29Foreign direct investment..........................................................1.61 ............1.60Total....................................................................................... $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 agenciesfrom 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 thatthe 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 ODA1996 1995

Income from all sources ($billions) ........................................... 4.42 ........... 3.91ODA ($billions) .........................................................................2.68 ........... 3.10Ratio .........................................................................................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 O T E S

1 N.B. adjustments have been made here to the 1995 figures to account for the exclusion of Barbados, Singapore, and South Korea from1996 data. See “Statistical Annex, ‘Technical Notes’,” p. 184.

3

( $ B I L L I O N S )

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80 percent of investment capital flowing fromindustrial to developing nations. Accompanyingthis rapid increase in private flows was a sharpdrop of official flows in the 1990s—officialdevelopment assistance as well as bilateral andmultilateral loans from government-run agencies. As a result, private investment hassupplanted aid as the main channel of relation-ship between developed countries such asCanada, and countries of the South. In a similarvein, Canada’s trade with developing countriesnow accounts for almost one-third—some $39.5 billion in imports and exports—of ournon-US trade. This dramatic increase in North-South commerce has generated bothwidespread benefits as well as questions aboutthe socioeconomic role of corporations in developing countries.

Consider also that today’s corporate giants arebigger than most sovereign nations. For exam-ple, the 1995 sales of the world’s five largestcorporations exceeded the gross national product (GNP) of China. And while Canadiancorporations do not rank among the world’slargest, they are nonetheless formidable entitiesin their respective sectors and in comparison tomid-sized developing countries. For example,the 1996 gross revenues of BCE Inc., Canada’slargest corporation, exceeded the 1995 grossdomestic product (GDP) of countries such as Côte d’Ivoire, Sri Lanka, Guatemala, Ecuador,Uruguay, and Vietnam.

Modern information and telecommunicationstechnology is also enabling small and medium-sized enterprises to carry out business in remotemarkets. And individual private investors aregetting into the act by purchasing and sellingemerging market shares through mutual andpension funds, as well as brokered deals. How-ever, as the recent financial crisis emanatingfrom Asia has demonstrated, investing in theemerging markets can be risky and fraught withuncertainty.

THE CORPORATE STAKE IN SOCIAL

RESPONSIBILITY

Global markets present corporations with newopportunities and new challenges, particularlyin developing countries where customs, standards, and the legal/regulatory framework governing working conditions and environmen-tal stewardship are radically different.

Accompanying the dramatic shift in the circum-stances in which firms operate is an equally pro-

found evolution in the philosophy of corporategovernance. The conventional view has longheld that corporations have only one socialresponsibility: to maximize their profits as longas they adhere to “the rules of the game, withoutdeception or fraud.” But this view has comeunder increasing criticism from both within andwithout corporations because the “rules of thegame” are often perceived to be slanted in favourof business, and business is often seen as tooready to lay off employees or despoil the environ-ment. Thus, accusations of a race to the bottomhave been levied by labour critics against corpo-rations’ investments in developing countries. Inresponse, business and advocates of economicliberalization accuse of “protectionism” thosewanting to impose trade restrictions on goodsproduced with child labour or under conditionsbelow acceptable Northern standards. The issue,however, is what is worth protecting — the rightsof traders and investors to unfettered markets, orthe rights of workers to basic labour standardsand citizens to a sound environment?

Tracing the evolution of thought about issues of markets and social equity, Culpeper andWhiteman argue that self-interested behaviourin a market system may not be in the best interest of either society as a whole or the natural environment. There are three reasons for corporations to move beyond a fixation withthe bottom line: first, the business world isunavoidably embedded within social and natural systems; second, the marketplace byitself cannot resolve environmental and socialissues; and third, it pays to be responsible.

In fact, the corporate world is under increasingpressure to contribute something to society, tobe responsible to a “body politic known asstakeholders.”4

How can companies incorporate social responsibility into daily operations and inter-national management practices?

• By reintegrating ethics into business culture.

• By adopting a systems-centred approach tostakeholder management. This supposes that the firm’s long-term interests must takeinto account the welfare of its employees,customers, the communities in which it operates, and the health of the natural environment.

• By adopting an international code of conductthat addresses social and environmentalinequities.

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O V E R V I E W

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• By broadening corporations’ accountabilityfor their actions and unintended consequences.

Like it or not, say Culpeper and Whiteman,there is every reason to expect that markets willcontinue to spread around the world. In fact,they can potentially play an important role inalleviating the grinding poverty in which a largepart of humanity still lives. But the globaliza-tion of markets can also undermine the frame-work of laws adopted to protect the economicwelfare of individuals and communities and theintegrity of the natural environment. And inter-national charters and conventions have not yetproduced a set of rules that are monitored andenforced throughout the world. The ideal wouldbe an effective system of global governance tooversee the functioning of markets and ensuresocial and environmental responsibility. Suchan objective may be difficult to achieve, at leastin the near future. In the meantime, there is animportant role for governments, acting togetheror alone. Corporations should adopt a business culture that accepts social and environmental responsibilities that are not yetrequired by law in the jurisdictions in whichthey operate.

CANADIAN FIRMS IN THE GLOBAL ECONOMY

Canada’s largest firm, BCE Inc. was only number 162 in the 1997 Fortune 500 list of theworld’s largest corporations. Canadian firms arestrongly oriented in their business dealingstoward the United States, like the Canadianeconomy as a whole.

The absolute size of a corporation, however, is a misleading indicator of its relative impor-tance in global markets. In some sectors, inter-nationally active and competitive firms tend tobe considerably smaller than, say, the gianttransnationals in the automotive or petroleumindustries. Canadian firms are particularly com-petitive internationally in sectors such as min-eral exploration (where firms are quite small), aswell as mineral development and production; in engineering/consulting services(again, where annual turnover is relatively smallrelative to the manufacturing sector); and thetelecommunications industry.

No matter what sector they are in, Canadianfirms doing business abroad are ambassadors forCanadian values, whether or not they want tobe. The way they deal with workers, clients,communities, and the host government—and

their respect for the natural environment—inevitably sends signals to the host countryabout what Canadians think is important andnonnegotiable. These signals are particularlystrong during missions of Team Canada, whenbusiness people are accompanied by seniorpoliticians from across the country.

Unfortunately, the news stories splashed on thefront pages of Canada’s daily newspapers oftenpaint a dismal picture of less-than-responsiblebehaviour: fraud in remote jungle mining operations; chemical spills in environmentallyfragile rivers; displaced populations; exploitedworkers. Seldom heard are the success stories,examples of how Canadian corporations contribute both to social welfare and environ-mental stewardship in developing countries,even while remaining competitive. Becausethese stories could serve as models to guidecompanies in their developing-country opera-tions, the Institute has chosen to highlightsome of them in its study of social responsibilityin various corporate sectors.

FINANCIAL SERVICES

The Canadian financial services industry, whichopens our survey, is highly concentrated: only 22firms are listed on the Toronto Stock Exchange300, an index of the largest and most activelytraded companies: six banks, nine investmentand mutual fund companies, three insurancecompanies, and four financial management com-panies. Historically, there has been tremendouscontinuity in the industry: the five largest banksin 1997 were also the largest in 1901.

As Robert Walker and Marc de Sousa-Shields—current and past Executive Directors of theSocial Investment Organization (SIO)—explainin this report’s chapter on the financial sector,the major banks rank among Canada’s largestcorporations in terms of revenues, assets, andprofitability. On a world scale, Canada’s finan-cial sector is tiny: Canada’s largest bank—theRoyal Bank of Canada—ranks number 50 in theworld. Canadian banks, however, are derivingan increasing proportion of their income outside Canada and are making bold forays into the emerging markets.

In May 1997, the SIO listed six banks and onemutual fund company as leaders in Canadiancorporate social responsibility: Bank of Montreal,Canadian Imperial Bank of Commerce, InvestorsGroup, National Bank of Canada, Royal Bank of Canada, Bank of Nova Scotia, and the

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S T A K E H O L D E R S A R E

P E R S O N S O R G R O U P S

T H A T H A V E O W N E R S H I P,

R I G H T S , O R I N T E R E S T S

I N A C O R P O R A T I O N A N D

I T S A C T I V I T I E S , P A S T ,

P R E S E N T O R F U T U R E .

MICHAEL C. DECK,

CORPORATE CODES AND

ETHICS PROGRAMS: MANAGING

FOR ETHICAL PRACTICE,

KPMG CANADA

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Toronto-Dominion Bank. These firms displaytheir corporate responsibility primarily throughtheir relationships with employees and commu-nities, and their charitable donations, withinCanada. It is more difficult, however, to assesstheir performance overseas. The difficulty stemsfrom assessing not just the direct impact of thelenders, but also the impacts of the projects andborrowers they support through their loans.

Indeed, Walker and de Sousa-Shields considerthat it is at the level of the global financial system that financial institutions can inflict themost social and environmental harm. And thatcapacity is growing as a result of globalization,deregulation, trade liberalization, and the proliferation of new financial products.

How can financial institutions be made to servesocial and economic needs, especially in theinternational arena? Policy options suggested byWalker and de Sousa-Shields include social andenvironmental clauses in trade agreements;enhancing corporate disclosure regulations toinclude social performance; recognizing shareholder rights and allowing shareholders toadvance proposals on “general economic, politi-cal, racial, religious, social or similar issues;” andintroducing legislation to require financial institutions to disclose financing activities relatedto the equitable distribution of capital—in short,making banks more accountable to communities.

The authors add that there is also a vital role forindividuals: by becoming more financially literate; by considering screened investmentportfolios; by supporting responsible shareholder-ship; by promoting the development of codes ofconduct and progressive sourcing policies; andby supporting the credit union movement andalternative institutions for micro- and smallbusiness credit.

MANUFACTURING

Manufacturing has grown rapidly in developingcountries where it now employs 10 percent of theworkforce. But while this is generally lauded forthe benefits it brings—knowledge, skills, employ-ment, income—questions have been raised aboutthe distribution of the benefits and costs, for theworkers, their environment, and for competitorsin the informal sector. Manufacturing accountsfor an important share of Canadian foreign directinvestment (FDI) abroad.

In the chapter on manufacturing, Ann Weston,NSI Vice-president, says that developing coun-tries court FDI to provide the finance, technol-ogy, training—and often market outlets— neededto generate employment and exports. Canadianinvestment in manufacturing in developingcountries is probably as focused on supplying theirdomestic market with goods and services as onexports. But do they contribute to host countrydevelopment? A number of positive contributionscan be cited in technology transfer, environmen-tal protection, equitable labour practices, and

6

O V E R V I E W

BOX 2 THE IMPORTANCE OF CANADA-DEVELOPING COUNTRYLINKAGES

Are some developing countries more important to Canada than others? The simple answer is “yes.” In 1994-96, China was the most importantcountry for Canada in terms of combined immigration, trade, and aid. A distant second and third were India and Mexico. Comparing continents,Asia ranked highest.

Looking at individual indexes, China was most important in terms of trade,while India ranked highest on the human relationship index, and Egypt interms of aid.

These rankings were obtained by averaging three separate indices—forimmigration, trade, and aid—which serve as a statistical representation of people linkages, economic ties, and political ties, respectively. The immi-gration index measures the immigration from each country as a percent-age of total developing-country immigration. The trade index presentseach country’s imports and exports as a percentage of Canadian trade withall developing countries. The aid index measures each country’s proportionof bilateral aid in 1995-96.

The five most important countries to Canada by continent are:

A S I A A F R I C A A M E R I C A S

China Egypt MexicoIndia South Africa Brazil

Philippines Algeria HaitiBangladesh Ghana JamaicaIndonesia Côte d’Ivoire Chile

THE IMPORTANCE OF CANADA

Looking at the other side of the coin, to which developing countries doesCanada matter most? The clear winner is Guyana, followed distantly byJamaica and St Lucia. Of the top 10 countries for which Canada is mostimportant, seven are from the Caribbean, one from Central America—CostaRica—and two from Asia—the Maldives and Malaysia.

The Caribbean’s high ranking is due in large part to the relatively high proportion of its citizens who emigrate to Canada. Trade is also important:for instance, imports and exports to and from Canada account for 32 percentof Guyana’s gross domestic product. Caribbean and African countries alsorank high on the aid index which measures bilateral aid received fromCanada as a share of total aid. St Lucia ranks highest on this index.

Canada is most important to the following five countries or country groupings on each continent:

A S I A A F R I C A A M E R I C A S

Maldives Ghana GuyanaMalaysia Angola Jamaica

Bangladesh Niger St LuciaPhilippines Benin Costa RicaOceania Togo Trinidad and Tobago

Source: The Canadian Development Report 1998, “Statistical Annex, Table 11: ‘Canada-Developing CountryLinkage Indices’,” p 180.

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industrial and community development by suchcompanies as Northern Telecom Ltd, the BataShoe Organization companies, British ColumbiaPackers Ltd, and Premdor Inc.

Moreover, Canada’s manufacturing companiesare introducing codes covering ethical, environ-mental, and labour practices in all their opera-tions. While these are important steps towardincreasing accountability, they also raise ques-tions about standards, coverage, monitoring,and enforcement. Among industry associations,the Canadian Apparel Federation has launcheda number of initiatives to encourage its mem-bers to protect the rights of workers overseas.

Canadian retailers and consumers have a role toplay in encouraging manufacturers to be sociallyresponsible, by buying from suppliers that donot employ child labour, for example, and if pos-sible, avoiding suppliers operating under repres-sive regimes. Others advocate a “buycott”—encouraging companies that meet certain stan-dards. For instance, this is the strategy of groupsfavouring fair trade labeling. Canadian and otherunions have also been active in the fight forworkers’ rights globally, notably the CanadianLabour Congress; the International Textile,Garment, and Leather Workers’ Federation; theCommunications, Energy, and PaperworkersUnion of Canada; the Canadian wing of theUnited Steelworkers of America; and theCanadian Auto Workers’ Union.

Weston considers that informed analysis and dis-cussion of corporate practice requires additionalstudies on trade and investment at the corporatelevel. She also recommends more public and reg-ular stocktaking of corporate performance involv-ing local groups in the definition of standardsand monitoring. Among incentives, she suggestsawards for best practices and the removal of additional tariffs from countries that enforceminimum labour standards. Finally, developingcountry governments and organizations need tobe supported in their efforts to implement effective social, economic, and other policies.

MINING EXPLORATION, DEVELOPMENT, AND PRODUCTION

Canada leads the world in mineral exploration,and is a leading supplier of capital to the interna-tional mining industry. Canadian firms accountfor about 20 percent of global exploration expen-ditures. Alcan Aluminum Ltd, Noranda Inc., andInco Ltd—Canada’s three top minerals firms—are among the top 10 global operators.

Canadian firms are heavily involved in exploration in the former Soviet Union as wellas in Latin America. To a lesser extent, they areexploring in Asia and Africa where the lure ispredominantly gold. This increase in Canadianexploration abroad has been taking place in thecontext of a major restructuring of the miningindustry in developing countries.

How do Canadian firms perform abroad? Asauthor Moira Hutchinson writes in the chapteron the mining industry, there is little data tosupport the oft-cited benefits of multinationalmining investment—technology transfer,employment creation, provision of capital, andexport earnings. But mining, by its very nature,has an undeniable environmental, social, andeconomic impact. A number of concerns havebeen raised about Canadian mining operations:

• Several Canadian companies have invest-ments in three countries with repressiveregimes—Burma, China, and Indonesia.

• Corruption is seen to be a problem in a number of countries with significantCanadian mining investment.

• Canadian companies have been involved in anumber of conflicts over Aboriginal land enti-tlements, notably in Panama and Guyana.

• Core labour standards are seriously restrictedin many countries with significant Canadianmining investment. Labour regulations arenot enforced in others.

• Environmental disasters have been associatedwith Canadian companies, most recently inGuyana and the Philippines.

• Communities can experience a range of negative social and economic impacts, particularly remote communities close tosmall ore bodies.

Companies and critics alike support the estab-lishment of a standard based on best practice or“best of sector.” To date, the mining industryadvances this concept only in the environmen-tal area. It is implied in the code of the MiningAssociation of Canada—the first such code inthe world—that members must endorse. TheOntario Mining Association and InternationalCouncil on Metals and the Environment alsobind members to environmental charters.However, only 13 percent of exploration proper-ties and 26 percent of production properties areowned by Canadian companies subscribing tothese codes.

7


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Codes notwithstanding, individual companiesand their critics alike are endeavouring to pro-mote good practices. Alcan, Battle Mountain GoldCo., Cominco Ltd, Falconbridge Ltd, Inco,Noranda, Placer Dome Inc., and TVX Gold Inc.have been recognized by the Conference Board ofCanada, the Social Investment Organization, theUnited Nations Environment Programme, and theWorld Bank for their work with local communi-ties, the environment, and their local employees.

But, says Hutchinson, most of these good prac-tices occur at the production stage of mining:more problematic are the exploration and closure stages. Ultimately, says Hutchinson,accountability, not best practice, will determinewhether Canadian companies contribute or notto social equity in developing countries. Amongneeded mechanisms are community consulta-tion and participation; respect for workers’ basicrights; codes of conduct; and corporate gover-nance principles that maximize stakeholderaccess to information and decisionmaking.

INFRASTRUCTURE AND ENGINEERING

Infrastructure—from roads to dams and canals,energy and communications, water and sanita-tion—is a pressing need in developing countriesas population increases, cities mushroom, andeconomic growth spurs demands for additionalservices. To meet this need, a growing numberof developing country governments, with thesupport of international funding agencies, areturning to the private sector to both developand manage projects. Among the benefits citedare greater efficiency, more effective manage-ment practices, and greater fiscal accountability.But private sector involvement is not a panacea,warn NSI Researcher Gail Whiteman and authorSusan Brandum in the chapter on infrastructureand engineering: social and environmental costscan still be incurred.

Whiteman and Brandum argue that “sustainableinfrastructure” is essential. In developing countries this requires, first, improving the effi-ciency of existing infrastructure, and second,finding more efficient ways of meeting demand.This presents opportunities for Canadian firmsin energy, water supply, waste management, andtelecommunications. The focus of most largeCanadian companies, such as public electricitysuppliers, is making technology more efficientand thereby reducing waste. But while this ispracticed at home, it is seldom part of theiroverseas operations. That has been left largely tosmaller companies.

Integral to all infrastructure development areengineering services. Canada is the world’sfourth-largest exporter of engineering services.Nine Canadian companies are in the top 200international design firms. In terms of marketshare, Canadian firms—among the world’s mostcompetitive and best respected—are fifth in Asiaand second in both Latin America and Africa.

Engineering consultants, for their part, play a keyrole in development, far greater than suggestedby the dollar value of their activities. A large partof their work consists in planning and imple-menting infrastructure projects in the power,water, and telecommunications sectors. As such,they are able to influence or determine the socialand environmental impact of the projects theydesign. They also transfer technology and know-how to local counterparts through collaborativearrangements and strategic alliances.

Often, the implementation of projects divergesfrom the plans or recommendations of theengineers. While Canadian firms have beeninvolved in controversial projects such as theThree Gorges Dam in China and the ChameraDam in India, they have also won awards forsocial and environmental impact planning,such as Acres International Ltd’s hydropowerfeasibility study in Nepal.

It is encouraging, the authors note, that someCanadian companies are taking the initiativeand moving beyond economic criteria.Canadian funding agencies, for example theExport Development Corporation (EDC), do notyet include social or environmental criteria intheir assessments of projects they support.

How can engineers make a difference? By takinga stronger stance on development issues, sayWhiteman and Brandum; by becoming leadersin environmental management; by employingevaluation methodologies that combine social,environmental and economic impacts; and byintroducing sustainable development accounting or independent monitoring systems.Increased professional development is alsoneeded in the areas of business ethics and sustainable development.

MANAGEMENT CONSULTING

According to the World Bank, trade in goodswill soon be supplanted by services whichaccounts for 20 percent of world trade and continues to exhibit strong growth. WhileCanadian service companies cannot be consid-ered major players globally, their contribution is

8

O V E R V I E W

T H E R E I S G R O W I N G E V I -

D E N C E T H A T [ B U S I N E S S

S U C C E S S ] D E P E N D S N O T

O N L Y O N B O T T O M L I N E

P R O F I T S , B U T O N T H E

V A L U E - A D D E D A

B U S I N E S S C R E A T E S .

A D D I N G V A L U E D E P E N D S

O N C R E A T I N G A P O S I -

T I V E R E L A T I O N S H I P

W I T H P E O P L E —

E M P L O Y E E S , C U S T O M E R S ,

A N D S U P P L I E R S A S W E L L

A S O T H E R S T A K E H O L D E R S

I N A W I D E R C O M M U N I T Y.

T H R O U G H C O M M U N I T Y

I N V O LV E M E N T, B U S I N E S S E S

C A N B U I L D T H E I R

R E P U T A T I O N W I T H A L L

T H E S E G R O U P S A S W E L L

A S D E V E L O P T H E S K I L L S

A N D E X P E R I E N C E O F

T H E I R E M P L O Y E E S

A N D C R E A T E A M O R E

E C O N O M I C A L L Y

P R O S P E R O U S A N D

V I B R A N T S O C I E T Y.

NEIL SHAW,

CHAIRMAN, TATE & LYLE

Pages a-138 (152) 4/24/98 4:46 PM Page 8

increasing. The growth leader is commercial services, particularly management consulting.

A large part of the work carried out by Canadianmanagement consultants in developing coun-tries is under the auspices of the CanadianInternational Development Agency (CIDA) andother international development agencies. Asdistinct from consulting engineers, managementconsultants deal with issues such as public sec-tor restructuring and legislative and regulatoryreform—in effect, the very business of develop-ment, says journalist Marlene Benmergui in thechapter on management consulting.

Also growing is the trade in legal services,although little of that business is with develop-ing countries. Nevertheless, Canadian lawyersare making a significant contribution to increas-ing skills and strengthening the legal systems innew democracies through a volunteer programlaunched by the Canadian Bar Association.

SELLING CANADIAN VALUES

Canadian government support can contributeto the success of our corporations overseas. Thepromotion of Canadian prosperity is clearly theprincipal objective of most Canadian policies

9


BOX 3 GOOD INTENTIONS: CODES OF CONDUCT

“Every organization has an ethics program, whether it knows it or not,” says business ethicsexpert 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 byvoluntarily 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 iswho we are and this is what we stand for...’.”

• A code of practice interprets and illustrates corporate values and principles, and is addressedto 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 amarked difference between the codes of subsidiaries of American corporations and those ofCanadian companies. “With few exceptions, the code of the US parent stood as the code of theCanadian subsidiary, unchanged and firmly rooted in US law. The Canadian corporations weremore apt to include a clause requiring adherence to laws ‘foreign and domestic’ ”4 and “reflectthe Canadian values of tolerance, co-operation, and compromise and appeal to these guidingprinciples 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 repre-sent the first international ethics code created as a result of collaboration between businessleaders in Europe, Japan, and the United States.

• The Principles for Global Corporate Responsibility: Benchmarks for Measuring BusinessPerformance, launched in September 1995 by the Ecumenical Committee for SocialResponsibility, the Interfaith Center on Corporate Responsibility, and the Taskforce on theChurches and Corporate Responsibility.

• The OECD Convention against international corruption, signed in December 1997 by 29leading industrial countries members of the Organisation for Economic Co-operation andDevelopment and five nonmember countries.

• The International Code of Ethics for Canadian Business, signed by 13 Canadian companies inSeptember 1997.

N O T E S

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 underNAFTA: 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 HumanRights 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.

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K E Y C O N C L U S I O N S A N D R E C O M M E N D A T I O N S

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 yieldingrich 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 environmentallyresponsible: 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.

and programs. In foreign policy, trade missionshave been at the top of the government agenda,under the Team Canada banner.

During the past five years, the government hastaken a number of steps to foster Canadian business success abroad: trade diversification;multilateral agreements; coordination betweengovernment departments and the implementa-tion of the International Business Strategy; aclear focus on fast growing emerging marketsand niches; increased cooperation between gov-ernment and the private sector; the promotionof small and medium-sized enterprises; bettermonitoring; and heavy use of information tech-nology to facilitate consultation and networking.

But, says Ted Paterson, NSI Director of Financeand Special Projects, in the chapter titled“Selling Canadian Values,” the strategy has notbeen working. Canada’s trade with the fastestgrowing markets has been declining while ourdependence on the US continues to increase.Moreover, 70 percent of exports are supplied byfewer than 100 firms.

What are the benefits and costs of Team Canadamissions? While they serve the public relationsneeds of politicians and participating firms,they have not translated into greatly increasedtrade. They have, however, led to a downplay-ing of environmental security, human rights,and democracy. Paterson notes that theCanadian government, in fact, does little torequire or even encourage Canadian businessesto promote respect for human rights overseas,although the promotion of Canadian values andculture is one of the three pillars of Canada’sforeign policy.

Canada enjoys an enviable reputation in developing countries. How can it capitalize onits competitive advantage? First, by followingthrough on its foreign policy objectives. Thiswould require abandoning trade missions tocountries whose policies are inconsistent withfundamental Canadian values and requiringthat firms which receive subsidies in support ofinternational activities sign codes of social andenvironmental conduct, among other measures.Also essential, says Paterson, is for Canada’s aidprogram to reassert the priority of developmentalrather than commercial objectives.

C O N C L U S I O N

This compact survey of Canadian financial,mining, manufacturing sectors, and infrastruc-ture/engineering consulting firms shows that,for many Canadian companies, social responsi-bility is an integral part of doing business and iscritical to performance and success. Others,however, continue to view corporate socialresponsibility as “a discretionary activity—to beengaged in when better financial performanceresults in the availability of resources for philanthropic initiatives, employee relations or community investment.”5

Ensuring that corporations engage in ethicalbehaviour, however, is not only an issue for theprivate sector. It requires the active participationof both governments and individuals. The bottom line is that we all play a role in shapinghow corporations conduct their business andmust ourselves act responsibly by exercising oureconomic power—by selective shopping, investment screening, and workplace decisions.

10

O V E R V I E W

B U S I N E S S I S A C R I T I C A L

E L E M E N T O F S O C I E T Y.

I T I N E V I T A B L Y H A S A

G R E A T I M P A C T O N H O W

S O C I E T Y D E V E L O P S .

I T H A S A R E S P O N S I B I L I T Y

T O P L A Y T H A T R O L E

W I T H H I G H E T H I C A L A N D

M O R A L S T A N D A R D S ,

W I T H C O N S C I O U S N E S S

A N D W I T H P U R P O S E .

COURTNEY PRATT,

CHAIRMAN, NORANDA INC.

“BUSINESS ACCOUNTABILITY:

SHAREHOLDERS,

STAKEHOLDERS OR SOCIETY?”

ADDRESS TO THE CANADIAN

CLUB OF TORONTO,

SEPTEMBER 29, 1997

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11


K E Y C O N C L U S I O N S A N D R E C O M M E N D A T I O N S (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 whichthey 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 corporatebehaviour 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 ofstakeholders to information and decisionmaking.

• Corporations need to adopt evaluation methodologies that combine social, environmental, andeconomic considerations.

FOR GOVERNMENT

• The Canadian government should systematically make information available on human rightsconditions and environmental concerns in countries targeted by trade missions or in whichCanadian firms desire to do business.

• The Canadian government should not financially support commercial activities in countrieswhose policies are inconsistent with fundamental Canadian values.

• Canadian values, particularly with regard to observing basic human rights and environmentalresponsibility, need to be integrated into programs supporting the commercial activities ofCanadian 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 ofproducts 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 O T E S

1 Paul Hawken, Keynote Address, Recycling Council of Ontario17th Annual Conference, Hamilton, October 2, 1996.2 Susan Semenak, “Buying goods, with a side of ethics,” The OttawaCitizen, August 11, 1997, p. C3.3 United Nations, World Investment Report 1997: TransnationalCorporations, Market Structure, and Competition Policy (New York:United Nations, 1997), p. xv.

4 KPMG, “The Age of Ethics,” February 1998. Website:http://www.kpmg.ca (consulted in March 1998).5 Janet Rostami, Corporate Social Responsibility: Taking Action to Meetthe Challenge, Members’ Briefing (Ottawa: The Conference Board ofCanada, January 1998).

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13

C H A P T E R O N E

THE

CORPORATE

STAKE IN

SOCIAL

RESPONSIBILITY

Roy Culpeper and Gail Whiteman

R O Y C U L P E P E R I S P R E S I D E N T O F T H E N O R T H - S O U T H

I N S T I T U T E . G A I L W H I T E M A N I S A R E S E A R C H E R A T

T H E N O R T H - S O U T H I N S T I T U T E , S P E C I A L I Z I N G I N

M A R K E T S A N D S O C I A L E Q U I T Y I S S U E S .

Pages a-138 (152) 4/24/98 4:47 PM Page 13

Canada is the world’s eighth largest trader,with US$192 billion of merchandise exports

in 1995, or 4 percent of the global total. Interms of services like insurance and tourism,Canada ranks 15th as an exporter with a 1.7percent share, earning US$18.4 billion.1 Andwhile our trade is heavily concentrated on theUnited States, Canadian trade with developingcountries accounts for almost a third—some$39.5 billion in imports and exports—of ourtrade with the rest of the world (see StatisticalAnnex, Table 6, p. 139).

Trade, in fact, has supplanted aid as the mainchannel of relationship between Canada andcountries of the South. Trade in both directionshas grown greatly during the past 20 years, andinvestment even more in recent years. This islikely to continue: securing trade is set downunambiguously in the Canadian government’s1995 foreign policy document, Canada in theWorld.

This shift in relationship gives rise to a numberof questions concerning the role and responsi-bilities of the private sector in developing markets. Do conscience and commerce mix?2

Should businesses help improve human rights,labour standards, environmental stewardship? Isit even possible? Do corporations have the ability or power to influence (for good or ill)social equity and environmental standards? Asthe private sector rapidly becomes a pre-eminentactor, both domestically and in the internationalmarketplace, answers to such questions areincreasingly urgent.

Problems of social inequity and environmentaldegradation are exceedingly complex. Theirsolution will therefore require persistent, inge-nious, and multi-faceted interventions anddemand the active participation of businesses,governments, and civil society. If the policiesand actions of any one of these actors alone islikely to be inadequate, corporations have a particular stake in social responsibility. In today’sglobal markets, business must be part of thesolution rather than part of the problem—socialresponsibility is both good for society and forbusiness. For this to happen, however, the dom-inant culture and practices of business must

change. In particular, the prevailing ethic ofcompetitively driven self-interest must give wayto a more cooperative ethos in which the bene-fits accruing to society and the environment areintegrated into business policy and decision-making along with the more conventionalprofit motive.

There are promising signs that the prevailing culture and ethical practices of corporations arechanging. Perhaps foremost is that business people now openly acknowledge that corruptionand bribery (with respect to foreign as well asdomestic governments) are ethically reprehensi-ble. Indeed, an international consensus on theissue has resulted in the adoption by theOrganisation for Economic Co-operation andDevelopment (OECD) of an international code tolimit such conduct (see Box 1). Progress on otherforms of ethically objectionable corporate beha-viour—child labour, oppressive or exploitativeworking conditions, etc.—lags behind, althoughthere is a considerable amount of discussionabout the issues. On yet other issues, such as therelationship between corporate behaviour andhuman rights, there is little consensus. However,the launching of the International Code of Ethicsfor Canadian Business by a group of Canadianfirms in late 1997 is a step in the right direction(see Box 2). Finally, many leading corporate executives are speaking out on the need for businesses to demonstrate social and environmental responsibility.

G L O B A L I Z A T I O N A N D

N O R T H - S O U T H R E L A T I O N S

Globalization has become the seeminglyunstoppable force governing internationaleconomic and political relations. Privatemarkets today drive the global economy anddominate North-South economic relations.

Globalization can be a tremendous force forgood: it can generate employment, income, andeconomic growth. It can help develop or usehuman resources, transfer technology, andincrease productivity. It can thus help raisestandards of living and vastly improve the qualityof life. Globalization has the potential of makingthe world a better place in which to live for all its

14

C H A P T E R O N E

THE CORPORATE STAKE IN

SOCIAL RESPONSIBILITYM Y F U N D A M E N T A L

H Y P O T H E S I S I S T H A T I F

T H E C A N A D I A N

B U S I N E S S C O M M U N I T Y

C A N C O M E T O G E T H E R I N

A C O M M I T M E N T T O

M A K I N G A D I F F E R E N C E

I N B U I L D I N G T H E

S O C I E T Y O F T H E N E X T

M I L L E N N I U M , T H E N

C A N A D I A N C O R P O R AT I O N S

W I L L B E A B L E T O M A K E

A M E A N I N G F U L

D I F F E R E N C E I N S H A P I N G

A S O C I E T Y T H A T I S

B E T T E R F O R A L L O F U S —

B U S I N E S S , E M P L O Y E E S ,

T H E E N V I R O N M E N T,

O U R C O M M U N I T I E S .

COURTNEY PRATT,

CHAIRMAN, NORANDA INC.

ADDRESS TO THE CANADIAN

CLUB OF TORONTO,

SEPTEMBER 29, 1997

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15


BOX 1 OECD CONVENTION AGAINST INTERNATIONAL CORRUPTION

Corruption and bribery occur in both the developed and developing world. But while expertsagree that the problem is widespread, its actual dollar impact is unknown.1 Corrupt practicesaffect not only the global trading system, but can also lead to a misallocation of scarce publicresources, 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 thatdoes 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 accountingsystems and noncorrupt business practices.5 While corruption is not believed to be widespread inCanada, it is perceived to be in some countries where Canadian firms operate, such as Indonesiaand Nigeria.6

On December 17, 1997, 29 leading industrial countries (OECD members), and five nonmembercountries (Argentina, Brazil, Bulgaria, Chile, and the Slovak Republic) signed the OECDConvention on Combating Bribery of Foreign Public Officials in International BusinessTransactions. All signatory countries agreed to make the bribery of foreign officials a crimewherever it occurs.7 Before the signing of this Convention, only the United States, through itsForeign 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 theConvention and to ratify it by the end of 1998.

The OECD Convention focuses on “active corruption” or “active bribery”—meaning the offencecommitted by the bribe giver. The Convention establishes a standard to be met by signatory countriesand “seeks to assure a functional equivalence among the measures taken.”9 Actions that are notprohibited by the Convention include small “facilitation” payments made in some countries to inducepublic officals to perform their functions—an activity which is to be addressed by individual countriesin support of good governance—and payments to political parties. In addition, it is not an offence ifan “advantage is permitted or required by the written law or regulation of the foreign public official’scountry, including case law.”10 Culprits may receive criminal sanctions, including fines andimprisonment.11

According to the nonprofit NGO, Transparency International, there are a number of outstandingissues. Like any international code, a key problem is effective monitoring. Since the Conventionadopts a “soft law” approach—a recommendation for action by national governments that isnot legally binding—effective implementation at the national government level needs to beevaluated 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 Conventionwill help companies that are unwilling to participate in bribery by providing them withinternational grounds for nonparticipation. In addition, Transparency International believes thatthe OECD initiative will help strengthen domestic anti-corruption movements in developingcountries.

N O T E S

1 Robert Johnstone, “ Corruption and International Business,” Newsletter, CIIA, vol. II, (1) (Toronto: Canadian Institute ofInternational 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.html3 A nonprofit NGO which operates at both an international and national level through its National Chapters, TransparencyInternational emphasizes the need for increased public transparency and accountability in international business activities and publicprocurement. 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 outlinesthe 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, OECDwebsite http://www.oecd.org10 Ibid., p. 2.11 Canada, Department of Foreign Affairs and International Trade (DFAIT), News Release (No. 214), December 18, 1997.

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16

C H A P T E R O N E T H E C O R P O R A T E S T A K E I N S O C I A L R E S P O N S I B I L I T Y

BOX 2 INTERNATIONAL CODE OF ETHICS FOR CANADIAN BUSINESS1

Canadian business has a global presence that is recognized by all stakeholders2 as economicallyrewarding to all parties, acknowledged as being ethically, socially, and environmentally respon-sible, welcomed by the communities in which we operate, and that facilitates economic,human resource, and community development within a stable operating environment.

B E L I E F S

We believe that:• we can make a difference within our sphere

of influence (our stakeholders)• business should take a leadership role through

establishment of ethical business principles• national governments have the prerogative to

conduct their own government and legalaffairs in accordance with their sovereign rights

• all governments should comply with inter-national treaties and other agreements thatthey have committed to, including theareas of human rights and social justice

• while reflecting cultural diversity and differ-ences, we should do business throughoutthe world consistent with the way we dobusiness in Canada

• the business sector should show ethicalleadership

• we can facilitate the achievement of wealthgeneration and a fair sharing of economicbenefits

• our principles will assist in improvingrelations between the Canadian and hostgovernments

• open, honest and transparent relationshipsare critical to our success

• local communities need to be involved indecision-making for issues that effect them

• multistakeholder processes need to beinitiated to seek effective solutions

• confrontation should be tempered bydiplomacy

• wealth maximization for all stakeholderswill be enhanced by resolution of outstand-ing human rights and social justice issues

• doing business with other countries is goodfor Canada and vice versa

V A L U E SWe value:• Human rights and social justice• Wealth maximization for all stakeholders• Operation of a free market economy• A business environment which mitigates

against bribery and corruption• Public accountability by governments• Equality of opportunity• A defined code of ethics and business practice• Protection of environmental quality and

sound environmental stewardship• Community benefits• Good relationships with all stakeholders• Stability and continuous improvement

within our operating environment

P R I N C I P L E S

A/Concerning Community Participationand Environmental Protection, we will:• strive within our sphere of influence to

ensure a fair share of benefits tostakeholders impacted by our activities

• ensure meaningful and transparent consul-tation with all stakeholders and attempt tointegrate our corporate activities with localcommunities as good corporate citizens

• ensure our activities are consistent withsound environmental management andconservation practices

• provide meaningful opportunities for tech-nology cooperation, training and capacity-building within the host nation

B/Concerning Human Rights, we will:• support and promote the protection of inter-

national human rights within our sphere ofinfluence

• not be complicit in human rights abuses

C/Concerning Business Conduct, we will:• not make illegal and improper payments

and bribes and will refrain from participat-ing in any corrupt business practices

• comply with all applicable laws and conductbusiness activities in a transparent fashion

• ensure contractor’s, supplier’s and agent’sactivities are consistent with these principles

D/Concerning Employee Rights andHealth & Safety, we will:• ensure health and safety of workers is protected• strive for social justice and promote freedom

of association and expression in the workplace• ensure consistency with universally accepted

labour standards, including those related toexploitation of child labour

A P P L I C A T I O N

The signators of this document are committedto implementation with their individual firmsthrough the development of operational codesand practices that are consistent with the vision,beliefs, values and principles contained herein.

N O T E S

1 Thirteen Canadian companies developed the Code inSeptember 1997: Alcan Aluminum Ltd; Beak International Inc.;Cambior Inc.; Chauvco Resources Ltd; John Neville Inc.; KomexInternational Ltd; Liquid Gold Resources Inc.; Profco ResourcesLtd; Pulsonic Corp.; Reid Crowther International Ltd; Sanduga &Associates; Shell Canada Ltd; and Wardrop Engineering Inc.2 Should include: local communities, Canadian and host govern-ments, local governments, shareholders, the media, customersand suppliers, interest groups, and international agencies.

Source: http://www.uottawa.ca/~hrrec/busethics/codeint.html

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inhabitants. But even proponents of globalizationadmit that it has definite downsides: unemploy-ment, widening income disparities, and environ-mental degradation have so far accompaniedglobalization.3 So how, in a world dominated byglobal market forces and private sector interests,can social and environmental equity flourish?

Market capitalism is nearly universal today. Thismay suggest that there is global consensus aboutthe advantages of market-based economies. But itis evident that there is not just one “model” ofmarket capitalism: the market economy in theUnited States differs from Canada’s more “mixed”economy and considerably from Western Europe’sand Japan’s. In each, there is a different balancebetween the responsibilities of states, marketagents, communities, and households.

The demise of the communist system throughoutmuch of the world makes it possible to asksearching questions about the market-basedeconomy. How “fair” are free markets? Givenwidening income disparities in the industrialcountries during the past 20 years, how equitablydistributed are the benefits of market-basedeconomies? What is their impact on differentsegments of society—workers, households, andcommunities? What are corporations’ rights andresponsibilities toward society? Toward common-property resources and the natural environment?How does diminishing state power affect all?

Searching questions have also been raised aboutcorporate governance. Are major shareholders acorporation’s only, or even the primary, “stake-holders?” What responsibilities do corporationshave toward their customers and clients? towardconsumers generally? toward their employeesand the communities in which they operate?toward future generations and the environment?

In a market-driven global economy, issues ofcorporate conduct, ethics, and governance havecome to the fore. These issues are both morestark and complex in developing countrieswhere standards, legal systems, and customs differ from those in industrialized countries.

T H E G R O W I N G R O L E O F

P R I V A T E F O R E I G N I N V E S T M E N T

I N D E V E L O P M E N T

DEVELOPMENTS OVER THE LAST DECADE

Since the late 1980s, the role of private foreigninvestment in developing countries hasexpanded greatly, both in relative and absolute

terms. This is due to a number of overlappingdevelopments: global official development assis-tance (ODA) has substantially declined; the levelof foreign direct investment (FDI) in the devel-oping world has increased significantly, as hasthat of portfolio investment; and there has beenan ongoing move toward a deeper and broaderform of economic integration between devel-oped and developing worlds. Private investmentflows have been highly concentrated in aboutone dozen developing countries, however.

The 1980s also witnessed changes of fundamen-tal importance in North-South relations. First,the aftermath of the debt crisis led to a wave ofeconomic liberalization, reform, and opennessto foreign investment. Second, developingcountries in East and Southeast Asia experiencedunprecedented economic growth, based primar-ily on higher investment rates and export pro-motion. Until the recent financial crisis in Asia,this model seemed successful and highly attrac-tive to other developing countries, which havebegun to actively compete for foreign directinvestment. Finally, a wave of political liberal-ization resulted in the spread of democracythrough many of the non-OECD countries.These combined events set the stage for a strongcommitment to privatization, which createdmany new opportunities for private sector firms.

The increase in private investment flows todeveloping countries has been both swift anddramatic. Corporations have actively enterednew and expanded markets. The postwar domi-nation of private by official flows has been over-turned in the first half of the 1990s (Table 1),returning perhaps to the pattern that existedbefore the Great Depression. Most countries,including the remaining centrally planned com-munist states such as the People’s Republic ofChina, have now embraced market-basedeconomies. As a result, the linkages betweenrich and poor countries are driven by private

17


TABLE 1 Aggregate Net Long-TermResource Flows to Develop-ing Countries, 1990-96( U S $ B I L L I O N S )

1990 1993 1996Aggregate Net Resource Flows 100.6 212.0 284.6Official Development Finance 56.3 55.0 40.8Total Private Flows 44.4 157.1 243.8

of which: FDI 24.5 67.2 109.5Portfolio Equity Flows 3.2 45.0 45.7

Source: World Bank, Global Development Finance, 1997, p. 3.

G O O D C O R P O R A T E

E T H I C S H A V E T O B E T H E

F O U N D A T I O N O F O U R

B U S I N E S S .

AL FLOOD, CHAIRMAN,

CANADIAN IMPERIAL

BANK OF COMMERCE

QUOTED IN ROBERT WALKER,

“THE ETHICAL IMPERATIVE,”

THE FINANCIAL POST 500,

1997, P. 28.

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investment, trade, and commerce even more sothan before. (It should be noted, however, thatthe poorest countries, particularly those of sub-Saharan Africa, remain largely outside the ambitof these new global markets.) One indicator ofthe relative importance of the private and public sector linkages is captured in Table 1.

THE DECLINE IN OFFICIAL FINANCING FOR

DEVELOPMENT

From 1990 to 1996 there was a sharp drop inofficial flows (comprising both ODA and otherofficial flows, such as bilateral and multilateralloans). After a sharp fall in 1993 and a partialrecovery in 1994, ODA dropped by nearly 10 percent in real terms (adjusted for inflationand exchange rates) in 1995. As a share of thegross national product (GNP) of OECDDevelopment Assistance Committee (DAC)members, ODA fell to 0.27 percent, its lowestlevel in 45 years. The ODA/GNP ratio fell in 15 out of 21 DAC member countries, includingall the G-7 countries. Huge cuts in the UnitedStates ODA program reduced that country fromthe number one position to fourth place by1995, with a program less than half the size ofJapan’s, and less than those of both France andGermany.4 Canada, which had been known asone of the more committed aid donors until the1990s, cut its aid budget by 40 percent between1989 and 1997.

There are strong reasons to believe that privateforeign investment, even without numerousquestions about its social responsibility andimpact, is not and will not be a perfect substi-tute for foreign aid (publicly funded officialdevelopment assistance). Private investmenthas, in fact, generally complemented ODA: forexample, two of the key sectors of interest toforeign investors are natural resources and man-ufacturing, sectors not traditionally given muchsupport through ODA. In other sectors, such asinfrastructure, private foreign investment isreplacing ODA. But this substitution may come at a price.

For several reasons, over the past decade, aidagencies have backed away from infrastructureprojects in developing countries. These reasonsinclude dwindling funds and the costliness ofinfrastructure projects. Moreover, much nega-tive publicity has surrounded the adverse envi-ronmental and social impacts of poorly plannedor implemented infrastructure projects. Inresponse to criticisms, the World Bank andother agencies have implemented procedures to

assess, monitor, and limit environmental andsocial impacts. As a result, the replacement ofODA-financed infrastructure by privately andlocally financed infrastructure is likely to raisemany of the same issues. There is a danger that,without the involvement of public aid agenciesin infrastructure projects, environmental andsocial standards will be laxer.

THE RISE OF PRIVATE FOREIGN INVESTMENT

Investment by transnational corporations—acentral, defining feature of globalization—hasexpanded enormously since the Second WorldWar. Such investment facilitates “deepintegration” between different countries andcommunities as global firms source inputs ofmanpower, capital, raw materials, andintermediate products from wherever it is bestto do so, and sell their goods and services in all the major world markets.

In 1995 there were 45,000 transnational corpo-rations (TNCs) with 280,000 foreign affiliates.Their estimated global sales were US$7 trillion;since 1987 such sales have exceeded exports ofgoods and services by a factor of 1.2 to 1.3. MostTNCs are headquartered in developed countries,although by 1995, 7,900 of the 45,000 werebased in developing countries.5

Foreign direct investment by transnationals—theactivity through which they establish and growtheir foreign affiliates—is now a major forceshaping globalization. In 1996, these flowsamounted to US$350 billion worldwide, andresulted in a global FDI stock of US$3.2 trillion.Of the $350 billion FDI total, some US$129 billion, or 37 percent, went to developing coun-tries.6 A good proportion of FDI is concentratedin the hands of the 100 largest TNCs (ranked bythe size of foreign assets), which own $1.7 trillionof assets in their foreign affiliates, controlling anestimated one-fifth of global foreign assets.

Since three-quarters of the investment of affili-ates was financed by means other than FDI fromtheir parents (e.g., through commercial banksand equity markets, both at home and abroad),their actual investment in 1996 was $1.7 trillion,about one-fifth of world gross capital formation.7

In other words, TNCs and their affiliates have asubstantial role in global investment.

There has always been controversy over the roleof FDI in development, and although the debateis muted in the 1990s, many of the underlyingissues still remain (see Box 3). This is in partbecause of a heavy concentration of FDI among

18


T H E G L O B A L E C O N O M Y,

W I T H I T S B O R D E R L E S S

F L O W O F G O O D S ,

C A P I T A L A N D I D E A S ,

C A N N O T F U N C T I O N

W I T H O U T A G L O B A L

E T H I C .

JOHN DALLA COSTA,

“MORAL CRISIS BEHIND ASIAN

MESS,” THE GLOBE AND MAIL,

MARCH 26, 1998

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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 inNorth-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 cor-porations’ 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 devel-oping countries welcomed, even enticed transnationals (TNCs) to invest through favourable taxor other policies. TNCs and FDI are now widely seen as an effective route to modern technologyand 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 moreliberal 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, itmay 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 dealwith it effectively; and

• the terms on which FDI is provided to developing countries are likely to be the products ofbargaining, 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 hostcountry—a rather attractive prospect for poorer countries striving to increase productivity—these advantages can also negatively affect the development of local technological capabilitiesand 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 costswhich TNCs are typically unwilling to bear. Therefore, developing countries may be unwise torely solely or principally on FDI (or more generally on markets) to encourage technologicaldevelopment and extension to the domestic economy, as well as local human development.Ultimately, the development of indigenous skills and technology must rely on local governmentinitiatives.

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 negotiatedprincipally 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 disallowmany developing countries (if they were to become MAI signatories) from implementingpolicies adopted in the past, for example selective measures to protect domestic industry andtechnological development, as well as performance requirements (for example, on exports) onFDI to achieve specific developmental objectives.

Moreover, many developing-country critics have compared the proposal for an MAI—whichwould be legally binding upon signatory governments—with three past initiatives undertakenunder the auspices of the United Nations,2 aimed at establishing codes of conduct fortransnational corporations: industrialized countries insisted these would be nonbinding andvoluntary. Finally, the fact that the MAI has been negotiated in a forum dominated by thedeveloped countries (the OECD) rather than a more universal forum such as the World TradeOrganization, adds to the developing countries’ apprehensions that the economic, social, andpolitical objectives of development are likely to be marginalized in the treaty.

N O T E S

1 See Gerald K. Helleiner, “Transnational Corporations, Foreign Direct Investment and Economic Development,” in H.B. Chenery andT.N. Srinivasan, eds, Handbook of Development Economics, vol. II (London: Elsevier Science Publishers, 1989), pp.1,441-480; and SanjayaLall, “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 EquitablePrinciples and Rules for the Control of Restrictive Business Practices, adopted by UN Resolution in 1980; the Draft UN Code of Conducton Transnational Corporations (negotiated but not yet adopted); and the Draft International Code of Conduct on the Transfer ofTechnology (negotiated but not yet adopted).

19

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the largest TNCs, and also in part because thelargest TNCs tend to be headquartered in theUS, Europe (particularly the United Kingdom,Germany, and France), and Japan. Many ofthese huge corporations have gross revenues orsales exceeding the GNP of all but a handful ofdeveloping countries (see Table 2).

There are some particularly striking contrastsbetween TNCs and developing countries.Together, sales of the world’s five largest corpo-rations, with aggregate revenues exceedingUS$735 billion, exceed the GNP of China (acountry with more than one-fifth of the world’speople). General Motors Corp. alone is biggerin this sense than Thailand (with 65 millionpeople), and all but eight other developingcountries. General Motors and Ford MotorCompany have aggregate revenues exceedingthe total GNP of 47 of the world’s poorest coun-tries, home to more than one billion people.Royal Dutch/Shell Group is larger and ExxonCorporation slightly smaller than Saudi Arabia,the world’s largest oil-exporting country. Therevenues of Wal-Mart Stores Inc. are more thanhalf as much as the entire GNP of Indonesia, acountry of more than 190 million people.

While Canadian corporations do not rankamong the world’s largest, they are nonethelessformidable entities in their respective sectorsand in comparison to mid-sized developingcountries (see Box 4).

It would be a mistake, however, to consider eco-nomic globalization a phenomenon that involvesonly large transnational corportations. Becauseof modern information and telecommunicationstechnology, small and medium-sized enterprisesare also able to carry out business in remote markets, in a manner unthinkable even half acentury ago. Individual private investors are alsogetting into the act. One of the most remarkableand unprecedented developments of the 1990shas been the growth of cross-border portfolioequity investment (see Table 1). The purchase ofshare capital, once almost wholly confinedwithin national boundaries, now occurs betweencountries in a number of ways. And an increasingproportion of the transactions take place betweenindustrialized and developing countries, many ofwhich have opened their stock markets forinvestment by nonresidents for the first time—and in some cases established stock markets forthe first time. Individual investors in industrialcountries now participate in such cross-boundarytransactions by purchasing and selling “emergingmarket” shares through mutual and pensionfunds, and through brokered deals involving particular Southern firms.

At the end of the 1990s, both the behaviour ofTNCs and the role of FDI are changing.Traditionally, TNCs expanded their territorialhorizons primarily to exploit their core compe-tencies or competitive advantages. Increasingly,however, global firms seek to enhance theiradvantages by acquiring, or gaining access to,strategic assets, new resources, and capabilities—part of a phenomenon called “alliance capital-ism” by John Dunning. Instead of the traditionalhierarchical relationship (between parent andaffiliate), such alliance behaviour often involvescooperative arrangements, whether for technicalservice or subcontracting agreements, or moreinformal inter-firm understandings.8

G L O B A L M A R K E T S A N D

S O C I A L E Q U I T Y

DILEMMAS OF THE MARKET SYSTEM

Markets have existed as long as humancommunities, but it is only since the industrialrevolution two centuries ago that the “marketsystem” has increasingly dominated society—first at the national level, and now at the globallevel. Social theorists have long criticized theimpact of the market system on society and,more recently, on the environment. In the 19thcentury, political economists such as Karl Marx

20


TABLE 2 Transnational Corporations’ Gross Revenues andDeveloping Countries’ GNP, 1994-95

Corporation Revenues HQa Developing GNP Population(US$ billions) Country (US$ billions) (millions)

1 General Motors Corp. 168.4 US China 697.6 1,2002 Ford Motor Company 147.0 US Brazil 688.1 1593 Mitsui & Co. Ltd. 144.9 Japan Korea 455.5 454 Mitsubishi Corporation 140.2 Japan Russia 344.7 1485 Itochu Corporation 135.5 Japan India 324.1 9296 Royal Dutch/Shell Group 128.2 UK/Neths Argentina 281.1 357 Marubeni Corp. 124.0 Japan Mexico 250.0 928 Exxon Corporation 119.4 US Indonesia 198.0 1939 Sumitomo Corporation 119.3 Japan Thailand 167.1 5810 Toyota Motor Corporation 108.7 Japan Turkey 164.8 6111 Wal-Mart Stores Inc. 106.1 US South Africa 136.0 4212 General Electric Co. 79.2 US Saudi Arabia 125.5 1913 Nisho Iwai Corp. 78.9 Japan Poland 117.7 3914 N.T. & T. Corp. 78.3 Japan Greece 90.6 1115 IBM Corp. 75.9 US Malaysia 85.3 20

47 Low-Incomeb 316.9 1,050

Notes:a Location of TNC’s head office.b The world’s poorest countries other than India and China.

Source: Fortune, August 4 1997; World Bank, World Development Report 1997.

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and John Stuart Mill, social activists such asRobert Owen, and novelists such as Victor Hugoand Charles Dickens deplored the socialinequities of the market system that took rootwith the industrial revolution. In the 20thcentury, John Maynard Keynes pointed out thata key lesson of the Great Depression was thatthe market system does not guarantee fullemployment—indeed it may result in anunderemployment equilibrium that leaves asubstantial portion of the population without asource of income. While the solutions proposedby some of these thinkers have come underconsiderable attack, that does not diminishtheir critique of the problems of the marketsystem, many of which, including chronicunemployment and widening incomedisparities, continue to plague market-basedeconomies.

Another 20th-century thinker, Karl Polanyi,argued in The Great Transformation that, withthe market system, the economy became “dis-embedded” or separated from society for thefirst time in human history. The system of self-regulating markets that has emerged has turnedlabour and natural resources into commoditiesto be bought and sold, used, and sometimesdestroyed. In Polanyi’s view, this dramatic trans-formation in relationships both among mem-bers of society, and between society and nature,has had such a wrenching impact that it hasprovoked “counter-movements” to protect soci-

ety and the natural environment. Thesecounter-movements have led to laws and regu-lations governing the way in which marketactors behave, and establishing minimal labourand environmental standards.9

Similarly, the eminent Canadian political econo-mist C.B. Macpherson traced the rise of the con-cept of “economic justice” (the establishment offair prices and just distribution of social incomeand wealth) to markets and merchants achievingrelative autonomy from the state and othersocial relations, although he saw this beginningto happen two centuries before the industrialrevolution. Like Polanyi, Macpherson held thatthe social order had to adopt defence mecha-nisms against the encroachment of markets onaccepted notions of fair prices and a just distrib-ution of wealth. In contrast to Polanyi, however,Macpherson was pessimistic about the future—he viewed the achievements of liberal and social-democratic states in the 20th century astemporary successes in the struggle for economicjustice in a world increasingly dominated bymarkets and corporate power. However, he alsothought that the huge disparities between theThird World and the developed countries wouldkeep the concept of economic justice alive.10

The issues of markets and social equity are con-tentious enough within a single political juris-diction, such as the nation-state. They becomefar more complex when business transactions

21


BOX 4 CANADA’S LARGEST CORPORATIONS

R E V E N U E S ( $ B I L L I O N S )

Corporations Sector C$ US$

1 BCE Inc. Telecommunications 28.64 20.912 Northern Telecom Ltd Telecommunications 17.79 12.993 Royal Bank of Canada Banking 16.47 12.024 CIBC Banking 14.88 10.865 Bank of Montreal Banking 13.00 9.496 George Weston Ltd Food 12.81 9.357 Bank of Nova Scotia Banking 12.40 9.058 Trans-Canada Pipelines Ltd Energy 10.83 7.919 Thomson Corp. Publishing 10.72 7.9310 Imperial Oil Ltd Energy 10.51 7.6711 Alcan Aluminum Ltd Metals 10.39 7.6912 Noranda Inc. Mining 9.88 7.2113 Loblaws Supermarkets Ltd Food 9.87 7.2114 Imasco Ltd Management 9.45 6.9015 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, BCEInc., is number 162 on the Fortune 500 list. Nonetheless, it is worth observing that BCE’s gross revenues in 1996 exceeded the 1995 GDPof countries such as Côte d’Ivoire, Sri Lanka, Guatemala, Ecuador, Uruguay, and Vietnam, and equaled 80 percent of Nigeria’s GDP. Ifthe 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.

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take place across jurisdictions in which the lawsand regulations differ substantially. To theextent that the standards of corporate behaviourare prescribed by law or custom and commonlyobserved (and this may be far from being thecase), there is little leeway within the nation-state to gain a competitive advantage in thedomestic marketplace by diverging from thenorms. But the globalization of trade and invest-ment has profoundly changed the context ofsocial norms in the marketplace.

Globalization has posed a basic conundrum forall international transactions. Whose standardsof behaviour should apply—those of the homeor host country? The dilemma is: if foreigninvestors or traders abide by lower host countrystandards (such as labour standards), they areopen to the charge of exploitation. But if theyabide by higher home country standards, theymay lose the host market to third country competitors with fewer scruples.

Thus, accusations of “a race to the bottom” arelevelled by labour critics against corporations‘investments in developing countries. On theother hand, business and advocates of economicliberalization accuse of “protectionism” thosewanting to impose trade restrictions on goodsproduced with child labour or under conditionsbelow acceptable Northern safety orenvironmental standards.

The driving force underlying many of thesequandaries is competition on a global scale. TheGroup of Lisbon, a coalition of 19 distinguishedscholars—many with strong links to the businesscommunity—from North America, Europe, andJapan, attributes to “excessive competition” thedecline of the welfare state, increasing povertyand chronic unemployment, and/or wideningincome disparities in the industrial countries,and the further de-linking of the world’s poorestcountries from the global economy. It issues avisionary call for “cooperative global gover-nance” to ensure environmental sustainability,social solidarity among present and with futuregenerations, the protection of cultural diversityand freedom, and participatory democracy.11

MARKET BEHAVIOUR AND SOCIAL EQUITY

Underlying the tension between market behav-iour and social equity is an apparent conflictbetween the self-interested motivations of profit-maximization, pursued through competition,and the collective interests of society that resultfrom cooperative behaviour. The pre-eminence

of self-interest as the engine of economic effi-ciency in a competitive economy goes back twocenturies to Adam Smith,12 the father of mod-ern economics. The 20th-century version of the“Invisible Hand” doctrine was articulated byMilton Friedman. In a well-publicized essay inThe New York Times Magazine, he provided anearly definition of corporate social responsibility:

[T]here is one and only one socialresponsibility of business—to use itsresources and engage in activitiesdesigned to increase its profits so long asit stays within the rules of the game,which is to say, engages in open and freecompetition without deception or fraud.[For business to do otherwise is economi-cally reprehensible and] fundamentallysubversive. . . in a free society. 13

Friedman’s definition of corporate social respon-sibility, which defines the currently dominantview, albeit with much dissension, raises imme-diate questions. First, how are the “rules of thegame” derived? The issue of the obligatory socialresponsibilities of firms is highly political, partic-ularly since there may be disagreements con-cerning community standards on which to basethe laws governing admissible corporate con-duct. There is also a question of monitoring andenforcing the rules to prevent “deception andfraud.” Even with the best enforcement systems,however, one must expect that a value system inwhich self-interest is paramount will lead to acertain amount of both deception and fraud.

Critics of the dominant view begin with the factthat businesses do not exist in a vacuum, butmust operate within a framework of laws, rules,and conventions.14 Indeed, the notion of “laissez-faire” underlying Friedman’s model is aserious misconstruction of what “free markets”actually require and entail. Free markets, andthe system of private property, depend for theirexistence on law. Markets are a legal constructwhich facilitate certain transactions (such ascontracts), while laws prohibit others (such astrespass). Moreover, the legal framework goes farbeyond defining property rights and contractobligations to defining social norms that mayalso limit freedoms (for example, laws forbid-ding racial discrimination). Finally, businessesmay also have “supererogatory” responsibili-ties—those beyond legal requirements—thatthey may be motivated to meet.

Even while Friedman expounded the 20th-century version of the Invisible Hand doctrine,it was under challenge by other mainstream

22


A C O M P A N Y M U S T

E S T A B L I S H A N A C T I V E

S O C I A L R E S P O N S I B I L I T Y

C O M M I T T E E A T T H E

B O A R D O F D I R E C T O R S

L E V E L . I T S M A N D A T E

M U S T G O W E L L B E Y O N D

C O R P O R A T E P H I L A N -

T H R O P Y A N D “ A S S E S S

T H E I M P A C T O F T H E

C O R P O R A T I O N O N A L L

I T S S T A K E H O L D E R S A N D

B E A V O I C E T O U R G E

B A L A N C E .

RICHARD J. MAHONEY,

EX-CEO OF MONSANTO

“TAKING THE INITIATIVE ON

STAKEHOLDER RIGHTS,”

BUSINESS & SOCIETY REVIEW,

NO. 97, 1996, PP. 21-25

Pages a-138 (152) 4/25/98 12:38 PM Page 22

economists who demonstrated through gametheory that cooperation can be superior to self-interested competition, not just for the welfareof society, but for the competitors themselves.15

Similarly, scholars like Amartya Sen havepointed out that commercial or economic suc-cess is not simply a matter of the self-interestedpursuit of profits, and that moral codes ofbehaviour can enhance corporate productivityand competitiveness.16 If so, the dichotomybetween the interests of society and those ofcorporations is false, making plausible win-wincombinations of corporate responsibilities andsocial interests.

Sen’s critique of the dominant view runs muchdeeper. One premise of this prevailing view holdsthat maximizing self-interest constitutes the onlyform of “rational market behaviour” and otherforms of behaviour (involving duty, loyalty,goodwill, or ethically motivated conduct) willundermine the efficiency of markets. Both theseassumptions are highly questionable: nonself-interested behaviour is neither “irrational,” nordoes it necessarily undermine efficiency. Senargues that standard economic models do notrecognize the differences between cooperativeand competitive behaviour, and therefore do notgive guidance in many situations—for instance,when economic actors can choose either cooper-ative or competitive strategies to deal with issuesthat have collective impact.

Defenders of the dominant view assert evenmore strongly that self-interested behaviourapproximates actual real world behaviour. Thisassertion, which usually underlies the conven-tional position on the social responsibilities ofcorporations, is equally contestable. In Japan,for example, which is a market-based economy,many commercial relationships are based onduty or loyalty, including labour market con-ventions such as lifetime employment. Whilethey no doubt entail an economic cost, theserelationships have arguably enhanced produc-tivity and played an important role in Japan’sindustrial competitiveness and extraordinarygrowth rate. At the same time, they have con-tributed to social cohesion, at least until the1990s. The implication is that it is quite plausi-ble for corporations to both compete in themarketplace and take on social responsibilitiesthat enhance their commercial success.17

Other social commentators have stressed thatcooperative relationships are fundamental towealth creation and social stability. Recently,author Francis Fukuyama underlined the

importance of social solidarity, or trust, for long-run economic survival and productivity.18

Pointing to examples of industrial organizationin Japan, Germany, and the United States, heasserts that certain forms of behaviour by firms,their workers, and clients cannot be explained bythe motivations of profit-maximization and self-interest. Indeed, in many instances, such behaviour seems to be distinctly at odds with theself-interest of the parties involved. Fukuyamaargues that the creation of economic wealth andstability depends on “social capital”—the abilityof people to work together for common purposesin groups and organizations—which in turnrequires shared norms and values and the subordination of individual interests to those ofthe larger group.

Even leading proponents of globalization, suchas John Dunning, have concluded that coopera-tion is as important as competition for corpora-tions seeking strategic assets as they positionthemselves in the global marketplace. However,Dunning’s conception of “alliance capitalism”where he sees cooperative behaviour takingplace, is very restrictive. The strategic coopera-tion he refers to focuses primarily on the inter-action between “wealth-creating constituents.”Such “cooperation” is not unlike oligopolistic oreven collusive behaviour aimed at promotingthe interests of the cooperators at the expense ofnonparticipants. Of course, the same criticismcan be levelled at Fukuyama’s model of “trust:”a firm may cooperate with its workers and suppliers primarily to get a competitive edge on rival firms.

THE MARKET ECONOMY AND THE

ENVIRONMENT

Self-interested behaviour in a market systemmay not always, or typically, lead to the bestoutcome for society as a whole. For similar reasons, self-interested behaviour in a marketeconomy may not be in the best interests of thenatural environment in which the economyand society must operate.

Indeed, critics such as Herman Daly warn that aglobal economy based purely on competitive,self-interested behaviour portends grave, possi-bly devastating environmental consequences.Such critics argue that the environment is oftentreated by agents of the global market system asa free source of natural resources, and a free“sink” in which to dispose of waste products.The former leads to resource depletion and thelatter to ecological degradation.

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Instead, such critics urge the adoption of gen-uinely sustainable development strategies, inwhich the global economy is viewed as a “sub-system” of the global natural environment.19 Asa subsystem, the economy cannot for longremove from (or inject into) the environment,without replacing (or withdrawing) resourcesthat are necessary (or inimical) to life on theplanet. Sustainability, therefore, is the ability ofthe economic subsystem to coexist in harmonywith the larger environmental system.

What does this mean for corporate actors in theglobal market system? Visionary thinkers suchas Paul Hawken speak about redesigning theeconomic and production systems to ensure“true cyclicality,” so that there is virtually nowaste that cannot be digested by naturalprocesses.20 Such thinking points in the direc-tion of “natural capitalism,” where “natural cap-ital” (the earth’s renewable and nonrenewableresources) is considered an integral part of thecapital with which businesses must work.

C O R P O R A T E R E S P O N S I B I L I T Y :B E Y O N D P R O F I T S

Canadian corporations have far-reachingimpacts on society and the health of the planetitself. Some of these impacts are positive, othersare negative. Given that the marketplace doesnot always demand that corporations becomemore socially responsible, it is crucial that busi-ness culture recognizes this need internally. Buta sustainable change in corporate culturerequires commitment at all levels of the corpo-ration, including its leadership. While any cul-tural change is challenging, the shift to socialand environmental responsibility is not easy.But the adoption of global social and environ-mental responsibility can lead to many positiveresults. As Courtney Pratt, Chairman of NorandaInc., suggests: “If the Canadian business com-munity can come together in a commitment tomaking a difference in building the society ofthe next millennium, then Canadian corpora-tions will be able to make a meaningful differ-ence in shaping a society that is better for all ofus—businesses, employees, the environment,our communities.”21

The first step is for corporations to recognizewhy they need to move beyond Friedman’s fixa-tion with the bottom line. There are at leastthree reasons for doing so.

First, the business world is unavoidably embedded within social and natural systems.22

Corporate activity affects much more than thebottom line. Business fundamentally changesand shapes society and the natural environment,in both positive and negative ways. While manyof these costs and benefits are not currentlyincluded in a company’s financial statements,their effects are tangible. A business operatesexplicitly as an economic actor through the mar-ket system, but also implicitly as a moral andenvironmental actor as its economic actions permeate the related social and ecosystems.

Second, the marketplace cannot by itself resolveenvironmental and social issues. Some, includ-ing the Government of Canada, argue that astrategy of “constructive engagement” willeventually instill liberal values through tradeand commerce, even with regimes that aresocially repressive or environmentally irrespon-sible. For their part, corporate actors engaged intrade and commerce are typically unwilling orunable to influence social or environmentalconditions in foreign countries.23

Third, it pays to be responsible. Increasingly,corporate image is linked to profits—or networth, to be more precise. There is an importantrelationship between corporate ethics and theperceived value of the firm: studies show thatunethical corporate behaviour negatively affectsstock performance.24 Increasingly, externalstakeholders are demanding that businessdeliver sustainable results in more ways thanreturn-on-investment. Companies like Nike Inc.have learned the hard way that a negative imagein the public domain can affect sales, particu-larly when linked to the threat of consumerboycotts. On the other hand, companies thatare perceived to be socially and environmentallyresponsible may gain a competitive advantageover more traditional firms. The Body ShopInternational PLC is an example of one firmwhose profitability is further enhanced throughits image of good corporate citizenship.

It is important to note, however, that increasinga firm’s net worth does not necessarily meanincreasing its short-term profitability. Corpora-tions must often incur costs when they chooseto operate in a socially responsible manner. Atfirst glance, in a market where other corporateactors choose to ignore broader responsibilities,socially responsible firms may seem at a compet-itive disadvantage. But socially responsible firmscan survive, indeed thrive, in a competitive envi-ronment even if they incur higher costs. Sociallyresponsible firms can enhance their long-runprosperity by increasing employee commitment,

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W H A T I L E A R N E D F R O M

T H E R A I N F O R E S T I S E A S Y

T O U N D E R S T A N D . W E

C A N U S E L E S S , A N D

H A V E M O R E . C O N S U M E

L E S S , A N D B E M O R E . I T

I S T H E O N L Y W A Y. F O R

T H E I N T E R E S T S O F

B U S I N E S S , A N D T H E

I N T E R E S T S O F T H E

E N V I R O N M E N T, A R E N O T

I N C O M P A T I B L E . T H E Y

A R E T H E J A P A N E S E

O M O T E A N D U R A , T H E

C H I N E S E Y I N A N D Y A N G ,

P R O D U C T A N D P R O C E S S ,

E C O N O M Y A N D

E C O L O G Y, M I N D A N D

S P I R I T — T W O H A L V E S .

O N L Y T O G E T H E R C A N W E

M A K E T H E W O R L D

W H O L E .

TACHI KIUCHI, MEMBER OF

THE BOARD OF MITSUBISHI

ELECTRIC CORPORATION.

KEYNOTE ADDRESS,

“WHAT I LEARNED IN THE

RAINFOREST,” WORLD

FUTURE SOCIETY,

JULY 19, 1997

Pages a-138 (152) 4/25/98 12:38 PM Page 24

building customer loyalty, generating coopera-tion among suppliers and subcontractors, differ-entiating themselves from the competition, andby lowering recruitment and labour costs (asemployees acquire social value).25

Of course, those firms with market power orhighly differentiated products will have greaterflexibility to adopt supererogatory standards ofbehaviour and to act in a socially responsiblemanner. Firms operating in highly competitivemarkets and/or producing undifferentiatedproducts may have much less latitude to gobeyond what is required by law and custom. Todo so may mean to go out of business. Thisimportant distinction brings us back to the keyrole of governments in establishing the rules ofthe game, in particular the social and environ-mental standards to which firms must adhere,thereby also determining the fixed or overheadcosts that all firms must incur.

A mature corporation is one that evaluates bothits intended and unintended economic, social,and environmental impacts. A responsiblecorporation seeks balance in its operationsbecause it recognizes its moral obligation to doso. It also recognizes that such behaviour makesgood business sense. Encouragingly, enlightenedchief executive officers (CEOs) from around theworld are beginning to understand the limits ofshort-term economic self-interest. As Noranda’sCourtney Pratt explains: “Business is a criticalelement of society. It inevitably has a greatimpact on how society develops. It has aresponsibility to play that role with high ethicaland moral standards, with consciousness andwith purpose.”26

TOWARD CORPORATE SOCIAL AND

ENVIRONMENTAL RESPONSIBILITY

A recent study of a number of US firms thathave consistently demonstrated social responsi-bility suggested some commonalities:27

• Strong, progressive senior management.This is a core attribute of a socially responsi-ble company. These corporate leaders consis-tently demonstrate “moral imagination”—the ability to perceive the moral relationshipsbehind competing economic relations.28

• Catalysts for social change. Companiesassume this role by filling unmet social needs.

• Responsible corporate practices. Theseactions lead to competitive advantage in the marketplace.

Social and environmental responsibility canmean a variety of different things. For some, the definition stresses the social dimension ofcorporate responsibility, asking companies tobecome better “citizens” and to actively contribute to the development of equitableglobal communities. Environmental considera-tions are viewed through the lens of society, ofthe need to protect the natural environment forfuture generations. For others, corporateresponsibility stretches beyond human self-interest and incorporates the millions of non-human stakeholders who share the earth. Fromsuch a perspective, ecological sustainabilitybecomes the key criteria in businessdecisionmaking.

Vision is one thing. Action is another. A keychallenge facing companies is how they canincorporate “corporate social responsibility”into daily operations and international manage-ment practices. We see at least four ways inwhich Canadian companies can become moresocially and environmentally responsible.

1 REINTEGRATE ETHICS INTO BUSINESS

CULTURE

Ethics have always existed within the hallways ofbusiness. But in the mainstream business culture,ethics have often been viewed as separate fromproper business practice. Many theorists (suchas Chester Barnard and Milton Friedman)believed in a clear division between businessand society, between the actions of a personacting on behalf of the corporation and theactions of that same person acting in private. In his or her private life, a business executivemay indeed have social responsibilities, butthese don’t usually intrude upon business life.As Milton Friedman suggested, “If there aresocial responsibilities, they are the socialresponsibilities of individuals, not of business.” 29

As early as the 1930s, the prevailing culturedemanded that corporate employees separatetheir personal ethics from their work.30 That is,“every participant in an organization may beregarded as having a dual personality—an orga-nizational personality and an individualpersonality.”31 Business actions were “de-individ-ualized” in the name of the corporation.32

When people became “company men andwomen” their personal ethic (and personality)was minimized. In many cases, this attitude isstill pervasive in business and business educa-tion. Hence, the old adage: “It’s a businessdecision, not a personal decision.”

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This corporate doctrine rationalized a sort ofschizophrenia, a corporate culture that hasseparated employees and executives from theirpersonal ethics and rewarded the developmentof dual personalities. In this milieu, corporationshave tended to be governed by an “emergentmorality,” which can resemble a labyrinth of“moral mazes.”33 By viewing the corporate actoras separate from the individuals who work forthe corporation, a schism is perpetuatedbetween business and personal ethics. Businessactions are decoupled from the prevailing socialsystem.

In such an environment, the unintended socialand environmental side-effects of business activ-ity which are cumulative and dispersed (as withglobal warming) or geographically distant (as inthe developing world), become even harder totrack—and easier to ignore.

John Darley of Princeton University argues thateven the most ordinary corporations have the

potential for “evil” or wrongdoing. Sunk costsand a commitment to an existing course ofaction, coupled with fragmented informationand the diffusion of managerial responsibility,contribute to a business environment which cannegatively affect society and the environment.34

Such effects can be both intended and unin-tended. Combined with the fact that adverseeffects often seem abstract or intangible, whilefinancial gains appear concrete, many seem-ingly benign business situations have the potential to become harmful.

Reintroducing personal ethics into business may be a partial solution. But because ethics areculturally determined, this may not be easy in apluralistic society. On an international level, thesituation becomes even more complex.Different cultural norms govern behaviour indifferent ways. What seems right here, may notbe right there. This creates a dilemma fortransnationals attempting to operate ethically.

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BOX 5 CORPORATE EXECUTIVES NEED ETHICS TRAINING

As KPMG Business Ethics and Integrity Services1 suggests, corporate executives need to betrained in ethical decisionmaking. Managers need to develop and utilize “moral imagination”alongside traditional business skills. Business ethicists2 recommend six key steps for corporationsattempting to make moral business judgements:

1 Use moral imagination. Corporate executives need to develop the ability to effectivelyperceive the moral relationships behind competing economic relations. Role playing can bean effective means for developing more acute ethical perception.

2 Identify and order the moral factors of a situation. For executives to incorporatemoral 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 canhelp executives effectively identify the trade-offs inherent in any situation. Clear corporateprinciples and processes help executives fully evaluate the moral outcomes of a decision.

4 Build tolerance of moral disagreements and ambiguity. In any moral choice, dis-agreements 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 adesire for rapprochement should be instilled throughout the corporate culture.

5 Integrate managerial competence and moral competence. Moral issues in manage-ment are not an isolated phenomenon. Such issues permeate corporate life. Managers needto become as competent with moral management as they are with economic administration.

6 Instill a sense of moral obligation throughout the organization. Integrity and moralobligation are essential to management practice. These qualities can be consistent with thefree enterprise system; corporate culture needs to recognize and embrace the coexistence ofmorals with profit.

N O T E S

1 See KPMG website at http://usserve.us.kpmg.com/ethics2 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 FORMEASURING 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 owninvestments, are often shareholders, and thus partially owners of companies. This obligation as owners requires thatgreater care be given, not only to the financial situation, but to the impact of the activities of companies on generalwell-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 tobe used in assessing the performance of enterprises in the light of the previously defined criteria. This box refers tothe section dealing with the action of enterprises vis-à-vis shareholders, employees and clients, suppliers, andsubcontractors.

3. The enterprise

3.1 Shareholders

P R I N C I P L E S

3.1.P.1. The company’s corporategovernance policies balance theinterests of managers, employ-ees, shareholders and other com-pany stakeholders.

C R I T E R I A

3.1.C.1. Ensuring shareholders’participation and rights to infor-mation while protecting theinterests of other stakeholders.

3.1.C.2. The company respectsthe right of shareholders to sub-mit proposals for vote and to askquestions at the annual meeting.

R E F E R E N C E S

3.1.B.1. The company observes acode or codes of best practice orhas drawn up its own compre-hensive corporate code such asGeneral Motors’ 28-pointGuidelines for CorporateGovernance. The code that thecompany observes must be atleast as rigorous as the CadburyCode of Best Practice (UK).

3.1.B.2. Shareholders areinformed about significant andmaterial violations of corporatepolicies (including codes of con-duct), adverse decisions by tri-bunals or courts, and results ofinternal audits or analyses ofcorporate activity.

3.2 Employees

P R I N C I P L E S

3.2.P.1. The company has a univer-sal standard governing its employ-ment practices and industrial rela-tions. The standard includes gen-uine respect for employees’ rightsto freedom of association, labourorganization, and free collectivebargaining and is nondiscrimina-tory in employment.

3.2.P.2. The company values itsemployees and their contribu-tions in every sector of its operations.

3.2.P.3. The company pays ade-quate wages to enable employ-ees, especially women, to meetthe basic needs of themselvesand their families and to providediscretionary income.

3.2.P.4. The company recognizesthe need for supporting and/or

providing the essential socialinfrastructure of child care, eldercare and community serviceswhich allows workers, especiallywomen who have traditionallydone this work as unpaid labour,to participate as employees (textproposed by ICCR only).

C R I T E R I A

3.2.C.1. No discrimination in itspolicies of employment andremuneration, whether by race,age, sexual orientation, disabilityor religion.

3.2.C.2. Training, development,promotion, and advancementopportunities within the compa-ny are available to all employees.

3.2.C.3. All those who workwithin and on the company’spremises, whether permanent,temporary or contractual, shallreceive equal protection especial-ly in provision of equipmentand information concerningtheir health and safety at work.

3.2.C.4. Employees are free toestablish and join workers’ orga-nizations without discriminationor interference and to engagefreely in collective negotiationsto regulate the terms and condi-tions of their employment.

3.2.C.5. Paying a sustainablewage to all employees.

3.2.C.6. The company providesequal pay for work of equalvalue, with goals and timelinesto implement this policy.

3.2.C.7. The company providessocial support to enhancewomen’s economic empower-ment. This includes centres forchild care, elder care and thecare of persons with disabilities.

B E N C H M A R K S

3.2.B.1. International LabourOrganization (ILO) standards.

3.2.B.2. The Convention on theRights of the Child as it relatesto labour practices.

3.2.B.3. The ECCR Wood/Sheppard Principles on equalopportunity of employment forpeople from ethnic minorities oran equally rigorous code.

3.2.B.4. An appropriate and rig-orous code with regard to equalopportunity of employment forwomen based around “Oppor-

tunity 2000” and the UNDeclaration on Gender Equity.

3.2.B.5. A code for the employ-ment of disabled persons at leastas rigorous as the Code for theEmployment of Disabled Peopleproduced in the United Kingdom.

3.2.B.6. The company respectsthe rights of its employees toorganize in trade unions orother appropriate worker repre-sentative bodies to monitorworking conditions and doesnot engage replacement workersduring a dispute.

3.2.B.7. International LabourOrganization (ILO) Conventionsare complied with: No. 29(forced labour); No. 87 (freedomof association); No. 98 (right toengage in collective bargaining);No. 100 (equal remuneration);No. 105 (abolition of forcedlabour); No. 111 (prohibition ofdiscrimination); No. 122(employment policy); and No. 138 (minimum age).

3.2.B.8. The company shall havea process to establish a sustain-able wage, such as a market bas-ket survey or some other appropriate method.

3.2.B.9. Developing concretegoals to provide women withtrue and equal participation indecision-making.

3.2.B.10. Providing adequatetechnical training which con-tributes to advancement of allemployees, particularly women.

3.2.B.11. The company encour-ages or participates in the cre-ation of child-care centres andcentres for the elderly or disabled where appropriate.

3.3 Customers, suppliers and contractors

P R I N C I P L E S

3.3.P.1. The company ensuresthat its products and servicesmeet customer requirements andproduct specification.

3.3.P.2. The company is commit-ted to marketing practices whichprotect consumers and whichensure the safety of all products.

3.3.P.3. The company will notmarket its products to con-sumers for whom they are notappropriate.

3.3.P.4. There is a commitmentto fair trading practices.

3.3.P.5. The company accepts itsresponsibility to use its purchas-ing power to encourage goodcorporate citizenship among itssuppliers.

C R I T E R I A

3.3.C.1. All advertisement andlabeling of products is complete,fair and honest. Only claimswhich can be substantiated andfulfilled are made by the compa-ny, its employees and its agent.

3.3.C.2. Care is taken by thecompany not to denigrate orsupplant alternative naturalproducts.

3.3.C.3. No engagement by thecompany in cartels, spheres ofinfluence, or patent protection tothe exclusion of others’ rights.

3.3.C.4. The company is scrupu-lous in its negotiations and con-tractual arrangements with othercompanies. This includes fairdealing, prompt payment and theavoidance of corrupt practices,bribes and questionable payment.

3.3.C.5. The company seeks outsuppliers who meet the samestandards on environmental andsocial grounds as the companysets for its own products.

3.3.C.6. The company will notenter into contracts with suppli-ers who use any form of forcedor compulsory labour.

B E N C H M A R K S

3.3.B.1. The company receivespositive evaluations from inde-pendent consumer organizations.

3.3.B.2. Appropriate consumercodes are followed (cf. InfantFormula marketing codes).

3.3.B.3. Where either advertisingstandards legislation or codesexist, they are complied with andthis compliance is regularly dis-closed (see British Codes ofAdvertising and Sales Promotion).

Source: TCCR, Toronto,September 19, 1995.

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Despite the complexity, Wharton Universityprofessor Tom Donaldson says that this is notan excuse for either cultural relativism orcultural imperialism.35 He believes that allbusinesses, whether at home or abroad, canfollow three ethical principles:

• Respect core human values (respect forhuman dignity and basic rights, and goodcitizenship);

• Respect local traditions; and

• Consider the context of the situation.

While these principles are exemplary, a morecritical question is how can they be imple-mented? For instance, Donaldson’s final princi-ple of considering the local context could beused as a loophole to justify a business decisionthat may seem inappropriate from an externalperspective. European management theoristsIan Jones and Michael Pollitt argue that thereare at least three levels of integrity in businesslife: the personal, the corporate, and the macro-economic (or systemic). They acknowledge theobvious: that personal and societal ethics funda-mentally interact with corporate ethics. 36 Areintegration of the personal and communalinto corporations is the first step to changingbusiness culture. But it is only one step.

2 ADOPT A SYSTEMS-CENTRED APPROACH TO

STAKEHOLDER MANAGEMENT

The term “stakeholder” has rapidly entered busi-ness vocabulary. Many firms talk of “their”stakeholders and how corporate activitiesaddress their needs. R.E. Freeman first identi-fied a stakeholder in 1984 as “any group or indi-vidual who can affect or is affected by theachievement of the organization’s objectives.”37

But a company’s use of stakeholder analysisdoes not, in itself, constitute social or environ-mental responsibility. The firm’s motivation mustbe taken into account.

For example, stakeholder management can befirm-centred or system-centred.38 In the firstinstance, stakeholders are narrowly defined toreflect those groups that have “direct relevance tothe firm’s core economic interests.”39 A firm-centredapproach is often no more than a refinement ofthe old corporate strategy of self-interest and ismore concerned with the bottom line and publicrelations than with genuinely satisfying externalstakeholder claims. Corporations that talk oftheir stakeholders in this way may be missingkey groups which do not have direct economic

influence over the corporation. This approach tostakeholder management does not representsocial and environmental responsibility.40

In the second instance, stakeholders are identi-fied in the broadest terms possible “in order toparticipate in a fair balancing of various claimsand interests within the firm’s social system.”41

The system in question is a broad amalgam ofthe communities, as well as the numerousecosystems in which the company operates orhas an impact. Unlike the firm-centredapproach, the company moves beyond its owninterests, and recognizes that it shares social systems and the natural environment, whichbecome more equitably represented. TheTaskforce on the Churches and CorporateResponsibility (TCCR) adopted this approach inits Principles for Global Corporate Responsibility(see Box 6), which attempt to remove the corpo-ration from the centre of the stakeholder model.(To our knowledge, no Canadian company hasyet adopted these principles.)

If a company interacts with its stakeholderswithout clearly integrating business ethics, it islikely to follow a public relations approachwhereby it may say the right things but notactually do them. If a company focuses solelyon business ethics, it may miss other importantstakeholder considerations because it is focusedprimarily on its own stake. By combining ethi-cal management with stakeholder assessment, acompany can more easily approach a sustain-able system-centred approach to business.

3 ADOPT INTERNATIONAL CODES OF CONDUCT

Historically, Canadian corporate codes focusedon issues of corruption and conflict of interest.Self-protection motivated the adoption of inter-national codes.42 The focus on legal and eco-nomic issues is unquestionably still important,particularly as Canadian businesses increasinglyoperate abroad. Recently, for example,Bombardier Inc. lost a $450-million contract inMexico, allegedly due to corruption, nepotism,and political interference.43 As this case illus-trates, ensuring a level playing field continues tobe a pressing issue for Canadian business.

Corruption remains such a major stumblingblock of global commerce, in fact, that theOECD recently established the Convention onCombating Bribery of Foreign Public Officials inInternational Business Transactions. TheConvention rejects most forms of bribery any-where in the world and provides transnationals

28


W E H A V E N O S E T

A N S W E R S T O A N Y O F

T H E D I L E M M A S [ . . . ]

H O W E V E R , W E D O K N O W

T H A T, W I T H A N O P E N

A N D H O N E S T A P P R O A C H ,

A W I L L I N G N E S S T O

D I S C U S S A N D C O M M U N I -

C A T E , W E C A N H E L P T O

M O V E T H E P U B L I C

D I S C U S S I O N F O R W A R D .

W E I N T H E I N T E R -

N A T I O N A L B U S I N E S S

C O M M U N I T Y C E R T A I N L Y

D O N O T S E E K I N A N Y

W A Y T O D I C T A T E

A N S W E R S T O A N Y O F

T H E S E P R O B L E M S .

T H E Y A R E S O C I A L A N D

P O L I T I C A L I S S U E S

W H I C H R E Q U I R E A

B R O A D - B A S E D C O N S E N -

S U S . W E A R E A C U T E L Y

A W A R E O F T H E N E E D T O

P A R T I C I P A T E I N A N

I N F O R M E D A N D R A T I O N A L

I N T E R N A T I O N A L

D I S C U S S I O N O F T H E S E

C O M P L E X A N D D I F F I C U L T

C H A L L E N G E S .

COR HERKSTROTER,

CHAIRMAN OF THE COMMITTEE

OF MANAGING DIRECTORS,

ROYAL DUTCH/SHELL GROUP.

ADDRESS TO THE

NETHERLANDS ASSOCIATION

FOR INTERNATIONAL AFFAIRS,

AMSTERDAM,

OCTOBER 11, 1996

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(with head offices in OECD countries) with alegitimate reason for just saying “no.” It willalso strengthen anti-corruption movements indeveloping countries. Despite potential limita-tions (such as the difficulty of effective monitoring and follow-up, and the failure toinclude all types of purchase of influence), the Convention holds promise.44

But corporations need to look beyond theirown self-interest. Despite failed attempts toestablish binding codes of conduct for transna-tionals,45 the existence of the Convention provides an important precedent for otherinternational codes. With the proper motiva-tion, legally binding international codes of conduct that address social and environmentalinequities are now possible.

In late 1997, a group of 13 Canadian compa-nies46 led by John McWilliams, Senior vice-president of Canadian Occidental PetroleumLtd., developed an “International Code ofEthics for Canadian Business” (see Box 2).Praised by politicians and business groups (such as the Alliance of Manufacturers andExporters Canada), this code has also beencriticized for its voluntary nature and its lack ofaccountability mechanisms. The code containsfour general principles concerning thecommunity and environmental protection;human rights; business conduct; and employeerights, health, and safety. A compelling vision,the code does not provide direction for itsapplication: its vagueness on how to monitorand enforce its guidelines is its chief limitation.It is nevertheless the first step in a difficultjourney.

A 1996 survey47 of Canadian multinationalsshowed that only 21 of 98 companies surveyedhad international codes of conduct, although 22 companies reported that they applied morerigorous environmental and labour standardsthan required by the local regulations. Overall, however, the survey suggested that, forCanadian business, social responsibility andhuman rights promotion were not a priority. In fact, only 14 percent of large Canadian trans-nationals had international codes that dealtspecifically with human rights issues, 14 percenthad guidelines for operating under repressiveregimes, few had adopted all of the OECD corelabour rights, 14 percent included effectivemechanisms for accountability, and few provided employees with ethics training.

The existence of such codes is not a sufficient

indicator of corporate social responsibility. A UKstudy48 found no statistical evidence to suggestthat corporate codes led to better performance.Instead, it appeared that the “soft” stuff—theprocess of education and decisionmaking thataccompanied the adoption and application ofcorporate codes—was equally important. Thus,while corporate codes can provide managers withdirection and ethical guidance, they can alsohelp define an organization’s “core values.”49

4 BROADEN CORPORATE ACCOUNTABILITY

In the final analysis, corporate actions speaklouder than vision statements. Unquestionably,Canadian companies need to broaden theirspheres of responsibility. But they also need tobe socially and environmentally accountablefor these actions and for their unintended consequences.

A number of mechanisms exist to increaseCanadian corporate accountability. First, com-panies need to adopt international codes of con-duct that specify an effective means of verifyingperformance. As Tachi Kiuchi, Member of theBoard of Mitsubishi Electric Corporationexplains, “Humans have the best individual feed-back systems anywhere in nature—our eyes, our ears, our minds. But our collective feedbacksystems—at the community and companylevel—are nowhere near as developed.”50

Independent monitoring of corporate codes is auseful way to gain objectivity and integrateexternal perspectives. The US Council onEconomic Priorities (CEP) recommends a three-stage corporate monitoring system.51 First, thecompany itself monitors its activities, searchingfor both positive and negative impacts. Resultsare then evaluated by a second party, such as anindependent auditing firm. At the third stage,an independent group monitors and evaluatesthe process. Such third-party monitoring canensure that noncommercial interests and criticalperspectives are adequately presented. Suchmonitoring can, and should, take place on alocal and global basis.

Environmental and sustainable developmentreporting is a related mechanism of corporateaccountability. By systematically reporting thesocial and environmental costs of doing busi-ness, a company provides a more balanced picture of its operations and long-term viability.Sustainable development reporting adopts aholistic approach which looks at the economy,the environment, and society as an integrated

29


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whole. Yet only a handful of Canadian compa-nies provide this type of noneconomic reporting(see Box 7). This is a key area of opportunity forcompanies aiming to become more socially andenvironmentally responsible.

While essential, such reporting tends to occurafter the fact. Independent monitoring and sus-tainable development reporting provide impor-tant information on the impacts of corporatebehaviour. But it is equally important for corpo-rations to integrate accountability into daily deci-sionmaking: corporate accountability should notonly be an annual event. For example, in his

report Putting Conscience into Commerce: Strategiesfor Making Human Rights Business as Usual, Craig Forcese recommends that Canadian cor-porations undertake detailed human rightsimpact assessments prior to making decisionsabout international investment.52 Similar to aneconomic assessment, a human rights assessmentrecognizes that corporate activity affects humanrights internationally in a variety of ways. Inaddition, we recommend that companies under-take a broader assessment that includes socialand environmental considerations.

Canadian companies such as engineering firmAcres International Ltd are already makingimportant strides in this area. Acres hasdeveloped a methodology to assess social andenvironmental impacts of different courses ofcorporate action. It then includes these costswith economic and technical considerations to determine the best—not simply the mosteconomic—course of action (see Chapter 5).

Finally, increased transparency in all businessactivities and decisions will ultimately helpensure that corporations are more fully account-able for their actions. By recognizing the infor-mation rights of external stakeholders, a companycan build consensus among a variety of differentconstituents. Such broad-based consensus canhelp secure long-term social and environmentalsustainability within the market system.

COSTS AND BENEFITS

The market system brings both benefits andcosts to society. On the positive side, there is noquestion that the spread of markets, through adeepening of the division of labour, technologi-cal progress, and an enhancement of productiv-ity, has led to higher living standards for muchof the world’s population. But many peoplehave not benefited or have been marginalizedby the advent of markets. And market actorshave been blind to these social costs, as well asto environmental costs.

Like it or not, however, there is every reason toexpect that markets will continue to spread.Among other things, the market systempromises to play an important role in alleviatingthe grinding poverty in which a substantial por-tion of humanity still lives, and reducing mater-ial scarcity and deprivation for countless others.

As the market system developed around theworld, societies—to greater or lesser degrees—adopted measures (laws, regulations, and codes at

30


BOX 7 SUSTAINABLE DEVELOPMENT AND ENVIRONMENTAL REPORTINGIN CANADIAN COMPANIES (1997)

Company Name Industry Type of Reporting Developing Developing Sector Country Opera- Country Opera-

tions with tions withoutSD/Environmental SD/EnvironmentalReporting Reporting

B.C. Hydro Power Environmental Review none China, Pakistan, Nepal, Colombia, Brazil

Ontario Hydro Power Sustainable Egypt, Peru noneDevelopment Report

Hydro-Québec Power Environmental Costa Rica, Haiti, nonePerformance Report Colombia, India,

Morocco, Laos, Turkey, Vietnam, China

Manitoba Hydro Power Sustainable none Guatemala, Development Report El Salvador, Honduras,

Nicaragua, Panama, Lesotho, Uganda, Jamaica, Brazil, Namibia

Northern Telecom Telecom- Environment, Health China, Malaysia, noneLtd (Nortel) munications and Safety Report Mexico, Puerto Rico,

ThailandDofasco Inc. Steel Environmental Reports na naPlacer Dome Inc. Mining Annual Report none Papua New Guinea,

Philippines, Venezuela,Chile

Noranda Inc. Mining Environmental, Health Chile, Zambia noneand Safety Report

Rio Algom Ltd Mining Environmental Report Chile, Peru, ArgentinaInco Ltd Mining Annual Report none IndonesiaBarrick Gold Corp. Mining Annual Report none Peru, ChileFalconbridge Ltd Mining Sustainable Dominican Republic, none

Development Report Chile

Notes: na=not available

Sources: CMA, Accounting for Sustainable Development: A Business Perspective, Management AccountingIssues Paper 14 (Hamilton: The Society of Management Accountants of Canada, 1997); Blair W. Feltmate,“Making sustainable development a corporate reality,” CMA Magazine, March 1997, pp. 9-16; and datacollection by the North-South Institute, 1998.

The survey of corporations and their environmental or sustainable development reporting activitieswas 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, oreven to each company within sectors, Feltmate defined sustainable development in such a way as toencompass the notions of environment, economy, and society as an integrated whole, and took intoaccount the notion of the well-being of present and future generations.

Pages a-138 (152) 4/25/98 12:38 PM Page 30

the national and subnational levels) to protectthe economic welfare of individuals and commu-nities and the integrity of the natural environ-ment against the intended or unintended actionsof firms and investors. Such measures have notalways been adequate to the task, but there iswidespread consensus that any market systemmust have a duly established and enforced legalframework establishing “the rules of the game,”within which the precepts of social equity andenvironmental responsibility must be observed.53

The globalization of markets has posed a dualchallenge to social equity and environmentalresponsibility. First, as countries compete witheach other for footloose investment and tradingopportunities, globalization has sometimesundermined the framework of rules establishedat national and subnational levels. Second,international charters and conventions, such asthe UN Declaration of Human Rights, and agencies such as the International LabourOrganization (ILO) have not yet produced a setof “international rules of the game” that aremonitored and enforced evenly throughout theworld.54 This has presented investors andtraders with a poorly defined, and in some casesalmost nonexistent, legal or institutional frame-work in which to resolve issues pertaining to therights of workers and communities in whichthey operate, or to ascertain their responsibili-

ties vis-à-vis the local environment.

Undoubtedly, the best solution would be to create the necessary global framework so thatinternational conventions on human rights arein fact universally observed, and organizationssuch as the ILO have the requisite monitoringand enforcement capabilities. What is needed isan effective system of “global governance” tooversee the functioning of global markets andensure social and environmental responsibility.

There is an important role for governments actingmultilaterally or alone. It is hoped that interna-tional discussions will, over the next decade, movein this direction. Indeed, the recently adoptedOECD Convention on bribery is a promising indication that governments are getting seriousabout establishing a set of rules appropriate to theglobal marketplace. But while prohibiting briberywill increase profitability by reducing transactionscosts, the opposite may be true for other agreements,for example on child labour.55 It also remains tobe seen how this and other conventions will bemonitored and enforced, because that is the litmustest of any framework of rules.

In the meantime, corporations active in globalmarkets are themselves under increasing pres-sure from various stakeholders—their ownworkers, the union movement, consumers, nongovernmental organizations, environmen-

31


BOX 8 MANAGERS’ ETHICAL CONCERNS

In November 1996, the Toronto-based consulting company KPMG Canada carried out a BusinessEthics 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 providedmore 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 percentclaimed 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.

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

The Top 10

1 Integrity of books and records2 Worker health and safety3 Security of internal communications4 Quality and safety of products and services5 Receiving inappropriate gifts, favours,

entertainment, and bribes6 Security and use of proprietary knowledge

and intellectual property7 Discrimination on the basis of sex, race,

or religion8 Privacy, confidentiality, appropriate use

of employee records9 Sexual harassment10 Reporting fraud or compliance failures

The Bottom 10

1 Membership on boards of other corporations2 Business practices forbidden at home,

permissible abroad3 Political activities4 Office-level environmental practices5 Foreign bribery or “grease” payments6 Use of company time7 Use of company name8 Outside business or employment9 Employees’ rights with respect to

mandatory health testing10 Protection of whistle-blowers

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talists, ethical shareholders, churches, and soon. What unites these groups and individuals isa conviction that corporations must go beyondthe narrow objectives of short-term profit maxi-mization to accept social and environmentalresponsibilities that are not yet required by lawin the jurisdictions in which they operate.

There are, in fact, good reasons why such ethicalbehaviour also makes good business sense, notnecessarily in terms of quarterly profits, but ofthe firm’s net worth, its resilience, and long-term survival capabilities. There are also manystraightforward commercial opportunities forfirms to provide innovative solutions to thechallenges of sustainable development.Generally, however, a significant shift in theprevailing business culture will be required toconvince firms of the commercial wisdom, aswell as the moral necessity, of adopting moreethical and responsible policies.

Some corporations have demonstrated theirbelief that “good ethics make for good business”by adopting codes of conduct, individually orcollectively. Most informed observers agree56

that such codes amount to statements of intentmore than policy that is systematically opera-tionalized, since they generally lack monitoringand enforcement provisions. Nonetheless, theyare a step in the right direction. The next stepsrequire systematic provisions for implementa-tion, monitoring, and enforcement. This, inturn, might require new procedures, even institutions similar to financial auditing firms,capable of undertaking arms-length social andenvironmental audits.

The challenge of corporate social responsibilityin global markets is here to stay. It is certain thatdebate will intensify on what it means, and howto translate it into action. It is also clear thatprogress will require the engagement of thebusiness community, governments, and civilsociety.

32


N O T E S

1 WTO, Focus (Geneva: WTO, May 1996), No. 10.2 Craig Forcese, Putting Conscience into Commerce: Strategies forMaking Human Rights Business as Usual (Montreal: InternationalCentre for Human Rights and Democratic Development, 1997); alsoby Forcese, Commerce with Conscience? Human Rights and CorporateCodes of Conduct (Montreal: International Centre for Human Rightsand Democratic Development, 1997).3 John Dunning, “The advent of alliance capitalism,” in Dunning andKhalil A. Hamdani, eds, The New Globalism and Developing Countries(Tokyo, New York, Paris: United Nations University Press, 1997).4 World Bank, Global Development Finance, Analysis and SummaryTables, Vol. 1, 1997, pp. 35-6. 5 United Nations, World Investment Report 1997: TransnationalCorporations, Market Structure, and Competition Policy (New York:United Nations, 1997), p. xv.6 Ibid., pp. xv-xvi; xx.7 Ibid., p. xvii.8 Dunning and Khalil, p. 29.9 See Gregory Baum, Karl Polanyi on Ethics and Economics (Montrealand Kingston: McGill-Queen’s University Press, 1996); See alsoRobert Heilbroner, Twenty-First Century Capitalism (Concord, Ont.:Anansi, 1992), ch. 4, for a similar critique of the “market system.”10 C.B. MacPherson, The Rise and Fall of Economic Justice, and OtherPapers (Oxford and New York: Oxford University Press, 1985), pp. 1-20.11 The Group of Lisbon, Limits to Competition (Cambridge andLondon: MIT Press, 1995).12 Smith’s doctrine of the “Invisible Hand” is captured by his asser-tion that “It is not from the benevolence of the butcher, the breweror the baker that we expect our dinner, but from their regard oftheir own advantage.” The doctrine holds that through the pursuitof self interest, the economy is guided as though by an invisiblehand, to maximize wealth and prosperity. However, unlike some ofhis latter-day followers, Smith also recognized corporate power,business collusion, and the role of the state as important.13 Milton Friedman, “Social Responsibility of Business is to IncreaseIts Profits,” The New York Times Magazine, September 13, 1970, pp.32-33. 14 For example, Cass R. Sunstein, Free Markets and Social Justice (NewYork and Oxford: Oxford University Press, 1997).

15 See Samuel Brittan, “Economics and Ethics,” in Samuel Brittanand Alan Hamlin, eds, Market Capitalism and Moral Values (Aldershot:Edward Elgar, 1995). Game theory, illustrated by the “prisoner’sdilemma,” suggests that a strategy of self-interest may lead to a third-best outcome compared to a strategy based on trust and cooperation.16 Amartya Sen, On Ethics and Economics (Oxford: Basil Blackwell,1989); and Sen, “Moral Codes and Economic Success,” in Brittanand Hamlin, eds, Market Capitalism and Moral Values. See alsoSunstein, Free Markets and Social Justice.17 Amartya Sen, “Moral Codes and Economic Success,” in Brittanand Hamlin, 1995.18 Francis Fukuyama, Trust: The Social Virtues and the Creation ofProsperity (London: Penguin, 1996).19 Herman E. Daly, Beyond Growth: The Economics of SustainableDevelopment (Boston: Beacon Press, 1997).20 Paul Hawken, The Ecology of Commerce: A Declaration ofSustainability (New York: Harperbusiness, 1994) and Growing aBusiness (Toronto: Collins, 1987). Also “Natural Capitalism: TheNext Industrial Revolution,” an address to the National Round Tableon the Environment and the Economy, Ottawa, March 21, 1995.Hawken mentions several technological examples, such as a newink that makes de-inking of newsprint environmentally benign.(Many inks currently used are highly toxic so that de-inking solvesthe problem of preserving the newsprint but creates another.)21 Courtney Pratt, Address to The Canadian Club of Toronto,“Business Accountability: Shareholders, Stakeholders or Society?”September 29, 1997. 22 Paul Shrivastava, CASTRATED environment: GREENING organi-zation studies. Organization Studies, 1994, 15 (5), pp. 705-726. 23 See Forcese, Putting Conscience into Commerce.24 S. M. Rao and Brooke Hamilton III, “The effect of publishedreports of unethical conduct on stock prices,” Journal of BusinessEthics, vol. 15 (2), 1996, pp. 1,321-330.25 Robert H. Frank, “Can socially responsible firms survive in a com-petitive environment?”in David M. Messick and Ann E. Tenbrunsel, eds, Codes of Conduct, Behavioral research into business ethics (NewYork: Russell Sage Foundation, 1996).26 Pratt, “Business Accountability,” September 29, 1997. 27 See Steven D. Lydenberg,”Companies with a social vision: Areview of Aiming Higher by David Bollier,”Business & Society Review,no. 97, 1996, pp. 75-76.

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33


28 See Charles W. Powers and David Vogel, Ethics in the education ofbusiness managers (Hastings-on-Hudson, NY: The Hastings Center,1980).29 Friedman, “Social Responsibility of Business,” p. 33.30 Chester Barnard, The Functions of the Executive (Cambridge, Mass:Harvard University Press, 1938/1968). 31 Ibid., p. 88.32 See Charles Perrow, Complex Organizations: a critical essay, 3rd edition. (New York: Random House, 1986).33 Robert Jackall, Moral Mazes: The World of Corporate Managers(New York: Oxford University Press, 1988).34 John M. Darley, “How organizations socialize individuals intoevildoing,” in Messick and Tenbrunsel, eds, Codes of Conduct.35 See Thomas Donaldson, “Values in tension: Ethics away fromhome,” Harvard Business Review, September/October 1996, pp. 48-62.36 Ian W. Jones and Michael G. Pollitt, “Economics, ethics andintegrity in business,” Journal of General Management, vol. 21 (3),1996, pp. 30-47.37 See R.E. Freeman, Strategic Management: A stakeholder approach(Boston: Pitman Publishing Inc.,1984), p. 46.38 Ronald K. Mitchell; Bradley R. Agle; and Donna J. Wood,“Toward a theory of stakeholder identification and salience:Defining the principle of who and what really counts,” Academy ofManagement Review, vol. 22 (4), 1997, pp. 853-86.39 Ibid., p. 857, (italics in original).40 Ibid.41 Ibid., p. 859. 42 Maurice Lefebvre and Jang B. Sing, “The content and focus ofCanadian corporate codes of ethics,” Journal of Business Ethics, vol. 11, 1992, pp. 799-802.43 See Laura Eggertson, “Chrétien seeks probe in Mexico,” The Globeand Mail, Report on Business, September 29, 1997, pp. B1, B5.44 Transparency International, Press Release, “OECD Anti-Corruption Convention leaves critical questions still open,”November 5, 1997, Berlin.

45 Earlier efforts to create international codes for transnational activi-ties met with significant resistance among both the private and publicsectors. As David Schilling and Ruth Rosenbaum of the InterfaithCenter on Corporate Responsibility suggest, “early UN attempts to cre-ate a global code of conduct failed because individual governmentswere not able to reach legislative assent to a ‘Code of Accountabilityfor Transnational Corporations’ and many companies opposed it.” SeeDavid M. Schilling and Ruth Rosenbaum, “Principles for global corpo-rate responsibility,” Business & Society Review, no. 97, 1996, p. 55.46 They were: Alcan Aluminum Ltd; Beak International Inc.;Cambior Inc.; Chauvco Resources Ltd; John Neville Inc.; KomexInternational Ltd; Liquid Gold Resources Inc.; Profco Resources Ltd;Pulsonic Corp.; Reid Crowther International Ltd; Sanduga &Associates; Shell Canada Ltd; and Wardrop Engineering Inc.47 See Forcese, Commerce with Conscience?48 L.V. Ryan, “Ethics Codes in British Companies,” Business Ethics,vol. 3 (1), Summer 1995, p. 55.49 See Donaldson.50 Tachi Kiuchi, Keynote Address to the World Future Society:“What I learned in the rainforest,” July 19, 1997.51 Forcese, Putting Conscience into Commerce, p. 28.52 Ibid.53 For a recent review of the question of the interaction betweenstates and markets, see the North-South Institute, States, EmergingMarkets and Development, Briefing Report, Ottawa, December 1997.54 It should be noted, for example, that the United States has neverratified the ILO’s labour standards.55 In any event, if it is properly done, combating child labour willrequire more than business codes. It would require parallel actionsto ensure that the child workers’ families do not suffer a loss inincome, and that educational opportunities are available in waysthat do not penalize children or their families.56 For example, see Forcese, Putting Conscience into Commerce.

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35

C H A P T E R T W O

MAKING

ECONOMIES

SERVE PEOPLET H E F I N A N C I A L S E C T O R

Robert Walker and Marc de Sousa-Shields

R O B E R T W A L K E R I S T H E E X E C U T I V E D I R E C T O R O F

T H E S O C I A L I N V E S T M E N T O R G A N I Z A T I O N . M A R C

D E S O U S A - S H I E L D S I S V I C E - P R E S I D E N T F O R L A T I N

A M E R I C A A N D T H E C A R I B B E A N F O R N E W V E N T U R E S

G R O U P , A N D S E N I O R A D V I S O R T O T H E L A T I N

A M E R I C A N C E N T R E F O R E X C E L L E N C E I N C O M M U N I T Y

E C O N O M I C S A N D T H E E N V I R O N M E N T I N C U E R N A V A C A ,

M E X I C O .

Pages a-138 (152) 4/25/98 12:39 PM Page 35

“For every complex and difficult question,”H.L. Mencken wrote, “there is a simple

and easily understood answer. And it is wrong.”

Much the same could be said of assessing thesocial and environmental performance ofCanadian corporations. While some observersdraw clear and simple distinctions betweengood and bad, ethical and unethical, others rec-ognize that conduct can vary widely not onlywithin industrial sectors, but also within com-panies. In addition, widespread consensus onthe range and nature of corporate obligations tosociety has yet to be reached. The question iscomplicated further when corporations operatein developing countries, where cultural valuesand social norms can differ substantially.

The inherent complexity of evaluating the performance of Canada’s financial servicesindustry, however, is especially challenging forthat growing spectrum of individuals, groups,and organizations who care about the social andenvironmental performance of the privatesector. Why?

First, the operations, products, and services ofthe financial sector are esoteric even at the bestof times. While most Canadians have little diffi-culty understanding that forest products firmscut down trees and that mining companies digrocks out of the ground, few are familiar withthe ins and outs of the London Interbank OfferRate or the whys and wherefores of many newfinancial products such as “puttable convertiblebonds,” “synthetic convertible debt,” or “variable cumulative preferred stock.”

Second, globalization and the advent of informa-tion technologies have affected the providers offinancial services, again perhaps more than anyother sector. This is because the world of financeessentially involves trading bits of informationembedded in prices. For transactions to occur, nocargo is transported. No harbour facilities, no railcars, no trucks, no containers, no mills. No customs officers. Little or nothing is physicallywarehoused outside of massive computer data-bases. Boundaries, distance, and culture are allsuperfluous to earning profit by directing andfacilitating the flow of capital around the world.For most of us, this emerging form of economic

organization bears little resemblance to theworking world we have known.

Third, the financial sector—and in particularbanks—often evoke emotional reactions frommany Canadians. Historically, in the world ofcommerce and industry, the financial sector hasenjoyed a deified status at the pinnacle ofpower. Banks offer a safe haven for life savingsand provide loan capital for major consumerpurchases and worthy businesses; trust compa-nies provide sophisticated asset management forthe more fortunate; insurance companies pro-vide for us in the event of property loss or per-sonal disaster; securities dealers allow the moreadventurous among us to seek greater fortune inthe world of stocks and bonds. And new players,the mutual fund companies, allow an increasingproportion of Canadians to play the marketwith professional, but cost effective, portfoliomanagement.

But we do not always look upon these deities asbenevolent. Every business, for example, needsmoney. Banks will provide loans to this businessrather than that one, deciding which will pros-per and which will wither on the vine. The winners walk away satisfied (though perhapsdisgruntled by terms and conditions) and thelosers are outraged. Despite playing a criticaleconomic function, the financial sector isloathed by many.

With these caveats in mind, how shouldCanadians assess the social and environmentalimpacts of our financial services companies indeveloping countries?

A S S E S S I N G T H E F I N A N C I A L

S E C T O R

Any such practical assessment is limited bythree factors: a lack of information concerningCanadian corporate activity overseas; the lack ofresources currently devoted to monitoring andreporting on that activity; and domestic regula-tions with few provisions to enforce adequatedisclosure of business activity, both at home andabroad.

To understand the current state of our capacityto evaluate Canadian financial institutions, we

36

C H A P T E R T W O T H E F I N A N C I A L S E C T O R

MAKING ECONOMIES

SERVE PEOPLEE T H I C S A N D E C O N O M I C S

A R E O F T E N R E G A R D E D

A S O P P O S I T E S , B U T

T H E Y A R E I N F A C T

I N E X T R I C A B L Y

I N T E R T W I N E D .

JOHN DALLA COSTA,



MARCH 26, 1998

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begin by describing the sector in its domesticand global context. In doing so, we providesome sense of the scope and scale of thechanges wrought by a range of forces now having an impact on the industry.

We then turn to the question of how Canadiansmight assess the social and environmentalperformance of Canadian financial institutionsin developing countries. We suggest that anappropriate assessment of the financial servicessector must occur on two levels: at the level ofthe firm; and at the level of the global financialsystem.

These two levels, of course, are linked. What iscritical is that a range of forces—globalization,information technologies, deregulation, prolifer-ation of new financial instruments—are funda-mentally altering the industry and leading to asituation in which the “financial economy” isbecoming increasingly distanced from the “pro-ductive economy”—the world of productive andphysical enterprise. In developing countries andaround the world, rapid changes in the financialservices industry can mean that an increasingproportion of the population does not receivethe financial services it and a modern economyneed; that good businesses may go without ade-quate loan capital, or that suspect businessesreceive it; and that entire economies will con-tinue to experience floods and droughts of capi-tal with severe social and political implications.

What’s more, all this can happen without dam-age to the financial system as a whole. As expe-rienced in the last half of 1997, systemic forcescan bring about the liquidation of individualfinancial institutions in particular geographicallocations, while the system as a whole persists,fundamentally unchanged and with most institutional players unaffected.

Thus, individual antipathy toward financialinstitutions is augmented today by a sense ofhelplessness concerning the flow of capitalacross borders, and the capacity of society orgovernments to do anything about it whenthose flows are thought to harbour negativesocial and environmental impacts.1 In Canada,the negotiation of the Multilateral Agreementon Investment (MAI), in particular, has led tothe establishment of grassroots organizationsready to oppose its adoption by parliament. IfCanadians fear the loss of sovereignty over areasthat used to be a matter for national policy, peo-ple in developing countries are even more vul-nerable. And as the financial institutions appear

to be augmenting their capacity to inflict harmto society while maintaining the fundamentalsof the system, people around the world are feeling powerless to advance progressive socialchange or even preserve the gains of the past.

But we are not powerless in the face of thesephenomena. Individuals, organizations,institutions, and national governments canengage in a broad range of strategies toreconnect the financial economy with theproductive economy and restore the financialservices sector as a critical and positive force inour economy and society.

This is no simple task, however. Canadians areconstantly barraged by the message thatglobalization, continued environmentaldegradation, and technological displacement ofworkers by corporations pursuing competitiveadvantage are forces not subject to the will ofsociety or individuals. Within the context of adebate framed in this way, discussion of thepublic good is subsumed by a deference to privatesector interests and a set of historical forcesthought to be as ineluctable as the movement oftectonic plates. As a first step to reconnecting thefinancial economy to the productive economy,we as a society must reject this perspective andreassert that economies exist to serve people.

In the context of the 1990s, this assertion mayappear heroic or naive. We should note, however,that post-Second World War leaders saw this claimas self-evident. The participants who gathered atBretton Woods, New Hampshire in 1944 believedthat revolutions in Russia and China, two worldwars, and the Great Depression were the directresult of a world in which workers had been leftunprotected from the vagaries of economics andtrade. To avoid future social dislocation and war,these leaders sought to design a system in whichan active role for national governments wasmaintained to ensure that growth and equitywent hand in hand, and to ensure thateconomies served the needs of people.2

Though the Bretton Woods system may havefailed on many accounts, its architectsidentified social dislocation and socialsustainability as a fundamental problématique.As today’s leaders proceed with deregulation,trade enhancement, and financial liberalizationagreements, we should be reminded: the systemand its institutions will not prevail in this formover the longer term should large segments ofour society conclude that they no longeroperate in the public interest.

37


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T H E C A N A D I A N F I N A N C I A L

S E R V I C E S S E C T O R : A D E S C R I P T I O N

THE DOMESTIC STRUCTURE

For many years, the Canadian financial servicessector has enjoyed a smooth operating environ-ment. Heavily regulated, cocooned by high barriers to entry, protected as government- sanctioned providers of essential economic services, and respected by many as critical to the functioning of a modern society, much ofCanada’s financial services industry has beenoperating profitably since the mid-19th century.3

Banks in particular have long been regarded ascritical to the economy. Since the GreatDepression, governments have believed thatthese major players cannot be permitted to fail.The Canadian Deposit Insurance Corporation(CDIC) and the assurance that governmentswould step in to support troubled institutions inorder to avoid the spectre of bank runs and sys-temic failure have long underpinned the industryto an extent not enjoyed by any other sector.4

This has fundamentally shaped the industry’sstructure. For instance, because entry has beenlimited by government, the Canadian financialservices industry is highly concentrated. Only22 financial services firms are listed on theToronto Stock Exchange 300, an index ofCanada’s largest and most actively traded com-panies: six banks, nine investment and mutualfund companies; three insurance companies;and four financial management companies.

Historically, there has been tremendous conti-nuity in the industry, particularly among thechartered banks. The five largest banks in1997—the Bank of Montreal, Royal Bank ofCanada, the Bank of Nova Scotia (Scotiabank),Canadian Imperial Bank of Commerce (CIBC),and the Toronto-Dominion Bank—were also thefive largest in 1901.5

THE FOUR PILLARS

Bank failures during the Great Depressionprompted the federal government to regulatefinancial institutions more heavily by segregat-ing the industry into four areas of activity, withlittle overlap in products and services permitted.The four “pillars” of the financial services sectorhistorically include:

• chartered banks which accept short-termdeposits and provide personal and businessloans;

• securities companies which transact purchasesand sales of secondary equities and under-write new stock issues;

• trust companies which manage estates andtrust funds, although they have some abilityto accept short-term deposits and providemortgage financing;

• insurance companies which sell insurance.

Mutual fund companies are relatively newentrants in the financial services sector. Mutualfunds provide professional management of adiversified portfolio of holdings activelyinvested on the behalf of unit holders. Althoughtheir roots go back to the 1930s, mutual fundsare a 1990s phenomenon. A combination of aprotracted bull market, “baby boomers” withmoney to invest, and low inflation has led tounprecedented growth for mutual fund compa-nies. In 1987, 50 such companies controlledapproximately $20 billion in assets. In 1997,about 150 fund companies managed some $260 billion in assets and offered the Canadianpublic more than 1,200 funds.6

DEREGULATION

The deregulation of the financial sector beganin 1980 when the government revised the BankAct to allow foreign banks to establish sub-sidiaries (Schedule II banks) in Canada. Becauselimits were retained on asset growth and on theright to establish branches, foreign banks oper-ating in Canada primarily loaned to business,drawing on asset bases established elsewhere.

38


BOX 1 THE TSE 300 AND THEFINANCIAL SECTOR (as of July 1997)

Banks and Trusts

Bank of MontrealBank of Nova ScotiaCanadian Imperial Bank

of CommerceNational Bank of CanadaRoyal Bank of CanadaToronto-Dominion Bank

Investment Companiesand Funds

AGF Management LtdDundee Bancorp Inc.Fahnestock Viner

Holdings Inc.First Marathon Inc.Investors Group Inc.Mackenzie Financial Corp.

Midland Walwyn Capital Inc.

Sceptre InvestmentCounsel Ltd

Trimark Financial Corp.

Insurance Companies

E-L Financial Corp. LtdFairfax Financial

Holdings LtdGreat-West Lifeco Inc.

Financial ManagementCompanies

Newcourt Credit Group Inc.Power Financial Corp.Edper Group LtdTrilon Financial Corp.

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A second round of deregulation in 1987 relaxedlimitations on domestic ownership and financialinstitutions were permitted to provide a full rangeof financial services. This assault on the tradi-tional four pillars is often referred to as “the littlebang,” in reference to the “big bang” deregulationthat took place in England that same year.

Canada’s major banks have been winners underderegulation. In the wake of the little bang, eachhas acquired and/or developed a securities arm.The Bank of Montreal bought Nesbitt Burns Inc.;the Royal Bank took on RBC Dominion SecuritiesInc.; Scotiabank operates Scotia MacLeod Inc.;and CIBC acquired Wood Gundy Securities Inc.The Toronto-Dominion Bank established an in-house securities operation and has focused onthe discount brokerage business. Only three secu-rities dealers—First Marathon Securities, GordonCapital, and Midland Walwyn—remain as majorindependents. The banks have also bought upmost of Canada’s trust companies. (As of writing,Canada Trust is the only major Canadian trust toremain independent).7

Insurance companies represent the final fron-tier, and many industry analysts anticipate thatbanks will begin acquiring the more lucrativeprospects as deregulation continues.8 Mergers,acquisitions, and consolidation among thebanks will result in major changes and greatercorporate concentration as the major playerscall for continued deregulation and policymak-ers remain predisposed to oblige.9 In fact, inJanuary 1998, the Royal Bank and the Bank ofMontreal announced plans to merge.

THE GLOBAL CONTEXT

The major banks rank among Canada’s largestcorporations in terms of revenues, assets, andprofitability. Historically, they have also comparedfavourably to North American banks overall, withRoyal Bank, CIBC, Bank of Montreal, andScotiabank all ranking in the top 10 in 1991.10

On a world scale, Canada’s financial sector istiny. Canada’s largest stock market, the TorontoStock Exchange, is considered to be of a lowerorder than the major centres in New York,Tokyo, and London.11 Canada’s largest bank, theRoyal Bank, with assets of US$157 billionranked number 50 in the world in 1997. TheBank of Tokyo-Mitsubishi Ltd ranked first withassets of US$648 billion.12 (Recently, however,problems in Japan’s financial sector give evidence to an overvaluation of its banks.)

As globalization continues and trade and investment restrictions fall, Canadian financialinstitutions—and in particular the banks—arederiving an increasing proportion of theirincome outside of Canada.13 With the growingthreat of increased competition both at homeand abroad, Canadian financial institutions arelooking to augment their asset bases and marketpositioning to enable them to compete interna-tionally. And to grow assets internationally,industry analysts agree, Canadian financialinstitutions must first establish a major presencein American capital markets.

CIBC has perhaps been the most aggressive inthis regard. Operating through Wood Gundy ithas acquired the Argosy Group Inc., a New Yorkinvestment banking firm specializing in the highyield debt market. CIBC has also boughtOppenheimer & Co. Inc., a Wall Street brokeragehouse respected for the quality of its US equityresearch.14 The Bank of Montreal operates in theUnited States primarily in the Chicago areathrough Harris Bankcorp Inc., its wholly ownedsubsidiary. Toronto-Dominion has recentlyacquired Waterhouse Investor Service, the thirdlargest discount broker in North America. TheRoyal Bank’s attempt to purchase the LondonLife Insurance Company in 1997 may signal anattempt to model itself after England’s Lloyd TSBGroup PLC, specializing in both banking andinsurance.15

A PRESENCE IN THE DEVELOPING WORLD

Though small, most Canadian banks have longmaintained some measure of physical presencein many developing countries. In several casesthis has amounted to providing offshore services to clients seeking shelter in tax havenssuch as Bermuda, and throughout theCaribbean.16 With globalization, however,Canadian financial institutions—along withmuch of corporate Canada—are making adven-turous forays into the volatile but rapidly growing emerging markets of the Third World.

Some are more adventurous than others. CIBC’sstrategy, for example, is to become an interna-tional leader in underwriting and syndicatedproject finance. Within the context of the developing world, CIBC has made forays intothe private power industry in Taiwan throughits investment banking arm.17

Billing itself as the “first NAFTA bank,” the Bankof Montreal has acquired a 16 percent equity posi-tion in Grupo Financiero Bancomer, a leading

39


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Mexican retail financial institution, to providecustomers with a full range of services includingcommercial, corporate, and private banking; bro-kerage, leasing, and factoring services; and foreignexchange trading and warehousing.18

The Bank of Montreal is also one of only eightforeign banks permitted to conduct business inBeijing. Although not allowed to conduct busi-ness in Chinese currency, the new branch canaccept foreign currency deposits, make foreigncurrency loans, discount bills, and make invest-ments. While most Canadian banks have beenable to provide referral services through “repre-sentative banks” in China for several years, theBank of Montreal now has a significant advan-tage over its rivals in the world’s largest potential market.19

Scotiabank, however, has historically been themost aggressive Canadian financial institutioninternationally, with ties to the Caribbean thatgo back more than a century. The onlyCanadian bank with extensive consumer bank-ing operations abroad, it operates in nearly 50countries. It is expanding aggressively in Asiaand recently established an office in Hanoi, thefirst Canadian bank in Vietnam. With branchesin Malaysia, Thailand, and China, and as theonly Canadian bank operating in India, it is currently exploring opportunities in Pakistan,Bangladesh, and Sri Lanka.

Scotiabank planned to spend $200 million in1997 to extend and deepen its South Americannetwork through acquisition and investment. Itnow owns 16 percent of Grupo FinancieroInverlat, a Mexican financial company that con-trols Mexico’s second and fourth largest banks.It also has a 25 percent interest in BancoQuilmes, Argentina’s seventh-largest privatebank and a 29 percent interest in Chile’s BancoSud Americano.20

Canada’s mutual fund industry has also estab-lished a presence in developing countries bydeveloping and marketing emerging marketmutual funds. There are now 48 such funds inCanada with assets of $4.3 billion: most areexceedingly new, dating only from the early1990s. Investors and fund managers regardemerging market funds as potentially lucrativebut highly volatile and therefore of limited inter-est to most mutual fund investors seeking stable,predictable returns. The foreign property rulelimiting investors to a maximum 20 percent oftax-sheltered savings in foreign securities alsohampers the growth of emerging market funds.21

E V A L U A T I N G P E R F O R M A N C E

CHECKS AND BALANCES ON CORPORATE

PERFORMANCE

Ongoing efforts to assess the social and environ-mental performance of Canadian corporationsdate back to the mid-1970s and have been conducted consistently by the various groups,organizations, and investment professionalsthat compose the social investment movement.

Social investment can be defined as the integra-tion of social, ethical, and environmental valuesinto the investment decisionmaking process. In general, social investors can pursue three strategies to perform this integration: screenedinvestment portfolios; shareholder action; andalternative investments in credit unions, cooperatives, and community loan funds. All aredesigned to advance social and environmentalprogress through investment capital andsocially responsible businesses.

The social investment movement is rooted inthe churches, anti-war protests, and early envi-ronmental groups. Its modern origins in theUnited States can be pinpointed to an eight-month period between 1969 and 1970 duringwhich the US invasion of Cambodia promptedmany Americans to reconsider their holdings incompanies producing weapons for the war inSoutheast Asia; the inaugural Earth Day put corporate environmental performance underthe microscope; and Ralph Nader’s campaignagainst General Motors gave rise to the firsteffective shareholder action focusing on productsafety and hiring practices.22

In Canada, initial issues for social investors wereapartheid in the Republic of South Africa andhuman rights violations in Chile and Brazil.Canadian churches have been at the forefront.In 1975, a coalition of church-based organiza-tions established the Taskforce on the Churchesand Corporate Responsibility (TCCR) to facilitateshareholder action on these and other issues,such as the environmental impact of forest products and mining companies, relations withAboriginal people, and bank lending practices.23

SOCIAL AND ENVIRONMENTAL SCREENS:BAROMETERS OF PERFORMANCE

To assess the performance of Canadian corpora-tions and establish socially responsible invest-ment portfolios, the social investmentmovement developed a number of criteria andperformance benchmarks. Much of this is now

40


MONEY LAUNDERING

W H I L E P R O V I D I N G O F F -

S H O R E B A N K I N G S E R -

V I C E S F O R C L I E N T S ,

F I N A N C I A L I N S T I T U -

T I O N S T A K E G R E A T

P A I N S T O A V O I D M O N E Y

L A U N D E R I N G : T H E

P R O C E S S O F C O N C E A L -

I N G T H E N A T U R E ,

S O U R C E , O R L O C A T I O N

O F C R I M I N A L P R O C E E D S .

E X P E R T S E S T I M A T E

G L O B A L M O N E Y L A U N -

D E R I N G T O I N V O L V E A S

M U C H A S U S $ 3 0 0 B I L -

L I O N A N N U A L L Y. T H E

I N F L U E N C E W I E L D E D B Y

C R I M I N A L O R G A N I Z A -

T I O N S C O N T R O L L I N G

T H I S W E A L T H H A S L E D

S O M E W O R L D L E A D E R S

T O D E E M M O N E Y L A U N -

D E R I N G A G E O P O L I T I C A L

P R O B L E M W H I C H , I F

L E F T U N C H E C K E D ,

T H R E A T E N S T H E P O L I T I -

C A L A N D S O C I A L F A B R I C

O F F R A G I L E D E M O C R A -

C I E S A N D D E M O C R A T I C

I N S T I T U T I O N S .

Source: Charles A. Intriago,“Money Laundering Controls in Offshore Banking Clients,”Offshore Finance Canada,May/June 1997. See also “Money Laundering: ThatInfernal Laundering Machine,”The Economist, July 26, 1997.

Pages a-138 (152) 4/25/98 12:39 PM Page 40

embedded in investment “screens” establishedby market demand, research companies, non-profit groups, environmental organizations, andsocial development groups.

There are two types of screens. Negative orexclusionary screens define social criteria which,if not satisfied, eliminate companies from aninvestment portfolio. The best known screenwould be that which was applied against companies with operations or significant holdings in South Africa under apartheid.

Positive or qualitative screens define social criteria which can be applied on a sliding scale.While some companies may be excludedbecause of an established pattern of non-compliance with environmental regulations, forexample, others will be included in a portfoliobecause their performance, while perhaps farfrom perfect, is better than that of its industrypeers. Such qualitative assessments can behighly nuanced and allow investors to establisha diversified portfolio by investing in companiesfrom a wide range of industries. This “best ofsector” approach represents a frank acknowledge-ment of the gritty reality of the Canadian economy and, ideally, is accompanied by activeshareholdership to influence corporate directorsand management in positive directions.

ASSESSING CANADA’S FINANCIAL SECTOR

A May 1997 review of corporate social responsi-bility by the Toronto-based Social InvestmentOrganization listed six banks and one mutualfund company as leaders in Canadian corporatesocial responsibility: Bank of Montreal; CIBC;Investors Group; National Bank of Canada;Royal Bank of Canada; Scotiabank; and theToronto-Dominion Bank.24

This may surprise some observers. It shouldn’t.Canada’s major banks are often found in theportfolios of many social investors, includingthe portfolios of socially screened mutual funds.Canada’s banks have a relatively good history ofprogressive employment equity policies andgenerous community donations programs, eventhough they draw the ire of Canadians unhappywith their lending practices, high servicecharges, large profit margins, outsized executivesalaries, and cozy corporate governance regimes.As a white collar industry, banks find it rela-tively easy to comply with environmental regu-lations. And bank performance overseas has notrecently been targeted by the social investmentmovement as a cause for concern.25

Two research problems today confront the socialinvestment industry and the use of socialscreens to evaluate overseas performance. Thefirst is how we assess the full social and environ-mental impact of financial institutions. If banksdo not themselves pollute, are they lending tocorporations that do? How can we fully evaluatethe downstream impacts of the lending policiesof Canadian banks and investment houses?

The second problem concerns the difficultiesassociated with researching the performance ofCanadian financial institutions overseas. Thedemands being placed on a small network ofresearchers and nonprofit groups tracking theperformance of Canadian corporations abroadare onerous to say the least. For-profit compa-nies will take up this challenge on a case-by-casebasis in response to requests for informationfrom investors and media coverage of particu-larly lurid or interesting international stories.But no comprehensive assessment of an entireindustrial sector will be possible without a significant increase in resources from the privatesector, foundations, or government.26

C A N A D I A N F I N A N C I A L

I N S T I T U T I O N S A N D T H E

G L O B A L F I N A N C I A L S Y S T E M

Although small, Canadian financial institutionsdo participate in the global financial system,and it is at the level of the system that thepotential to inflict negative social and environ-mental impacts on developing countries may begreatest. In addition, the system’s capacity toinflict harm is growing.

Many would argue, of course, that the financialservices industry has never served developingcountries terribly well. The Latin American debt

41


BOX 2 SOCIAL INVESTMENT SCREENS

The screens employed by Michael JantziResearch Associates Inc. are made up of 90indicators of corporate social and environ-mental performance in 10 different issueareas.

• Negative or exclusionary screens include:military production; nuclear power; andoperations in countries with intolerablehuman rights records.

• Positive or qualitative screens include:community relations; diversity;employee relations; environment; inter-national performance; products and corporate practices; and corporate governance.

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crisis of the 1980s and subsequent adjustmentprograms is just one instance when financialinstitutions benefited at the expense of developing countries.

In the past, however, the threat of default onloan payments emanating from capitals inMexico, Brazil, or Argentina at least gave thefinancial sector pause. The fate of Southerneconomies was tied, not only to specific lendinginstitutions, but to the global financial systemas a whole. Developing countries, at least poten-tially, could have prompted a systems collapse.No longer. Today, while individual financialinstitutions may suffer, the financial sector as awhole can engage in reckless lending, corrup-tion, and harbour woefully inadequate internalcontrols—as in the case of the savings and loanscandal in the US, the collapse of BaringsInvestment Bank, and the devastation of Crédit Lyonnais—and flourish, the system leftin place, fundamentally unchanged.

Worse, it can flood Southern economies withcapital one day, withdrawing it the next.Domestic economies can be left devastated—asin the case of Mexico in 1995—while Northernfinancial institutions never step off the road toprosperity.27

For many observers this is the mark of a sectorthat, in many ways, is evolving into anautonomous, self-contained economy—theeconomy of the financial sector—divorced fromthe productive economy in which people makethings, provide services, and require the basicfinancial services critical to the functioning of amodern economy.

What is happening? Globalization. Informationand communication technologies have elimi-nated distance and borders, leading to a prolifer-ation of new products and services andfundamental changes in business organizationand techniques, while hastening the transfor-mation of domestic economies. The financialsector has perhaps been transformed more thanany other.

THE OLD WAYS

In the past, the financial sector was heavily reg-ulated, bank-centred, typically localized withcommercial lending operations run out of bankbranches. Its essential economic and social func-tions were clear. Among the more critical was todeliver capital to the economy’s most produc-tive and efficient enterprises. To sustain the

institution, risks were of course minimized:lenders could not afford to be wrong very often.

Risks were minimized in two ways. The first,broadly acknowledged, was through collateralrequirements. The second, often ignored, wasthrough the establishment of long-term rela-tionships between lenders and borrowers; theacquisition of deep expertise in specific indus-tries; and a capacity to assess the quality of amanagement team—providing guidance andsupport where necessary. In many ways, bankerswere the first management consultants and fewever wanted to call a loan: to do so was to admitfailure, that the lending officer had misjudgedthe company.

THE NEW APPROACH

The new financial sector will be essentiallyunregulated. It will be global rather than local.It will be stock and bond market-oriented, asCanada and Europe follow the American modelof corporate finance in which capital tends to beraised through the stock market. It will createdistance between financial institutions and bor-rowers as critical functions become increasinglyautomated through sophisticated computer pro-grams and lending checklists. Future small busi-ness lending, at least, will take place over thetelephone and the internet.

This system will be oriented toward the elimina-tion of firm-specific risk. Financial institutionscan do this for a number of reasons includingthe proliferation of liquid securities marketsaround the globe; by developing a sophisticatedcapacity to use derivatives and other financialinstruments to hedge bets; and by establishingthe assembly of assets as a profit centre (througha variety of trading activities), rather than a costcentre (as was the case when banks had to accu-mulate assets primarily by paying interest onsavings accounts held by individualdepositors).28

To further understand the evolving financialsector, it is useful to look at financial marketsand instruments a little more closely and in historical context.

NEW WINE, OLD BOTTLES

In many ways, there is little that is new aboutstock markets or the global reach of capital.Stock markets were established in the 17th cen-tury as Dutch and English East India companiesissued shares to the public to finance imperial

42


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enterprises. In return, investors were granted ashare of profits in the form of dividends. Sinceinvestors did not want to wed themselves irrev-ocably to the company, share certificates weremade freely transferable, thus transforming astream of future dividends into an easily tradable capital asset.

What is new is the scale and scope of financialmarkets, the proliferation of exotic financialinstruments, and the extent to which much ofthe activity of the financial sector is performednot to finance production, but to earn specula-tive returns. Indeed, some industry observersallege that banks may now be trading as muchfor their own account as for the benefit of theirclients.29 The institutions and instruments thatallow them to do so are now entrenched in theglobal financial system. They include:

FOREIGN EXCHANGE MARKETS

In the past, foreign exchange was an intermedi-ate process. A multinational corporation wouldtake profits in German marks, for example, andconvert them to American dollars to purchaseequipment from a John Deere manufacturingplant in Ohio. An investor would liquidate a UStreasury bill and convert it to Japanese yen topurchase shares in companies listed on theTokyo stock market.

Today, foreign exchange has become an assetclass in itself, separated from any other under-lying stock or bond. The foreign exchange market is primarily about trading in moneyrather than monetary claims on real assets. Inan April 1992 survey, it was found that, on average, US$880 billion changed hands daily, anamount equal to approximately one week ofAmerica’s GDP, and one month’s worth ofglobal production. Only 12 percent of the trans-actions involved productive world customers:75 percent of daily turnover was in transactionssolely between foreign exchange traders. In 1996, the International Monetary Fund (IMF)estimated daily currency trading averagedUS$1.3 trillion.30

DERIVATIVES

The use of derivative instruments is often justi-fied by citing their use by agricultural producersas futures and options to purchase a form ofinsurance in the event of crop failure. Leavingaside the distinction between derivatives such asfutures and options traded in organized and reg-ulated exchanges and the proliferation of exoticinstruments traded over the counter (OTC), it is important to note that about 70 percent of trading in derivatives is in financial futures (e.g., interest rate futures). Only 15 percentinvolves trading derivatives with agricultureproduce as the underlying asset.

OTC derivatives trading took off in the 1980sand 1990s. In 1986 the notional principal ininterest rate swaps was US$400 billion withanother US$100 billion in currency swaps out-standing. By the end of 1993, notional principalon interest rate swaps totaled US$6.2 trillionand currency swaps US$1.8 trillion. By March1995, the notional value of outstanding OTCderivates was US$47.5 trillion. There was a fur-ther US$17 trillion in derivatives traded in stockand mercantile exchanges. In aggregate, theglobal derivatives market is now twice as largeas world output and much larger than the stock

43


BOX 3 WHAT IS A DERIVATIVE?Derivatives are a broad class of securitieswhose prices are derived from the prices ofother securities. Though there are morethan 1,000 different variations, derivativesbasically come in two forms: options andfutures (traded on regulated exchanges);and forwards, swaps, collars, swaptions, andliterally hundreds of other custom-madeinstruments (mostly traded “over thecounter”).

The basics of derivatives are usuallyexplained by reference to an ancient Greeknamed Thales of Miletus. Ridiculed for hispoverty, Thales set out to prove he was poorby choice, not by necessity. An astuteobserver of the stars and weather patterns,he forecast a bumper crop of olives oneyear. Before the fruit began to ripen, he cir-culated among the owners of olive pressesand paid them a small fee for the right torent their presses during harvest, but only inthe event that he needed them. Thales paidonly a fraction of the actual cost of rental.And the rental rate negotiated was low. Thepress owners were glad to take the cash, notwilling to risk what would happen in theevent of a crop failure.

When the harvest came in, Thales rentedthe presses and charged the olive growerswhat he pleased, because he controlled allthe means for producing olive oil. Of course,had the crop failed, Thales possessed theright not to rent: all he would have lostwould have been the one-time payment forthe right to rent. Thales had invented the“option.”

Source: Gregory J. Millman, The Vandal’s Crown: How RebelCurrency Traders Overthrew the World’s Central Banks (New York:The Free Press, 1995).

THE TOBIN TAX

I N A N E F F O R T T O

R E S T R I C T S H O R T - T E R M

S P E C U L A T I O N , R E D U C E

V O L A T I L I T Y , A N D

I N C R E A S E G O V E R N M E N T

R E V E N U E , N O B E L P R I Z E -

W I N N I N G E C O N O M I S T

J A M E S T O B I N P R O P O S E D

I N S T I T U T I N G A T A X O F

B E T W E E N 0 . 1 P E R C E N T

A N D 0 . 2 5 P E R C E N T O N

A L L F O R E I G N E X C H A N G E

T R A N S A C T I O N S . T H E

P R O P O S A L H A S B E E N

C R I T I C I Z E D A S D I F F I C U L T

T O E N F O R C E A N D L I K E L Y

T O I N C R E A S E T H E C O S T

O F C A P I T A L B Y

D I S C O U R A G I N G “ G O O D ”

C A P I T A L F L O W S ( E . G . ,

T O F I N A N C E T R A D E ) A S

W E L L A S “ B A D ” O N E S .

FOR A COMPREHENSIVE REVIEW

OF THE PROS AND CONS OF THE

TOBIN TAX, SEE JANE INCH,

“CONTROL OPTIONS FOR

INTERNATIONAL CURRENCY

SPECULATION,” PAPER

PREPARED FOR THE HALIFAX

INITIATIVE COALITION,

DECEMBER 1996.

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of fixed income-securities in member countriesof the Organisation for Economic Co-operationand Development (OECD— US$24 trillion).Even the replacement value of OTC derivativepositions at US$2.4 trillion is three times as largeas the capital of the world’s 75 largest banks.31

BONDS AND TREASURY BILLS

Government bonds and treasury bills representloans that can be easily traded on the market.They are a pledge on the part of government (or increasingly, corporations) to pay a futurestream of interest payments and the return ofthe principal at the bond’s maturity. From aportfolio manager’s perspective, these instru-ments offer a virtually risk-free investmentopportunity, requiring little or no credit analy-sis, beyond taking note of credit ratings pro-vided by Moody’s or other rating services.

The explosion of debt in the 1980s vastlyincreased bond traders’ power to demand austere fiscal and monetary policies of govern-ments around the world. Under our currentfinancial system, “the higher a government’sdebt, the more it must please its bankers.”32

Historically, the credit market—which includesloans arranged through a variety of instrumentsand institutions, from bank loans to complexbond products—has represented the heart of thefinancial system, far outstripping the stock mar-ket in terms of trading activity. This too ischanging. The Government of Canada’s July1997 announcement that, as a result of deficitreduction, it need no longer offer new debtissues, has created some consternation on BayStreet. As fund managers move from safe trea-sury bills and government bonds to corporatedebt and commercial paper, Canadians lookingfor secure pensions will need to be apprised ofreduced liquidity and increased risks associatedwith equity-based investment opportunities. Inthis sense, at least, there is an additional down-side to debt-reduction, beyond that of reducedpublic services.33

FINANCIAL MARKETS IN DEVELOPING COUNTRIES

Stock exchanges are now proliferating inMalaysia, Chile, Taiwan, Thailand, thePhilippines, Korea, India, Mexico, Brazil,Indonesia, Argentina, and China. These accountfor just 13 percent of world stock market capital-ization and are dwarfed by markets in Londonand New York.34 Investors in the North nowhave the capacity to buy up and desert stock

exchanges in these countries. Over the past 20years, Mexico, more than any other country, haslearned that the impacts of such flows can bedevastating.

THE IMPLICATIONS OF INCREASED GLOBAL

LIQUIDITY: FINANCIAL CRISES IN MEXICO

Succeeding financial crises in Mexico can betraced back to the establishment of theEurodollar market in the 1970s, when massivevolumes of American dollars were deposited(primarily by OPEC countries recycling“petrodollars”) in European (primarily London)banks. As the decade progressed, other curren-cies joined the dollar, the market spread toother financial centres, and American banksmoved offshore to join the fray. But theEurodollar market remained outside domesticmonetary systems and the control of nationalmonetary authorities.

As depositors became willing to hold dollars inEuropean accounts, banks began to put thismoney to work by extending loans to developingcountries pursuing a strategy of indebted indus-trialization. With this investment opportunity—and recession in many countries of the North—international commercial banks assumedresponsibility for recycling Eurodollars to theSouth.

Mexico was among the prime recipients of theseloans. And it soon became the most desperateand persistent example of the problem of inter-national indebtedness. Three times in less thantwo decades Mexico has found itself sliding toward national insolvency.

BAILING OUT THE 1982 MEXICAN DEBT CRISIS

The first Mexican debt crisis occurred in 1982. Itwould be difficult to overstate its impact on theinternational financial system and financialinstitutions. Two points are salient here.

First, the 1982 crisis and succeeding crises laterthat decade led to the creation of new financialinstruments for dealing with developing coun-try indebtedness. The establishment of Bradybonds in 1989 allowed the world’s largest inter-national banks to convert approximately US$40billion in Mexican government debt to 30-yearbonds, much of it with guaranteed rates ofreturn.

Second, the 1982 bailout, engineered primarilyby the US government, established a creditorstrategy that has guided subsequent rescue pack-

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ages imposed on debtor nations around theglobe. The strategy typically includes a combi-nation of banks, governments, and interna-tional organizations acting as lenders of lastresort, providing liquidity to the debtor whilenegotiating the rescheduling of debt repayment;a severe adjustment or austerity programimposed upon the debtor; and assigning pri-mary responsibility for enforcing adjustmentand certifying eligibility for financial assistanceto the IMF. Although the details of the packagesvary and continue to evolve, the primary under-lying principle of the strategy remains the same:the fault—and therefore the major task inresolving the debt problem—rests with thedebtors, not the creditors.35

THE 1995 MEXICAN PESO CRISIS

This premise is highly contentious. The peso’scollapse in December 1994 and the subsequentflight of capital through much of 1995 suggestthat something is wrong with the fundamentalsof global finance and the social efficacy of theIMF program.36

To be sure, domestic economics and politicsprovided proximate causes for the 1995 pesocrisis. With a current account deficit of 8 per-cent of GDP, the Chiapas uprising in January1994, the assassinations of several prominentMexican political figures—including LuisDonaldo Colosio, the presidential candidate ofthe ruling Institutional Revolutionary Party—bond traders, money managers, and foreignexchange dealers had no shortage of excusesfor bailing out and finding a safer haven forcapital.37

But it is also clear that the crisis would nothave occurred in the absence of a rapidlyevolving and exceedingly liquid global finan-cial system. Most certainly, the peso would nothave attained such heights in the absence ofmassive flows of capital into Mexico’s financialmarkets to service trade deficits and foreigndebt. Crucially, nearly 75 percent of theUS$98.5 billion that entered Mexico between1989 and 1994 came in the form of short-termportfolio investment, and not as long-termdirect investment in productive enterprise.Even The Economist has noted: “The form ofMexico’s crisis was shaped by the financialinnovations of recent years; and advances ininformation and communications technologycaused it to be propagated globally in a waythat is without precedent.”38 The far-reachingimplications of the crisis were noted by

Michel Camdessus, the Managing Director ofthe IMF, who called it “the first crisis of thetwenty-first century.”39

The social impacts of the crisis are also clear. In1995, per capita income in Mexico dropped 8.5 percent. Nearly 1 million jobs were lost.Mexico swung from 4.4 percent growth in realGDP in 1994 to a 6.2 percent contraction in1995. As the price of imports increased, inflationbecame rampant, and real purchasing powerdecreased by nearly 30 percent. By September1995 the minimum wage was sufficient to pur-chase only one-third of the basic food basket.40

DOMESTIC POLICY OPTIONS?

In the end, the Mexican government felt it hadlittle or no capacity to deter the flight of capital.As the upward pressure on the peso began toerode export competitiveness, the governmentcould have intervened to contain currencyappreciation by lowering interest rates. But thiswould have added to already flourishing infla-tionary pressures. An intervention to sterilizethe inflationary impact by increasing interestrates, in turn, would have inflicted costs oninvestment, borrowers, and workers and aug-mented the problem of currency appreciationby attracting even more foreign exchange. Ineffect, Mexico was fundamentally incapable ofdealing with the economic crisis. It had no policy arrows in its quiver.

This might be thought odd given the existenceof a range of policy options already in place inother Latin American countries, designed todeal specifically with the kinds of problemsMexico was experiencing. Some countries, forexample, have created national stabilizationfunds to cushion the economy when commod-ity prices weaken and maintained controlsaimed at discouraging sudden inflows and out-flows of capital. Chile has led the world in thisregard by enacting laws requiring portfolioinvestment to remain in the country for a mini-mum of 12 months. As a result, its economy hasproven to be relatively immune to the dreaded“tequila effect:” the spread of financial crisisfrom one country where the threat may be con-tained by concerted action to other countries inthe region.41 It is worth noting that Chileremains the darling of emerging marketinvestors, despite having implemented thesecontrols.42

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T H E W A Y O F T H E W O R L D :M O R E F I N A N C I A L

L I B E R A L I Z A T I O N

Participation in international trade agreementsmay have prohibited Mexico from following theChilean example. Article 1109 of the invest-ment chapter of the North American Free TradeAgreement (NAFTA) specifically prohibitsdomestic restrictions or controls on cross-borderflows of capital including profits, interest, dividends, and fees.

Despite the apparent efficacy of the Chilean pol-icy response, it appears that multilateral tradeorganizations are intent on continued financialliberalization and placing more limits on theability of national governments to control theflow of capital across borders. Current initiativesinclude:

The World Trade Organization’s FinancialServices Agreement

Covering more than 95 percent of the globalfinancial services market, this agreement givesbanks, insurance companies, and securitiesfirms greatly enhanced access to internationalmarkets. Signed in December 1997, the agree-ment commits 70 countries to liberalizing theirmarkets, starting in March 1999. Although somemajor Asian and Latin American countries arestill permitted to use protectionist measures in alimited number of cases, the agreement estab-lishes a clear set of binding rules for trillions ofdollars worth of business in financial services.43

The IMF Supplemental Reserve Facility

The IMF has developed the SupplementaryReserve Facility, designed to enhance its capac-ity to bail out countries that have lost foreigninvestors’ confidence. Coming in the wake of1997 financial crises in Thailand, Indonesia, andSouth Korea, the enhanced plan signals a shiftin IMF bailouts, shortening their duration andraising the interest rates charged to borrowinggovernments. This will have the effect of tight-ening the screws on developing countries whileensuring a quick return to capital markets. Inaddition, even supporters of increased trade liberalization are beginning to worry that thebailout packages distort proper market incen-tives. On several occasions, The Economist haswarned of the “moral hazard” involved whenthe knowledge that the IMF will ride to the rescue leads investors to engage in behaviourthey would otherwise avoid.44

The Multilateral Agreement on Investment

Currently under negotiation under the auspicesof the Organisation of Economic Co-operationand Development, the Multilateral Agreementon Investment (MAI) will require signatory statesto: treat foreigners no less favourably thandomestic investors; limit performance require-ments for investors to meet specific conditionsin exchange for access to national economies;accept a dispute-resolution mechanism allowinginvestors to sue governments for damages whenthey believe laws violate the MAI; and banrestrictions on the repatriation of profits and themovement of capital across borders.45

Proponents claim that the MAI will increaseglobal prosperity by freeing investors from dis-tortions and inefficiencies caused by excessivemarket regulation. Those opposed claim thatthe MAI will restrict the capacity of governmentto enforce environmental laws, promote job creation, or protect cultural industries. To them,the agreement represents yet another major

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BOX 4 CURRENCY CRISES IN THE“SUBMERGING” ECONOMIES OFSOUTHEAST ASIA

Until recently, some observers have takencomfort in the belief that Mexico was aunique case. The currency crisis in Thailandin the summer of 1997 and the subsequentmeltdown of several Southeast Asianeconomies suggest that the internationalfinancial system may want to brace itself fora succession of future crises. As a mountainof bad debt crushed Thailand’s weakerfinancial institutions, foreign investors with-drew funds from the country, propitiously.The baht went into free fall, and other Asiancountries have been affected. It is antici-pated that GDP growth in Thailand in 1997will fall somewhere between a contractionof 1 percent to 4 percent growth (with adisastrous second half), compared to severalyears during which growth exceeded 8 per-cent.1 With a string of financial institutionfailures, even Japan has been affected.Observers note that the size of Japan’sfinancial problems rival those of the rest ofAsia combined.2

N O T E S

1 Paul Shere, “Bangkok Calls on Foreign Banks,” The Globeand Mail, August 8, 1997. 2 ”Showdown Nears in Japan,” The Globe and Mail,December 5, 1997 and “BIS Warns of Fallout From Asia,” The Report on Business, December 9, 1997. While certain sec-tors of the Canadian economy are expected to suffer (partic-ularly the forest products industry and mining), the financialservices industry will find ways to benefit. See Bruce Little,“Asian Woes Expected to Spill Over,” The Globe and Mail,December 9, 1997.

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surrender of national sovereignty to privateinvestors and multinational corporations.

What cannot be doubted is that the MAI willincrease global liquidity and the ease withwhich investors can move portfolio investmentin and out of capital markets around the world.What is uncertain is whether or not signatorieswill be able to implement policies that hinderthe flows of portfolio investment and so-called“hot money” that exacerbate currency, financialsector, and stock market crises.

R E C O N N E C T I N G T O S O C I A L

R E S P O N S I B I L I T Y

Powerful forces generated within the financialsector are not adequately serving social and economic needs in many countries. And as wit-nessed in Asia during the latter part of 1997,they are inflicting harm upon hundreds of mil-lions of people. In the face of such forces, theessential challenge is to identify, develop, andimplement strategies for reconnecting the finan-cial sector to productive functions, humanneeds, and socially responsible development.

It is possible to do so by insisting first thateconomies exist to serve society, not vice versa.The firewall between traditional economic“imperatives” (defined in conventional terms ofgrowth, profit, and development) on the onehand, and social needs (as defined by funda-mental human rights, social justice, and envi-ronmental protection) on the other, serves toperpetuate a false dichotomy. In the parlance ofthe social investment community, all invest-ments, all consumption, and all financial andeconomic decisions are fundamentally social incontent because each decision will have socialand environmental implications downstream,regardless of whether the decisionmaker isaware of these implications or not.

Despite the pervasiveness of this dichotomy,there are dissenting voices. And the chief opera-ting officers (CEOs) of major Canadian financialinstitutions may be among them. Al Flood, CEOof the Canadian Imperial Bank of Commerce, hassaid that “people are much better informed andthey are concerned about things like corporateethics. And for us to succeed we must maintaintheir trust and confidence. Good corporate ethicshave to be the foundation of our business.”46

Matthew Barrett, CEO of the Bank of Montreal,also maintains that corporate social responsibilityshould inform corporate practices and can be thekey to sound financial performance. For Barrett,

good corporate citizenship includes providingproducts of value, satisfying employees,maintaining a commitment to the community,and safeguarding the environment.47

But the task of reconnecting the financial econ-omy to the productive economy and humanneeds cannot be left to CEOs alone. There is arole for everyone. Financial institutions, afterall, are part of society, our history, our culture.They only abide by the “rules of the game” thatour society generates, maintains, and tolerates.Fundamental change will only come by revisingthose rules. In general, this means changing thefollowing: people’s social expectations concern-ing the behaviour of corporations and our ownbehaviour as investors and consumers; thenorms and standards maintained by industryassociations and professional trade organiza-tions concerning acceptable member behaviour;and the rules, regulations, and legislativeregimes established by parliament, interpretedby the courts, and enforced by the government.

The following strategies may help achieve thesechanges.

POLICY OPTIONS

TRADE AGREEMENTS—THE NEED FOR SOCIAL

AND ENVIRONMENTAL CLAUSES

Current trends toward financial liberalizationappear as unstoppable today as industrializationin the mid-19th century. While a critical exami-nation of the principles underlying liberaliza-tion are necessary, so too are efforts to workwithin existing multilateral organizations toensure the inclusion of social and environmen-tal clauses in trade agreements as they are nego-tiated. The NAFTA side agreements, thoughperhaps weak, provide an interesting model forefforts to establish rules to protect the environ-ment, regulate labour markets, and reassertsome measure of national control over nationaleconomies. The ultimate objective should be toestablish a regime that encourages corporatesocial and environmental responsibility andhelps reconnect the world of finance to theworld of productive enterprise.48

ENHANCING CORPORATE DISCLOSURE

REGULATIONS

The discussion paper released by the Canadiangovernment’s Taskforce on the Future of theCanadian Financial Services Sector in June 1997identified disclosure as a key to a healthy and

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T O D A Y, T H E C H A L L E N G E

F O R T H E S O C I A L

I N V E S T M E N T M O V E M E N T

M O V E S T O A N E W

F R O N T : T O

D E M O N S T R A T E T H A T

C O R P O R A T I O N S C A N A C T

A S A G E N T S F O R

P R O G R E S S I V E S O C I A L

C H A N G E .

ROBERT WALKER AND SUSAN

FLANAGAN, “THE ETHICAL

IMPERATIVE,” IN

THE FINANCIAL POST 500

MAGAZINE,

MAY 1997, P. 28

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competitive financial services sector and an issueof concern for revisions to the Bank Act. Unfor-tunately, the taskforce has chosen to maintain anarrow interpretation, limiting the industry’s con-cept of disclosure to issues such as the cost ofbanking services, executive compensation, andcorporate governance. Financial institutions arealso required to report on direct foreign invest-ment and acquisitions. But they are required todisclose lending targets, loan exposure, and loanloss provisions only when such policies pertain tocritical operations of the financial institution.

Canadian financial institutions listed on theToronto Stock Exchange (which includes all themajor banks) also fall under securities regula-tions of the Province of Ontario. Securities regu-lators require more information than the BankAct, and do not require mandatory nonbusinessrelated disclosure. Prospectuses require detailedbusiness and industry risk factors assessmentsand disclosure of other material business or legalinformation that would influence an investor’sinvestment decision. Information on materialenvironmental liabilities is required, but only ifsuch considerations would have a significanteffect on the fair market price of a company’sstock value. Thus, legal suits related to a large oilspill would require disclosure, while decimationof the Brazilian rainforest or stockpiling hazardous waste would not.49

Mandatory annual corporate reports typicallycontain business and financial reporting items;increasingly, mention of social performance isusually related to charitable works or environ-mental performance. Only rarely are relatedinternational “social” issues raised. In addition,neither federal agencies regulating financialinstitutions nor the Canadian Bankers’Association maintain or track data concerningdomestic, let alone international, lending patterns and practices.

Western commentators have repeatedly pointedto inadequate disclosure regulations and a fun-damental lack of accountability as underlyingcauses of the 1997 meltdown in Asian financialmarkets.50 Before proceeding too much furtherwith this critique, it may be useful for industryrepresentatives and regulators to reflect andexpand upon disclosure regulations in Canada.

LINKING SOCIAL VALUES AND RESPONSIBLE

SHAREHOLDERSHIP

Although often overlooked by investors, owner-ship of common stock confers rights and

responsibilities. These include a share in profits,voting rights at annual meetings, and the rightto propose corporate policies.

In the United States, socially responsibleinvestors have long used shareholder rights as apowerful tool for influencing corporate social andenvironmental practice. A wide range of groups,including church-based organizations, pensionfunds, and mutual funds, maintain proxy votingguidelines and engage in active shareholdershipas a standard feature of their operations.

The Bank Act and the Canada BusinessCorporations Act, however, perpetuate thedichotomy between the financial sector and economic needs by allowing corporations toexclude shareholder proposals deemed by direc-tors to have been put forward for the purpose of“promoting general economic, political, racial,religious, social, or similar issues.” Shareholdersmay advance only those resolutions relatingdirectly to the financial health of the corpora-tion. Corporations have used this rule to refusecirculation of resolutions that attempt to connecta company’s social and financial performance. Inthe US, however, governing legislation recognizessocial and environmental factors as potentiallysignificant to a company’s business. In moststates, fiduciary law allows specifically for theconsideration of corporate decisions’ effects on avariety of nonshareholder interests.51

In the US, shareholders and the courts can holdcorporations accountable for social and environ-mental impacts through shareholder actions.Concerned shareholders, for example, have theright to file resolutions at annual general meetings. The federal Securities ExchangeCommission, which is responsible for the regu-lation of the US investment industry, allowsnoneconomic factors to be considered for proxy circulation if a proposal is significantlyrelated to a corporation’s operations. More thanthis, “a company may not omit a shareholderproposal related to social or politicalpolicy...unless the policy has virtually no con-nection to the company’s operation.”52

Importantly, resolutions are circulated to allshareholders in advance of the meeting, atwhich shareholders are given the opportunity todiscuss and vote on the issues raised.

Underlying these considerations is US legisla-tion recognizing broader interests of society andthat “ethical issues... also may be significant tothe (company’s) business, when viewed from astandpoint other than a purely economic

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one.”53 This view is supported in the majority ofUS states by fiduciary law which allows trustees“to consider the effect of their decision on avariety of nonshareholder interests.”54

GREATER ACCOUNTABILITY TO COMMUNITIES

Again in the US, the Community ReinvestmentAct (CRA) requires all federally regulated banks todisclose detailed financing activities related tothe equitable distribution of capital in local andminority communities. The CRA’s performancecategories are: community credit needs; market-ing and types of credit offered and extended; geo-graphic distribution and record of opening andclosing of offices; discrimination or other illegalpractices; and community development.55

Importantly, the act provides assessment andenforcement mechanisms to ensure some degreeof compliance. The Bank of Montreal’s purchaseof the Harris Bank, for example, was temporarilyblocked by regulators because its former owners atthe Bank of Chicago were not in compliance withthe CRA. No similar legislation exists in Canada,although the Canadian Community Reinvest-ment Coalition advocates the inclusion of similarprovisions in Canada’s Bank Act.56

WHAT INDIVIDUALS CAN DO

IMPROVE FINANCIAL LITERACY

The dichotomy between economic imperativesand social needs is perpetuated by much of theliterature surrounding the world of finance, eco-nomics, and investment. The bulk of this comesin two forms. The first, the popular literaturewritten for individuals investing for personalfinancial security, has played a central role inencouraging many to invest in today’s marketseither through mutual funds, investment clubs,or self-directed portfolios. The second form of lit-erature is the highly technical, increasingly math-ematical studies designed for the owners andmanagers of capital and finance theorists. In thewords of Mencken (writing on the dense natureof economics): “The amateur of such things mustbe content to wrestle with their professors seek-ing the violet of human interest beneath theavalanche of their graceless parts of speech.”57

These two streams of finance literature rarelyquestion the social and environmental impactof capital flows.58 The literature surrounding theinvestment industry, for example, explicitly dis-misses these questions—and the application ofsocial and environmental screens to investment

portfolios—as a guaranteed way to limit the uni-verse of stocks from which to choose, therebyreducing diversification, increasing risk, andlimiting the potential for maximum financialreturn within risk parameters established byclients, advisors, and managers.

“When I go into a bank, I get rattled,” StephenLeacock wrote in his 1910 classic, My FinancialCareer. Banks rattle most people. More materialon the financial sector is crucial to overcomethis fear. Heightened awareness of the industrywill allow people to begin to make the connec-tion between their values and their investmentdecisionmaking.

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BOX 5 INTERNATIONAL SOCIAL INVEST-MENT CRITERIA: SELECTED SOCIALENVIRONMENTAL MUTUAL FUNDS

Ethical Funds Inc.

The EFI family of funds seeks corporationsthat encourage progressive industrial rela-tions, strive to comply with environmentalregulations and the implementation of envi-ronmentally conscious practices, and conducttheir business in and with countries providingracial equality within their boundaries. Thefund does not seek corporations that profitsignificantly from the sale and/or manufac-ture of tobacco, nuclear energy, or militaryequipment.

Investors Summa

Owned by the Investors Group, InvestorsSumma will not invest in companies whosepractices openly or passively support repressive regimes.

Clean Environment International Equity

Clean Environment does not have an exclu-sionary country screen for repressive regimes.Rather, it seeks to invest in a globally diversi-fied portfolio of companies that fit the environmental concept of sustainable development.

Both Ethical Growth and Investors Summahave exclusionary screening criteria whichpreclude investments in companies operatingin countries which, like Burma and SouthAfrica before the end of apartheid, have uni-versally criticized human rights records. Othercountries with poor human rights records,particularly those with large market potentialsuch as China and Indonesia, are not neces-sarily precluded. Investments in corporationsoperating in these countries tend to be considered on a case by case basis.

Source: Social Investment Organization, Social InvestmentDirectory, Toronto, Summer 1997.

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CONSIDER SCREENED INVESTMENT PORTFOLIOS

Socially responsible investors are the most sig-nificant private sector actors encouraging socialand environmental corporate performance.Currently, hundreds of thousands of Canadianshold more than $5 billion in 14 socially screenedmutual funds and six socially responsiblelabour-sponsored venture capital corporations.59

But these represent only the tip of the iceberg. It is impossible at this time to estimate screenedassets held by pension funds, charitable founda-tions, high net worth individuals with self-directed portfolios, and funds being screened bydiscretionary managers.

With more than $600 million in assets, theEthical Growth Canadian Equity Fund offeredby Ethical Funds Inc. is the largest screenedmutual fund in Canada. Ethical Growth invest-ments are based on a number of social and environmental criteria. As mentioned above,because of relatively good social performance,the fund typically holds several of Canada’slarge banks in its portfolio at any given time.Most other Canadian ethical funds such asInvestors Summa and Clean Environment alsohold bank stocks from time to time (see Box 5).

These funds represent only a tiny fraction ofgross market capital. Unless they grow andbegin engaging in shareholder action, their fullsocial impact will not be felt.

One of the largest barriers to more rapid expan-sion of socially responsible investment in Canadahas been the perception, held by many main-stream financial advisors, that screened portfoliosdo not perform as well as unscreened. This per-ception is false: screened mutual funds in Canada

have emerged as top performers across fund cate-gories. Dozens of US studies also demonstrateempirically that screened investment portfolioscan and do offer competitive rates of return: insome cases, they can outperform industry benchmarks and peer group averages.60

SUPPORT RESPONSIBLE SHAREHOLDERSHIP

Despite regulatory barriers, shareholder actionin Canada is possible. In fact, Canada’s financialinstitutions have been the target of severalactions led by Canadian churches and theTaskforce on the Churches and CorporateResponsibility. In addition to the issue ofapartheid in South Africa, the churches havepushed the banks to disclose information andprovide debt relief on loans to Southern coun-tries. The most successful action took place at aBank of Montreal shareholder meeting when 5.8percent of shareholders supported South Africandivestment.61

Despite TCCR’s leadership (see Box 7), share-holder action in Canada has been sporadic. Arecent landmark case instigated by minorityshareholder activist Yves Michaud, however,indicates that interest in shareholder action maybe on the rise. The case involved Michaud’sright to circulate a resolution on two corporategovernance issues to National Bank and RoyalBank shareholders. The Quebec Supreme Courtordered the banks to circulate the resolution,possibly paving the way for shareholders toforge the link between corporate social responsi-bility, financial performance, and ultimately theintimate connection between economic andsocial well-being.62

Of course, not every individual or institutionalinvestor will be in a position to lead the chargeas filing and co-filing proposals requires a greatdeal of research and coordination. What is nec-essary, however, is for every investor to put inplace the decisionmaking processes, the proto-cols, and the proxy voting guidelines that willallow them to vote their shares responsibly andto play a critical role in reconnecting the worldof finance and investment to human needs.

SUPPORT THE DEVELOPMENT OF CODES OF

CONDUCT AND PROGRESSIVE SOURCING POLICIES

Since the introduction of the Sullivan Principlescalling for divestment in South Africa, codes ofcorporate behaviour have attracted growingattention as a tool for increasing corporatesocial responsibility and public accountability.


BOX 6 SELECTED CANADIAN SOCIALLYRESPONSIBLE MUTUAL FUNDS

Assets ($ millions)(as of October 16, 1997)

Selected Canadian Equity Funds Ethical Growth Fund 628.0Investors Summa 260.4

International FundsClean Environment International Fund 10.7Ethical Pacific Rim Fund 30.0Ethical Global Bond Fund 12.5Ethical North American 94.5

Total Assets $1,036 million

Source: Selected Canadian Socially Responsible MutualFunds were reported in The Globe and Mail on October 16,1997. The numbers reported are for the month endingSeptember 30, 1997.

50

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Often developed by nongovernmental organiza-tions, codes of conduct provide a referencepoint for assessing corporate behaviour on non-business related issues and can help inform thedevelopment of social screening criteria.

Many codes have enjoyed some success,although typically, single issue codes such as theMacBride Principles on employment practices inNorthern Ireland, or very broad codes such asthe Caux Round Table Principles for Business,have received the greatest attention and corpo-rate support. More demanding codes, such asthe TCCR-sponsored Benchmarks for MeasuringCorporate Performance (see Box 6, p. 27), or theCoalition for an Environmentally ResponsibleEconomy (CERES) Principles have receivedgreater critical acclaim from social and environ-mental activists, but far less acceptance by thebusiness community.63

Measurement and enforcement of codes remainproblematic, not only because compliance is vol-untary, but also because proposed measures aretypically hard to quantify and are inconsistentacross industrial sectors. How, for example, canthe environmental impact of a forest company, asoftware firm, and a bank be assessed using thesame measure? Codes also tend to be aimed atcorporations operating in the North and are lessappropriate for the South where social and cultural standards and inadequate physical infrastructure present compliance barriers.

Unfortunately, there are presently no specificsocial or environmental codes for financial insti-tutions, and those codes that do exist relate primarily to operating activities.64

SUPPORT THE CREDIT UNION MOVEMENT

As local financial cooperatives, many creditunions maintain a commitment to make signifi-cant contributions to the communities in whichthey operate. The credit union movement inCanada is also committed to social and eco-nomic development in developing countries,with projects aiming to help people becomemore self-sufficient. International developmentis coordinated by the Canadian Co-operativeAssociation and funds are raised throughout thecooperative sector. In addition, the CreditUnion Central of Canada, the national tradeassociation of credit unions across the country,is a member of the World Council of CreditUnions. With affiliated members in 80 countries,the Council directs financial and leadershipresources to credit union extension throughoutthe world. Some credit union systems, such asthe Mouvement des caisses Desjardins’“Développment international Desjardins” havededicated international development programs.

SUPPORT ALTERNATIVE INSTITUTIONS FOR

MICRO- AND SMALL BUSINESS CREDIT

Over the last two decades, micro-credit, or theprovision of loans to micro- and/or small busi-nesses for the purpose of generating increasedbusiness income, has grown as a developmenttool. Micro-lending in developing countries waspioneered by the Grameen Bank in Bangladesh.The World Bank now estimates that there aremore than 7,000 micro-lending institutionsworldwide, involving more than 13 millionclients and more than US$19 billion.65

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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 favour1984 Bank of Montreal Divest from South Africa 5.8 percent in favour

Bank of Nova Scotia Divest from South Africa 3.2 percent in favour1990 Bank of Montreal Southern country debt relief Resolution withdrawn

Bank of Nova Scotia Southern country debt relief Resolution withdrawnRoyal Bank Southern country debt relief Resolution withdrawn

1991 Bank of Montreal Southern country debt relief Resolution withdrawnBank of Nova Scotia Southern country debt relief Resolution withdrawnRoyal 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 accep-tance by some executives of broader social responsibility.

Source: “Shareholder Proposals in the Canada Business Corporations Act: Recommendations for Revisions of S.137,” by MoiraHutchinson for Michael Jantzi Research Associates Inc., June 1996.

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The Toronto-based Calmeadow Foundation is arecognized world leader in micro-credit and hasbeen involved in the establishment of a numberof projects including the development of BancoSol in Bolivia and ProdFund, an internationalmicro-bank financing organization. Calmeadowis also active in building micro-credit capacity inSouth Africa.66

Scotiabank established a similar micro-credit pro-gram in Guyana in 1993. Though not well publi-cized, the program now boasts more than 3,000clients and loans thousands of dollars annually.Bancomer, a large Mexican bank in which theBank of Montreal has a significant stake, is alsoreported to be developing a micro-credit program.

Mennonite Economic Development Associates(MEDA) also actively finances small businessdevelopment internationally. In addition tomore traditional types of development work,MEDA offers a number of financing tools tosmall and micro businesses in developing coun-tries including Bolivia, Nicaragua, Haiti, andJamaica. Similarly, through its Dutch parent, theEcumenical Development Society (EDS) providesloans to a range of development projects andbusinesses in several countries, includingZimbabwe and India. EDS has also helpedfinance “fair trade” businesses such asBridgehead Canada, which purchases goodsdirectly from producer groups.67

Alternative financing provides an importantfunction as high impact social equity models. Itremains, however, relatively insignificant in theface of more traditional flows of internationalfinancial resources. But the growth of such mod-els is important in that they raise the standardsto which other financial institutions can be heldaccountable.

M A K I N G E C O N O M I E S S E R V E

P E O P L E

Assessing the performance of the Canadianfinancial sector involves understanding andconfronting all the subtleties and nuances ofsocial screening and industry benchmarks, aswell as addressing fundamental questions of cul-tural values and economics. It also requiresgrappling with how changes in the global finan-cial system are establishing a new set of incen-tives for financial institutions around the world.

Globalization, information technologies, dereg-ulation, trade liberalization, and the prolifera-tion of new products are fundamentally alteringfinance services corporations, the industry, andthe rules of the game. This is leading to a situa-tion in which the financial economy—theworld of debt, equity, bond trading, currencyexchange, and commercial lending—is becom-ing increasingly distanced from the productiveeconomy—the world of productive physicalenterprise.

Given the power, complexity, and geographicalspread of this industry, reconnecting theseworlds will be no easy task. But, as we haveseen, individuals and institutions have access toa variety of strategies that can be employedimmediately.

More than anything else, reconnecting theseworlds will require appropriate levels of publicaccountability and informed investors, con-sumers, and legislators. In the absence of bal-anced analysis of the sector’s performance indeveloping countries, public interest and publicpolicy are left dangerously uninformed. The needto augment resources and increase the reportingcapacity of the social investment movement iscrucial. Similarly, there is a need to advocate forinternational agreements that integrate socialand environmental concerns, equivalents to theCommunity Reinvestment Act, and the establish-ment of new institutions independent of theexisting major players, capable of meetingdemand generated by those with low incomes.

If the information available on the impacts ofthe financial sector does not increase, however,financial institutions will remain immune to allefforts to increase their accountability. The cur-rent trend toward greater disclosure of share-holder-related information goes some distanceto advance institutional transparency, but, aswith other sectors, this may not be enough topromote broader stakeholder interests, certainlyover the short and medium terms.

To start making these changes, we must firstarticulate the nature of our problem. Today, fewof the major players would acknowledge thecentral problématique of the Canadian develop-ment and social investment communities or recognize that, in order for a just society to besustained, economies must serve people.

52


. . . B Y D I R E C T I N G

C A P I T A L R E S P O N S I B L Y ,

W E C A N E N C O U R A G E

M A J O R C O R P O R A T I O N S

T O C O M P E T E N O T O N L Y

O N T H E B A S I S O F T H E I R

F I N A N C I A L P E R F O R -

M A N C E B U T O N T H E I R

S O C I A L A N D E N V I R O N -

M E N T A L R E C O R D S A S

W E L L .

ROBERT WALKER AND SUSAN

FLANAGAN, “THE ETHICAL

IMPERATIVE,” IN THE

FINANCIAL POST 500

MAGAZINE, MAY 1997, P. 28

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1 “Today it seems that the heads of governments may be the last torecognize that they and their ministers have lost the authority overnational societies and economies that they used to have.” For per-spectives on the loss of national sovereignty see Susan Strange, TheRetreat of the State: The Diffusion of Power in the World Economy(Cambridge: Cambridge University Press, 1996).2 See Ethan Kapstein, “Workers and the World Economy,” ForeignAffairs, May/June 1996. For a classic treatment of the links betweensocial dislocation and war in the 20th century see Karl Polanyi, TheGreat Transformation: The Political and Economic Origins of Our Time(Boston: Beacon Press, 1957).3 For historical overviews see Graham D. Taylor and PeterBaskerville, A Concise History of Business in Canada (Toronto: OxfordUniversity Press, 1994) and James L. Darroch, Canadian Banks andGlobal Competiveness (Montreal and Kingston: McGill-Queen’sUniversity Press, 1994).4 Some industry observers argue that the existence of these guaran-tees in certain countries establishes a perverse set of incentives andprompts banks to engage in reckless activities. See “Coping Withthe Ups and Downs,” The Economist, April 27, 1996.5 See Canadian Annual Financial Review (1901) and The Financial PostMagazine, “Top 500 Investor’s Handbook Edition,” May 1997. Byway of contrast, most investment firms in the US are youngsters.Morgan Stanley, among the oldest and most prestigious of the“bulge bracket” firms, was established only in the 1930s. Over time,various institutions have entered and exited, either fading fromglory (Dillon, Read, or Kuhn, Loeb) or exploding infamously(Drexel Burnham Lambert).6 See Shirley Won, “Mutual Fund Assets Set Record,” The Globe andMail, Report on Business, July 16, 1997.7 Current regulations state that no more than 10 percent of anyclass of shares of a Schedule I bank may be owned by a singleinvestor, or by investors acting in concert. This has the practicaleffect of limiting foreign control. The Task Force on the Future ofthe Canadian Financial Services Sector is exploring questions of for-eign ownership and it is expected that sooner or later this barrierwill fall. See Discussion Paper, June 1997.8 See for example, Dennis Slocum, “London Life Expected to GainMuscle After Sale,” The Globe and Mail, June 28, 1997; DawnWalton, “Bank’s Entry Worries Insurance Industry,” The Globe andMail, July 1, 1997, and Dennis Slocum, “More Banks, InsuranceAlliances Expected,” The Globe and Mail, August 11, 1997.9 See John Partridge, “Banking Task Force Nixes Ban on Takeovers,”The Globe and Mail, Report on Business, July 12, 1997. For an indica-tion of the direction of the next round of revisions to the Bank Actsee, Task Force on the Future of the Canadian Financial ServicesSector, Discussion Paper, June 1997. See also Andrew Willis,“Banking On It,” The Globe and Mail, December 13, 1997.10 See Darroch, 1994. Historically, American banks have beenrestricted domestically to the state within which they are incorpo-rated. This has kept American banks relatively small and the indus-try fractured. The same pressures of globalization, however, areleading to rapid consolidation south of the border.11 See Geoffrey Dobilas, “The Canadian Financial System inInternational Perspective,” in John Britton, ed., Canada and theGlobal Economy: The Geography of Structural and Technological Change(Montreal and Kingston: McGill-Queen’s University Press, 1996).12 See Richard Blackwell, “Canadian Banks Improve in WorldRankings,” The Financial Post, July 5, 1997. See also, Karen Howlettand Andrew Willis, “Domestic Giants, Global Pipsqueaks,” TheGlobe and Mail, Report on Business, June 28, 1997.13 “Banks Without Borders,” The Globe and Mail, December 16, 1997.14 “CIBC Buys Oppenheimer,” The Globe and Mail, Report onBusiness, July 23, 1997. 15 See Karen Howlett, “Brokers Differ on Route South,” The Globeand Mail, Report on Business, July 1, 1997 and Michael JantziResearch Associates Inc. (MJRA), Investor Profiles, Toronto, 1996.16 For a window onto the world of tax havens see the periodical,Offshore Finance Canada.17 CIBC, Annual Report, 1996.18 See Monica Ballesca, “Foreign Banks Invade Mexican Market,”The Financial Post, December 12, 1996.19 “Bank of Montreal Confirms Beijing License,” The Globe and Mail,Report on Business, December 21, 1996.20 See Bank of Nova Scotia, Annual Report, 1996 and John Partridge,“Scotiabank Pushing Deeper in South America,”The Globe and Mail,Report on Business, April 1, 1997.21 See The Globe and Mail, “Report on Mutual Funds,” July 17, 1997.

22 For an introduction to social investment see Peter Kinder; StevenD. Lydenberg; and Amy L. Domini, Investing for Good: Making MoneyWhile Being Socially Responsible (New York: Harper Collins PublishersInc., 1993). For a Canadian perspective see Eugene Ellmen’s The 1997 Canadian Ethical Money Guide (Toronto: James Lorimer &Company, 1996).23 See Renate Pratt, In Good Faith: Canadian Churches AgainstApartheid (Waterloo, Ont: Canadian Corporation for Studies inReligion, 1997).24 See Robert Walker and Susan Flanagan, “The Best of the TSE 300”and “The Ethical Imperative,” The Financial Post Magazine, May 1997.25 See MJRA, Profiles. Note that any concern over the social or envi-ronmental performance of a Canadian financial institution will beindicated by MJRA only in the event that a major controversy is gen-erated. Canadian researchers have no capacity for independentlyresearching Canadian corporations in developing countries on a com-prehensive basis and must rely on standard media sources. Note alsothat during the 1970s and 1980s Canada’s major banks were targetedby the Taskforce on the Churches and Corporate Responsibility’scampaign against apartheid in South Africa. See Pratt, 1997.26 Founded in 1993, Michael Jantzi Research Associates Inc. analyzesthe social and environmental performance of Canadian corpora-tions. The company maintains a database of approximately 450Canadian companies and has a wide-ranging clientele consisting offund managers, pension funds, charitable foundations, and nonprofit organizations.27 For a discussion of the potential for systems collapse see “TheDomino Effect: A Survey of International Banking,” The Economist,April 27, 1996.28 For fuller descriptions of the transformations taking place seeMartin Mayer, The Bankers: The Next Generation (New York: TrumanTalley Books/Dutton, 1997); Gregory J. Millman, The Vandals’Crown: How Rebel Currency Traders Overthrew the World’s CentralBanks (New York: The Free Press, 1995); William Wolman and AnneColamosca, The Judas Economy: The Triumph of Capital and theBetrayal of Work (New York: Addison-Wesley Publishing Company,Inc., 1997). For a reassuring examination of the economic functionof speculation see “Pennies from Hell,” The Economist, February 3,1996. For an accessible discussion of risk see Peter L. Bernstein,Against the Gods: The Remarkable Story of Risk (New York: John Wiley& Sons, Inc., 1996). For a window on the origins of modern portfo-lio theory and the quest to eliminate firm-specific risk from invest-ment portfolios, see Harry M. Markowitz, “Portfolio Selection,”Journal of Finance, March 1952 and Harvey E. Bines, “ModernPortfolio Theory and Investment Management Law: Refinement ofLegal Doctrine,” Columbia Law Review, 1976.29 Bank for International Settlements, Central Bank Survey, (Basel,Switzerland: BIS, 1992). See also, Jane Inch, “Control Options forInternational Currency Speculation,” paper prepared for the HalifaxInitiative Coalition, December 1996, and Ted Fishman, “OurCurrency in Cyberspace,” Harper’s, December 1994.30 Bank for International Settlements, Central Bank Survey, 1995 andIMF, International Capital Markets 1996.31 See Doug Henwood, Wall Street (New York: Verso, 1997).32 “Bond Watch,” The Globe and Mail, Report on Business, July 16,1997. See also “Letter to the editor,” from Jim Stanford, economistwith the Canadian Auto Workers, Report on Business, July 25, 1997.33 Ibid.34 See International Finance Corporation, Emerging Stock MarketsFactbook, Washington, D.C., 1995.35 For discussions of the broad implications of the Mexican debtcrises see Robert Gilpin, The Political Economy of InternationalRelations (Princeton: Princeton University Press, 1987) and EricHelleiner, States and the Reemergence of Global Finance: From BrettonWoods to the 1990s (Ithaca: Cornell University Press, 1994).36 “Ten Lessons to Learn,” The Economist, December 23, 1995-January 5, 1996.37 For lurid details of the events leading up to the crisis, see AndresOppenheimer, Bordering on Chaos: Guerillas, Stockbrokers, Politicians, andMexico’s Road to Prosperity (Boston: Little, Brown and Company, 1996). 38 “The domino effect: A survey of international banking,” TheEconomist, April 27, 1996.39 The Economist contends that while the chances of system-widefinancial breakdown have diminished, the costs, if it should happen, are mounting. See “The domino effect: A survey of interna-tional banking,” The Economist, April 27, 1996.40 John Dillon, Turning the Tide: Confronting the Money Traders(Ecumencial Coalition for Economic Justice and the CanadianCentre for Policy Alternatives, 1997).

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41 G. Pierre Goad, “Not Being Mexico Isn’t Always an Edge,” TheGlobe and Mail, August 1, 1997; Paul Sherer, “Thailand Closes 42Finance Companies,” The Globe and Mail, August 6, 1997; PaulSherer, “Bangkok Calls on Foreign Banks,” The Globe and Mail,August 8, 1997; and Marcus W. Brauchli, “Austerity Injures NationalPride in Asia: Currency Woes Put Some Countries Projects on Hold,”The Wall Street Journal, August 26, 1997.42 “Financial Virtue Bolsters Chile,” The Globe and Mail, December8, 1997.43 See “WTO Reaches Accord as Asians Agree to Open FinanceIndustry to Foreigners,” The Wall Street Journal, December 15, 1997,and Heather Scoffield, “Agreement Opens World Financial ServicesMarket,” The Globe and Mail, December 15, 1997.44 “The Domino Effect: A Survey of International Banking,” TheEconomist, April 27, 1996 and Michael M. Phillips, “IMF DevelopsPlan for Speedy Bailouts,” The Wall Street Journal, December 10,1997. Note too that proponents of increased financial liberalizationare also calling for the amendment of IMF Article 6 which condonescontrols on capital movements.45 See for example, Laura Eggertson, “Treaty to Trim Ottawa’s Power:Equal-Treatment Rules for Foreign Firms Could Limit Research, Job-Creation Targets,” The Globe and Mail, April 3, 1997.46 Al Flood, quoted in Robert Walker and Susan Flanagan, “TheEthical Imperative,” The Financial Post Magazine, May 1997, p. 28.47 Matthew Barrett, “Good Citizenship is Good Business,” PolicyOptions, December 1996.48 See Michael Hart, “What’s Next: Negotiating Rules for a GlobalEconomy,” Occasional Papers in International Trade Law and Policy,No. 36, (Ottawa: Centre for Trade Policy and Law, The University ofOttawa and The Norman Paterson School of International Affairs,Carleton University, 1995.)49 See Randall Morck and Masao Nakamura, “Banks and CorporateGovernance in Canada,” in Ronald J. Daniels and Randall Morck,Corporate Decision-making in Canada (University of Calgary Press, 1995).50 “Showdown Nears In Japan,” The Globe and Mail, December 5, 1997. 51 For an excellent study of these issues see “The Promotion ofActive Shareholdership for Corporate Social Responsibility inCanada,” prepared by Moira Hutchinson for Michael JantziResearch Associates Inc., November 1996.52 See Lovernheim v. Iroquois Brands, 618 F. Supp. 554 (D.D.C.1985) and discussions in Richard Roberts, “Shareholder ProposalReform—A Search for Objectivity in Rule 14a-8,” 22 SecuritiesRegulation Law Journal, 235 at 239 (1994) cited in Owning Up: TheCase for Making Corporate Managers More Responsive to ShareholderValues, published by Democracy Watch, Ottawa, March 1997. 53 Securities Exchange Act of 1934, Release No. 12999, 41 Fed. Reg.52, 994, 52 997 (1976).54 See Stephen Bainbrige, “Interpreting NonshareholderConstituency Statues,” 19 Pepperdine Law Review, 971 at 973 (1992)cited in Owning Up: The Case for Making Corporate Managers MoreResponsive. Note that a broad coalition of groups in the US led bythe Social Investment Forum believe that proposed changes to SECrules will decimate shareholder action there.

55 “A Capital Idea: The Case for Reinvestment Requirements andAccountability Mechanisms for Financial Institutions in Canada,”Democracy Watch, April 1994.56 For more information write: Democracy Watch, P.O. Box 821,Station B, Ottawa, Ontario, K1P 5P9.57 Quoted in Doug Henwood, Wall Street.58 Ibid.59 See Tricia Hylton and Robert Walker, “Screened InvestmentFunds in Canada, 1987-1997: A Decade of Growth, A Time ofPerformance,” SIO Forum, vol. 8, no.1, Jan/Feb 1998. When referringto market share it is necessary to distinguish between the mutualfund and the venture capital industries. According to the CanadianVenture Capital Association, the labour-sponsored funds dominatethe venture capital industry in Canada. The six funds tracked by theSIO (those that apply social screens in their investment decisions)make up almost 40 percent of this $7.1 billion industry. Fewobservers will miss the irony of labour unions dominating the mostentrepreneurial and romantic segment of investment capitalism.60 See for example John B. Guerard, Jr., “Is There a Cost to BeingSocially Responsible in Investing?” Vantage Global Advisors, August1996; Stanley J. Feldman; Peter A. Sokya; and Paul Ameer, “DoesImproving a Firm’s Environmental Management System andEnvironmental Performance Result in a Higher Stock Price,” ICFKaiser Consulting Group, 1996; and Lloyd Kurtz and DanDiBartolomeo, “Socially Screened Portfolios: An AttributionAnalysis,” Journal of Investing (Fall 1996).61 See Moira Hutchinson, “Shareholder Proposals in the CanadaBusiness Corporations Act: Recommendations for Revisions of S 137,” for MJRA, June 1996.62 See Robert Walker, “Shareholder Action: Social Investment’s NextFrontier?” SIO Forum, vol. 7, no. 1, February 1997.63 See Principles for Global Corporate Responsibility: Benchmarks forMeasuring Corporate Business Performance, available from the Taskforceon the Churches and Corporate Responsibility. It includes the CERESPrinciples and other codes of corporate conduct.64 For a recent overview of corporate codes of conduct see CraigForcese, Commerce With Conscience? Human Rights and CorporateCodes of Conduct (Montreal: International Centre for Human Rightsand Democratic Development, 1997).65 See Barbara Calvin, “An Introduction to Micro-Credit and Micro-Finance,” a presentation to Glendon College, York University,February 1996.66 Interview with Barbara Calvin, Director, InternationalOperations, Calmeadow Foundation, July, 1997, Toronto, Ontario.67 See Eugene Ellmen, The Canadian Ethical Money Guide (Toronto:James Lorimer & Company, 1996).

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N O T E S (continued)

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55

C H A P T E R T H R E E

ETHICS IN THE

MARKETPLACET H E M A N U F A C T U R I N G S E C T O R

Ann Weston

A N N W E S T O N I S V I C E - P R E S I D E N T A N D R E S E A R C H

C O O R D I N A T O R A T T H E N O R T H - S O U T H I N S T I T U T E .

Pages a-138 (152) 4/25/98 12:40 PM Page 55

“Before you finish eating breakfast thismorning, you will have depended on

half the world. This is the way our universe isstructured...” Most Canadians would agree withMartin Luther King Jr. We would find it quitedifficult to go through a day without using atleast one product manufactured elsewhere,whether it be clothing, an electronic gadget, oreven processed food. Many of those goods areproduced in developing countries.

Increasingly, however, questions are being askedabout the way in which these goods are pro-duced. Here we examine the role played byCanadian companies, whether as retailers or asinvestors in goods manufactured abroad. Weconcentrate on the activities of firms with headoffices in Canada, on the assumption that theyare more likely to be influenced by Canadiangovernment and public pressure than sub-sidiaries of American firms. What do they see astheir corporate responsibility toward developingcountries? Have they made special efforts toimprove the development impact of their manufacturing linkages to the South?

We also explore how Canadian consumers andworkers can use their links to promote betterconditions in the manufacturing sector in devel-oping countries. Even where the linkages areless direct, Canadians can play a part—workers,for instance, through their union humanityfunds have supported efforts to improve working conditions in other countries.

M A N U F A C T U R I N G ‘ S

I M P O R T A N C E T O T H E S O U T H

A N D T O C A N A D A

Many analysts still consider manufacturing asthe basis for the development of a moderneconomy. In addition to generating employ-ment and income, it can help disseminate tech-nologies, knowledge, and skills. It can alsocreate demand for inputs and support services.Approximately one in 10 people in low- andmiddle-income countries now work in manufac-turing. Output has grown most rapidly in EastAsia, where manufacturing now accounts forone-third of economic output, compared to less

than a fifth in other regions.1 The expansion ofmanufacturing behind protective tariff barriers,following the import-substitution model, is notas prevalent in the 1990s as it was in the past.To succeed today manufacturers must competein more open markets. And indeed, many devel-oping countries have greatly increased theirexports of manufactures: from 1975 to 1995, theshare of manufactures in developing countryexports rose from 28 to 83 percent.2

While this expansion is generally lauded, ques-tions have been raised about the distribution ofthe benefits of manufacturing production andsome of the associated costs, for the workers,for their physical environment, and for competitors in the informal sector.

In Canada, manufacturing has had to adjust tomany pressures—from changes in productiontechnologies and industrial organization, tonew consumer preferences, variable macro-economic policies (notably interest andexchange rates), and domestic market liberali-zation. Opportunities have emerged with thereduction of barriers to Canadian manufactures’exports, and total output has grown, butemployment in the sector has declined steadily.Manufacturing jobs fell from 1.9 million in1990 to 1.7 million in 1995, barely 16 percent of total Canadian employment. The largest fallwas in textile products and clothing. The mostimportant industry is now transportation,accounting for 13 percent of all manufacturingemployment.3

TRADE LINKAGES

Trade is the most familiar link between Canada’sand developing countries’ manufacturing sectors.As Table 1 shows, Canada had a trade deficit ofUS$13.4 billion in overall manufactures trade in 1996, of which some 70 percent was withdeveloping countries. Manufactures representedjust more than half of Canadian exports todeveloping countries, but some two-thirds ofour imports from those countries. In the past,our bilateral trade deficit in textiles—especiallyclothing—was a cause for concern, partly as aresult of the falling employment in this industry

56

C H A P T E R T H R E E T H E M A N U F A C T U R I N G S E C T O R

ETHICS IN

THE MARKETPLACET R A D E R E Q U I R E S T R U S T ,

A N D T H E M O R E I N T I M A T E

A N D C O M P R E H E N S I V E

G L O B A L T R A D I N G

B E C O M E S , T H E M O R E W E

N E E D G L O B A L N O R M S

F O R G E N E R A T I N G A N D

M A I N T A I N I N G T H A T

T R U S T .

JOHN DALLA COSTA,



MARCH 26, 1998

Pages a-138 (152) 4/25/98 12:41 PM Page 56

in Canada. Today, the deficit in machinery and equipment is nearly three times as large as that in textiles and clothing, and growing. Our imports of manufacturing from Mexico—predominantly automobiles and car parts—exceed our exports by some US$3.5 billion, even more than our trade deficit with China.

As discussed in Chapter 7, much governmenteffort has focused on promoting Canadianexports of services and technology, ofmanufacturing inputs, and of manufacturesthemselves to developing countries. But beyondsome assistance with marketing and minortariff cuts for the least-developed countries,there is little discussion in Canada of thepromotion of imports of manufactures fromdeveloping countries. This is probably due toCanada’s existing trade deficit, which may groweven faster following cuts in our tariffs andquotas resulting from the GATT Uruguay Roundnegotiations.4

In sharp contrast to the US, there is much less evidence of export processing in Canada—that is, sending Canadian components todeveloping countries for additional, labour-intensive processing, then re-exporting to other countries or re-importing into Canada.Nonetheless, it is clear that a number ofCanadian industries are being restructured andintegrated into a production chain linkingplants in many countries around the globe.This process has been driven by an accelerationof investment flows, as well as by tradeliberalization.

INVESTMENT

Anecdotal evidence suggests that while the topCanadian manufacturers do a lot of business indeveloping countries, it is largely limited tosales of goods made in Canada or products fromplants based in other countries. Investmentlinkages between the Canadian manufacturingsector and developing countries are muchmurkier, although undoubtedly growing.

Most of the discussion in Canada about foreigndirect investment (FDI) has dealt with ways ofpromoting investment flows into Canada. This isconsidered critical to access new technologiesand stimulate domestically owned firms, in addi-tion to ensuring the growth of globally competi-tive Canadian-based companies.5 Even thegovernment’s industry-specific strategies makelittle reference to using Canadian direct invest-ment abroad (CDIA) as a strategy for increasingcompetitiveness. An exception is the reference tomanufacturing initiatives and joint ventures inMexico as a mechanism enabling suppliers ofCanadian agricultural technology and equip-ment to increase sales.6 Nonetheless, there isgrowing recognition that CDIA is important: thispresumably underlies the government’s enthusi-asm for negotiating several bilateral investmenttreaties (many of them with developing coun-tries), as well as the Multilateral Agreement onInvestment (MAI), currently under discussion atthe Organisation for Economic Co-operationand Development (OECD) (see Box 1).

Certainly CDIA has grown faster than inwardinvestment in the last decade, although it

57


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

World Developing Africa Asia Of which Latin Of whichCountries less Japan China America Mexico

Machinery/ Exports 78.67 3.85 0.27 2.31 0.43 1.27 0.38Transport 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 0.02Imports 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 0.02Imports 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.

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BOX 1 FROM FTA TO MAI....In the last decade, Canada has participated inseveral international agreements which governour trade and investment with other countries.These include:

• The Canada-US Free Trade Agreement (CUSFTA), in effect from 1989

• The North American Free Trade Agreement(NAFTA), from 1994

• The World Trade Organization (WTO), from 1995

• The Canada-Chile Free Trade Agreement,from July 1997

• The Canada-Israel Free Trade Agreement,from 1997

Canada is also taking part in ongoing negotia-tions over free trade in the Americas (FTAA), inAsia-Pacific (within APEC), and under aMultilateral Agreement on Investment (MAI), as well as contemplating bilateral deals withEurope and Mercosur, in South America, amongothers.

In many respects these agreements have cre-ated new opportunities for Canadian firms tosell products overseas, or to import goods fordistribution in the Canadian market. As in thepast, liberalization of markets through tariff cutshas been an important element. Also impor-tant, however, are a number of newer elements,including commitments to:

• reduce (arbitrary) government interventionin markets, for example, by limiting the useof subsidies, anti-dumping duties, or healthand sanitary regulations;

• reduce discrimination against foreign firms, forexample, banning requirements that foreignfirms use local inputs, hire local managers,export a certain amount, transfer technology;and allowing them access to government procurement contracts or subsidies; and

• entrench intellectual property rights, that is,to limit copying of products without due pay-ment to companies that developed them.

Some have questioned whether this combina-tion of liberalization and deregulation globallyhas gone too far, whether the reduction of gov-ernment controls over markets has given corpo-rations too much flexibility. For instance, underCUSFTA and NAFTA, the removal of virtually alltariffs has accelerated the rationalization of sev-eral industries and relocation of many factoriesacross borders. The WTO will eventually pro-hibit all countries, developing as well as devel-oped, from linking a company’s imports to itsexports of local products, even though endingthese and other types of local content require-ments may reduce the incentive for foreignfirms to develop backward linkages.

In Canada’s case, if the Canadian governmentfailed to treat foreign firms equally or to enforcepatents, or if it introduced health standards

without a scientific basis, its actions might bechallenged under WTO rules by the govern-ment of any member country whose exportersare affected. Under the NAFTA, the companyitself could challenge the Canadian governmentin many instances.

Of course there are exceptions, though whetherthese are permanent or should be phased out inthe foreseeable future is a matter of somedebate. In the case of subsidies, for instance,governments can continue subsidies to disad-vantaged regions, or to whole industries, or tocover costs of updating equipment to meet newenvironmental standards. In general, the WTOallows developing countries more exceptionsand longer time-periods than others to respectthe new rules, although they enjoy less specialand differential treatment than was the caseunder the General Agreement on Tariffs andTrade (GATT). For example:

• The WTO recognizes that subsidies may playan important role in economic developmentprograms (Article 27.1 of the Agreement onSubsidies and Countervail Measures).Developing countries can continue to usesubsidies related to privatization of statecompanies (Article 27.13).

• Least-developed countries have seven yearsto abide by the TRIMs rules, and neither theynor other developing countries have to fol-low the rules if they have balance of pay-ments problems (Agreement on Trade-Related Investment Measures, Article 4).

The debate about how far international rulesshould limit government action has reachedfever pitch in the context of the MAI negotia-tions underway at the OECD in Paris. Althoughonly 29 countries are directly involved, a fewlarge developing countries are observing theprocess, including Brazil. The goal is for theassembled members and others to eventuallysign the agreement, and for its transfer from theOECD to the WTO.

A global treaty would help to rationalize theproliferating and often confusing array of morethan 1,200 bilateral and regional investmenttreaties, many of them now involving develop-ing countries. As US business analyst John Klinenotes, “the resulting international regulatoryenvironment for transnational business threat-ens to become a morass of binding and nonbinding partial instruments that overlap onsome issues while leaving broad areas of FDIpolicy and transnational business activity uncov-ered by effective regulations or guidelines.”1

At the same time, the MAI is clearly intended toraise investment standards—in the sense of expanding the scope of obligations on govern-ment and, as a corollary, the freedoms granted tocompanies—going well beyond those agreed inmost treaties and certainly beyond those in theWTO:2

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N O T E S

1 “International Regulation of Transnational Business: providing the missing leg of global investment standards,” TransnationalCorporations, 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 andCommentary, 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.

• The definition of investment is muchbroader.

• Members would be expected to eliminaterestrictions on foreign ownership (e.g., ofshares of local companies, or companies inparticular sectors), and on the transfer ofcapital and earnings.

• They would also have to end requirements forthe appointment of nationals to the boards ofdirectors of foreign companies or as seniormanagers; and for the transfer of technology.

• Some countries would like culture and anumber of publicly provided services (e.g.,health and education) to be excluded fromthe agreement. But the bulk of exceptionswould likely be listed by countries in theirindividual schedules, and future negotiationscould focus on their elimination, i.e., theextension of MAI rules to these areas.

• Disputes may be resolved through inter-governmental consultations. Alternatively, asin the NAFTA, corporations could sue gov-ernments directly if their intellectual propertyrights or rights to invest and market productswere considered to be violated.

• The commitments would be binding formuch longer—a country could withdrawfrom the treaty after six months’ notice, butinvestors operating there at the time wouldbe granted MAI rights for another 15 years.

• The MAI would limit the discriminatory useof subsidies, e.g., for domestic and not foreign firms. There are no rules yet to limitlet alone phase out, tax breaks and otherincentives, to avoid the costly competitionfor investments which several developingcountries have experienced. Some OECDcountries favour negotiations within threeyears on this topic.

• On labour and the environment, it is pro-posed that members would not encourageinvestments by lowering domestic standards,although this would probably be a “bestefforts” commitment. It seems unlikely thatMAI will go beyond even the limited NAFTAprovisions on these issues, let alone include abinding commitment to core internationallabour standards.

• There is little mention in the MAI of foreigncompanies’ obligations. Rather, the purposeis to reduce the obligations which governmentcan require of them. The OECD VoluntaryGuidelines for Multinational Enterprise(agreed in 1976) may be included in thetext. These, however, are not rules but recommendations covering taxation, compe-tition, employment and industrial relations,environmental protection, etc., to help companies ensure that their operations are inharmony with the national policies of thecountries within which they operate.

If the OECD countries are able to resolve their differences and conclude the MAI in May 1998,increased membership would then be sought bytaking the treaty to the WTO. This would requirethe support of at least two-thirds of WTO mem-bers. At the Ministerial Meeting in Singapore inDecember 1996, however, members only tenta-tively agreed to create a working group to exam-ine the relationship of trade and investment, aswell as one on trade and competition (includinganti-competitive practices). Developing coun-tries are likely to hesitate at accepting new limitson their policies to maximize the benefits andlimit the costs of foreign investment.

As Martin Khor of the Third World Network hassaid: “The proposed foreign investment treatywould deprive developing countries of a largepart of their economic sovereignty... It removesthe rights of states and the powers of govern-ments to regulate foreign investments andinvestments in general as well as other key ele-ments of macroeconomic policy, financial man-agement and development planning.”3

As the Joint NGO Statement on the MAI notes:“Governments must ensure that they do nothave to pay for the right to set environmental,labour, health and safety standards even if com-pliance with such regulations imposes signifi-cant financial obligations on investors.”4

Nor is it clear that MAI membership is really critical; already in 1996, some US$200 billion ofprivate capital flowed to developing countries.For countries overlooked by these flows, othertypes of macroeconomic reform are likely moreimportant than acceptance of the MAI inattracting investors.

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remains at about 70 percent of inward invest-ment stocks. The bulk (some 60 percent) ofCanadian investment each year is still attractedto the US, but developing countries nowaccount for some 20 percent of CDIA, to datesome $34.6 billion.7 One problem with this datais that it may not capture the phenomenon ofstrategic alliances which many Canadian com-panies now consider more important and lessrisky than FDI for building global capabilities.8

These alliances can involve co-production, co-marketing, cross-licensing, or joint research anddevelopment (R&D) rather than the creation ofa separate entity.

Manufacturing accounts for an important shareof CDIA, although the level varies according tothe definition used: from 1986 to 1992, itaccounted for 21 percent of the total flows,9 or44 percent of the stock in 1991 (this includessome resource-based industries such as primarymetals and wood/paper),10 down from 56 per-cent in 1960.11 Generally, it is fair to say thatmanufacturing is less important than construc-tion and financial services, but more importantthan natural resources even though the latterhas recently attracted much media attention.Among the top 10 developing-country locationsfor CDIA, five are major exporters of manufac-tures: Brazil, Singapore, Hong Kong, Indonesia,and Mexico. Between January 1994 and August1997, Canada invested US$1,427 million inMexico: this made Canada the fifth largest foreign investor and represented 5 percent oftotal investment in Mexico during that period.As much as 50 percent of Canada’s investmentswere in manufacturing; 32 percent were infinancial services; 10 percent in mining; and 8 percent in commerce.12 Three-quarters of themanufacturing investments were in food, beverages, and tobacco.

Of the top 20 outward-oriented Canadian-basedfirms (that is, those with the largest foreignassets), only seven are in manufacturing:Seagram Company Ltd (food and other prod-ucts); Thomson Corporation, MooreCorporation Ltd, and Thomson Newspapers(printing and publishing); Northern TelecomLtd (Nortel) (communications equipment);Noranda Inc. (lumber and wood); andBombardier Inc. (aircraft and parts).13

Manufacturing accounts for a much larger shareof US FDI today. Certainly the importance offoreign subsidiaries is underlined by the factthat intra-firm imports account for nearly two-thirds of US manufactures imports (63 percent

in 1993), compared to less than half (49 per-cent) for all imports.14 Most of the linkagesbetween US firms at home and in developingcountries are vertical, and involve specializationin different stages of the production and distribution chain.

By comparison, most Canadian linkages havebeen horizontal—Canadian firms produce thesame goods abroad as in Canada, but are goingbeyond the small Canadian market to exploittheir established expertise in international mar-kets.15 Some are integrating vertically, however,transferring lower-skill production to countrieswith less costly labour while retaining higher-skill tasks, including R&D and marketing, inCanada. While the growth, productivity, andprofit performance of outward-oriented firmshas generally been superior to domestically oriented firms, their employment growth waslower—at least for 1986-91—reflecting greaterrestructuring and rationalization.16

The North American Free Trade Agreement(NAFTA) may increase horizontal trade, as theopportunity to produce for the whole NorthAmerican market will lead companies to cut thenumber of product lines made at plants in eachcountry. There will also be increased verticalintegration and the closure of inefficient plantsowned by Canadian multinationals both insideand outside North America in cost-driven sec-tors like auto parts and textiles.17 “Vertical link-ages and alliances with Mexican firms couldhelp Canadian firms improve their relative costand productivity performance.”18

While Canadian investment in manufacturingin developing countries has recently expanded,it is not new. The Bata Shoe Organization com-panies have produced shoes in developingcountries for many years—it has been in Indiafor 65 years, for example. Its investments inZambia, Cameroon, and Madagascar in the1970s were supported by the InternationalFinance Corporation.19 In 1997, Bata producedshoes and hosiery in 60 countries—43 of themdeveloping—and employed some 57,000 peo-ple.20 Seagram has produced rum in Jamaica andPuerto Rico since the 1930s, moving intoArgentina in the 1960s, and into Brazil, Mexico,and Venezuela by 1979. Massey Ferguson had ajoint venture in India from 1961, produced tractors in Mexico from 1966, was in SouthAfrica and Argentina from the early 1960s, andin Peru from 1973. Before its collapse in 1976,it was the leading producer of farm machineryin Brazil, Mexico, and Argentina.21

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T H E A L L E G A T I O N T H A T

M U L T I N A T I O N A L S A R E

E X P L O I T I N G T H E T H I R D

W O R L D I S O F T E N

M I S G U I D E D . U S U A L L Y ,

T H E “ E X P L O I T A T I O N ”

C O N S I S T S O F L E T T I N G

D E V E L O P I N G C O U N T R I E S

M A K E U S E O F W H A T

E C O N O M I S T S W O U L D

C A L L S O U R C E S O F

C O M P A R A T I V E

A D V A N T A G E — C H E A P

L A B O U R , S A Y , O R A

G R E A T E R T O L E R A N C E O F

P O L L U T I O N . T H A T I S

H O W P O O R E R C O U N T R I E S

G R O W L E S S P O O R .

“COMPANIES AND

THEIR CONSCIENCES,”

THE ECONOMIST,

JULY 20, 1996, P. 16

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Nortel’s first plant outside Canada was a jointventure with the Government of Turkey in1969. It established a pilot plant in Malaysia in1973, bought factories in Brazil in 1976, and in1981 entered a joint venture in Mexico toassemble telecommunications equipment.22

Nortel also owns factories in China, Malaysia,and Thailand. Its plants in China, for instance,produce telephone switches, semiconductors,integrated circuits, and other telecommunica-tions equipment. According to the CanadianAuto Workers, some of these foreign facilitieshave replaced production in Canada.23 Onlytwo of Magna International Inc.’s 118 manu-facturing operations and 20 product develop-ment units, with 32,000 employees, are indeveloping countries—Mexico and, since 1996,China.24 In December 1997 Magna announcedplans to produce engine parts in Brazil throughits ownership of Tesma International Inc.25

Bombardier Inc. has a plant at Sahagun,Mexico.

Dominion Textile Inc. has had plants in Tunisiaand Hong Kong since 1981 and in 1991,through a French company, built a nonwovensplant in Malaysia to supply the Far Eastern mar-ket. Another nonwovens plant using state-of-the-art technology is being built in Argentina byits US-based subsidiary, at a cost of $45 million,to supply South American hygiene markets, inparticular the Mercosur trade zone.26

Canada Malting Co. Limited has a plant inArgentina and soon will expand to other partsof South America as well as to China. JohnLabatt Limited has had shares in a brewery inMexico since 1994. Cott Corporation has inter-ests in bottling operations in South Africa. InChina, Maple Leaf Foods Inc. bought shares in ahog feed mill in 1996 to promote sales of its“shure-gain” feed. Chai-Na-Ta Corporation,which grows ginseng in Ontario, has shares intwo Chinese companies where Canadian gin-seng is processed into tonics and pharmaceuti-cals. In 1996 McCain Foods Limited built afrench fry factory—reportedly the first in LatinAmerica—in Argentina at a cost of $35 million.As much as 80 percent of the 110 tons of dailyoutput is to be sold in Brazil, primarily throughfast-food outlets (bypassing the 14 percentBrazilian tariff on imports from Canada).27

In addition to direct investment, Canadianmanufacturing companies have entered into anincreasing number of subcontracting relation-ships for the final assembly or their products, orthe local production of components, by devel-

oping country firms. For instance, final assem-bly of transit vehicles for Bombardier Inc. nowoccurs in Malaysia.28 The Xian AircraftCompany in China has manufactured sub-assemblies for Canadair CL-215 and CL-415amphibious aircraft since 1980, while ShenyangAircraft Company makes doors for Bombardier’sde Havilland Dash-8 planes.29

In the food processing industry, there are anumber of Canadian companies with overseasfranchises—Con Agra Inc. has Country StyleDonut outlets in Thailand, while there are SaintCinnamon Bakery Ltd outlets in Korea andIndonesia.30 Yogen Fruz World-Wide Inc. fromMarkham, Ontario has nearly 3,500 outlets in80 countries, including at least 30 in LatinAmerica, Asia, Africa, and the Middle East.31

Although the number of Canadian clothingmanufacturers with plants in Canada has shrunk,only a few have relocated some of their produc-tion to developing countries—Vogue Bras andPimlico Apparel Ltd which now operate inMexico, for example—and a few to the US.32

This is in sharp contrast to the restructuring ofthe US industry which has involved many companies moving assembly operations offshore.The share of the Canadian clothing market supplied by foreign-owned firms in developingcountries and in the US has grown sharply.

CONTRIBUTION TO DEVELOPMENT

Developing countries court foreign direct invest-ment to provide the finance, technology, training, and often market outlets, needed togenerate employment and exports. Canadianinvestment in manufacturing in developingcountries, such as it is, is probably as focused onsupplying their domestic market with goods andservices as on exports. For companies such asBata, production for local consumption remainsa clear priority. In contrast, companies such asMagna in Mexico, Dominion Textile in Tunisia,and McCain’s in Argentina produce for exportregionally or back to North America.

In addition to the usual questions about theamount of capital invested, technology trans-ferred, labour hired and trained, and goods pro-duced, many other issues need to be considered:the appropriateness of the technology, training,and products; working conditions and environ-mental practices; backward linkages; pricing andtransfer pricing; competition with local firms forscarce local resources and customers; the com-pany’s relationship to the government through

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payment of taxes; and, more generally, its rela-tionship to the community—for example,through charitable donations.

Recent assessments have been cautious aboutthe impacts of FDI on development. As theInternational Monetary Fund (IMF) noted:“There is no reason why, in principle, the posi-tive effects should be dominated by the nega-tive effects or vice versa. This indeterminacy is,perhaps, why debate about the multinationalcorporation has long been lively and subject to‘sea change’.”33 A recent report by the secre-tariat of the UN Conference on Trade andDevelopment (UNCTAD) suggests that not allcountries can benefit from technology transferand other spillovers. Rather, this will dependon the level of development and local govern-ment policies: “there is a threshold level ofincome before FDI can make a significant con-tribution to overall growth performance. [...]The general body of evidence suggests that thenature and extent of any spillovers to domesticfirms is industry-specific and depends on howdomestic policymakers manage FDI.”34

Moreover, the new production technologiesmay allow FDI to be even less locally integrated:“the determinants and organization of FDI flowshave become complex[...]. The consequencemay well be that FDI becomes more footloosethan in the past, relying heavily on importedinputs from other affiliates and with fewer link-ages with and technological spillovers to thehost economy.” Whether FDI and increasedtrade lead to higher wages in manufacturingmay partly depend on measures, such as educa-tion policies, to enhance labour productivity.But even this may be weakened by what UNCTAD calls “the stronger bargaining powerof capital against labour associated with globalization.”35

Compared to the substantial literature on theoperations of US multinationals, there is adearth of publicly available information aboutCanadian companies involved in manufacturingin developing countries. What follows are a fewexamples of their practices, both good and not-so-good, in a number of areas.

IN TECHNOLOGY TRANSFER

Northern Telecom (Nortel) showed leadership inits decision to disseminate free of charge,through the UN Environment Programme, anenvironmentally important innovation. Thistechnology, which involved the replacement of

ozone-depleting substances (chlorofluorocar-bons or CFCs) in the cleaning of semiconduc-tors by citric acid, led to an 85 percentreduction in Nortel’s own CFC use. Countries towhich the technology was released includeBrazil, China, India, Mexico, and Turkey.36 Bythe year 2000, Nortel aims to halve its total pol-lutant releases and solid nonhazardous waste,reduce its paper purchases by 30 percent, andraise its energy efficiency (but not its totalenergy use) by 10 percent.37

Nortel has also sponsored an annual CanadianAward for International Development for theadvancement of technical capability. The 1997winner was Thiessen Equipment Ltd of BritishColumbia for developing a method for repairing,recycling, and producing stronger drills used inmining in Chile, thus reducing metal waste.38

IN ENVIRONMENTAL PROTECTION

In response to concerns about water pollution,Bata built its tannery in Bangladesh to environ-mental standards which were far more stringentthan local guidelines, and in full compliancewith those of the World Bank.39

In the Solomon Islands where it has engaged infish catching and processing since 1990, BritishColumbia Packers Ltd, a George Weston subsidiary, has introduced “dolphin-friendly”catching methods to comply with US legisla-tion, as well as various programs to reduce andrecycle waste.40 Questions must be asked, how-ever, about the long-term viability of Canadiancatching methods in countries such as China,South Africa, and Namibia where the Canadianprocessing industry is seeking raw materials andIndustry Canada has called on Canadian mis-sions to support “business sourcing strategies.”41

A number of companies report that they adhereto the same environmental standards in theirdeveloping country operations as in Canada.Premdor Inc., one the world’s largest manufac-turers of wood and steel doors, is one of them.Premdor requires its plant managers in Mexicoand in Canada to report on environmental performance to the Canadian head office: thesereports are subjected to environmental audits.In some cases, however, even these standardshave been questioned. For instance, RoyalGroup Technologies Ltd, which produces poly-vinyl chloride or PVC doors and other buildingproducts in Argentina, Colombia, China, andMexico, has been criticized for its promotion ofPVC which is the largest end use of chlorine and

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which Greenpeace is seeking to ban internation-ally. To its credit, Royal Group has chosen to useorgano-tin as a stabilizer, whereas many otherPVC producers use heavy metals such as leadand cadmium. It also operates a major PVCrecycling plant.42

IN LABOUR PRACTICES

In the case of autoparts, sociologist KathrynKopinak’s survey found one Canadian companyhad not transferred new technologies to its twoplants in the Nogales region of Mexico. In fact,some of the higher skilled jobs were returned toTillsonburg, Ontario following customer com-plaints about the defect rate at the Mexicanplants. As the company’s CEO explained:“Tillsonburg is becoming the brains of our oper-ation and our facilities in Mexico couldn’t existwithout it. We found that with smaller produc-tion runs and more technical work, we could doit better here.”43 Kopinak concludes that: “Itcannot be said... that simple assembly is disap-pearing among maquila industries. The newlabour process with work teams, quality-controlcircles, and rotation of multiskilled workers hasnot been implemented. Most workers have jobsthat are considered low-skilled.”44

Other labour practices in two plants owned bythe same company were also criticized. In both,shift quotas were constantly raised and job defi-nitions expanded, while real wages were cutmore drastically than in other plants.45 Thecompany responded to complaints by threaten-ing to move more jobs back to Canada. Finally,backward linkages were weak, with the com-pany buying very few goods or services locally.

Workers at Custom Trim Ltd’s plants in Mexicohave also complained of unfair treatment. InMay 1997 workers at the Valle Hermoso plant(Custom Trim has five other maquila plants—one in Matamoros, three in Contro Ramirez,and one at Ciudad Victoria) organized wildcatstrikes. Despite a settlement, including a com-mitment of no reprisals, 28 workers were fired.One of the workers who visited Canada inAugust 1997 on a speaking tour organized bythe Canadian branch of the United Steelworkersof America (which represents workers at thecompany’s Waterloo plant), was subjected tointimidation and death threats on his return toMexico. Another worker at the Matamoros plantwas fired after falling behind in productionbecause of work-related injuries.46

IN INDUSTRIAL DEVELOPMENT

Bata has been involved in an initiative to pro-mote decentralized industrial development innortheast Thailand, thereby reducing conges-tion in Bangkok and increasing employmentopportunities in one of the country’s poorestregions. The Thai Business Initiative in RuralDevelopment (TBIRD), launched in 1989 by theThai Population and Community DevelopmentAssociation (PDA) in collaboration with theThai Chamber of Commerce, has received sup-port from CIDA and other donors. PDA has bro-kered partnerships between companies andcommunities: these usually involve training,infrastructure development, and the provisionof small loan funds for the establishment of cot-tage industries or small-scale enterprises whoseoutput is purchased by a partner company.

Since it began working with TBIRD in 1990, Batahas helped create four producer cooperativeswhere several hundred workers—including manyyoung women—make shoes. Bata providesinputs, technology, and training and purchasesthe finished products.47 Although wages are sim-ilar to those in Bangkok (about $8.90 daily or 27 percent above the minimum wage), the lowerproperty costs and relatively high productivityare projected to keep the shoe industry inThailand competitive with factories in Vietnam,China, and Indonesia for at least another eightto 10 years.48 The 1997 decision by another 40companies, including Nike Inc., to move to thisregion is proof of the strategy‘s success.

Bata’s involvement has earned the companycredit in such circles as The Prince of WalesBusiness Leaders Forum.49 The role of an orga-nization like PDA has probably been most criti-cal in ensuring that the right structures are inplace to maximize the social benefits from theintroduction of export-led production in theregion. This may provide a model that theCanadian private sector and government couldsupport to improve the extremely harsh condi-tions facing workers in some of the newer eco-nomic zones. Such intervention cannot removethe risks of producing for increasingly competi-tive global markets, however, and there willalways be scope for improving environmentaland labour standards.

IN COMMUNITY DEVELOPMENT

Many Canadian companies with foreign sub-sidiaries make charitable contributions—at leastto organizations based in Canada. For instance,

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W E A U D I T O U R

C O N T R A C T O R S ” S A Y S

A B E G L O W I N S K Y,

P R E S I D E N T O F

I N C R E D I B L E C L O T H I N G

I N T O R O N T O , “ A N D I N

T U R N W E A R E A U D I T E D

B Y O U R C U S T O M E R S .

T H E Y A R E C O N C E R N E D

A B O U T E M P L O Y E E

S A F E T Y , C H I L D L A B O U R

A N D T H E E N V I R O N M E N T.

CANADIAN APPAREL

FEDERATION,

“APPAREL ONTARIO,”

APPAREL CANADA,

SPRING 1997, P. 5

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Magna International’s Corporate Constitutionincludes a commitment to allocate up to 2 percent of its pre-tax profits “for charitable,cultural, educational and political purposes tosupport the basic fabric of society” and at least 7 percent for research and development.50 Since1974 Dominion Textile has given aid to some 70 Canadian charitable and nonprofit organiza-tions located in communities where its employ-ees live and work. Through the CanadianImagine Caring Company program, DominionTextile and Bata, among others, are committedto donating at least 1 percent of their Canadianpre-tax profits to philanthropic causes—thisamounted to nearly $140,000 for DominionTextile in 1997.51

Similar efforts need to be made for developingcountry communities in which Canadian corporations operate, both on a voluntary basisand through the payment of taxes. For instance,companies might consider supporting the creation of health clinics within their factoriesor the communities where their workers live.Bata has a long tradition of promoting its workers’ welfare, for example, through health oreducational services. It also supports variouslocal community projects. However, this tendsto be on an ad hoc basis linked to local needsrather than an explicit strategy, mechanicallylinked to profit levels.

C O D E S O F C O N D U C T : E T H I C S I N T H E M A R K E T P L A C E

Increasingly, Canada‘s manufacturing compa-nies are introducing codes covering ethical,environmental, and labour practices in all theiroperations, whether in Canada or abroad. Hereare some examples:

• Dominion Textile requires outside contractorsto comply with its environmental policy andstandards; it conducts health and safety auditsat each of its plants; and its code on businessethics—in place since 1990—is reviewed annu-ally by senior management. The companyapparently applies environmental and labourstandards developed for Canada in countrieswhere national standards are lower.52 In 1997,it received a Canadian government award forits efforts to reduce the use of greenhouse gasemissions. Also in 1997, the Social InvestmentOrganization and the Financial Post Magazinecited Dominion Textile as one of 50 majorcompanies quoted on the Toronto StockExchange that have demonstrated leadershipas corporate citizens.53

• Magna has had an “Employee’s Charter” since1988, based on fairness and concern for peo-ple. It includes a commitment to promote jobsecurity (for example, through training toensure products remain competitively priced);a safe and “healthful” working environment;fair treatment (“equal employment opportu-nities based on an individual’s qualificationsand performance, free from discrimination orfavouritism”); and competitive wages andbenefits. Magna also believes that everyemployee should own company shares.Finally, it endeavours to provide employeeswith information about developments in thecompany and the industry.54 Only two ofMagna’s North American plants are union-ized: instead, grievances are reviewed by in-plant fairness committees.55 In Mexico,however, Autotek, a Magna subsidiary, is fully unionized and workers receive variousbenefits, such as a special medical plan. Theyare also entitled to 10 percent of Autotek’sprofits, as required by Mexican law.56

• Nortel believes it should show ethical leader-ship in the global community: “Employees,shareholders, customers, and suppliers arenot the only stakeholders in Nortel activi-ties—the corporation has broader socialobligations as well. A global corporation facesa special challenge: to uphold consistent cor-porate standards of ethical business conduct,while also respecting the culture and varyingbusiness customs of every community andcountry in which it operates.” In regards toemployees, it commits to “treating individu-als with respect, following fair and equitableemployment practices, and protecting andenhancing employee health and safety.” Inaddition, it is committed to seven core values:respecting national and local priorities; contributing to the well-being of local com-munities; using corporate power responsiblyin relation to the political process; protectingand enhancing the environment; competingin an ethical and legitimate manner; support-ing the international scientific community;and ensuring accountability to a broad rangeof stakeholder groups.57

• Spar Aerospace Ltd has a relatively narrowcode limited to relations with suppliers andemployees and using host countrystandards.58

• While some of Bata’s literature stresses thesafety of its products and of workers using itsproducts,59 it is also Bata’s stated policy to

64


T H E L A B O U R B E H I N D

T H E L A B E L C O A L I T I O N

( L B L C ) H A S C A L L E D O N

T H E G O V E R N M E N T O F

C A N A D A T O F O L L O W

T H E E X A M P L E O F T H E

U S B Y L A U N C H I N G A

P R O C E S S T O D E A L W I T H

T H E P R O B L E M O F

A P P A R E L S W E A T S H O P S

I N C A N A D A A N D

I M P O R T S M A D E I N

S W E A T S H O P C O N D I T I O N S

I N E X P O R T P R O C E S S I N G

Z O N E S I N A S I A A N D

L A T I N A M E R I C A .

L B L C — A C O A L I T I O N O F

C A N A D I A N L A B O U R ,

C O M M U N I T Y , R E L I G I O U S

A N D I N T E R N A T I O N A L

D E V E L O P M E N T G R O U P S —

W A N T S T H E G O V E R N -

M E N T T O C O N V E N E A

T A S K F O R C E O F I N D U S -

T R Y , U N I O N A N D H U M A N

R I G H T S O R G A N I Z A T I O N S

T O D I S C U S S T H E S E

I S S U E S .

LETTER FROM ROBERT

JEFFCOTT, LBLC STEERING

COMMITTEE, TO PRIME

MINISTER JEAN CHRÉTIEN,

MAY 8, 1997

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“provide equality of opportunity without dis-crimination, to promote on merit.”60 Itsunpublished code, introduced more than adecade ago, sets out strict policies for suppli-ers, as well as its own operations; for instanceBata tries to ensure that its suppliers do notuse child labour.61

While such efforts are an important step towardincreasing accountability, they often raise manyquestions:

About standards: Is there scope for gradualimprovement? toward an internationalnorm, for instance? or toward Canadiannorms where these are higher?

About coverage: Are they applied to all factoriesincluding minority shareholdings and contractors?

About monitoring: Is this undertaken by indepen-dent agencies and with public reporting?

65


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 CanadianLabour Congress (CLC), Bob White, said when he launched the CLC’s “Break the Sweat” campaign in 1997: “Sweatshopsare as unacceptable now as they were a hundred years ago and it is our responsibility to uphold workers’ rights here andaround the world.”1

Several unions—both national (predominantly in the North) and international—have been working in various ways to pro-mote 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 LeatherWorkers’ 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 InternationalFederation of Football Association (FIFA) used in 1996 to set standards for suppliers making FIFA-licensed products. Theseinclude a ban on child labour, fair wages, and decent working conditions. Licensees must allow inspections at any time, andthe ICFTU and other unions will be involved in policing the agreement.3 An international toy industry code introduced in1996, however, has been criticized by some unions in producing countries as giving too much emphasis to child and prisonlabour 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 considera-tions. In 1995, the textile workers’ union (now UNITE) and the Clothing Manufacturers’ Association negotiated a nationalagreement with standards to be applied by certain employers when making or even buying certain products internation-ally. The rights cover wages, hours, forced labour, child labour, freedom of association, nondiscrimination, health, andsafety.5 In the case of repeated violations, the union can ask for early remedial action or, failing this, binding arbitration inthe US, including a recommendation that the company stop purchasing products from foreign manufacturers unable tocomply with the standards.6 While this is an interesting precedent, it may not be very effective given the limited productcoverage, 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 informaldiscussions with workers in Brazil and other countries about the scope for transnational collective bargaining. In the early1990s, the Communications Workers of Canada (now the Communications, Energy, and Paperworkers—CEP—Union ofCanada) joined with unions in other countries to coordinate organizing and bargaining with Northern Telecom.7 InDecember 1997, the 180,000-strong Canadian Steelworkers formalized a strategic alliance with Mexico’s new AuthenticLabour 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 healthand safety training to Mexican workers belonging to some 25 reform unions in the public and private sectors.9 TheSteelworkers have organized solidarity tours for Mexican workers from Custom Trim maquila plants. This company has cutemployment at its plant in Waterloo, Ontario while expanding production at six plants in Mexico.10 The CEP HumanityFund 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 foreigncompany. A number of Canadian and US unions have joined FAT, for example, to protest the intimidation of unionizationefforts at a Mexican auto parts factory belonging to US-based Echlin Inc., and launched actions against the nonenforcementof labour rights in Mexico under the NAFTA labour side-agreement.11 Through Echlin’s shareholders they have also pressedfor the company to adopt a corporate code that would include workers’ rights to organize and collective bargaining.

NO T E S

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 standards are found to fall below target levels?

Too often companies develop these codes withlittle consultation about their content or imple-mentation with groups working on labour rightsor environmental standards in Canada, let alonein the developing countries where they operate.

Many Canadian companies view corporate codesas part of good business practices, regardless ofwhere they operate. In a number of cases, how-ever, pressure from US client companies—them-selves under pressure from labour, human rights,and consumer organizations—has provided anadded incentive. Some of Dominion Textile’s stan-dards on the environment and ethics, forinstance, are needed to comply with requirementsof customers such as Levi Strauss & Co. Inc.62

In September 1997, 13 Canadian companies with international operations initiated anInternational Code of Ethics for CanadianBusiness (see Chapter 1, p. 16). Drawing on acommon vision, beliefs, and values, the code setsout a number of principles relating to commu-nity participation and environmental protection,human rights, business conduct, employee rights,and health and safety. For instance, signatorycompanies are expected to provide opportunities

for technological cooperation, training, andcapacity building in the countries where theyhave investments. They will also ensure consis-tency in their workplaces, with universallyaccepted labour standards. Each company isexpected to develop its own operational code orpractices consistent with these overall guidelines.

Clearly this is only a beginning—further effortsare needed to elaborate the code, notably toclarify which International Labour Organization(ILO) standards will be adhered to, how thecode is to be monitored and enforced, and howaccountable firms will be. There is not yet anysuggestion that an external monitoring agencyshould be used, or that the reports of such anagency should be made public. It should benoted that even when such evaluations are car-ried out, however, they may not be conclusive:for example, the overall positive evaluation ofNike labour practices, reported recently, wasrejected by labour and human rights groupswho considered the methodology flawed.63

The Canadian government might consider hon-ouring those Canadian multinational companieswith the most comprehensive and well-imple-mented codes of conduct for their overseas activ-ities. This would build on a US precedent wherethe Commerce Department awards American

66


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 followedthe 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 sectorswhere 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 thatinvolve NGOs, unions, and academics in Canada and abroad. Eligible initiatives include research and training in the developmentof voluntary guidelines, codes of conduct, and consumer labeling practices. Proposals will be considered by a committee chairedby 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 supportefforts 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—manymore children work in services and agriculture, or to produce goods for domestic consumption. To address the causes of childlabour, a comprehensive strategy is needed, in which trade measures can only play a symbolic part. Canada already supportsother 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 governmentproceeds 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 guidelinesprove ineffectual, the government consider introducing legislation.5

N O T E S

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, andconsumers 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 ModelBusiness Principles.64 Another approach wouldbe to ask the Ottawa-based InternationalDevelopment Research Centre (IDRC) to create a“Manufacturing and Sustainable Development inAsia” initiative, analogous to their recent initia-tive on mining in Latin America (see Chapter 4,p. 79). This could bring representatives frominternationally active Canadian manufacturingcompanies together with labour and environmen-tal groups, from both developing countries andCanada, to promote labour and environmentalpractices, as well as other measures that contribute to local development.

While it is important that companies assumegreater responsibility for their activities andthose of their suppliers, there are a number ofissues to consider. One concern must be theextent to which this new approach would divertresources and attention from enhancing the roleof the ILO and national governments. The prolif-eration of codes could also pose a problem. Forexample, differences could create compliancedifficulties for developing country manufacturersmaking goods for more than one company. Thecodes will also complicate the introduction ofsocial labeling schemes, whether by the ILO65 ornationally. For this reason, some have favouredthe development of industry or sector-widecodes, such as that recently agreed with USclothing manufacturers.66

THE CONSUMER CONNECTION

While Canadian direct investment in manufac-tures in developing countries may be relativelylimited, Canadians as consumers—and Canadianscompanies as retailers—have many linkages tomanufacturing in developing countries.

In Canada, campaigns such as the “CleanClothes” of 1993-94—and more recently theLabour Behind the Label Coalition led by thegarment workers’ union (the Union ofNeedletrades and Industrial Textile Employeesor UNITE)—try to increase retailers‘ responsibilityfor the conditions in factories producing thegoods they sell. For example, they have endeav-oured to persuade them not to sell goods madeunder very oppressive conditions in Burma.Although most firms in joint investments withBurma’s military regime are based in Thailandor Hong Kong, a recent report found clothesfrom Burma being sold by Sears Canada Inc.,Hudson’s Bay Co., Reitmans Canada Ltd, TipTop Tailors, and even Zellers Inc., despite

Zellers’ company policy of not sourcing gar-ments in factories that employ child labour.67

The National Action Committee on the Status ofWomen has picketed Canadian toy stores toprotest against poor labour conditions of workers,mostly women, in foreign toy factories.68

Some have called for a buycott rather than a boycott—the adoption of positive measures toencourage trade with companies that meet certain international norms. This is the strategypursued by most “fair trade” organizations suchas the Fairtrade Labelling OrganizationInternational and Transfair Canada, which haveeach developed registers of fair trade organiza-tions (such as coffee cooperatives) and certifiedfood products, including coffee, tea, and honey.69

The Bay has a business ethics policy, but no sys-tem for monitoring its sourcing abroad that isopen to independent external auditing. It is leftto Bangalore and/or Hong Kong regional officesto determine whether suppliers meet certainhuman rights criteria.70 The Bay does, however,try to ensure that its suppliers apply nationalstandards in host countries, unless they areunconscionably low. The Bay is reported to bedeveloping a stricter code with the RetailCouncil of Canada and the ILO.71 It appearsthat the planned code will be quite comprehen-sive, covering issues such as unionization, childlabour, relations with communities, environ-mental protection, and product safety, as well asthe full range of independent inspection/enforcement mechanisms.72

In response to pressure from its members, theMountain Equipment Co-op (MEC) introduceda sourcing policy in 1997. This gives priority toCanadian manufacturers and others that areproactive in improving the living standards oftheir employees, are socially responsible, and/orare cooperatives. They must also meet MEC’sproduct standards. MEC may also provide finan-cial and technical support and training to helpdevelop their businesses and meet MEC specifi-cations. The standards with which suppliers areexpected to comply include nondiscriminatoryand nonexploitative employment practices; noforced labour or physical/mental disciplinarytactics; compliance with national wages, bene-fits, and working conditions, even if the pro-ducer is in a “protected zone” which exempts itfrom these national standards; and enlightenedenvironmental and packaging standards. Thereis no reference to respect for trade union rights,nor to minimum or adequate wages. Suppliersare expected to agree to inspection visits at any

67


. . . I F A M E R E T W O

P E R C E N T O F C O N S U M E R S

B E C A M E M O R E V O C A L

A B O U T T H E I R E T H I C S ,

T H E Y C O U L D P R E S S U R E

M A N U F A C T U R E R S T O

A D O P T F A I R E R T R A D E

P R A C T I C E S .

HOWARD ESBIN,

BRIDGEHEAD INC.,

QUOTED IN SUSAN SEMENAK,

“BUYING GOODS, WITH A

SIDE OF ETHICS,”

THE OTTAWA CITIZEN,

AUGUST 11, 1997, P. C3

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time, including by external monitors, with can-cellation of contracts if they fail to meet thestandards. The broad wording used, however,leaves considerable scope for interpretation byMEC buyers. MEC management is developingmore detailed guidelines.73

Additional pressure has also been generated bythe US “No Sweat” campaign launched in May1997. Discussions by major retailing and manu-facturing companies with officials, trade unions,and human rights groups led to a US Code of

Conduct for clothing and shoe manufacturersoperating in the US and overseas. Companieswill be allowed to use a “No Sweat” label, pro-vided they meet the following standards: pay-ment of a minimum wage according to nationalstandards; a maximum work week of 60 hours;at least one day off a week; no child labour,prison labour, or physical abuse. The conditionsare to be audited by an independent monitor.These efforts have been criticized as too weak:certainly, both the standards and the monitoringprocesses could be taken considerably

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BOX 4 INITIATIVES OF THE CANADIAN APPAREL FEDERATION

The Canadian Apparel Federation (CAF), the national industry association representing apparelproducers, has launched several initiatives to protect the rights of workers overseas. It alsoencourages members to develop labour policies by organizing workshops and preparing a gen-eral policy manual. This would help promote best human resources practices in the industry andhelp companies comply with provincial labour laws.

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, andenforcement. This would draw on SGS’ work in compiling international and corporate standardsand codes, and in advising other companies in this area (including, somewhat ironically, TheWalt Disney Co. which has recently been heavily criticized for its purchasing practices).1 A casecould perhaps be made for the development of a universal standard in this area through theInternational Standards Organization (ISO)—analogous to the ISO standards for the environment, for instance.2

To demonstrate their commitment to fair labour practices, the CAF has developed a statementof responsibility on human rights and labour standards which could be used as the basis for anindustry-wide code of conduct:

“Members of the Canadian Apparel Federation are committed to the fair and rational prac-tice of business in Canada and abroad. Basic to this commitment is the fair and equitabletreatment of employees in the wages, working conditions, and benefits. In no case do wesupport the use of child labour, prison labour, discrimination based on age, race, nationalorigin, 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 involve-ment in many ways, notably by more active enforcement of laws and more expedient inspec-tions, as well as by teaching workers and employers about their rights and obligations. This isconsidered necessary to change the public’s perception of homeworking as a violation of work-ers’ rights. Others favour the introduction of a licensing scheme for both domestic and overseascontractors.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 standardswhich some consider too high and others too low, as well as for its involvement in monitoringand enforcement. Information on violators would need to be publicly available: this has notbeen Canadian practice, but there is a move within NAFTA for all three member countries toshare this information publicly.

Although some incentive is needed to ensure adherence to the code, the CAF wants to avoid acode of compliance which automatically terminates contracts with factories (and workers/communities) if the code is violated. A recent Canadian example involved Woolworth which cutoff purchases from two contracting firms, Unité Fashions and Well Trend, whose homeworkingpractices were alleged to have violated Ontario labour standards.5

N O T E S

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 Accountability8000 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.

W E A R E B E I N G M A D E

T O W O R K B O T H N I G H T

A N D D A Y, L I K E

B U F F A L O E S T E T H E R E D

T O T R E E S . N O T A

S I N G L E M O M E N T O F T H E

D A Y I S T H E R E F O R R E S T .

T H E M O T O R S O F T H E S E

M A C H I N E S B E C O M E

H E A T E D L I K E F U R N A C E S .

T H E S U P E R V I S O R Y S T A F F

A R E N E V E R S A T I S F I E D

H O W E V E R M U C H W E

P R O D U C E .

WORKER IN A FACTORY IN A

FREE TRADE ZONE IN

SRI LANKA, TAKEN FROM

WOMEN WORKING

WORLDWIDE, AT

HTTP://WWW.POPTEL.ORG.UK

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further. For example, they could include interna-tional norms and nonprofit, locally based moni-tors, rather than accounting companies alone.74

Nor is it clear what action will be taken shouldproducers fail to comply with the standards.

Building on this work, the US Department ofLabor now publishes a list of “Trendsetters”—those US retail companies that have agreed toensure that their suppliers do not use sweatshoplabour.75 This approach could be adopted by theCanadian government.

Canadian producers operating under licensefrom US companies, such as Levi Strauss andHaggar Corp., and others making goods for salein the US will often face pressure to complywith these new standards. Many Canadian producers also recognize the importance of standards to discourage unfair competition,whether from sweatshops in Canada or else-where, as well as to avoid criticism from con-sumer or labour groups.

C O N C L U S I O N S A N D

R E C O M M E N D A T I O N S

This brief survey of Canadian links with manu-facturing in developing countries underlines theneed for more systematic collection of data.While trade data is readily available, informa-tion on Canadian investment linkages is muchscarcer. As explained in the technical notes tothe Statistical Annex (p. 184), disclosure ruleslimit Statistics Canada’s capacity to provideinvestment figures that are disaggregated bycountry, let alone sector. A partial picture can begleaned from statistics released by some hostcountries, however.

1 UNDERTAKE RESEARCH ON CORPORATE

ACTIVITY IN TRADE AND INVESTMENT

Because there is little systematic information at the corporate level for either trade orinvestment, more studies need to be carried outon trade and investment if we are seriously toengage in analysis and discussions of corporatepractice.

Many Canadian manufacturing multinationalcompanies have recognized that their perfor-mance will be evaluated, not only in terms ofprofits, but also by their contributions to theeconomic and social development, as well as theenvironmental sustainability, of the communi-ties in which they operate. Some have set cer-tain goals in these areas, and an increasing

number have adopted codes of conduct. Butthere is considerable room for improvement inthe scope, standards, and process for creating,monitoring, and enforcing them.

2 INVOLVE STAKEHOLDERS

In particular, more public and regular stock-taking of corporate performance is needed, aswell as early involvement of local groups(unions, human rights organizations, andother nongovernmental organizations) both inthe definition of appropriate standards and intheir monitoring. Specifically, it would seemimportant for companies to clarify issues suchas compliance with national labour and envi-ronmental standards, and contributions tolocal charities. Where national standards areweak, they should set precedents for improving them.

3 HIGHLIGHT BEST PRACTICES

Drawing on the example of a forthcoming study on the North American clothing industryby the North American Commission for LabourCooperation, Canadian manufacturers, in col-laboration with others, could organize annualmeetings to highlight best practices. Anotherapproach would be to create a “Manufacturingand Sustainable Development” initiative tobring together Canadian multinational manu-facturing companies with Canadian and developing-country labour/environmentalgroups to promote practices that contribute tolocal development.

Canadian distribution companies also have arole to play in persuading manufacturers andconsumers to assume responsibility for the wayin which goods are produced. Several initiativeshave been launched, but these need to be ratio-nalized and strengthened.

4 CREATE SPECIAL AWARDS

The CIDA annual Awards for InternationalDevelopment, granted to Canadian businessesworking in developing countries (see Chapter 7,p. 130), should include a specific category for“exemplary labour practices.” The selectionpanel would include representatives of labour orof groups working on labour issues, such as theMaquila Solidarity Network. These awards areusually sponsored by a Canadian company: inthe case of labour practices, sponsorship couldalso be provided by labour humanity funds.

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J O N E S A P P A R E L G R O U P

U S E S C O N T R A C T O R S

E X C L U S I V E L Y A N D

W O U L D L I K E T H E M T O B E

L I C E N S E D . T H A T W O U L D

P R O V E T H A T T H E

C O N T R A C T O R S A R E I N

B U S I N E S S L E G I T I M A T E L Y ,

T H A T T H E Y A R E

F I N A N C I A L L Y

R E S P O N S I B L E A N D A R E

P A Y I N G T H E I R W O R K E R S

T H E W A G E S A N D

B E N E F I T S R E Q U I R E D B Y

L A W. T H A T W O U L D G I V E

U S A L E V E L O F

C O M F O R T.

CANADIAN APPAREL

FEDERATION,

“APPAREL ONTARIO,”

APPAREL CANADA,

SPRING 1997, P. 4

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N O T E S

1 World Bank, World Development Report 1997, p. 237.2 IMF, World Economic Outlook, May 1997, p. 73.3 Statistics Canada, http://www.statcan.ca4 See Ann Weston and Ada Piazze-MacMahon, “Guidelines for TradeAfter 2000. How much has been gained in shift to the WTO?”Briefing No. 39 (Ottawa: The North-South Institute, 1996). 5 See for example, Team Canada, Canada’s International BusinessStrategy 1997-98, Overview, 1996.6 Industry Canada, Canada’s International Business Strategy— IndustryStrategies 1997-1998, Abridged Volume. Available on IC homepage atstrategis.ic.gc.ca7 Statistics Canada, unpublished data. Unless otherwise specified,all dollars are current Canadian.8 Sunder Magun, The Development of Strategic Alliances in CanadianIndustries: A Micro Analysis. Working Paper No. 13 (Ottawa:Industry Canada, 1996), p. 27.9 Franklin Chow, “Recent Trends in Canadian Direct InvestmentAbroad: The Rise of Canadian Multinationals,” in Steven Globerman,ed., Canadian-based Multinationals, The Industry Canada ResearchSeries (Calgary: University of Calgary Press, 1994), p. 39.10 Someshwar Rao et al, “Canadian-based Multinationals: AnAnalysis of Activities and Performance,” in Globerman, 1994, p. 70.11 Other important areas of CDIA are infrastructure (32 percent offlows during 1986-92, or 17 percent in terms of 1993 stocks, accord-ing to UN, World Investment Report 1996, New York, p. 285) andfinancial services (26 percent of total CDIA flows or 35 percent offlows outside the US, Chow, p. 38). This is a different picture from1980 when less than a fifth of Canadian investment was in develop-ing countries (Jorge Niosi, Canadian Multinationals, Toronto:Between the Headlines,1985, p.169), and manufacturing accountedfor the largest share, with 42 percent of total CDIA (the same levelas in the US) compared to 21 percent in oil and gas, 14 percent infinance, and 10 percent in mining/smelting (Niosi, p.57)12 Secretaría de Comercio y Fomento Industrial, “Inversión deCanada en México,” November 1997.13 Does not include lumber and wood as manufacturing. Rao, et al,1994, Table 3.14 UN, World Investment Report, p. 104.

15 Chow, 1994.16 Rao et al, p. 108.17 Lorraine Eden, ed., Multinationals in North America. The IndustryCanada Research Series. (Calgary: University of Calgary Press,1994), pp. 244-46.18 J. Knubley; M. Legault; and S. Rao, “Multinationals and ForeignDirect Investment in North America,” in Eden, ed., p. 188.Gunderson and Verma note that “the wage and employment effectsof outward FDI are likely to be in the same directions as those fromimport competition, having the greatest adverse effect at low-wagelevels in Canada.” Nonetheless they argue that the evidence aboutthe impact of CDIA on total employment is ambiguous (1994:189).19 Niosi, p. 54.20 See http://www.bataindustrials.com (May 12, 1997).21 Niosi, p. 156.22 Ibid.23 Canadian Auto Workers (CAW), “Nortel Workers Angered OverAward Presentation,” Contact, May 5, 1995.24 See Magna homepage at http://www.magnaint.com and /corporateconstitution.html (May 13, 1997).25 The Globe and Mail, December 4, 1997.26 Dominion Textile, Press Release, July 23, 1996 at http://www.domtex.com. In December 1997 Dominion Textile wasbought by the Polymer Group of North Charleston, South Carolina.27 The Financial Post, May 24, 1996, p. 6.28 Bombardier Inc., Press Release, January 19, 1996 athttp://www.bombardier.com29 Bombardier Inc., Press Release, May 13, 1997 at http://www.bombardier.com30 Food Institute of Canada, “Food Trends in Korea”http://www.foodnet.fic.ca August 1996; and The Financial Post,1997, p.16.31 Yogen Fruz, http://www.pathfinder.com October 13, 1997.32 Interview with Canadian Apparel Federation, June 1997.33 In ILO, The ILO, standard setting, and globalization. Report of theDirector General. http://www.ilo.org Geneva, 1997.

5 REMOVE TARIFFS ON SELECTED IMPORTS

Under the General Preferential Tariff, theCanadian government should considerremoving all tariffs on imports of textiles,clothing, and footwear from least-developedcountries that agree to endorse and enforcecertain minimum labour standards. These tariffpreferences could be withdrawn if aninvestigation by the ILO found that thestandards were being violated and that thegovernment had subsequently failed tointroduce corrective measures.

6 BUILD A CONSENSUS AROUND MULTILATERAL

STANDARDS

In conjunction with the Canadian governmentand other organizations, Canadian companiescould help develop a consensus aroundmultilateral standards, reinforcing the work ofthe ILO and other international organizations.Some codification of the responsibilities ofmultinational corporations is overdue.

7 SUPPORT DEVELOPING COUNTRY EFFORTS

Finally, to ensure a net positive impact of foreign companies, measures are needed tosupport the efforts of developing-country nongovernmental and other organizations, as well as governments, in the design andimplementation of economic, social, and otherpolicies.

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71


34 UNCTAD, Trade and Development Report, 1997. Globalization,Distribution and Growth. New York, 1997, pp. 92-93.35 Ibid., p. 91.36 Michael Jantzi Research Associates Inc. (MJRA). Various companynotes, various dates.37 MJRA, 1997; for further information on Nortel Habitat, see thecompany’s homepage.38 CIDA, News Release (97-59), “Minister Boudria Presents CanadianAwards for International Development,” Ottawa, May 26, 1997.39 Interview with Bata official, September 9, 1997.40 MJRA, June 1996.41 Fish and Seafood Products, March 20, 1997.42 MJRA, 1997.43 Kathryn Kopinak, Desert Capitalism (Montreal: Black Rose Books,1997), p. 123.44 Ibid., p. 185.45 Ibid., p. 154.46 United Steelworkers of America-Canada (USWA-Canada), NewsReleases, ”Steelworkers Sponsor Visit by Mexican Workers Fired byCanadian Company,” August 14, 1997; and “Death Threats ShadowMexican Workers After Canadian Tour”, September 12, 1997.47 Jane Nelson, Business as Partners in Development. Creating wealthfor countries, companies and communities (London, UK: The Prince ofWales Business Leaders Forum, in collaboration with the WorldBank and UNDP, 1996); also CIDA News Release, May 26, 1997.48 The Bangkok Post, March 24, 1997, p. 12.49 The Forum, through its “Partners in Development” program incollaboration with the World Bank, the UNDP, and other interna-tional agencies, aims to foster sustainable development by support-ing linkages between responsible businesses and local communities(Nelson, 1996).50 See Magna website, http://www. magnaint.com51 Dominion Textile, Annual Report 1997.52 Craig Forcese, Commerce with Conscience? Human Rights andCorporate Codes of Conduct (Montreal: ICHRDD, 1997), pp. 45, 50.53 Dominion Textile, Annual Report 1997.54 Magna, Annual Report 1996 http://www.magnaint.com55 Financial Times, no date.56 MJRA.57 Nortel, homepage http://www.nortel.com58 Forcese, Commerce with Conscience? 1997.59 See, Bata, “Working class heroes and technology for the workingman...” from www.bataindustrials.com (May 12, 1997).60 Bata, no date.61 Interview with Bata official, September 9, 1997.

62 Levi Strauss has had two sets of guidelines since 1992—one forthe selection of countries (including widespread observation ofhuman rights) and the other for companies (e.g., no child labour ordiscrimination, a ceiling of 60 hours per week, good health andsafety, although no reference to trade union rights). Monitoring iscarried out by Levi’s employees, though summaries of these auditsare published regularly. Sajhau suggests Levi’s permanent dialoguewith workers’ representatives and business partners has been asimportant in dealing with social problems. Jean-Paul Sajhau,Business Ethics in the Textile, Clothing and Footwear Industries: Codes of Conduct (Geneva: ILO, 1997), p. 25.63 In the case of the International Code of Ethics for CanadianBusiness, neither the Canadian labour movement nor internationaldevelopment organizations were involved in the drafting process.CLC, CLC-Hot Issues, at http://www.clc-ctc.ca (1997). 64 Forcese, Putting Conscience into Commerce: Strategies for MakingHuman Rights Business as Usual (Montreal: ICHRDD, 1997), p. 73.65 As the ILO Director-General has noted, “labelling may, dependingon its origin or the methods used, risk being arbitrary, singling out aparticular right or product or being put to improper use.” He pro-posed the ILO consider awarding “an ‘overall social label’ to coun-tries complying with a set of fundamental principles and rights andagreeing to have their practices supervised by an internationalinspection on the spot which is reliable and legally independent.”ILO, The ILO, standard setting, and globalization.66 Forcese has also called for country guidelines. Putting Conscienceinto Commerce, p. 34. 67 Canadian Friends of Burma, Dirty Clothes: Dirty System, Ottawa,1996, pp. 23-26. In August 1997, the Canadian government intro-duced limited sanctions against Burma. Burmese products will nolonger enjoy reduced tariffs under Canada’s General PreferentialTariff (GPT); this will not affect clothing imports, however, which arenot covered by Canada’s GPT, whether from Burma or any othercountry. Also Canadian exports to Burma will require an export per-mit and this will usually only be given to goods for humanitarianpurposes (Burma Links, October 1997:1). Most major US clothingwholesalers/retailers, on the other hand, responding to consumerboycott threats, have agreed to no longer sell goods made in Burma.68 Forcese, Putting Conscience into Commerce, 1997, p. 39.69 Laure Waridel, Coffee with a Cause. Moving Towards Fair Trade.(Montreal: Les éditions des intouchables, 1997), p. 61.70 Canadian Friends of Burma, 1996.71 Forcese, Putting Conscience into Commerce, p. 49.72 Ibid.73 Mountain Equipment Co-op, “MEC Sourcing Policy,” mimeo,October 26, 1997.74 Forcese, Putting Conscience into Commerce, p. 27.75 Sajhau, p. 4.

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73

C H A P T E R F O U R

BEYOND BEST

PRACTICET H E M I N I N G S E C T O R

Moira Hutchinson

M O I R A H U T C H I N S O N I S A R E S E A R C H C O N S U L T A N T ,

S P E C I A L I Z I N G O N I S S U E S O F C O R P O R A T E S O C I A L

R E S P O N S I B I L I T Y A N D I N T E R N A T I O N A L

D E V E L O P M E N T .

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Mining plays a key role in Canadian eco-nomic, social, and political development.

Indeed, Canada exported $29 billion worth ofminerals in 1994, making it the world’s largestexporter in this sector.1 Canada ranks as theworld’s largest producer of potash, uranium, andzinc, and ranks among the top five producersfor 15 other minerals.2

Canadian mining corporations are also majorplayers on the world stage. Canada is the globalleader in mineral exploration, and has alsobecome a leading supplier of capital to the inter-national mining industry.3 The three topCanadian minerals firms—Alcan Aluminum Ltd,Inco Ltd, and Noranda Inc.—are among the top10 global mining operators.4 In 1991, Alcan,Inco, and Noranda were among the top 20 outwardly oriented Canadian-based firms in all sectors.5

Some business spokespersons have suggestedthat Canadian companies almost inevitablymake a positive contribution to sustainabledevelopment and equity abroad because theycarry with them Canadian values and experi-ence.6 Mining companies, as key actors in theCanadian economy, seem as likely as those inother sectors to make such a contribution. But what values do they carry? What impact dothey have on sustainable development andsocial equity in developing countries?

The media has focused considerable attentionon the activities of Canadian mining companiesabroad following events such as the environ-mentally disastrous tailing spills at Placer DomeInc.’s operations in the Philippines and CambiorInc./Golden Star Resources Ltd’s in Guyana, aswell as the dramatic bidding war in the contextof highly visible corruption and the subsequentrevelation of fraud attending Bre-X MineralLtd’s operations in Indonesia. Perhaps not surprisingly, media reports have focused largelyon the implications for investors. The questionsbeing asked by communities and unions in hostcountries about the impact of mining invest-ment on their lives have received much lessattention in Canada, despite the efforts of somejournalists, unions, human rights groups, andsocial investment organizations.

Critics are challenging Canadian mining com-panies to demonstrate that their internationalenvironmental, social, and labour standards areat least the equivalent of their domestic stan-dards. New international trade agreements, suchas the Canada-Chile agreement, require onlythat signatories comply with their own nationallabour codes and environmental standards. Thisis often a modest yardstick, even in Canadawhere the adequacy of domestic standards isbeing questioned in the wake of such tragediesas the Westray coal mine collapse.

Simultaneously, mining companies are pressingfor less government regulation.7 The shift ofinvestment from Canada to developingcountries, combined with pressure for changein the balance between the companies’obligatory and supererogatory responsibilities,is seen to be an invitation to lower standardseverywhere. But mining companies argue thatinternational “cookie cutter” and “commandand control” approaches to standards are nothelpful. They emphasize the appropriateapplication of “best practices.”8

In the final analysis, however, the problem isnot whether to define standards of corporateresponsibility or “best practices” for miningcompanies, or what the standards should be,but who should define standards and how tomonitor their implementation. Despite the best intentions, best practice approaches andcodes of conduct without mechanisms ofaccountability, governmental or other, will notprovide people with the capacity to protect their interests. That capacity underlies realsocial equity.

I N V E S T M E N T T R E N D S

The minerals industry begins with the exploration for and production of basic oresand concentrates. This is followed by metal production and industrial fabrication. Our discussion focuses on Canadian corporateinvolvement in primary mineral explorationand production (mining and concentrating) in developing countries.

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C H A P T E R F O U R T H E M I N I N G S E C T O R

BEYOND BEST PRACTICE

M A N Y B I G C O M P A N I E S

T A K E M O R A L I S S U E S

M O R E S E R I O U S L Y T H A N

E V E R . T H E Y H A V E

E T H I C S C O M M I T T E E S ,

E T H I C S O F F I C E R S A N D

E T H I C S C O D E . T H E

T R O U B L E A R I S E S W H E N

T H E Y M U S T T A K E H U G E

S T R A T E G I C D E C I S I O N S ,

S U C H A S W H E T H E R T O

I N V E S T I N M I N E R A L -

R I C H C O U N T R I E S T H A T

H A V E C R U E L O R V E N A L

G O V E R N M E N T S .

“COMPANIES AND THEIR

CONSCIENCES,”

THE ECONOMIST,

JULY 20, 1996, P. 15

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The extent of Canadian investment in primarymineral exploration and production in developingcountries can be indicated only indirectly.Statistics Canada data on the amounts of invest-ment in the broader metallic minerals andmetal products sector shows that in 1995,Canadian direct investment was $4.97 billion incountries other than the United States, UnitedKingdom (UK), other members of the EuropeanUnion (EU), Japan, and other member countriesof the Organisation for Economic Co-operationand Development (OECD). This represents a significant increase from $1.8 billion in 1985.Between 1985 and 1995, Canadian direct invest-ment in this sector increased from 17.6 percentto 21.5 percent of total Canadian direct investment in these countries.9

Increased mineral investment abroad followedfrom the stock market fall of 1987 and the subsequent recession which slowed explorationand mine development in North America.While decisions to invest are clearly complex,company spokespersons, such as MichaelKnuckey of Noranda, attribute the move abroadto “a dawning realization by our industry thatsome governments in Canada firmly believedthat mining was passé,” and to “changes inpolitical systems, liberalization of investmentpolicies, and the adoption of enticing new mining laws [that] have created an appearanceof reduced political risk in many places thatwere clearly off limits in the past.”10 Unions andenvironmental groups, however, have chargedthat some Canadian mining companies weremotivated by lower environmental and labourstandards abroad.11

The extent of Canadian mining activity abroadcan only be estimated. André Lemieux ofNatural Resources Canada found that, at theend of 1996, companies listed on Canadianstock exchanges held interests in more than4,900 exploration or producing properties inCanada and 3,400 properties abroad. Apart fromholdings in Canada and the US, two dozennations (Box 1) account for 80 percent of thebalance of the mineral property portfolio heldby companies listed on Canadian stockexchanges.12

Most of the properties in which these compa-nies have interests are at the exploration stage.The ratio of exploration properties to the totalnumber of properties held abroad by Canadiancompanies has increased, while it has remainedroughly constant in Canada. Lemieux com-ments that “because exploration is more risky


BOX 1 CANADIAN MINERAL PROPERTYPORTFOLIO WORLDWIDE:COUNTRIES ACCOUNTING FOR 80%OF FOREIGN HOLDINGS OUTSIDETHE US, 1995 AND 1996

Companies of all sizes listed on Canadian stock exchanges

Countries Estimated EstimatedProperties Companies2

(numbersrounded)1

Mexico 280 114Chile 140 50Indonesia 140 89Peru 140 45Venezuela 130 37Argentina 120 42Ghana 100 32Brazil 90 42Bolivia 80 28Tanzania 70 11Australia 60 25Ecuador 60 26Guyana 50 27Philippines 50 18Zimbabwe 50 17South Africa 40 16China 40 15Burkina Faso 40 17Panama 30 19Russia 30 9Botswana 30 18Cuba 20 13Suriname 20 5Costa Rica 20 19

N O T E S : 1 The property estimates draw on Lemieux, “Canada’s GlobalMining Presence,” Figure 4, in Natural Resources Canada,Minerals and Metals Sector, 1996 Canadian Minerals Yearbook:Review and Outlook (Ottawa: Natural Resources Canada, 1997),p. 8.4; and the author’s research using the MIN-MET CANADAdatabase. The number of properties is used to represent the rela-tive value of the investments. However, as many as one-third ofthe properties may not be owned by Canadian-based orCanadian-controlled companies: we were unable to find an effi-cient way to develop summary statistics that include only com-panies headquartered or incorporated in Canada. To arrive atthe one-third estimate, we drew on research conducted for theSteelworkers Humanity Fund, comparing sections of the MIN-MET CANADA database with information from Micromedia’sCompact D/Canada database, produced by Micromedia Limited;Diane Giancola, ed., Canadian Mines Handbook 1996-97 (DonMills, Ontario: Southam Magazine & Information Group, 1996),pp. 451-61; and Patrick Whiteway, “Our Annual Survey ofCanada’s Top 40 Mining Companies,” Canadian Mining Journal,117:4 (1996), p.8.

Other factors also limit the validity of using property count as aproxy for value: properties vary widely in acreage, reserves, andstate of exploration and development; junior mining companiestend to buy at earlier stages in exploration, at lower prices andhigher risk, while senior companies buy when prospects aremore surely defined.2 The estimate for numbers of companies is based on Giancola,Canadian Mines Handbook, 1996-97, pp.451-62.

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than production, it would appear that Canadiancompanies have assumed, over a relatively shortperiod of time, increasing amounts of geologicaland country risk abroad.”13 The strong andincreasing Canadian presence in exploration hasbeen insufficiently recognized in discussions ofthe corporate responsibility of the Canadianmining sector. The implications for social equityof the exploration phase of the mining cyclewill be discussed later.

In 1996, the worldwide mineral explorationmarket for precious metals, base metals, and dia-monds was $6.3 billion. The data prepared byLemieux about global trends is based on theactivities of larger companies worldwide,defined as those with annual exploration bud-gets larger than $4 million. There were 223 ofthese in 1996, and they were expected to spend$4.8 billion on exploration. The Canadian-basedcompanies were expected to spend $1.3 billionon exploration, with $958 million of that out-side Canada. The proportion of Canadian-basedaggregate budgets allocated to exploration out-side Canada has risen from 43 percent in 1992to over 70 percent in 1996.14

As shown in Table 1, among regions in thedeveloping world, Canada had its greatest pres-ence in the exploration market of the formerSoviet Union, where Canadian exploration represented 45 percent of total exploration.In dollar terms, however, Latin America and theCaribbean were the sites of the greatestCanadian activity. In 1996, several Canadian-based companies planned the largest explo-ration programs in several countries of the

region: Barrick Gold Corp. in Chile, BolivarGoldfields Ltd in Colombia, Placer Dome inCosta Rica, KWG Resources Inc. in Cuba andHaiti, Eldorado Gold Corp. in the DominicanRepublic, Greenstone Resources Ltd inHonduras, Triton Mining Corp. in Nicaragua,Teck Corporation in Panama, Cambior inSuriname, and Rea Gold Corp. in Uruguay.15

This increase in Canadian exploration abroadduring the past 10 to 15 years has been takingplace in the context of a major restructuring ofthe mining industry in developing countries.Privatization is proceeding in many countries.The World Bank and other international andregional development banks have supported thestrengthening of infrastructure. The commonobjectives are to enhance overall economic andindustrial growth, improve efficiencies in min-eral recovery and use, acquire advanced tech-nologies, reduce environmental impacts, andimprove safety conditions.16 Countries whichonce actively discouraged foreign investmenthave been revising mining policies and rewrit-ing legal regimes to encourage and protect it.The Canadian industry has promoted thesechanges through their input to the Canadiangovernment on development assistance and freetrade agreements. The Mining Association ofCanada (MAC) sees the trade agreements asproviding “certainty in investment.” At thesame time, it has expressed concern aboutefforts to use trade-related measures to “push”environmental goals and as “instruments forsocial change.”17

FINANCING NEW AND EXPANDED OPERATIONS

Substantial capital is required to introduce newmining and processing technologies andexpand capacity. The World Bank and nationalbodies are sources of public lending. Privatefunding by the “senior”18 mining companiescan take the form of joint ventures, licensingagreements, leases, concessions, permits,management contracts, and internationalsubcontracting.19 Senior companies have accessto lending institutions and can also raise capitalthrough a variety of other means, includingretained earnings, cash flow, and equitymarkets. Generally unable to raise explorationfunds from banks because of the high financialrisk of exploration,20 “junior” explorationcompanies rely primarily on equity investmentthrough public financing or joint ventures withlarger companies.


TABLE 1 Exploration Budget1 of the World’s LargerCompanies and of the Larger Canadian-BasedCompanies,2 by Region (1996, $millions)

Region Exploration Regional Canadian CanadianMarket by Market as % of Exploration Exploration

Region Worldwide Market by Market as % ofMarket of $4,800 Region Regional Market

Latin America $1,300 27 $485 37and the CaribbeanAfrica $570 12 $112 20Southeast Asia and China $400 8 $120 30Former Soviet Union $100 2 $45 45

N O T E S :1 Exploration budgets are for precious-metal, base-metal, or diamond exploration.2 Larger Canadian-based companies are those with worldwide budgets of at least $4 million.

Source: Calculations based on André Lemieux, “Canada’s Global Mining Presence,” in NaturalResources Canada, Minerals and Metals Sector, 1996 Canadian Minerals Yearbook: Review and Outlook,Ottawa, 1997, pp. 8.2- 8.8

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Keith Brewer and André Lemieux of NaturalResources Canada have analyzed Canada’s posi-tion as the world’s leading supplier of capital forthe mining industry since the early 1990s, espe-cially through the global exploration programsof Canadian-based junior mining companies.21

Their data shows that capital is being raised frominvestors in both Canada and abroad. In 1996,almost $7 billion was raised in Canadian dollarissues through Canadian securities markets tofinance the domestic and foreign projects ofCanadian mining companies. Of this total, $5.5billion was in the form of equity and $1.3 billionin the form of debt.22 The equity financing formining accounted for about one-quarter of allCanadian-dollar equity issues raised in Canada,but less than 5 percent of debt.

Canada’s dominant position in mine financehas been attributed in part to the legal frame-work for raising funds in Canada, which is “con-ducive to risk taking, to the valuation of mineralassets, and to the buying and selling of thoseassets among prospectors, investors, developers,and producers.”23 The tax burden on profitsgenerated from minerals is comparable to or lessthan in other mineral producing jurisdictions.24

Flow through share financing, which refers tonondepreciable investments such as mutualfunds, is a unique provision of the Canadian taxsystem which, in the late 1980s, contained fea-tures that also contributed to large amountsbeing raised for mineral exploration.

Investment in countries that might previouslyhave been considered too unstable, such as theDemocratic Republic of the Congo (formerlyZaire) and Sierra Leone, has been made possible inpart because of the willingness of investors andmanagers to take risks with money pouring intomutual funds. The relationship between financingmechanisms for mining and mining’s social andenvironmental impact is only beginning to beexplored. The social investment movement hasfocused its attention, through screening of invest-ment funds and shareholder activism, on thelarger public companies. Public and private sectorbanks have scrutinized the senior companies. Butcompanies funded through highly speculativefinancial markets, such as the Vancouver StockExchange, appear to have escaped examination.

T H E I M P A C T O N N A T I O N A L

D E V E L O P M E N T

Until quite recently, negative environmental andcommunity impacts from mining were toleratedon the grounds that mineral resources could gen-

erate substantial wealth and stimulate nationaleconomic development. Unfortunately, mineralwealth is not always effectively converted intothe lasting capital needed to support a broad-based process of sustainable development. A 1994conference on the contribution of the mineralindustry to sustainable development describedthe effects on mining as “Dutch Disease”25:

This condition occurs when a new mineraldiscovery or an increase in mineral pricescreates a mineral boom. In this situation,the exchange rate tends to appreciate,causing other tradable sectors of the econ-omy—notably agriculture and manufactur-ing—to become uncompetitive andeventually to decline; mineral wealth isdissipated and the outcome over thelonger term, in the absence of an effectivepolicy response by government, is stagnat-ing and even negative growth for the econ-omy as a whole.26

Some countries appear to have been successful,nevertheless, in expanding the mineral sectorwhile diversifying and improving the economyas a whole. Chile is often cited as an example,although the conference report suggests that itremains to be seen whether the diversificationprocess underway will lead to long-term sustain-able development. Orlando Caputo Leiva, aChilean economist who headed Chile’s statecopper company in the early 1970s, argues thatChile’s long-term economic development is notbeing well-served by “copper fever.” He predictsa global surplus in copper production from 1995to 2000 that will precipitate a significant drop inprices. The global overproduction is due almostexclusively to the increase in copper productionin Chile, and within Chile by the productionincreases of large foreign companies. The fall incopper prices would mean huge losses for Chile,but a number of foreign companies could benefitas they use the cheaper resource as raw materialfor other operations. 27 Nor is the Chilean modelapplicable to all mineral economies. Not allhave Chile’s quality minerals and favourablelocation. Other factors such as income levels,population size, and agricultural resources mayalso limit the options for diversification.

No research has been carried out enabling con-clusions to be drawn about whether Canadianmining investment in general, in particularcountries, or even a particular mining operationcontributes or not to sustainable development.Technology transfer, the generation of employ-ment, provision of capital, and export earnings

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are often referred to as benefits of multinationalmining investment.28 We found no data, how-ever, establishing overall effects in relation tothese factors. One study of technology transferto developing countries (not specific to miningcompanies) suggests that benefits are generallylimited to the joint ventures or local subsidiariesof multinationals and are not diffused to domes-tic firms.29 Figures could be assembled on thejobs created at specific exploration and produc-tion sites, but these would not include eitherthe short- or long-term spin-off and displacedemployment impacts. They would also need toaccount for imported (or exported) labour.

While some cite Chile’s mining sector as a posi-tive example of the economic benefits ofCanadian capital investment and the generationof export earnings, others see it as a special, orunproven, case and point to Guyana where, sinceproduction commenced at Omai Gold Mines,gold seems set to replace sugar, rice, and bauxiteas the single largest contributor to the GDP,threatening balanced sectoral development. 30

Western mineral investment in a number oftransitional economies has been targeted at goldduring a period of “relatively safe, relativelyrapid, high rate of return on investment.Evidently, mining companies require confidencein legislation and favourable market conditionsbefore considering huge investments into thebase metals and industrial minerals.”31 Thus, thedeals between Tenke Mining Corp. and succes-sive dictators to develop a copper-cobalt site inthe Congo were questioned, not only becausethe current leader, Laurent Kabila, is accused ofpresiding over an army guilty of genocide, butbecause base metal producers who rely on rail-ways to transport their production are particu-larly vulnerable to civil unrest. Gold or diamondminers are less vulnerable because they can flytheir production out of the country.32

It is the price of gold, however, that has made itthe primary Canadian exploration target inAfrica. In the Philippines, one-third of projectsinvolve gold; in China, half; and in Russia, goldand diamonds are the major targets.33 Thejunior companies leading exploration may,however, be diversifying their explorationefforts in response to flat gold prices and risingprices of base metals.34

Developing-country governments generally wel-come Canadian investment, despite the uncer-tainty of mining investments’ contribution tosustainable development. The World Bank hasbeen encouraging governments toward “open

economic policies” and a “liberalization of min-ing policies” to create the “enabling environ-ment” needed to attract capital. At the sametime, it is concerned that “exploration successeswill not necessarily translate into mines, relatedindustries, employment, and the increase innational wealth if the requisite conditions arenot in place.” Issues it cites as hindering the sus-tainable growth of the sector are: “the fragilenature of the macroeconomic reforms, the con-tinued existence of legal and regulatory impedi-ments in some countries, the weakness of publicmining institutions, the constraints on thegrowth of the small and medium mining sec-tors, and the inadequate treatment of the envi-ronmental and social aspects of mining.”35

A newer theme in World Bank and industryanalyses of mining’s contribution to sustainabledevelopment is the recognition that “increas-ingly over the last decade, sustainable develop-ment is being addressed from the perspective ofthe local communities, as well as that ofnational economies.”36 This might imply recog-nition that sustainable development requiresthe participation of local communities in deci-sions about development. On the other hand, itmay simply be a response to local communities’growing opposition to mining operations. Atany rate, mining companies, the World Bank,and Canadian government agencies are consid-ering new approaches to working with localcommunities, unions, and nongovernmentalorganizations to address environmental andlabour issues, social and cultural needs, and economic development.37

The Canadian International DevelopmentAgency (CIDA) currently supports a few smallprojects focused on community needs related tomining development. Through the UnitedSteelworkers of America (Canadian NationalOffice) and the Canadian Auto Workers, it alsosupports labour sector development in the min-ing sector. However, most of its financing in thisarea is allocated to improving mining adminis-tration, promoting the use of Canadian tech-nologies and services, and supporting Canadianprivate sector development initiatives. Industryand government concern about growing com-munity opposition in several developing coun-tries to Canadian mining operations is evidentin the September 1997 announcement by theOttawa-based International DevelopmentResearch Centre (IDRC) that it would commit$1 million a year, for three years, to supportresearch on mining and sustainable develop-ment in the Americas (see Box 2).

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L O C A L C O M M U N I T I E S

S E L D O M R E M A I N

N E U T R A L W H E N A N


C O M P A N Y O R

C O N S O R T I U M I S

G R A N T E D A C O N C E S S I O N

T O E X P L O R E F O R O R

D E V E L O P R E S O U R C E S I N

T H E I R A R E A .

WAYNE DUNN, “DON’T

BE AN ‘UGLY CANADIAN’,”

THE GLOBE AND MAIL,

MARCH 19, 1998

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A C A T A L O G U E O F C O N C E R N S

By its very nature, mining has an undeniableenvironmental, social, and economic impact.An extractive industry, it often operates in hin-terland areas, at the centre of Aboriginal landclaims, and in isolated and dependent commu-nities. Working conditions are high risk unlesscarefully regulated and monitored. Moreover,large projects produce highly visible wealthwhich may not be widely distributed. Finally, itis an export-oriented industry in a rapidlychanging global economy.

The Canadian media, as well as nongovern-mental human rights, environmental, labourand social investment organizations, havereported a number of concerns relating to theoperations of Canadian mining corporations indeveloping countries. Some of these are alsonoted in company reports and speeches. Butnot all incidents make the news. What isreported often depends on the capacity of localgroups to organize and communicate their concerns. Issues arising from the operations ofsmaller companies, companies whose Canadianlinks are obscure, or companies with noCanadian operations are also less likely to be publicized in Canada. Moreover, one company’s substandard performance over longperiods may go unreported while a single incident caused by another will make the headlines.

Some of the complaints explored below aboutmining operations in developing countries havealso been made about operations in Canada.There is a difference, however in the extent towhich mechanisms exist in Canada to facilitateefforts to hold corporations accountable to gov-ernments, communities, and employees for theirsocial and environmental practices.

REPRESSIVE REGIMES

When companies invest in countries withrepressive regimes, communities find it difficult,if not impossible, to press for fair labour condi-tions, good environmental practices, or thereturn of revenues to the community. The claimthat industry will be a catalyst for positive changehas been refuted by analyses of the impact offoreign investment in apartheid South Africa38

where, for example, companies were required tocooperate with national security forces used tosuppress popular opposition. More generally,benefits from the mining operation accrued tothe regime and were used to extend repression.

Human rights advocates suggest that, in someinstances, the only appropriate response to arepressive regime is disinvestment or a policy of“no new investment,” if this is consistent withthe strategy of internal or exiled oppositiongroups. In other cases, conditions should be puton investment, such as no participation in jointventures with the regime, refusal to providekickbacks and payoffs, and refusal to operate inareas where security or military force is used toestablish or maintain the operation. Companiesshould speak out against human rights viola-tions and be prepared to pull out if such publicaction endangers employees or operations.

Canadian companies have investments in threecountries that appear on most lists of repressiveregimes: Burma, China, and Indonesia. Theinvestment in Indonesia is the largest and themost publicized following the Bre-X scandal.Most of the companies arrived in 1996, follow-ing early reports of Bre-X’s exploration, andCanadian investment is now said to represent75 percent of all mining investment in thecountry.39 The Canadian Mines Handbook, 1996-97 lists 89 Canadian companies inIndonesia, including major names such as

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BOX 2 A CANADIAN INITIATIVE

In September 1997, at a meeting of MinesMinisters for Latin America, the Caribbean,and Canada, held in Arequipa, Peru, Canada’sInternational Development Research Centre(IDRC) announced a $1million a year initiativeto support research on mining and sustainabledevelopment in the Americas.

Citing the current boom in mining throughoutthe Americas, Carlos Serés, IDRC RegionalDirector for Latin America and the Caribbean,explained that “at this time, everyone fromcommunity groups to mining companieswants to ensure that mining contributes tosustainable development.” Mining Associationof Canada president George Miller, said that“this initiative provides an opportunity forCanadian mining companies to show leader-ship in sustainable development. As the domi-nant source of mining capital in the region,Canada has special responsibilities.”

Being guided by a team representing the min-ing industry, environmental groups, interna-tional development interests, and researchersfrom Canada and Latin America, the initiativewill support research for a better under-standing of the complex relationship betweenmining and sustainable development, withspecial attention to local communities.

Source: “Canadian Initiative to Improve Environmental Impact ofMining,” IDRC News, No. 11, September 22, 1997.

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Barrick, Inco, Inmet Mining Corp., and Teck.Inco is a long-term investor, operating a massivenickel mine: its expansion plans in CentralSulawesi are being opposed by some Indigenousand previously transplanted groups. IndochinaGoldfields Ltd is in a joint venture partnershipwith the government of Burma. In China, theCanadian Mines Handbook lists 15 companies,including Barrick and Viceroy Resource Corp.

CORRUPTION

Bob Parsons, vice-president of the Prospectorsand Developers Association of Canada, is amongthose who have spoken out about the effects ofcorruption on mining development.40

Corruption can take the form of kickbacks andpayoffs, or deals with state agencies and politi-cal leaders for mining rights that never come upfor open auction. These practices affect theprospects and profits of mining companies.They also work against social equity in that thewealth generated by the mine is unlikely to bewell-distributed. This issue is being addressed atthe international and national government levels, but corporate policy decisions and reinforcement are also needed.

Corruption is perceived to be a serious problemin a number of countries with significantCanadian mining investment (Table 1):Argentina, Bolivia, Brazil, Chile, China, Ecuador,Indonesia, Philippines, Russia, and Venezuela.41

Corruption usually goes unreported, but the Bre-X scandal brought the issue into the lime-light in relation to the Indonesian regime andthe willingness of Canadian companies, such asBarrick Gold, to make deals with PresidentSuharto’s family. Special payments and arrange-ments have also been made in countriesembroiled in civil war: Tenke Mining and BranchEnergy Ltd, acquired by Diamond Works Ltd, arealleged to have acquired or secured propertiesthrough indirect support for rebel forces in theCongo and Sierra Leone, respectively.42

INDIGENOUS PEOPLES’ RIGHTS

Indigenous peoples and mining companies areoften in conflict because separate legal regimesexist for surface and subsurface land entitle-ments. Believing that people and land constitutea spiritual and material unity, Indigenous peoplesmake no distinction between these entitlements.However, “legislation usually privileges the min-ing company’s rights through entitlements toexpropriate land and establish easements.”43

A number of incidents involve Canadian miningcorporations. In Panama, for example, TiominResources Inc. is proposing to develop an areawhere there are unsettled land issues between thegovernment and the Ngobe-Bugle Indigenouspeople who have complained about the lack ofconsultation and potential environmentalimpact. There is also conflict over Western KelticMines’ involvement in exploration in Indigenousterritory in Panama. In Guyana, Indigenous peo-ples had a minimal role in the consultation aboutthe opening of Omai Gold Mines—in whichCambior is the majority and Golden StarResources the minority owner—and they havesuffered from linguistic, social, and economic dislocation as a result of mining operations.44

WORKPLACE STANDARDS

According to the Organisation for Economic Co-operation and Development, freedom of association is nonexistent or seriously restricted ina number of countries.45 Core labour rights areseriously restricted in Bolivia, Botswana, China,Indonesia, Panama, the Philippines, Tanzania,and Zimbabwe, all countries with significantCanadian mining investment (Box 1). Withoutthe freedom to form effective unions that canmonitor workplace health and safety practices,the likelihood of corporate neglect is greatlyincreased.

Even in countries not included on the OECD’sproblem list, such as Chile, workers are nonethe-less concerned about a lack of effective labourrights and the impact this has on workplacestandards.46 For example, the president of theMining Confederation of Chile has charged thatpressure for profits, unconstrained by effectivelabour legislation, took priority over health andsafety in incidents at Barrick Gold and PlacerDome operations. Through exchanges betweenCanadian and Chilean miners it became evidentthat Chilean collective bargaining agreementswith Canadian companies contained far fewerprovisions for health, safety, and the environmentthan Canadian agreements.47 The MAC hasresponded to such charges by citing its members’commitment to bring the highest standards tobear, whether operating in Canada or abroad, andit points to the awards received by Barrick andPlacer Dome for their operations in Chile.48

In other countries where Canadian investmentis significant, such as Guyana, adequate labourregulations are said to exist on paper, but governments do not have adequate human andfinancial resources to enforce them.49

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ENVIRONMENTAL IMPACT

In recent years, environmental disasters havebeen associated with Canadian companies inGuyana and the Philippines. Guyana’s govern-ment commission of inquiry attributed a majorcyanide spill into the Essequibo River in 1995 toinadequate construction and design of the tail-ings dam at Cambior/Golden Star Resources’Omai Gold Mines. Cambior is contesting a classaction suit for reparation of environmentaldamage and damages for each of the class mem-bers, filed in Quebec by Recherches interna-tionales Québec on behalf of individuals inGuyana. The award would be used to establish asustainable economic development fund for theregion.50 Cambior has replied that the commis-sion found the company’s response to the damfailure prompt and effective, and that no evidence was found of a serious threat to life, orhazard to the health of workers and residents.51

In 1996, in the Philippines, a major tailings spilloccurred at the Boac site of Marcopper MiningCorp.—a Philippine company in which PlacerDome had a 40 percent interest. Placer Domepaid for technical work and financial compensa-tion, then proceeded with earlier plans fordivestment. Critics in the Philippines chargethat the rehabilitation and compensation planswere inadequate.52 In addition, there are con-tinuing calls for environmental rehabilitationand compensation in connection with the dis-posal of tailings into Calancan Bay fromMarcopper’s Mount Tapian site from 1975 to1991. Critics contend that Marcopper ignoredexpert recommendations and governmentorders regarding an alternative disposal system,and that Placer Dome, as the partner with min-ing expertise, should accept its share of respon-sibility. 53 Placer Dome agrees that the tailingssystem would not meet today’s standards, butargues that it is unfair to apply these standardsretroactively. It also disputes claims made aboutthe tailings’ impact on the fishery.54

Environmental concerns have been expressedat various times about the explorations andoperations of many other companies and coun-tries. Some complaints have arisen over theCanadian takeover and expansion of old mines,for example, by Greenstone Resources Ltd inNicaragua; others over the exploration for newoperations, such as by Placer Dome in CostaRica and Breckenridge Resources Ltd’s proposedsilver mining operations in Tibet’s fragileplateau ecosystem; over long-established mines,such as those operated by Inco in Indonesia

and Falconbridge Ltd in the DominicanRepublic; and over minority interests, such asInmet’s 18 percent ownership of Ok Tedi inPapua New Guinea.

While it is relatively easy to list companies asso-ciated with environmental problems, it is moredifficult to assess and compare their perfor-mance. Factors such as the mine’s age, its loca-tion, and the products need to be considered.Organizations monitoring corporate practices,such as Michael Jantzi Research Associates Inc.and Ethicscan Canada Ltd, find it difficult toobtain the kind of information they require toassess Canadian operations abroad. For exam-ple, Ethicscan cites the lack of agencies to moni-tor compliance in many countries and theinfrequency with which violations are prose-cuted.55 The factors that make informationunavailable also make it easier for corporationsto behave irresponsibly.

ECONOMIC AND SOCIAL IMPACT

Variables such as the scale of operations, themine’s distance from communities, and theexpected life of the project are related to thesocial and economic problems experienced bycommunities.56 A remote community close to anewly discovered small ore body that isexpected to be rapidly depleted, for example,will be among the most vulnerable. There is agreater likelihood that the operator will be smalland inexperienced, that new infrastructure willnot be developed, and that basic health andsafety precautions will not be taken. A new orebody that is potentially a “world-class” mine ina remote location is more likely to attract anoperator using state-of-the-art management andtechnology. Negative social impacts maynonetheless arise from massive and rapid migration of workers to the area.

Potential problems include:

• The creation or rapid expansion of commu-nities in remote areas can lead to high ratesof alcoholism and sexually transmitted diseases, a shortage of adequate housing, andovercrowded roads. In North America, thisproblem is commonly dealt with by adopt-ing a “fly in, fly out” policy. In developingcountries, this practice has sometimes beenopposed. For example, landowners at thePorgera mine in Papua New Guinea havecriticized Placer Dome’s “fly in, fly out” practices because they lose the mine-relatedbusiness.57

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• Environmental damage can have secondaryeffects, such as reduction in wildlife or fishneeded for subsistence. Residents in the area ofInmet Mining’s Ovaçik project in Turkey, forexample, fear that the use of cyanide in thegold recovery process will have an adverseimpact and they have opposed the loss of olivetrees caused by the mine’s development.58

• The local and regional economy’s depen-dence on the mine for income and employ-ment can lead to problems when the minecloses. Inco, for example, mothballed itsoperations in Guatemala in 1982, but problems with land access remain.59

• Communities can be disrupted or displacedwhen new mines open or old ones expand.Greenstone, for example, is involved in con-troversy over the adequacy of its response tothe dislocation of artisanal miners inNicaragua.60 Golden Knight Resources Inc.has suggested that the government’s landcommission and army may need to interveneto clear mining areas in Ghana.61 Vista GoldCorporation’s purchase, temporary closing,and modernization of two old mines inBolivia led to the deaths of seven miners anda police officer in clashes between miners,police, and troops.62

G O O D , B E T T E R , B E S T

P R A C T I C E S

Some companies and critics alike support theestablishment of a standard based on “bestpractice.” Companies may see the promotion ofstandards based on “best practice as economi-cally achievable” as an alternative to govern-ment regulation. Some environmental groups,such as the Environmental Mining Council ofBritish Columbia, support the development of abest practice standard as a way of establishing a“bottom line” set of criteria against which tojudge activities. To enable public interest groupsto base their arguments on the need for respon-sible development, the Council has produced “ASocial Movement Perspective on ‘Best Practices’and Environmental Mining Reform.”63

Other critics of mining companies reject a bestpractice approach and argue for legally bindinginternational standards on the grounds that theconcept of best practice is inherently relative.Best practice is defined in terms of what othercompanies in the industry are willing to do, notnecessarily what they could or should do. Theyalso argue that because best practice is not

mandatory, a company may apply it in one situ-ation but not another if not pressured to do soor if it would entail an “unacceptable” level ofprofits.64 In some developing countries thereare no strong public interest groups to provide acheck on the definition of best practice or itsimplementation.

Closely related to the concept of best practice isthat of “best of sector.” Used by the social invest-ment movement, it recognizes the unfairness ofcomparing companies across sectors—resourcecompanies with software companies on environ-mental performance, for example. Using thisapproach, social investors may include in theirportfolios a mining company whose environ-mental record is far from perfect or from meet-ing a best practice standard. The recognition of acompany as the best among its peers is seen tocontribute to upward pressure on all companies.

PROMOTING BEST PRACTICE

To date, the mining industry advances the con-cept of best practice only in the environmentalarea, although discussions are being initiatedabout the possibility of developing social guide-lines. An intergovernmental working group onAboriginal issues is also endeavouring to codifybest practices in Canada for relations betweenmining companies and Aboriginal communities.

The concept of environmental best practice isnot spelled out in industry codes, but it is atleast implied in the MAC code, the first suchnational code in the world. Association members must endorse an environmental codewhich states that “in all jurisdictions, in addition to complying with legislative require-ments, member companies will diligently applytechnically proven and economically feasiblemeasures to advance protection of the environment throughout exploration, mining,processing, manufacturing, and closure.”65

The International Council on Metals and theEnvironment (ICME) also has an EnvironmentalCharter that commits members—which includeeight of Canada’s largest mining companies—to adopt measures to foster environmentallysustainable economic development. TheCouncil’s activities include research and publi-cations on advances in environmental practice.

Do such industry-wide efforts to support envi-ronmental best practice affect Canadian opera-tions in developing countries? There is no clearanswer, or even a full understanding of whatconstitutes a “Canadian” company. At the end

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M Y E X P E R I E N C E O V E R

T H E P A S T 2 5 Y E A R S

W I T H A N U M B E R O F

W E L L - K N O W N M A J O R

C A N A D I A N P L A Y E R S

A B R O A D I S T H A T

C A N A D I A N C O R P O R A T E

V A L U E S R A N K A M O N G

T H E V E R Y H I G H E S T .

C A N A D I A N C O M P A N I E S

S H O U L D R E C O G N I Z E T H I S

A S A N A S S E T A N D A P P L Y

T H E I R S T A N D A R D S A N D

B E S T P R A C T I C E S

W H E R E V E R T H E Y G O .

TOM D’AQUINO, PRESIDENT

AND CEO, BUSINESS COUNCIL

ON NATIONAL ISSUES,

“GLOBALIZATION, SOCIAL

PROGRESS, DEMOCRATIC

DEVELOPMENT AND HUMAN

RIGHTS,” ADDRESS TO THE

ACADEMY OF INTERNATIONAL

BUSINESS, ANNUAL GENERAL

MEETING, BANFF, SEPTEMBER

27, 1996

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of 1996, companies of all sizes listed onCanadian stock exchanges held interests in3,400 foreign mineral properties.66 Not all thesecompanies are registered or have headquartersin Canada (we estimate that perhaps one-thirdare based outside Canada) although they areassociated with Canadian financing. Regardlessof where they are based, many are not amongthe 100 of 3,000 companies registered inCanada that are reported to have comprehen-sive environmental policies.67 Nor are theylikely to have producing properties, or evenexploration properties, in Canada that couldprovide the best practice basis for operationsabroad. Many are also unlikely to participate inforums where best practices are discussed—theMining Association of Canada, the OntarioMining Association (which endorses the MAC

code), or the International Council on Metalsand the Environment.

We estimate only about 12 percent ofCanadian companies operating in developingcountries are “industry leaders.” Or, using adifferent source of data, that only about 13percent of exploration properties and 26 per-cent of production properties in developingcountries are owned by Canadian-based indus-try leaders.68 We define industry leaders verygenerously to include companies that,although they may be far from leaders, havemade some commitment to best practiceand/or may have been influenced by Canadianbest practice. This group includes members ofthe Mining Association of Canada, the OntarioMining Association, and the International

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BOX 3 RECOGNITION OF GOOD OR BEST PRACTICE

S O U R C E S :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.

Source of Recognition

The Conference Boardof Canada1

The Social InvestmentOrganization2

Institute of MiningEngineers of Chile;UNEP3



UNEP6

World BankConference on Miningand the Community7

The Social InvestmentOrganization8

Company

Alcan Aluminum Ltd

BattleMountain GoldCo.

Cominco Ltd

FalconbridgeLtd

Inco Ltd

Noranda Inc.

Placer DomeInc.

TVX Gold Inc.

Good / Best Practice

In Jamaica, on reserve bauxite land, Alcan operates a commercial agricultural division and leases land totenant farmers. Its agricultural division is the largest producer of milk and beef in Jamaica, provides agricul-tural technology to local farmers, and extension services, fertilizer credit, and marketing assistance to ten-ant farmers. It is also working to bring land affected by the mining operations back into productive use.

Through its 88% interest in Empresa Minera Inti Raymi in Bolivia, Battle Mountain operates the Kori KolliMine. Inti Raymi has established a foundation to support projects to improve the health, education, andstandard of living of communities around the mine.

In 1995, the Cominco operation at Quebrada Blanca, Chile, received the José Tomás Urmeneta Awardfor its technological innovations under harsh weather conditions and its high level of concern for theenvironment. The operation was also highlighted in a report of the United Nations EnvironmentProgramme (UNEP) and the International Council on Metals and the Environment (ICME).

In the Dominican Republic, Falconbridge adopted a human resource development, benefits, and healthand safety standards package that is comparable to the one it offers in Canada. It has excellent labour-management relations, and its unionized labour force has gone on strike only twice in 25 years, the lasttime in 1986.

In Indonesia, expatriates form less than 2% of the company’s workforce, and senior positions, includingthat of president and chief executive officer, are held by Indonesians.

Noranda’s environmental reporting was praised in a report of the UNEP and the ICME. Noranda has pro-duced five environmental reports since 1990: the 1994 report was judged by the The Financial Post to bethe best among resource companies in Canada.

Placer Dome’s process for integrating community consultation and participation in project definition andimplementation at Minera Las Cristinas in Venezuela was described as “a paradigm shift” in a workshopreport from the World Bank Conference on Mining and the Community, May 1997.

In Brazil, TVX helped establish and continues to fund the “Cruzada do Menor,” an independent charita-ble organization that feeds disadvantaged children and provides them with vocational training.

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Council on Metals and the Environment. Alsoincluded are companies that might, because oftheir size and production base in Canada,reflect best Canadian practices. These latter areamong the top 40 Canadian mining companiesin terms of 1995 revenues, are incorporatedand headquartered in Canada, and have atleast one property in Canada,69 but are notlisted as members of industry associations.

The geographical distribution of industry lead-ers is far from even. Only about 4 percent ofCanadian companies with interests inIndonesia are in this group, for example. On theother hand, Chile—often cited by the Canadianindustry as a model for overseas mining devel-opment—had 31 percent.70

GOOD PRACTICES AT HOME AND ABROAD

While it is easier to define best practice in theenvironmental area than in other areas, there isincreasing evidence that individual companiesand their critics are endeavouring to promoteand identify good, if not best, practices in otherareas. A review of some company promotionalliterature and company profiles prepared byother organizations (see Box 3) showed that, inaddition to environmental best practices, goodpractices in the areas of employment, healthand safety, and community support (housing,education, infrastructure, community economicdevelopment, etc.) were frequently highlighted.There was almost no reference in company liter-ature to good or best practices in other “con-cern” areas such as investment in countries withrepressive regimes, corruption, and respect ofIndigenous rights.

Social investment and policy organizations andmining companies themselves identified the following good practices in international operations.71

Environment:

• revegetation, reforestation of mined-outareas, land brought back into production;

• production without major process emissionsor tailings ponds;

• independent stakeholder committee to monitor implementation of environmentalrecommendations;

• “de facto ecological reserve” maintainedaround an exploration camp, in which keyhabitats and ecological sites are identifiedand protected;

• agreement with partners to carry out a project

in accordance with the environmental lawsapplicable in the company’s home province.

Workplace standards:

• hiring and training local people for technicaland management positions;

• top wage and benefits packages in the hostcountry;

• good relationships with unions;• awards for working hours without lost-time

accidents;• on-site medical programs for employees.

Economic and social impacts on communities:

• consultation with communities prior to mineopening and concerning resettlement sites;

• financial and technical support for educa-tion, youth training, and crime prevention;

• construction of employee housing, local hospitals, and schools;

• support for community economic develop-ment, such as a textile cooperative;

• agreement with local independent miners’cooperatives to provide them with miningareas within the company’s concession andpurchase the ore they produce;

• statement of principles governing the con-duct of exploration projects, prepared forlocal employees, communities, and government authorities.

It is highly unlikely, however, that mining indus-try participants and observers would agree thatthese actions necessarily constitute “good” prac-tice, in Canada or abroad. Each case must bejudged individually. For example, who appointsthe “independent stakeholder committee” thatmonitors environmental implementation? Doesa record number of working hours without lost-time accidents indicate good safety procedures oris it indicative of a system that penalizes workersfor reporting accidents? Does a unionized labourforce with a low number of strikes suggest goodlabour relations or a country whose laws are hos-tile to independent unions? What did “consulta-tion” with communities represent when it cametime to make decisions about resettlement?

FROM EXPLORATION TO CLOSURE

Most of the good and best practices identifiedabove are applicable at the production stage ofmining. Social equity and sustainable develop-ment require that much more consideration begiven to the exploration and closure stages.

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W H E N I T C O M E S T O

E T H I C S , C O M P A N I E S A R E

M E A S U R E D N O T B Y

T H E I R C O D E S O F

C O N D U C T O R V I S I O N

S T A T E M E N T S , B U T B Y

W H A T T H E Y A C T U A L L Y

D O . S T I L L , T H E

‘ S H O U L D S ’ A N D

‘ O U G H T S ’ A R E G O O D ,

A N D T H E Y S H O U L D

B E C O M E E V E N M O R E S O

W H E N T H E Y C H A N G E T O

‘ W E W I L L ’ .

MICHAEL DECK,

“COMPLIANCE REAL TEST OF

NEW CODE,” KPMG ETHICS

& INTEGRITY SERVICES

HTTP://WWW.KPMG.CA

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Ian Thomson and Susan Joyce of Orvana MineralsCorp., a mining company engaged in explorationin Bolivia, suggest that the dynamics of the com-pany-community relationship at the explorationstage are different from the production stage:

Exploration is a dispersed and transitoryactivity characterized by uncertainty andambiguity: a problematic situation from thepoint of view of company-community rela-tions. This is in marked contrast to miningwhich takes place at fixed locations and overextended periods of time. Where a mineexists, company-community issues can befocused around the relatively stable realitiesof a productive commercial venture.72

The mining industry is ill-equipped to deal withsocial and environmental issues in the explo-ration phases. Part of the problem, according toThomson and Joyce, is due to the high number ofmineral industry professionals who found them-selves working internationally for the first timewhen junior, high-risk venture capital companiesbecame the dominant force in mineral explo-ration between 1991 and 1997. Mining codes mayprovide for a right to explore, but companiesoften consider this as an unconditional right togo where they want and do what they want. Asjunior companies have no long-term vested inter-est in the potential impact of their actions, com-munity relations are a secondary consideration.Moreover, a property may pass through the handsof several companies before it is developed.

Thomson and Joyce propose:

There is potential for leadership by theoperating companies who should recognizethe enhanced value offered by projects thatcome to them in social “good standing.”An assessment of the socio-economic situa-tion surrounding a project should be partof the due diligence and valuation con-ducted when a property is optioned or pur-chased. Payment of a premium price fordelivering projects maintained in “goodstanding” through exploration would helpprovoke the acceptance of new standardsfor industry practice.73

If Canadian operating companies agree to developa property that has not come to them in social“good standing,” it is unlikely that later efforts toestablish good relations with the community (orwhat remains of it) by building schools, contribut-ing to charitable foundations, and so on will beseen as examples of best practice or as evidence ofconcern for social equity. A case in point are

Cambior/Golden Star operations in Guyanawhere local and Indigenous peoples had no roleor rights in law, and the companies agreed to aconsultation process that involved only compa-nies and the state. In response to communityopposition, the process here as in similar cases,became one of ad hoc consultation in the devel-opment phase and inadequately addressed thecommunities’ social equity concerns.74

At the other end of the cycle, a few miningcompanies are now giving more serious consid-eration than before to the question of what happens after a mine closes. They consider thatit is in their best interest to ensure the mine’scontribution to sustainable economic develop-ment, since it will ensure their future welcomein the host country and other countries as well.

Placer Dome notes that mining companies have long made social investments in theimmediate vicinity of their operations, but thishas generally meant schools, hospitals, andother facilities intended primarily for employees.In some countries, however, Placer Dome suggests that mining companies have not beenable to assume that the central governmentwould invest some of the mining revenues backinto the broader community. The companymust therefore provide these benefits to retaincommunity support.

In Papua New Guinea, Placer Dome has contri-buted to local infrastructure and communitydevelopment, with the financial burden easedby a tax credit arrangement. But it sees the needto extend social expenditures to a much largerarea and population group. “In this, mines takeon the responsibility themselves of translatingtheir industrial investment into sustainablesocial and economic development for a signifi-cant part of the country.”75 However, its experi-ence leads it to believe that: “A different modelis needed for structuring the responsibilities ofmines, governments, and local communities toachieve long-term social and economic improvement in frontier zones.”76

In Venezuela, Placer Dome hopes to provide a“new model for a multi-institutional approachto community development made possible by anew mine.”77 Its goal is “diversifying the institutional involvement in community development around the mine.” To do so, it is undertaking a feasibility study, with theCanadian International Development Agency’sparticipation, of how it can collaborate in com-munity development projects at Las Cristinaswith Canadian nongovernmental and for-profit

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organizations, in partnership with Venezuelancounterparts. Greenstone Resources inNicaragua has also been discussing a “roundtable” approach to the social issues associatedwith its mining projects. It says it would likecoordination and input from local communitiesand Aboriginal groups, the national govern-ment, aid and environmental NGOs, andCIDA.78

Aid agencies and nongovernmental organiza-tions will no doubt have to consider the impli-cations of a “multi-institutional approach tocommunity development made possible by anew mine” if the communities affected were notinvolved in the initial decision to develop themine. Questions of consultation and participa-tion, beginning with the decision to explore, arecritical. As well, the lack of reinvestment ofmining revenues into the community by governments is not always the result of corruptor elite-serving regimes. In some cases, it can bedue to pressures by international financialinstitutions to reduce social expenditures in thename of the macroeconomic reforms requiredto attract international investment in the firstplace.

A C C O U N T A B I L I T Y : B E Y O N D B E S T P R A C T I C E

Accountability, not “best practice,” is the key towhether or not Canadian companies will con-tribute to social equity in developing countries.Social equity cannot be “delivered” through theexport of Canadian environmental practices orcharitable contributions to community organiza-tions. We need to challenge the acceptance ofunequal power relationships which underliesmuch discussion of the “responsible” corporation.

This may be most obvious in dealings withAboriginal communities. According to Hans Matthews of the Canadian AboriginalMinerals Association, there are no mining company “best practices” with respect toAboriginal peoples. He recommends focusinginstead on the processes of interaction betweencompanies and communities. The issue, he says,should not be described as Aboriginal participa-tion in mining company decisions affectingAboriginal communities, but the reverse:Aboriginal communities may invite mining companies to consult with them about possibledevelopment on Aboriginal land.

Power is also central to relations betweenunions and management. Judith Marshall of the

Steelworkers Humanity Fund participated in anexchange between Cominco Ltd workers inCanada and Chile. 79 Cominco says it meetsCanadian benchmarks for worker safety andenvironmental management in overseas opera-tions, even though local laws may allow forlower standards. But, says Marshall, whenChilean miners shadowed the operations of theunion over a two-week cycle in Canada, theirbiggest surprise was the quality, depth, and reg-ularity of communications with managementin the workplace. The collective agreements inthe Chilean mines contained nothing concern-ing the role of the union within the workplace.Nor were there grievance procedures to ensurecompliance even with the meagre protectionsthe contract offered, she noted.

Even though Canadian mining companies havelong had full joint health, safety, and environ-ment committees in their Canadian mines—andlaud them as a factor in creating safe mines inCanada—they have argued against establishingthese committees in their Chilean operationsbecause Chilean law does not force them to doso. The ongoing communication betweenCanadian and Chilean unions working for thesame companies has raised the latter’s expecta-tions. “If we’re talking best practices from theCanadian mining industry,” said Marshall,“probably collective bargaining is one of themost important practices to export.”

We leave unexamined the much larger issue ofaccountability to host governments. The weak-ness of many developing-country governmentsin dealing with corporate power is well docu-mented. Mining companies are frequently suc-cessful in obtaining the conditions and lawsthey require for investment. The literature ofseveral companies refers to such negotiations:the exoneration of taxes worth $80 million dol-lars on a project; changes in the restrictions onthe export of gold bullion; reliance on govern-ments to move communities from propertiesdesignated for development; and so on.

ACCOUNTABILITY MECHANISMS: SOME RECOMMENDATIONS

The accountability mechanisms outlined belowdo not assume a radical restructuring of rela-tionships between corporations and communi-ties, unions, and NGOs. Rather, they are modestapproaches already used in many places, thatdeserve further support or, in some cases,rethinking.

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COMMUNITY CONSULTATION AND PARTICIPATION

It is clear that mining companies shoulddevelop consultation and participationprocesses for all stages of projects, from begin-ning to end, and require evidence that thesehave taken place when they assume ownershipof a property from another company. Theseprocesses should not be restricted to environ-mental matters, but encompass social and eco-nomic issues as well. The objective should bethe communities’ real participation and collabo-ration, not co-option.

The larger questions about how to identify thestakeholders, the forms of consultation neededat different stages of exploration and develop-ment, and the roles of state, company, and community were a focus of a 1997 World Bankconsultation in Quito, Ecuador in which a num-ber of Canadians participated. They are alsobeing addressed by a group of Latin Americanand Canadian NGOs, coordinated byCoDevelopment Canada, which has establisheda Community Action Group on CanadianMining in Latin America to find solutions to thelack of company-community consultation, andsuggest ways of engaging mining companies. A draft proposal for a Community Decision-Making Model has been developed.

Some strengthening of community groups, bothNorth and South, is also taking place throughnew networks. For example, a ContinentalAction Network on Canadian Mining Activitiesin the Americas was established at a 1996 meeting in Saskatoon.80

RESPECT FOR WORKERS’ BASIC RIGHTS

Freedom of association and the right to organizeare fundamental human rights, and unions areessential if mining companies are to be trulyaccountable to employees. Many Canadian

mining companies operate in countries wherethese rights do not exist or are compromised inlaw or in practice. While some may believe theybear no further responsibility, they should con-sider the current direction of discussion of corpo-rate responsibility. In the US, the Council onEconomic Priorities recently announced that sev-eral companies have agreed to the SA8000 code,which is linked to the International StandardsOrganization (ISO). This code requires companiesto actively support the formation of independentunions in their own workplaces in situationswhere fundamental rights are denied, and promote their respect by governments.

Canadian mine workers are also supportingstronger mine workers’ organizations in devel-oping countries through exchanges such asthose described above and by providing finan-cial support for health, safety, and communityprojects. For example, the Steelworkers and theCanadian Auto Workers actively work with miners in countries such as South Africa, Chile,Brazil, and Peru.81 CIDA provides some supportfor labour development, on the grounds thattrade unions in the South are key forces fordevelopment and strong civil societies. Giventhe extent of CIDA’s support for the miningindustry in developing countries,82 it shouldgreatly increase its support for the unions thatassert social, environmental, and labour rightsin mining communities.

CODES OF CONDUCT

Most senior mining companies have environ-mental codes. Some have also been involved insetting standards for environmental manage-ment and performance through ISO 14001,dealing with “Environmental Management andSystem Specification,” a program of theInternational Standards Organization establishedin 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 miningcompanies in developing countries. This list excludes government departments and universities, and several groupswhose experience in Canada may be relevant, but who are not currently or generally directly involved in mining issues indeveloping countries. It also excludes international organizations in which Canadians participate.

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

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for its environmental management and reporting systems, began in 1995 to benchmarkits auditing methodologies against the new ISOprotocols as they were developed.

Surveys suggest that barely half of the majorCanadian mining companies with overseasoperations have general codes of conduct, andeven fewer explicitly address issues such asinvestment in, or trading with repressiveregimes.83 Most codes of conduct examinedmake only general reference to policies of non-discrimination and respect for human rights,fair wages, and high standards of safety andoccupational health. Placer Dome stands out forits special code regarding relations withAboriginal peoples. No mining company makesprovision for independent monitoring and public reporting, a key feature of codes that aretaken seriously by the public.

Mining industry associations should considerassisting their members and others in develop-ing a common code of conduct for overseasoperations. James Cooney of Placer Dome arguesthat country-specific codes would increase thepotential for positive change, based on consis-tent action by a group of like-minded corpora-tions and input from NGOs.84 There is aprecedent for such an approach. In 1987-88,Canadian churches asked a number of miningcompanies showing renewed interest in invest-ing in Chile (then a military dictatorship) toconsider a set of investment guidelines. Theguidelines dealt with possible corporate cooper-ation in activities aimed at legitimizing the mili-tary regime, and cooperation with securityforces in the arbitrary arrest, kidnapping, tor-ture, and intimidation of employees. The onlyresponse was a statement by one company thatChile had a strong mining tradition and anacceptable political and social climate.85

Mining company codes should include responsi-bility for the operations of sub-contractors. Theyshould also refer to and reinforce the ILOConvention and Recommendation on Healthand Safety in Mines, adopted in June 1995.Because ILO conventions are adopted through atripartite process of companies, governments,and unions, they enjoy a high degree of legiti-macy. Moreover, the Canadian governmentshould assist the development and implementa-tion of codes of conduct by requiring companiesto adhere to an independently monitored codeas a condition of access to CIDA, the ExportDevelopment Corporation (EDC), and othergovernment programs.

CORPORATE GOVERNANCE

Communities and other stakeholders in devel-oping countries may have little access to thedecisionmaking processes in Canadian compa-nies. To enhance accountability, companiesshould adopt corporate governance principlesand practices that maximize the access of allstakeholders to information and the company’sdecisionmaking processes. Among the informa-tion that should be available are the results ofindependent audits of environmental and socialperformance in relation to codes of practice.Financial, environmental, and other reports—tothe standard of best practice for such reports inCanada—should be made available to commu-nities, employees, and other stakeholders in thehost country, in the language of the country.

Shareholders can also support communitieswhose concerns have not been dealt with bylocal and headquarters management of publiclyheld companies, by submitting a shareholderproposal regarding the policy or practice in ques-tion. Canadian mining companies have receivedrelatively few such proposals, but Alcan, Inco,Placer Dome, Noranda, and Rio Algom Ltd have,in the past, circulated shareholder proposals onsocial or environmental issues.86 At times, somecompanies, such as Inco, however, have usedtheir power to limit the use of the proposalmechanism. Moreover, a coalition of companies—including Alcan—is seeking further restrictionsto the use of shareholder proposals in proposedreforms to the Canada Business CorporationsAct.87 A generous, rather than restrictive,approach to the use of the shareholder proposalshould be encouraged.

T O W A R D A C C O U N T A B I L I T Y

These suggestions of some very modestapproaches for increasing accountability of mining companies to local communities andworkforces are made at the same time as newglobal trade and investment policies are securingthe rights of corporations to operate freely wherever they choose. Mining companies havecontributed to the climate of support for deregula-tion which has eroded the capacity of govern-ments to impose standards. However, even somecorporate leaders are beginning to worry publiclythat the pendulum has swung too far toward simple reliance on market mechanisms. Theyforesee a public backlash which will force a reexamination of how issues of social equity andenvironmental standards are going to be effec-tively factored into national and global economic

88


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structures. The increasing resistance of develop-ing-country communities to mining operations isone indication of this backlash, and their growingability to mobilize support from around the worldprovides hope that they can insist on and developreal capacity to decide whether and under whatconditions mining will take place. The develop-ment of protocols for community consultation,codes of conduct, access to corporate decision-makers, and support for the right to organize andbargain collectively in the workplace are all smallcontributions to their exercise of the right todecide.

The Canadian government has been involvedfor some time in the creation of conditionsfavourable to the promotion of Canadian mining interests abroad. Now it appears to bemoving in the direction of helping companiesrespond to community resistance to exploration

and development. One approach being examinedis the provision of financing for the delivery ofprograms by Canadian and host country nongovernmental organizations, in cooperationwith a Canadian mining company, to bringgreater economic sustainability and better socialinfrastructure to the affected community.

But accountability, not the delivery of programsfor community economic development, is thekey to ensuring that Canadian mining companiescontribute to social equity. The strong, evendominant, presence of Canadian companies inexploration and development in particularcountries provides an excellent opportunity forthe Canadian government, supported by civilsociety, to press these companies to use theirpresence to collectively establish new standardsof accountability as well as of practice.

89


N O T E S

1 Canada, Statistics Canada, Canada Year Book 1997, p. 322. Thisdoes not include the value of coal and oil exports.2 Canada, Natural Resources Canada, Mineral Industry Review,Summer 1997, p. 63.3 Keith J. Brewer and André Lemieux, “Canada’s Global Position inMining: Canadian Financing of the International Mining Industry.”Metals Finance 4th International Conference, Finance for theGlobal Metals Industry, Toronto, May 7-9, 1997, p. V.4 Patrick Whiteway, “Our Annual Survey of Canada’s Top 40 MiningCompanies.” Canadian Mining Journal, 117:4 (1996), p. 8; and Iain Wallace, “Restructuring the Canadian Mining and MineralsProcessing Industries,” in John N.H. Britton, ed., Canada and theGlobal Economy: The Geography of Structural and Technological Change(Montreal and Kingston: University of Toronto Press, 1996), pp. 124-125.5 Someshwar Rao; Marc Legault; and Ashfaq Ahmad (IndustryCanada), “Canadian-Based Multinationals: An Analysis of Activitiesand Performance,” in Steven Globerman, ed., Canadian-BasedMultinationals (Calgary: University of Calgary Press, 1994). Table 3on page 84 lists the top 20 firms by foreign assets. Noranda Inc. haslumber and wood as well mining interests.6 Thomas d’Aquino, President of the Business Council on NationalIssues, argues that “Canadian companies are by and large excellentagents of change wherever they go because they carry with themsound values rooted in their Canadian experience.” In d’Aquino,“Globalization, Social Progress, Democratic Development andHuman Rights.” Notes for an address, Academy of InternationalBusiness, Banff, September 1996, p. 7.7 Alan Young, “Public Interest Perspectives on CanadianEnvironmental Mining Issues: A Discussion Paper Presented to theInternational Development Research Centre Working Group onEcosystem Health and Mining in Latin America, Caracas, Venezuela,July 1997.” Prepared by the Environmental Mining Council ofBritish Columbia for Friends of the Earth-Canada, pp. 8-9. 8 The International Development Research Centre is supporting aproject in Bolivia, Chile, and Peru to examine alternatives to the“command and control” approach, such as the use of the tax sys-tem to create economic incentives to protect the environment. See Steve Hunt, “The Costs of Mining in Latin America,”(http://www.idrc.ca). IDRC Reports, November 22, 1996 (Ottawa:International Development Research Centre, 1996). Date accessed:06/03/979 Calculated from Canada, Statistics Canada, Canada’s InternationalInvestment Position, 1995, Cat.67-202, Ottawa, 1996, Tables 4 and 4.5.10 Michael Knuckey, “Noranda Mining & Exploration: A New World,A New Direction.” Paper presented to the Prospectors and DevelopersAssociation of Canada (PDAC) and the Canadian Institute of Miningand Metallurgy (CIMM), Toronto Branch, March 13, 1996, p. 2(http://www.noranda.com). Date accessed: 06/05/97.

11 Environmental Mining Council of British Columbia, “The RealStory of Mining in Chile,” June 19, 1996 http://www.sunshine.net.Date accessed 02/10/98.12 André Lemieux, “Canada’s Global Mining Presence,” in NaturalResources Canada, Minerals and Metals Sector, 1996 CanadianMinerals Yearbook: Review and Outlook (Ottawa: Natural ResourcesCanada, 1997), p. 8.1. Lemieux uses the MIN-MET CANADA database,developed and maintained by Robertson Info-Data Inc., Vancouver.13 Lemieux, p. 8.2.14 Lemieux, p. 8.1. Lemieux’s information on larger Canadian-basedcompanies is based on annual editions of Corporate ExplorationStrategies: A Worldwide Analysis, published by the Metals EconomicGroup of Halifax, Nova Scotia. 15 Lemieux, p. 8.6.16 James P. Dorian, “Mining, Changing Picture in TransitionalEconomies,” Mining Engineering, 49:1 (1997), 31-36, p. 31.17 Mining Association of Canada, “Trade Policy Committee,” inAnnual Report 1996-97, Mining Association of Canada(http://www.mining.ca) Date accessed: 12/97.18 We use “senior” to mean larger diversified production companiesand “junior” to designate companies that are focused on exploration and initial development. 19 Dorian, p. 35.20 Young, pp. 3-4.21 Brewer and Lemieux, 1997.22 Ibid., p. 35.23 Ibid., p. v. 24 Ibid., p. v. See also Ontario Fair Tax Commission, Fair Taxation ina Changing World (Toronto: University of Toronto Press, 1993), pp. 493-512.25 This term originated with descriptions of the effect of petroleumand gas revenues on the economies of Britain and the Netherlandsin the 1980s.26 World Bank, United Nations Environment Programme (UNEP),United Nations Conference on Trade and Development (UNCTAD),and International Council on Metals and the Environment (ICME),“Enhancing the Contribution of the Mineral Industry to SustainableDevelopment: Post Conference Summary.” The InternationalConference on Development, Environment and Mining, June 1-3,1994, p. 4.27 Orlando Caputo Leiva, “World Overproduction of CopperCreated by Chile: Its Impact on the National Economy,” Centre onTransnationalization, Economy and Society, ARCI University, SocialResearch Centre, 1996. For a summary, see Hugh Mackenzie,“Chile’s Copper Fever.” Americas Update, 18:6 (1997), pp. 8-9.28 The Social Investment Organization (ed.) and Jessie Sloan,Canadian Mining Industry Focus Report (Toronto: The SocialInvestment Organization, 1997), p. 41.

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90


29 Ann Harrison, “The Role of Multinationals in EconomicDevelopment: The Benefits of FDI.” The Columbia Journal of WorldBusiness, 29 (Winter 1994) pp. 7-9.30 Dennis C. Canterbury, “Consultative Processes in Guyana’s MineralSector: Bauxite and Gold.” Presented at the World Bank Conferenceon Mining and the Community, Quito, Ecuador, May 6-8, 1997, p. 13.31 Dorian, p. 35.32 Karen Howlett and Madelaine Drohan, “Canadian Miners LivingDangerously,” The Globe and Mail, July 26, 1997.33 Lemieux, pp. 4-5.34 World Bank, “A Mining Strategy for Latin America and theCaribbean: Executive Summary.” World Bank Technical Paper No.345, Industry and Energy Department, 1996, p. 3, World Bank(http://www.worldbank.org). Date accessed: 06/14/97.35 Ibid., pp. 1-2.36 World Bank, UNEP, UNCTAD, and ICME, p. 12.37 Environmental issues in international mining, but without thecommunity focus, were already being addressed by the Canadiangovernment. See Natural Resources Canada, Sustainable Developmentof Minerals and Metals. Sustainable Development in CanadaMonograph Series No. 4. (Ottawa: Minister of Public Works andGovernment Services, 1997), pp. 11-17.38 Renate Pratt, In Good Faith: Canadian Churches Against Apartheid(Waterloo: University of Waterloo Press, 1997).39 “Indonesia Woos Firms in Calgary.” The Globe and Mail, August27, 1997.40 Karen Howlett and Allan Robinson, “Mining Expert WarnsAgainst Corruption.” The Globe and Mail, March 18, 1997. 41 These countries score in the bottom 27 of 54 countries, withscores of less than 5 out of 10, in the 1996 TransparencyInternational Corruption Perceptions Index. (There are severalcountries for which scores are not available.) 42 Howlett and Drohan.43 Alyson Warhurst, “Mining and Community Workshop Report:Consultative Process.” World Bank Conference on Mining and theCommunity, Quito, Ecuador, May 6-8, 1997, p. 1.44 Canterbury, pp. 8-11.45 OECD, Trade, Employment and Labour Standards, A Study of Core WorkerRights and International Trade, Paris, 1996, p. 43 and Table 3, pp. 57-58.46 Moises Labrana, “Chileans Paying for Mining Boom,” The Globeand Mail, July 9, 1996.47 Steelworkers Humanity Fund, “Bargaining and Borders: TheChile Connection,” Toronto, 1997.48 George Miller, “Canadian Mining Firms in Chile Follow theHighest Standards,” The Financial Post, 90:21 (May 25/27, 1996), p. 19.49 Canterbury, p. 13.50 Michael Jantzi Research Associates Inc., Canadian SocialInvestment Database. As part of the research process for informationin the database, each company is asked to respond to a draft profileregarding its operations. See also Public Interest Research Associates,“Class Action Lawsuit Filed in Quebec Court,” March 26, 1997.51 Cambior Inc., Press Release, “Cambior to Vigorously ContestClass Action Suit,” Montreal, March 26, 1997.52 Center for Environmental Concerns–Philippines, “An Environ-mental Mission: The Marcopper-Placer Dome, Inc. RehabilitationStrategies for the Boac River System, October 3-7, 1997.”53 Calancan Bay Villagers Support Coalition, Newsletter, September 1997.54 James Cooney, “Placer Dome: ‘We Are Responsible’,” TheCatholic Register, April 28, 1997, p. 17.55 “Ethical Performance Comparison: Tier Two Gold MiningCompanies (Part 2).” The Corporate Ethics Monitor, 9:2 (1997), pp. 18-23; p. 21. 56 Kathleen Anderson, “Mining and Communities: a DiscussionPaper.” Presented at the World Bank Conference on Mining and theCommunity, Quito, Ecuador, May 6-8, 1997. 57 Frank McShane, “‘Soft Skills and Hard Choices? Communities,Canadian Mining, Policy and Practice,” in SIO (ed.), CanadianMining Industry Focus Report (Toronto: The Social InvestmentOrganization, 1997), p. 81.58 Michael Jantzi Research Associates Inc.59 Michael Jantzi Research Associates Inc.60 Greenstone Resources, “Parameters of Discussion, ExternalAffairs—Ottawa.” Notes for a presentation, December 1, 1996; andAnneli Tolvanen, “Canadian Mining Companies in Nicaragua: TheView from the Rocking Chair is Not So Nice,” SHAIR InternationalForum, January/February 1997, pp.1, 8-9.

61 Michael Jantzi Research Associates Inc.62 Associated Press, “Protest Ends At Canadian-Owned BolivianMine,” The Gazette (Montreal), December 24, 1996.63 See an abridged version in Environmental Mining Council ofBritish Columbia, “Best Practices in Mining: Toward ResponsibleDevelopment,” Americas Update, 18:6 (1997), p. 4.64 Catherine Coumans, “Placer Dome in the Philippines: AnIllustration of the Need for Binding International Regulations onMining,” in Canadian Mining Industry Focus Report, pp. 63-64. 65 The Mining Association of Canada, Environmental Policy, 1995.66 Lemieux, p. 2. 67 George Miller, President of the Mining Association of Canada,quoted in The Social Investment Organization, Canadian MiningIndustry National Roundtable Report (Toronto: The Social InvestmentOrganization, 1997), p. 17.68 The estimate was made by comparing the list of “industry lead-ers” with two databases. The first comparison was with companieslisted by country in Giancola, Canadian Mines Handbook, 1996-97,“Companies with International Interests,” pp. 451-462. The secondcomparison was with the MIN-MET database of exploration andproduction properties and owners listed on Canadian stockexchanges, with calculations based on an estimate that one-third ofthe properties are not owned by Canadian-based companies. 69 Whiteway, p. 8.70 Calculation based on Giancola, Canadian Mines Handbook, 1996-97.71 Stelios Loizides and George Khoury, Corporate Responsibility inDeveloping Countries: Key Success Factors (Ottawa: The Conference Boardof Canada. 1996); Michael Jantzi Research Associates Inc., CanadianSocial Investment Database; annual and other company reports.72 Ian Thomson and Susan A. Joyce, “Mineral Exploration and theChallenge of Community Relations,” PDAC Communiqué, 1997, p. 2.73 Thomson and Joyce, pp. 7-8.74 Canterbury, pp. 7-10.75 Ian G. Austin, “Challenges for Mine Development in the ComingDecade.” Presentation to the Mining Finance Forum, Singapore,May 14, 1997, p. 5 (http://www.placerdome.com). Date accessed:05/25/97.76 John Willson, “New Frontiers for Placer Dome and the MiningIndustry.” Presentation to the CIM 99th Annual General Meeting,Vancouver, April 28, 1997, p. 3.77 Willson, p. 4.78 Greenstone Resources, p. 6.79 Interview with Judith Marshall. See also Judith Marshall, “Playerson a World Scale: Worker Exchanges between Chilean andCanadian Miners,” Americas Update, 18:6 (1997), pp. 6 - 7.80 Don Kossick, “Way Down in the Mine: Activists Establish aContinental Mining Network,” Briarpatch, 25 :7 (1996), p. 11.81 Marshall, p. 6.82 Figures provided by CIDA in May 1997 show that, since 1978,the Industrial Cooperation Division has provided financing to 195Canadian companies in the mining sector. Support is also providedthrough other CIDA programs. 83 Calculation based on surveys of codes in Craig Forcese, CommerceWith Conscience? Human Rights and Corporate Codes of Conduct(Montreal: International Centre for Human Rights and DemocraticDevelopment, 1997), Table 5, p. 48; “Ethical PerformanceComparison: Major Gold Mining Companies,” The Corporate EthicsMonitor, 9:1(1997), pp. 2-7; “Ethical Performance Comparison:Selected Integrated Mining and Metals Companies,” The CorporateEthics Monitor, 9:4 (1997), pp. 50-55; “Ethical PerformanceComparison: Tier Two Gold Mining Companies (Part 2),” TheCorporate Ethics Monitor, 9:2 (1997), pp. 18-23.84 James Cooney, “Corporate Codes of Conduct: Are ThereLimitations?” Presentation to the Human Rights and Trade Forum,Amnesty International, Toronto Organization, November 26, 1996,p. 5, (http://www.placerdome.com). Date accessed: 05/25/97.85 TCCR, Annual Report, 1987-88, pp. 41-42.86 Minority shareholder proposals seldom win a majority vote, buthave sometimes influenced management policy nonetheless.87 Moira Hutchinson, “The Promotion of Active Shareholdershipfor Corporate Social Responsibility in Canada.” Submitted to theCanadian Friends Service Committee (Toronto: Michael JantziResearch Associates Inc., 1996), p. 12.

N O T E S (continued)

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91

C H A P T E R F I V E

PURSUING

SUSTAINABLE

DEVELOPMENTI N F R A S T R U C T U R E A N D E N G I N E E R I N G

Gail Whiteman and Susan Brandum

G A I L W H I T E M A N I S A R E S E A R C H E R A T T H E

N O R T H - S O U T H I N S T I T U T E , S P E C I A L I Z I N G I N M A R K E T S

A N D S O C I A L E Q U I T Y I S S U E S . S U S A N B R A N D U M I S A

W R I T E R , E N V I R O N M E N T A L I S T , A N D C O M M U N I T Y

E C O N O M I C D E V E L O P E R .

Pages a-138 (152) 4/24/98 6:09 PM Page 91

No longer the sole domain of governmentmonopolies, infrastructure sectors across

the world have opened up to competition andprivate sector involvement. Developing coun-tries, in particular, are increasingly turning tothe private sector as a means of tapping into alarge source of capital, and of introducing efficiency into infrastructure.

According to the World Bank, “infrastructurerepresents, if not the engine, then the wheels,of economic activity.”1 Countries need roads,railways, ports, and airports. They need damsand canals for flood control and irrigation.They need energy. They need clean water andsanitation. They need reliable telecommunica-tions and access to the global information system.2

Unfortunately, much of the developing worldhas limited access to these services. One billionpeople in the South still do not have access toclean water and almost 2 billion lack propersanitation facilities.3 Millions have no access toa reliable energy source.4 And most of the devel-oping world does not have access to informa-tion and communication technologies—aprerequisite for competing in the global market-place.5 Currently, 1 million people are officiallywaiting for telephone hook-up6—in many areas,they may wait for 10 or more years.7

The need for infrastructure in developing coun-tries is increasing: population growth creates aconstant demand for basic services;8 economicprogress spurs demands for additional services;industrial and export growth can modify thetype of infrastructure required. Liberalizationhas opened infrastructure markets and theincreasing export focus of many developingcountries has led to an expansion of export-facilitating infrastructure, such as roads, ports,and communications. Finally, many developingcountries are actively searching for ways to jointhe global information network.9

What’s more, many developing countries arestruggling to maintain what little infrastructurealready exists. The road network in sub-SaharanAfrica is a prime example: because of poor main-tenance, nearly one-third of all roads built overthe last 20 years (valued at US$13 billion) are

unusable. According to the World Bank, the lackof proper maintenance is a problem throughoutthe developing world and publicly operated projects are plagued with waste and lost oppor-tunities. Ineffective public sector management is at the root of many of these problems.10 Theproblem is compounded by funding agencies’preference for new construction over maintenance projects.

The solution for many countries has been toexpand the role of the private sector—privatizeand/or commercialize wasteful, unproductiveoperations.11 Developing countries in particularare increasingly turning to the private sectorwhich offers large pools of global capital, as wellas the management skills often lacking in pub-licly managed infrastructure projects.12 In theBrazilian state of São Paulo alone, for example,US$750 million per year (about three-quarters ofthe total state annual forecast) has been ear-marked for privatized projects in environmentalinfrastructure over the next three years.13

Indeed, “greater private participation in infra-structure in at least 80 countries has resulted innearly 1,200 projects in telecommunications,energy, water, and transport.”14

In its 1994 report, Infrastructure for Development,the World Bank strongly encouraged the partici-pation of private companies in both the opera-tion and ongoing management of infrastructureprojects, and encouraged the public sector toadopt “commercial” approaches to manage-ment. It recommended that developing countries:

• Manage infrastructure like a business, not abureaucracy;

• Introduce competition—directly if feasible,indirectly if not;

• Give users and other stakeholders a strongvoice and real responsibility.15

Within the global infrastructure market, manynew opportunities present themselves to corpo-rations, particularly as alternative financing andmanagement plans become more widely avail-able: BOT (build-operate-transfer); BOOT (build-own-operate-transfer); and BOO (build-own-operate).16 Through service and management

92

C H A P T E R F I V E I N F R A S T R U C T U R E A N D E N G I N E E R I N G

T H E 1 9 9 4 W O R L D

D E V E L O P M E N T R E P O R T

D E F I N I T I O N O F

I N F R A S T R U C T U R E

I N C L U D E S E C O N O M I C

S E R V I C E S F R O M P U B L I C

U T I L I T I E S — P O W E R ,

T E L E C O M M U N I C A T I O N S ,

P I P E D W A T E R S U P P L Y ,

S A N I T A T I O N A N D

S E W E R A G E , S O L I D

W A S T E C O L L E C T I O N A N D

D I S P O S A L , A N D P I P E D

G A S ; P U B L I C W O R K S —

R O A D S , D A M S , A N D

C A N A L S F O R I R R I G A T I O N

A N D D R A I N A G E ; A N D

O T H E R T R A N S P O R T A T I O N

S E C T O R S — R A I L W A Y S ,

U R B A N T R A N S P O R T,

P O R T S A N D W A T E R W A Y S ,

A N D A I R P O R T S .

WORLD BANK, WDR 1994,

INFRASTRUCTURE FOR

DEVELOPMENT, 1994, P. 2.

PURSUING SUSTAINABLE

DEVELOPMENT

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contracts, lease contracts, and concessions, cor-porations now participate in infrastructure pro-jects that remain publicly owned. Power, transit,and rail projects are particularly suited to sharedownership between public and private sectors.17

Perhaps most spectacularly, the global marketfor information and communication technolo-gies (ICTs) is rapidly expanding in developingcountries, fueled primarily by transnational corporations.18

But increased private sector involvement is nota panacea—the social and environmental costsincurred under public sector management canalso occur under the private sector. Never-theless, increased private sector participation in

infrastructure may reduce inefficiencies, intro-duce more effective management practices, andimprove fiscal accountability. It will not neces-sarily address the hidden or external costs ofsuch projects, however, as infrastructure projectscan still have social and environmental side-effects—and in cases like China’s Three GorgesDam, the cost-benefit analysis may be controversial.

In this chapter we explore Canadian participa-tion and expertise in this sector in developingcountries, focusing on companies committed tosustainable infrastructure development, and onCanadian engineering consultants.

93


BOX 1 THE BENEFITS OF INFRASTRUCTURE DEVELOPMENT

The developing world invests some US$200billion a year in new infrastructure, approxi-mately 20 percent of their total investment.1

Estimates show that this trend will continue:World Bank client countries, for instance, areexpected to spend US$200-250 billion oninfrastructure projects in the next decade.2

By sector, investments in energy and trans-portation dominate the infrastructure agendasof Asia and Latin America and the Caribbean,while the provision of clean water and propersanitation remain a pressing concern in Africaand the Middle East.3

ANNUAL REQUIRED INFRASTRUCTUREINVESTMENT BY REGION, 1994-2000( U S $ B I L L I O N S )

Africa and Latin Asia TotalMiddle America and

East the Caribbean

Energy 6 24 52 82Telecommunications 3 10 25 38Transportation 6 14 52 72Water & Sanitation 10 12 14 36Total 25 60 143 228

Source: CIDA, Infrastructure Services Policy: Background DiscussionPaper, Sept. 13, 1996, p. 8.

THE BENEFITS TO DEVELOPING COUNTRIES

Infrastructure investment offers many socialand environmental benefits. The 1994 WorldDevelopment Report notes that access to safewater and a reliable source of power alleviatesthe workloads of women and children whoare often responsible for securing water andfuel. Reliable power also reduces the produc-tion costs of many manufacturing and ser-vices industries. In addition, safe and reliabletransportation allows women and girls greateraccess to educational programs.4 And whileinfrastructure by its very nature has an impact

on the natural environment, this can be bene-ficial, particularly with respect to water treat-ment, sewage, and waste disposal. Moreefficient energy sources can also reduce pres-sure on scarce or delicate biomass resources.

Solid infrastructure appears intrinsically linkedto solid economic development. Withoutroads, airports, telecommunications, or a reliable energy source, countries cannot efficiently operate in the global marketplace.The private sector also requires infrastructurefor economic activities and expansion.

The exact relationship between infrastructureand a booming economy remains unclear. Asthe World Bank suggests, “many studies on thetopic have concluded that the role of infrastruc-ture in growth is substantial, significant, and frequently greater than that of investment inother forms of capital.”5 But it is inconclusivewhether the relationship between infrastructureand economic growth is correlative or causal.While infrastructure intuitively appears to reduceproduction costs and increase productivity—largely because the available workforce spendsless time on obtaining basics such as water andfuel—there is no conclusive answer.6 Other studies have also shown that causality actuallyruns in both directions: infrastructure investmentcreates economic growth which also fuels futureinfrastructure investment.

N O T E S

1 World Bank, World Development Report 1994, p. 1.2 World Bank, Annual Report, 1997.3 These CIDA forecasts reflect the minimum amount of financingrequired in developing countries to maintain the status quo; thesefigures do not reflect an increase in infrastructure services, nor dothey include infrastructure investments that are needed to closethe gap between the developed and the developing world.4 World Development Report 1994, p. 15 Ibid., p. 15.6 Ibid., pp. 124-26.

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P U R S U I N G S U S T A I N A B L E

D E V E L O P M E N T

Developing sustainable infrastructure relies onthe broad principles and practices of sustainabledevelopment. As defined in Our Common Future,the 1987 report of the World Commission onEnvironment and Development, sustainabledevelopment is “development that meets theneeds of the present without compromising theability of future generations to meet their ownneeds,” with the caveat that sustainable devel-opment requires more rapid economic growth

in both industrial and developing countries.19

To be sustainable, development must includeconcern for society and the economy as well asthe environment.

For developing countries, a crucial first steptoward sustainability is to improve the efficiencyof existing infrastructure, or sources of supply(see Box 3). According to the 1994 WorldDevelopment Report, “maintenance problems thatcause water or power losses are even more com-mon and costly...[than] costs due to poor debtmanagement (which are) excessive in about one-third of World Bank supported infrastructure pro-jects. [...] Unaccounted for water is typically twoto three times higher in developing country systems than in countries that achieve the indus-try standards. In 1987, one-quarter of the powerutilities in developing countries had losses ofelectricity in the transmission and distributionnetwork that were twice those in efficiently oper-ated systems. In some African countries, spend-ing US$1 million to reduce line losses could saveUS$12 million in generation capacity.”20

The search for efficiencies must go beyond exist-ing infrastructure, however, which is predomi-nantly geared to supply. A second step is to findmore efficient ways of meeting escalatingdemand. Studies of expected demands for infra-structure services show considerable opportunitiesfor Canadian companies in a number of areas.

IN ENERGY

According to the 1997 United NationsDevelopment Programme (UNDP) report, EnergyAfter Rio, “current patterns of the production,distribution and use of energy are not sustain-able.”21 The UNDP recommends three options:redirect the development of the world energysystem away from supply to a more efficient useof energy, especially at the point of end-use;increase the use of modern, renewable sourcesof energy; and maximize use of the next genera-tion of technologies that use fossil fuels.

The UNDP believes that improvements in end-use efficiency “will provide the greatest andmost cost-effective opportunities for sustainableenergy development in LDCs.” It argues that“by shifting to high-quality energy carriers andby exploiting cost-effective, efficient end-usedevices, it would be possible to improve livingstandards without significantly increasing percapita energy use above the present level. Forinstance, the energy requirements for the WestEuropean standard of living in the mid-1970s

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BOX 2 THE WORLD BANK AND THE PRIVATE SECTOR

In its 1997 Annual Report, the World Bank presents a plan for strategicretooling, with four networks at the heart of a “new knowledge-basedBank.” The third of such networks, titled Finance, Private Sector, andInfrastructure, illustrates the strategic coupling of the private sector andinfrastructure development. Following its recommendations for increasedcommercialization of developing-country infrastructure, the World Banknow specifically evaluates the potential for private sector participationwithin its International Bank for Reconstruction and Development (IBRD)and International Development Association (IDA) lending programs.

IBRD AND IDA LENDING TO SECTORS WITH POTENTIALFOR PRIVATE SECTOR INVOLVEMENT, FISCAL YEAR 1997( U S $ M I L L I O N S )

Source: World Bank, Annual Report 1997, p 30.

Consistent with this strategic vision, World Bank private participation ininfrastructure (PPI) operations significantly increased in 1997.

WORLD BANK PPI OPERATIONS, FISCAL YEARS 1988-97

Instrument Africa East South Europe Latin Middle TotalAsia Asia and America East andand Central and the North

Pacific Asia Caribbean Africa

Adjustment: single sector 4 0 0 1 1 1 7Adjustment: multisector 1 0 0 1 7 1 10Technical Assistance 6 1 1 1 13 0 22Investment Lending 37 24 18 16 26 8 129Guarantees 0 4 2 0 1 1 8Total 48 29 21 19 48 11 176of which: increase in FY97 (7) (6) (3) (3) (14) (5) (38)

Source: World Bank, Annual Report 1997, Table 2-3, p. 32

TRANSPORTATION28 PROJECTS$3,691

ELECTRIC POWER AND OTHER ENERGY 17 PROJECTS $1,889

FINANCIAL SECTOR15 PROJECTS$1,195

URBAN DEVELOPMENT13 PROJECTS

$808

WATER SUPPLYAND SANITATION

13 PROJECTS$683

INDUSTRYAND MINING

7 PROJECTS$517

OIL AND GAS4 PROJECTS

$136

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could be as low as 1 kW/capita, only 2 percenthigher than the 1986 level in developing coun-tries, if state-of-the-art energy-efficient technologies are used.”22

The UNDP also clearly believes that the benefitsof demand management have yet to be thor-oughly exploited and that they are potentiallygreater than others suggest: the World Banknoted in its 1992 World Development Report that,even with a 25 percent level of savings fromenergy efficiency—equal to the whole of theworld’s energy consumption today—worldenergy demands are likely to double in the next30 years, then treble to 20 billion tons of oilequivalent energy (TOE) in the next 40 years.

Therefore, say World Bank advisors DennisAnderson and Kulsum Ahmed, global climatechange and other atmospheric problems associ-ated with burning fossil fuels make it critical thatrenewable and cleaner forms of energy be devel-oped and used. They also point out that “a worldenergy market of 20 billion TOE translates into amarket of over US$4.5 trillion per year, morethan half of which will be in the developingcountries and the economic gains from new,lower cost energy resources would be consider-able.” 23 What is the economic case for businessto be involved in renewables? “The technologieswill eventually compete with fossil and nuclear

fuels—and also with hydroelectricity,” they say.“Indeed, they are already competitive for smaller-scale applications and markets are growing.”

Even without major incentives to renewablepower, wind energy, for example, will supply anadditional 1,400 to 2,850 MW of power in themajor developing countries between 1994 and2000, according to a 1994 report by Arthur D. Little. The same study estimated a US$2 to $3billion market by 2000. Windpower costs areexpected to drop to a standard $0.04/kWh by2000. The Indian Ministry of NonconventionalEnergy currently estimates the capital costs ofnew wind energy plants to be about the same asfor new thermal power plants.24

The opportunities for Canadian companiesexperienced in demand management and inrenewable energy technologies are considerable.

As the Canadian Global Change Program25

(CGCP) and the Canadian Climate ProgramBoard26 (CCPB) noted in their 1996 submissionto Canada’s environment and energy ministers,the energy efficiency and fuel switching neededto reduce greenhouse gas emissions requiretechnologies that are essential to the informa-tion economy. They need advanced design andmanagement of energy demand and supply, andrelatively small technologies that are applied atthe point of use rather than through large networks, thus reducing infrastructure and distribution costs.

The CGCP and CCPB concluded that thesecould create niche trade opportunities forCanada in the rapidly industrializing countriesof Asia and Latin America. Providing cleanwater and adequate housing to their growingpopulations—while avoiding atmospheric pollu-tion—will require the kind of environmentallyfriendly, energy-efficient, “green” technologiesthat Canadian companies may be able to offer.27

IN WATER SUPPLY AND WASTE WATER

MANAGEMENT

“Review of current trends indicates that we are approaching a water crisis in several regionsof the world, most notably in the Middle Eastand North Africa,” reports the CanadianInternational Development Agency (CIDA).28

“Wars of the next century will be over water,warned the World Bank at the 1995 StockholmWater Conference [....] Tensions over water com-petition where ‘water, not oil, will be the domi-nant resource,’ threaten a military response.Currently 26 countries of about 300 million

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BOX 3 TWO STEPS TO SUSTAINABILITY

David Orr, Dean of Environmental Studies atOberlin College in Ohio, differentiatesbetween technological and ecological sus-tainability. Technological sustainability is abelief that society can become more sustain-able within the modern paradigm throughbetter technologies and more accurateprices. Orr defines ecological sustainability as“the task of finding alternatives to the prac-tices that got us in trouble in the first place.”

Orr argues that the two approaches can besuccessive: “... these are not necessarilymutually exclusive. To the contrary, I con-sider both to be necessary parts of a sustain-able world. To use a medical analogy, thevital signs of the heart attack victim must bestabilized first or all else is moot. Afterwardscomes the longer-term process of dealingwith the causes of the trauma which have todo with diet and lifestyle. If these are notcorrected, however, the patient’s long-termprospects are bleak.”1

N O T E S

1 David W. Orr, Ecological Literacy, Education and the Transitionto a Postmodern World (Albany: State University of New YorkPress, 1992), p. 24.

P R O J E C T E D A D D I T I O N S

T O W I N D E N E R G Y

C A P A C I T Y , 1 9 9 4 - 2 0 0 0

( C U M U L A T I V E )

COUNTRY CAPACITY MW

INDIA 700-1,200CHINA 350-1,000MEXICO 150-300CHILE 100-200ARGENTINA 100-150

Source: Arthur D. Little, [1994,reproduced] in IEEE Spectrum,November 1995.

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inhabitants suffer from water shortages due todrought, overpopulation, and pollution ofsources. By the year 2050, water shortages willlikely affect 66 countries of 7.7 billion inhabi-tants representing 65 percent of projected worldpopulation in developing countries,” says CIDA.

The World Bank is equally pessimistic:“Worldwide, roughly 1 billion people lack accessto clean water and more than 1.7 billion do nothave adequate sanitation. Diarrheal disease,often caused by contaminated water, representsone-sixth of the world’s burden of disease. Themost widespread contaminant of water is disease-bearing human waste.”29

And according to CIDA, “at the end of the[1980s], the state of water infrastructure indeveloping countries was virtually unchangedfrom that of a decade before.”30 Such watershortages create opportunities for Canadiancompanies with experience in reducing demandand in establishing less costly water treatmentsystems.

IN TELECOMMUNICATIONS

It is impossible to predict the full impact of theinformation revolution on sustainability.“However,” says CIDA President HugetteLabelle, “knowledge and information now rivalnatural resources and the availability of cheaplabour as key factors of production.[...]Telecommunications has become much morethan a means of transmitting and receiving sig-nals. It is the agent and to a large extent theempowering and determining factor in nationaldevelopment, making possible the evolution ofcompetitive, knowledge-based societies [...].”31

According to Labelle, telecommunications arevital to environmental, economic, social, politi-cal, and cultural sustainability. They can alsoprovide early warnings of environmental degra-dation; reduce wastage and therefore costs intransportation and communication; improveaccess to health care and education; fosterdemocratic development and the growth of civilsociety; and strengthen cultural identities.

And, says CIDA’s Gerard Kenney, wheredeveloped countries “have large installationssunk in outdated technology, many countrieswith relatively undeveloped informationinfrastructures are in a favourable position tocatch up with or even leapfrog over moredeveloped countries.”32

RECOGNIZING THE OPPORTUNITIES

What are Canadian companies doing to helpprovide this infrastructure?

The focus of most large Canadian companies ismaking technology more efficient and therebyreducing waste while, if possible, improving theuse of resources. For example, some publicCanadian electricity utilities, such as ManitobaHydro, Ontario Hydro, and Hydro-Québec, under-take consultancies, often aimed at improving effi-ciencies in existing or new power supply andtransmission projects. Domestically, these utilitieshave begun to learn about renewable energy sup-ply, but have not transferred these lessons to theirwork in developing countries. While most haveexperience with demand management programs,these have not yet become major components oftheir contracting work in developing countries.

In general, most large Canadian companies have not recognized or pursued opportunities insustainable technologies. Smaller companies,however, have risen to the challenge (see Box 4).Some, often with the assistance and encourage-ment of agencies such as CIDA, have begun toaddress demand management in consultationsand planning with developing-country clients.Others are offering their renewable energy tech-nologies. Probyn & Company, a specialist infinancing energy and environmentally sensitiveinfrastructure projects, is supporting a wind-power project in St Lucia, for example. ConservalEngineering has built Solarwall crop dryers inMalaysia and Indonesia, after bidding on projectsdefined by CIDA and the Association ofSoutheast Asian Nations (ASEAN). Partnered withCIDA’s Industrial Cooperation Program, it isbuilding another solar dryer in India. Conserval’ssimple, highly efficient technology can displaceexternal supplies of energy, including oil andwood. On a sunny day, each square metre ofSolarwall can displace a half-litre of oil.33

According to the UNDP’s 1990 HumanDevelopment Report, these technologies are notonly environmentally better, but they are alsomore cost-effective. “The recent rekindling ofinterest in cost-effective technology has beentriggered not only by the financial crisis of the1980s, but also by the finding that low-costtechnology in many instances is not onlycheaper but better. There are examples of suchtechnologies in all sectors: oral rehydrationtechnology and breastfeeding in health,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 isnatural that Canadian engineering companies like Proctor & Redfern International Ltd areinvesting time and energy in exporting their expertise.

Proctor & Redfern first went to Ecuador in 1985 on a CIDA-funded project. In 1992, thecompany decided to focus its marketing plan on Latin America and the Caribbean, choosingEcuador 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 designthe 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 animportant 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’ssuccess, says Toledo, was that the company demonstrated its understanding of the issues andproposed an appropriate technology.

Working with local consultants, including computer applications experts, an architect, and aneconomist who undertook the socioeconomic survey and the feasibility report, Proctor & Redfernproposed 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 theUS. 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 lifeto digest organic waste, replicating, under controlled conditions, the water purifying process thatoccurs in nature. The process produces a clean effluent that can be safely discharged into theenvironment. 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, inrecognition of its work bringing telephone communications to rural Peruvians. The company designs,manufactures, and markets wireless microwave products for rural and remote areas. The companysays it “is representative of the type of advanced technology manufacturer upon which Canada reliesincreasingly for sustained economic growth, job creation, and prosperity at home.”1 A three-timewinner 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 250,000square kilometres to Peru’s telephone system. It delivered the wireless communications systems toTelefónica del Peru, the former state-owned telephone company privatized in 1994. In documentssupporting its award application, the company notes, “the strategic targeting of ODA can fosterlong-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 areaswhere infrastructure didn’t exist, now new business has enabling infrastructure.”3 He points tonumerous 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 tele-phone. According to Lusignan, the social, economic, and environmental benefits mount with tele-phone access. Businesses are able to improve scheduling, there is less wastage of time and ofproduce, and authorities can respond to emergencies more quickly.

CIDA considers that, in addition to making communities less isolated, this particular project had astrong impact on economic development. The Government of Peru felt that the advent of reliable communications technology supported good governance by facilitating more effectivedelivery 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 isespecially crucial in times of medical emergencies or natural disasters.

N O T E S

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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Renewable energy also better addresses allaspects of sustainability, including social andeconomic considerations: “renewable energy istwo to four times more labour-intensive thannonrenewable,”35 says Paul Hawken, author ofThe Ecology of Commerce and a pre-eminentwriter on the relationship between the economyand the environment.

Canadian companies offer many examples ofinnovative technologies, locally built to ahuman scale. Here are a few examples:

• Zenon Environmental Inc. provides mem-brane products for water and wastewatertreatment in areas of the world desperatelyshort of water, including Egypt and theUnited Arab Emirates. Less costly to buildand operate than conventional systems, theyalso require fewer chemicals and less energy.Membrane technology, which can oftenremove and isolate contaminants that con-ventional water treatment systems cannot—including nuclear, biological, and chemicalwarfare agents—is able to convert brackishwater and seawater into potable water. In1994, for instance, the company’s system at aRwandan refugee camp purified 40,000 litresof polluted, cholera-laden water a day.36

• Trojan Technologies Inc. provides ultravioletwater disinfection systems that destroymicrobial and toxic pollutants in South andCentral America and throughout SoutheastAsia. Its process also boasts low chemical,capital, and operating costs.37

• The engineering consulting firm of Proctor &Redfern International Ltd is using an innova-tive waste water treatment system called “a liv-ing machine” to treat sewage in the ecologicallysensitive Galapagos Islands. The system closelymimics nature, reducing resource throughput,and is inexpensive to operate (see Box 4).

• In telecommunications, SR Telecom Inc.’sPeru project (see Box 4) demonstrates how an“enabling” rural communications networkcan serve social, political, developmental,and economic needs.

S E R V I N G T O M O R R O W ’ S C I T I E S

CIDA’s 1997 Sustainable Development Strategynotes that:

A different kind of challenge is posed byrapid urbanization of the developingworld. Urban growth rates of 6 percent arenot unusual. By the year 2015, urbandwellers will outnumber rural for the firsttime in history. This trend brings mixedblessings for the developing world. Citiesare the motor of economic growth and canoffer increased economic activity, greateremployment, and growing trade. However,the poor are disproportionately threatenedin large cities by environmental hazardsand health risks caused by pollution of air, ground, and water, as well as by inadequate housing, poor sanitation, and lack of other basic services.38


TABLE 1 Canadian Firms in the Top 200 International Design Firms (1996)RANKINGa 1996 BILLINGS MARKETS (% BILLINGS)

1997 1996 Company Firm Int’l % of General Manufac- Power Water Sewer/ Industrial/ Transpor- HazardousTypeb ($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 1Montreal, PQ

21 14 AGRA Inc., Oakville, ON EC 215.30 47 10 20 15 2 1 30 4 630 32 Simons International Corp. EC 144.90 60 0 28 0 0 0 72 0 0

Vancouver, BC77 63 Sandwell Inc., Vancouver, BC E 37.80 54 0 1 5 0 0 74 19 085 81 Hatch Associates Ltd., E 33.40 33 0 1 0 0 1 83 10 0

Mississauga, ON93 77 Tecsult Inc., Montreal, PQ E 28.60 43 5 0 20 10 5 5 20 0108 102 Acres International Ltd., E 20.30 57 1 1 64 3 1 17 8 2

Toronto, ON109 117 Stanley Technology Group Inc., E 20.00 26 0 0 0 20 20 0 15 0

Edmonton, Alberta147 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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T H E B O T T O M L I N E I S

T H A T S U S T A I N A B L E

B U S I N E S S I S , Q U I T E

S I M P L Y , G O O D

B U S I N E S S .

KEN MCCREADY, FORMER

CEO, TRANSALTA CORP.,

ADDRESS TO INTERFACE

CONFERENCE, KINGSTON

ONTARIO, OCTOBER 8, 1997

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According to Jay Jayadev, a renewable energyconsultant:

When these villagers move to city areas, as they often do, the urban infrastructure isstrained in many ways, not the least in itsability to meet the demand for electricity. The International Energy Agency predicts thatif city populations in developing countriesdouble in the next 15 years, energy demandwill increase 45 percent even if nationalincome levels and population remain con-stant. But social and economic problems arecaused by such urbanization, which might beprevented by more rural development.39

The decentralized and appropriate-scale of thenew technologies could alleviate these problemsby helping reduce rural-urban migration. It isargued that, if commerce and industry no longerdepend on large power, water, and wastewatergrids, they could locate in smaller centres or ruralareas. Established as stand-alone systems, renew-able energy sources could provide power for iso-lated villages, where approximately 2 billion ofthe world’s population lives, says Jayadev. Andbecause a major grid is not needed, the benefitsrelative to costs of renewables soar.40 SR Telecom’smicrowave relay towers in Peru require energy, forexample, but this is provided by solar panels, thusenabling a telephone system to be establishedwithout a companion electrical grid.

Decentralized, renewable energy sources, power-ing high efficiency end-use energy devices forresidential and productive uses, would also con-tribute to job creation, says the UNDP.41 It sug-gests that “decentralized rural electrification is aproven competitor to grid extension.Decentralized generation and distribution ofelectricity creates more employment in ruralareas than central generation. Furthermore, biomass production could be a major source ofjobs and revenues for rural populations.”42

Great opportunities exist for Canadian businessin sustainable infrastructure. But it remains tobe seen if they take advantage of domestic innovation and see the potential in the “nextindustrial revolution.”

A R O L E F O R E N G I N E E R I N G

A N D I N F R A S T R U C T U R E

Engineering permeates every sector of infra-structure, and Canadian firms are globally com-petitive.43 Canada is the fourth largest exporterof engineering services in the world,44 and in1996 supplied 7.4 percent of the global exports

of consulting services.45 As Table 1 indicates,nine Canadian companies are in the Top 200international design firms: most of themactively participate in international projects.SNC-Lavalin International Inc., for instance,ranks third in the world in internationalbillings, has permanent offices in close to 30countries, and active projects in 86 countries.46

While many Canadian companies enjoy a strongpresence in the US, they are also active in thedeveloping world. In fact, the activities of thetop Canadian engineering companies are moreconcentrated in Asia than in the US (see Table 2).As Waine McQuinn, manager of InternationalPrograms at the Association of ConsultingEngineers of Canada (ACEC), explains: “Asia isthe largest source of revenues for Canadian con-sulting engineers, even though we only rankfifth in that market.”47 Canadian firms also havea strong presence in Africa and Latin America,ranking second in each in terms of market share.

Engineering consultants tend to export exper-tise developed at home,48 competing effectivelyin resource extraction, energy, telecommunica-tions, transportation, and basic infrastructure.49

Canadian engineers are involved globally indesigning buildings, manufacturing plants,power plants, water supply systems, sewage/waste treatment facilities, industrial/petroleumprojects, transportation, and to a lesser extent,in hazardous waste disposal (see Table 1 for sector breakdowns by company).

THE IMPACT OF CANADIAN ENGINEERING

Engineering firms can help provide two keybenefits to developing countries—an improvedquality of life, and increased human capabilitiesthrough technology transfer. But engineeringprojects can also carry particular economic andenvironmental costs.


TABLE 2 Geographic Concentration of Top CanadianEngineering Design Firms

Cdn Firmsa % Market Ranking Geographic ConcentrationGeographic 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 6.0Asia 288.5 6.0 5 26.8Africa 182.5 15.6 2 17.0Europe 115.5 2.6 6 10.7US 283.7 18.1 3 26.3Latin America 141.9 12.9 2 13.2TOTAL 1,076.8 7.4 4 100.0

Notes: a Based on nine Canadian firms in the “Top 200 International Design Firms” (1996). Source: ENR, July 21, 1997.

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IMPROVING QUALITY OF LIFE

Canadian engineering consultants are reputed fortheir expertise in infrastructure design.50 Well-designed infrastructure can tangibly improve thequality of life, everywhere. As the CanadianCouncil of Professional Engineers’ vision state-ment puts it: “Ultimately, the engineering profes-sion contributes to the betterment of the humancondition, fosters prosperity and makes the worlda better place in which to live.”51

Many Canadian companies support these goalsand engineers have made significant social andenvironmental contributions. Two examples can be found at Acres International Ltd and SNC-Lavalin. “We do a lot of training, manage-ment reviews, a lot of nonengineering type ofwork—institution building really,” says Martinter Woort, Manager, Development Planning, atAcres.52 Corporate giant SNC-Lavalin alsoundertakes institution-building: most recentlySNC-Lavalin Environment spearheaded a CIDA-funded project in Vietnam aimed at strengthen-ing national and local capabilities to undertakeenvironmental monitoring, assessment, andplanning.53

Determining whether or not the larger goal of “improving quality of life” is achieved,however, depends on whose perspective is used and what criteria are included in theevaluation. In the past, engineering projects—like many business activities—were evaluatedsolely according to economic and technicalcriteria: “quality of life”—defined as standard ofliving—improved if the economics demon-strated that it did. Today more sustainableindices and measurements54 recognize thateconomics are only one component of “well-being” whose measurement must include socialand environmental considerations.

Yet, for some Canadian engineers it is still busi-ness as usual: one company executive inter-viewed, for example, felt that it was naive toexpect engineering companies to be concernedwith anything other than economics or techni-cal design. There are indications, however, thatCanadian engineering associations are beginningto recognize the technical and social aspects oftheir activities. For instance, the EnvironmentalCode of Conduct developed by the Associationof Consulting Engineers of Canada acknowl-edges that: “These [technical] advancementshave greatly enhanced the quality of human lifeand contributed to the increased global popula-tion. They have also, at times, impacted nega-

tively on the earth’s natural system.”55 “Clearly,”says Gary Wacker, Chair of the Board of theCanadian Council of Professional Engineers(CCPE), “engineering has become a societalprocess as well as a technical activity.”56

Canadian companies are sometimes asked byclients to provide an objective, broad-based perspective on sustainable alternatives, or whatAcres calls a “master plan.” Master plans aim toobjectively examine sustainable alternativesalongside traditional options. “We’ve done powersector master plans which would quite openlytake in alternatives,” says Bob Witherell,Executive Vice-President of Acres International,“but because of more private sector involvement,these master plan studies are getting fewer.”Witherell believes that engineering consultantshave less influence on the type of projectdesigned because “the decision is made by the[host] government about what exactly is to bestudied.”57

In general, the best design for an individual pro-ject does not necessarily translate into the bestsystem-wide solution from a social or environ-mental perspective. Traditionally, social andenvironmental impacts have not been ade-quately addressed in engineering feasibilitystudies, nor in the design process itself. This hasalso been true in the planning and design oflarge-scale hydroelectric projects where socialand environmental issues have only relativelyrecently been introduced (see Table 3).

The most controversial example may be China’sThree Gorges Dam project in which a number ofCanada’s top engineering companies—SNC-Lavalin, Agra Monenco Inc., Stanley TechnologyGroup Inc. (through partially owned TeshmontConsultants Inc.), and Acres International Ltd—have been involved. While most of theirinvolvement ended at the feasibility stage, thesecompanies were strongly criticized because thestudies provided the foundation for projectfinancing and supported the final decision toproceed. Companies such as Agra Monenco,Teshmont, and General Electric Co. have alsobeen involved in later stages, even after agenciessuch as the US Export-Import Bank refused toprovide financial assistance.

China’s Three Gorges Project is the largesthydroelectric project in the world. A multi-purpose water project, it will deliver 18,200megawatts of power, reduce annual flood risksto 60 million people, and provide jobs for35,000.58 Projected benefits also include

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economic development and improved naviga-tion routes. Flood control is the dam’s main justification, however. According to ScottFerguson and Martin ter Woort of Acres, “floodsin 1931, 1935, and 1954 drowned 317,000 peo-ple.”59 In 1954, 19 million were also displaced.“It is estimated that the damages from anothermajor flood would exceed the $19 billion cost ofthe Three Gorges project,” they say.60

But the project will also force the permanentrelocation of more than 1.3 million people—many of whom are resistant to such resettle-ment 61—and will flood 63,500 hectares offarmland.62 Environmentalists warn of wide-spread environmental damage. Much contro-versy has surrounded the project, particularlysince experts such as Dr Luna B. Leopold, of theUS suggest that sedimentation will seriouslyimpede the project’s effectiveness.63

Canadian engineering companies have beeninvolved in Three Gorges since the mid- to late-1980s when a consortium of Canadian compa-nies (Acres, SNC-Lavalin, Hydro-Québec, BCHydro) carried out a comprehensive feasibilitystudy financed by CIDA. They recommended a160-metre reservoir pool level because they didnot feel that resettlement feasibility could bedemonstrated at higher levels. The ChinesePanel of Experts recommended a level of 175metres, however, citing flood control and theconcern over navigation at the upper end of thereservoir. “In effect, the Chinese opted to tradeoff higher resettlement costs to provide moreeconomic benefits to Sichuan Province,” sayFerguson and ter Woort. 64

Agra Monenco Inc. also received a $35 millioncontract to provide a computerized engineeringmanagement system and management trainingservices to the Three Gorges DevelopmentCorporation (TGDC).65 Although a company


BOX 5 SMALLER IS BEAUTIFUL: THE CHANGING SCOPE OFINFRASTRUCTURE PROJECTS

In 1994, World Bank research indicated thatmuch of infrastructure investment is wastedas a result of inadequate maintenance, misal-location of investment, inefficient operations,unsatisfied user demand, financial inefficien-cies, and fiscal drain.1 This is unfortunatesince “Both quantity and quality improve-ments are essential to modernize and diver-sify production, help countries competeinternationally, and accommodate rapidurbanization.”2

If large infrastructure projects—which werenot always effective—were the rule in thepast, the need for appropriately sized andconfigured infrastructure projects is increas-ingly recognized, particularly those that canachieve sustainable development objectives.While not an official policy directive, theWorld Bank is now “leaning more towardsmaller infrastructure projects.”3 As James D.Wolfensohn, President of the World Bank,notes: “One of the things that has pushed usmore toward small projects is the ownership,control, and capacity of the local govern-ments to deal with small projects.”4

This may mean that, to obtain financing,mega-projects will need to demonstrate thatthey are “environmentally sensible and [...]deal sensitively with indigenous populations.”5

For example, the World Bank and the WorldConservation Union recently established anindependent commission that will developstandards for large energy projects as well asguidelines for countries and investors, and willassess alternative approaches.6 However—despite critics’ requests for a moratorium oncontentious projects—construction will con-tinue on large-scale projects already underway,at least until the World Commission on Damshas completed its two-year review.

N O T E S

1 World Development Report 1994.2 Ibid., p. iii.3 Tom Ichniowski, “World Bank sets sight on small infrastruc-ture projects,” ENR, October 7, 1996, p. 20.4 Ibid., p. 20.5 Ibid., p. 20.6 Kate Dunn, “World Bank joins effort to form dam watchdog,”The Ottawa Citizen, February 17, 1998, p. A20.

TABLE 3 Historical Evolution ofTransparency and Parti-cipation in Large Dams:Broadening the Consti-tuency of the Design Team

Design Team Members Era (approx)

1 Engineers Pre-WWII dams2 Engineers + Economists Post-WWII dams3 Engineers + Economists + an Environmental Late 1970s

Impact Statement (after completion of design)4 Engineers + Economists + Late 1980s

Environmental & Sociologists5 Engineers + Economists + Environmental & Early 1990s

Sociologists + Affected People6 Engineers + Economists + Environmental & Mid 1990s

Sociologists + Affected People + NGOs7 Engineers + Economists + Environmental & Sociologists +

Affected People + NGOs + Public ‘Acceptance’ Early 2000s?

Source: Robert Goodland, “Environmental Sustainability inthe Hydro Industry: Disaggregating the Debates, in TonyDorcey, ed., Large Dams: Learning from the Past, Looking at theFuture, Workshop Proceedings April 11-12, 1997 (Gland,Switz.: IUCN-The World Conservation Union & The WorldBank Group).

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spokesperson denies the claim, ProbeInternational suggests that the system will beused to develop the resettlement plan. AgraMonenco defends its involvement by citing economic benefits and the improved efficiencyof Chinese infrastructure.66 Agra Monencoreceived $12.5 million worth of guarantees fromthe Export Development Corporation (EDC).

Teshmont has also been involved in engineeringstudies for transmission lines leading fromThree Gorges. And GE Canada Inc. will supplyturbines and generators, with a contract esti-mated at $160 million. The EDC provided anundisclosed amount in financial guarantees.67

Although Chinese authorities claim that interna-tional standards for environmental assessmentand social resettlement are being met and thatsocial and environmental evaluations were com-pleted, organizations such as Asia Watch dis-agree. In addition to external criticisms, 25percent of the members of the national People’sCongress abstained from voting on Three Gorgesand an additional 10 percent voted against theproject.68 “The Chinese have decided that it’sworth it because in their view, resettlement isdevelopment,” says Martin ter Woort.69

Some fundamental issues arise from the contro-versy surrounding Three Gorges. Do Canadianengineering consultants have a responsibility toensure that social and environmental issues areadequately addressed? “Yes,” says ter Woort. Itcan be argued that the engineers’ job is to planand make recommendations while it’s up totheir pay masters to implement. But ter Woortalso believes that engineers can make a differ-ence. In the Three Gorges project, “we spent agreat deal of time developing better resettlementcost estimates and arguing strongly that thesecosts were real and should be funded as projectcosts,” he says. “The social and environmentalcosts of Three Gorges make up one-third of thetotal project. That’s unheard of,” says ter Woort.

While financial provisions for environmentaland social impacts are important, a more funda-mental question remains: should Canadian engi-neering consultants ever undertake projects withsuch heavy social and environmental costs?While Canadians may have helped make a badsituation better, should they have been involvedin the first place? The answer is unclear: whileCanadian corporate participation supports con-troversial projects like Three Gorges, its partici-pation may open the door to change from theinside. “If we’re not sitting at the table, we don’t

have a chance to influence,” says ter Woort. And such mega-projects may go ahead, with orwithout Canadian involvement. The issue forCanadian engineers, therefore, is not onlywhether or not they should participate, but howthey can make a difference.

One way to have a beneficial impact is by devel-oping evaluative approaches that incorporateenvironmental and social, as well as economicand technical, criteria. For example, AcresInternational recently received an award from the

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BOX 6 CANADIAN ODA SUPPORT OFINFRASTRUCTURE

CIDA identifies four key sectors as infrastruc-ture services: energy; information and communication technologies (ICTs); trans-portation; and water, irrigation, and sanita-tion. From a private sector perspective,infrastructure can also include engineeringconsulting services and environmental technologies, which span all four sectors.

In Canada in the World, the federal govern-ment identified infrastructure services as oneof six priorities for Canadian official develop-ment assistance (ODA). The provision of“environmentally sound infrastructure services, with an emphasis on poorer groupsand on capacity building” is a key means bywhich Canadians are helping developingcountries reduce poverty and enjoy a safe,and equitable environment.1 Canadian government investment in developing-country infrastructure accounted for approxi-mately 9 percent or $184 million annually ofour total bilateral ODA budget from 1990 to1995.2 Infrastructure disbursements by sectorwere as follows:

CIDA BILATERAL INFRASTRUCTUREDISBURSEMENTS 1990-91 TO 1994-95

N O T E S

1 Canada, Canada in the World: A Government Statement (Ottawa:Canada Communications Group, 1995), p. 42.2 CIDA, “Infrastructure Services Policy,” September 13, 1996, p. 10.

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ACEC for incorporating social and environmen-tal criteria in its decisionmaking methodology.Acres sells this approach to its clients as part ofthe normal cycle. In its award-winning study,Acres prepared a detailed screening and rankingstudy for medium-sized hydropower projects inNepal which included environmental and socialimpacts. The project-ranking matrix directlycompared environmental and social scoresagainst technical and economic scores. TheAcres study also emphasized transparency andconsensus-building through ongoing consulta-tion and the participation of a variety of stakeholders: local and internationalnongovernmental organizations, inter-agencygroups, private sector companies and organiza-tions, individuals, donors, the media, NepalElectricity Authority officials, members ofMedium Hydropower Development in Nepal,and peoples’ representatives. 70

“The key,” says Martin ter Woort, “is to makesure you get to the right stakeholders, thosewho actually represent the people.” Yet in theNepal study, a majority of representatives wereprivate sector companies and organizations, andgovernment officials: community representationwas significantly lower. Future work in this areamust address broader representation.

These methodologies can undoubtedly beimproved,71 but it is encouraging that someCanadian companies are taking the initiative.But not all engineering consultants have the in-house expertise to carry out social and envi-ronmental assessments. Some that don’t, likeSNC-Lavalin, acquire these skills on a contractbasis. However, the advantage of having aninternal capacity is that social and environmen-tal perspectives can percolate throughout theorganization on an ongoing basis.

Surprisingly, despite these private sectoradvancements, Canadian funding agencies suchas the Export Development Corporation do notuse criteria other than economic payback toassess the viability of funding options. In com-parison, the US Export-Import Bank uses envi-ronmental guidelines and has a human rightspolicy, in addition to applying more traditionalcriteria of creditworthiness and competitiveness.72 Yet, loan guarantees and public sector contri-butions from CIDA and the EDC increase thechances of Canadian engineering consultantsreceiving international contracts, particularlyfrom developing-country governments. In the case of Three Gorges, for example, CIDAprovided funding for the feasibility phase—work

that the Chinese government wanted “to formas a basis for securing funding from interna-tional institutions.”73 And the EDC providedmillions of dollars in loans and guarantees.

Engineering companies openly acknowledge theimportance of the Canadian public sector inobtaining foreign contracts. “The official sup-port of our governments, whether through commercial missions or more private conversa-tions, has a beneficial and convincing impacton our international clients,” says JacquesLamarre, President of SNC-Lavalin.74

If economics remain the driving force behindpublic sector decisions, it is not surprising thatthey remain paramount for many firms. AsDavid Lapp, Director of Professional Affairs atCCPE says: “Engineers can’t always propose thebest solution because it’s too expensive. Thatcould be the basis for winning or losing thatwork. We have certain levels of responsibility.Cost is always going to be a factor. No matterhow ethical you are, the decision can be takenoutside your hands. Engineers should partici-pate in the debate but the debate is not exclusive to engineers.”75

But it is not sufficient that engineers simplyaspire to ethical and environmentally sustain-able practice. Actions speak louder than words.Indeed, ACEC’s 1995 Environmental Code ofConduct recommends that an engineer refusebusiness which does not “enable him/her to fulfill his/her professional responsibilities,” asoutlined in the Code76 (see Box 7). But ACEC’scode has not been widely distributed. Onesenior executive frankly admitted, “I’ve nevereven heard of it.” However, ACEC’s WaineMcQuinn believes that most member companies strive to meet local environmentalcodes.77

But compliance with standards is often problematic. The Environmental AppraisalCommittee (EAC) of India’s Ministry ofEnvironment and Forests, for example, foundthat close to 90 percent of the medium to largedams being built violated the Ministry’s envi-ronmental and social guidelines. Most oftenignored were criteria dealing with forced reset-tlement and compensatory reforestation. Insome cases, the EAC recommended that con-struction of several dams be stopped. Yet theChamera Dam, among others, proceeds asplanned, without addressing EAC’s concerns.Canada’s SNC-Lavalin was a supplier of engineering services to this project.78


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In general, it remains to be seen how codes canbe effectively implemented and monitored. As aUS survey of engineering ethics conducted byCivil Engineering pointed out:

[...] most engineers probably have funda-mentally sound ethical value systems, [but]all could probably benefit from specifictraining in ethical decisionmakingprocesses and on how to resolve ethicaldilemmas. This is a severe shortcoming ofengineering undergraduate and continuingeducation[...]79

This hits at the heart of the engineering profes-sion: What does it mean to practice as an engi-neer? To improve the quality of life? Fromwhose perspective? How is the engineer’s profes-sional vision translated into everyday practice?What do engineering ethics and ethical deci-sionmaking comprise? How are they applied?

Ultimately, this is an issue of professional devel-opment, and one that needs to be addressedseriously if Canadian engineers hope—in thewords of their vision statement—to “advancethe quality of life.”

ENHANCING HUMAN CAPABILITIES

A seemingly straightforward benefit of Canadianengineering services is the transfer of technologyand engineering know-how to developing coun-tries. Such transfers can represent an importantinvestment in the knowledge base of a develop-ing country. As Jorge Niosi et al suggest: “Mostof the projects involving ECs [engineering consultants] from developed countries conduct-ing projects in LDCs include some sort of technology transfer.” Generally, this is practical:technological knowledge is transferred from theengineering firm to its clients during the project’s execution. It includes “... the learningof the abilities necessary to conduct surveys, feasibility studies, design, construction super-vision and management of the plant.[...] In a fewcases—where engineering firms conduct researchand development (R&D)—there is some propri-etary, patented technology transferred from theEC to its partner in the developing country.”80

A by-product of the consultancy, such transferscan contribute positively to developing coun-tries’ knowledge banks. The ACECEnvironmental Code of Conduct also recom-mends that engineers strive to achieve the“effective transfer of environmental knowledgeand experience.”81

Developing countries generally employ externalconsultants for complex engineering projectsthat they do not yet have the experience toundertake. As Jacques Lamarre of SNC-Lavalinstates: “There are excellent engineers everywherein the world. It is unthinkable today to try andexport general engineering services of a lowtechnical level. The vast majority of countrieshave access to those types of services locally, andwould insist on using them.”82 Theoretically, thecountry will learn to “independently conductthe activity (plant operation, survey, design,supervision or procurement) that it was sup-posed to have learned from the transferor.”83

In reality, this is often not the case. In a study of 36 Canadian consulting engineering firmsoperating in developing countries, Niosi and hiscolleagues found that “only a few were very ableor perfectly able to independently execute theactivities they were supposedly enabled to conduct through the transfer.”84 While morethan half the clients gained in knowledge orcapability, lasting technology transfer was notrealized in most cases.

Niosi found that smaller, more specialized engineering consulting firms with a strongemphasis on R&D and technical expertise weremost successful at transferring technology. In addition, joint ventures or other forms of partnership increased the likelihood of effectivetechnology transfer.85

H O W C A N E N G I N E E R S M A K E

A D I F F E R E N C E ?

By narrowing the divide between economicsand social and environmental well-being,Canadian engineering consultants can helpincrease the quality of life in both developedand developing worlds. But what specificallycan Canadian engineers do?

First, the CCPE recommends a stronger publicadvocacy role for engineering consultants:engineers need to take a stronger stance on development issues such as social andenvironmental considerations. This raises afundamental question about the role ofengineers in the decisionmaking process: “Is itpossible that engineers could play a more activerole in such engineering decisions to the benefitof the public?” asks Gerry Wacker.86 “To do sorequires us to re-evaluate and change some ofour basic philosophies and means of interactingwith those we serve, [...] a fundamentaladjustment in our role.” Canadian engineers

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I N F R A S T R U C T U R E

C A N D E L I V E R M A J O R

B E N E F I T S I N E C O N O M I C

G R O W T H , P O V E R T Y

A L L E V I A T I O N , A N D

E N V I R O N M E N T A L

S U S T A I N A B I L I T Y —

B U T O N L Y W H E N I T

P R O V I D E S S E R V I C E S

T H A T R E S P O N D T O

E F F E C T I V E D E M A N D

A N D D O E S S O

E F F I C I E N T L Y.

WDR 1994,

INFRASTRUCTURE FOR

DEVELOPMENT, P. 2

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need to publicly support and push for greatersocial and environmental responsibility.

Second, consulting engineers can activelyincorporate ACEC’s Environmental Code ofConduct into their corporate mission state-ments and project plans. By becoming leadersin environmental management, engineers canhelp clients embrace sustainable developmentgoals. As Daniel Verreault, President of CCPE,urges: “Engineers must take every opportunityto publicly articulate their views on the ethical,

moral and technical questions facing modernsociety. This goes beyond technical specializa-tion.” 87 Furthermore, as ACEC’s EnvironmentalCode of Conduct recommends, Canadian con-sulting engineers should actively “promoteresponsible environmental citizenship” and“provide leadership in achieving sustainabledevelopment, development that will meet thelong term needs of future generations of allnations without impairing the earth’s ecosystems.”88

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BOX 7 AN ENVIRONMENTAL CODE FOR ENGINEERS

“Observing a code of conduct is fundamental to the practice of consulting engineering,” notesthe Association of Consulting Engineers of Canada in its Environmental Code of Conduct,approved in November 1995. “The goals of consulting engineers should include a commitmentto achieve sustainable development.”

The code considers that consulting engineers “should combine their traditional skills with broaderapplications of (...) other disciplines to participate meaningfully on interdisciplinary teams directedat achieving acceptable environmental solutions.” They should also, in conjunction with theirclients, “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 O A L S

• 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 E N E R A L A C T I O N S

• 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 R O J E C T A C T I O N S

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/herprofessional 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 withminimizing any adverse environmental impacts, the engineers should refuse to render services onbehalf of the client.

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

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Third, evaluation methodologies that combinesocial, environmental, and economic impactsmust be refined and applied in a wide variety ofcontexts. Canadian engineers need to involve arange of stakeholders and convince their devel-oping-country clients of the benefits of thisapproach. A key area for improvement is toensure more equitable representation acrossstakeholder groups. A commitment to trans-parency and consultation requires a similarcommitment to institution-building and broadexchanges across different (and perhaps opposing) groups.

Fourth, social and environmental corporateresponsibility must also include some form ofconcrete sustainable accounting or independentmonitoring system. Broadened accountabilitywill instill cultural and practical changes inengineering. “[The] issue has to do with expand-ing the nature and extent of our accountabilityas professionals, individually and collectively.An expanded accountability would include educating the public about engineering matters,providing information on the longer-termimpacts on society and the environment, working toward sustainability,” says CCPE’sWacker.89 It is critical that engineers track projects beyond the feasibility stage—what arethe actual social and environmental impacts ofa given project and how do these differ from thefeasibility assessment? Why are there discrepan-cies? How will future decisionmaking beaffected? Independent monitoring can helpensure that these concerns are addressed.

Infrastructure project funding presents a fifthopportunity. With increased financial involve-ment in infrastructure projects—through BOOT(Build, Own, Operate, Transfer) schemes, forexample—engineering firms may have greaterinfluence over social and environmental goals.In the past, most Canadian firms have acted asservice specialists, not undertaking constructionor manufacturing work.90 Consequently, theyhave had little impact on the way infrastructureprojects are managed in the long term, aboveand beyond design recommendations. This ischanging with increased privatization. With thearrival of BOOT projects, “we are also asked toinvest in our own projects,” says Lamarre ofSNC-Lavalin.91 By having more control overfunding, the engineer can act more directly assustainable change agent.

A sixth area for consideration is the need forgreater professional development and educationthat focuses on sustainable development and

business ethics—a move which can incorporatesocial and environmental ethics into corporatedecisionmaking. By emphasizing sustainabledevelopment in the accreditation process, theengineering profession can develop a new generation of practice.

Social and environmental issues must be moredeeply integrated into engineering educationand practice. On an international level this mayalready be underway: the World BusinessCouncil for Sustainable Development, for exam-ple, is supporting a new initiative focusing onengineering graduates and students, in thehopes of improving environmental literacy.92

Canadian engineers also need to forge linksacross disciplines, sectors, and regions. Anincreased focus on joint partnerships and in-country linkages is an important way ofensuring more effective technology transfer.Engineers can also emphasize the transfer ofsocial and environmental knowledge throughdirect consulting and the continued export ofthe Canadian accreditation process. In addition,Canadian engineers need to have greater inter-action with international organizations such asthe World Engineering Partnership forSustainable Development (WEPSD) which iscommitted to long-term global sustainabledevelopment. 93

Finally, public sector financing of controversialprojects should be reviewed to include morestringent social and environmental criteria.Public sector financing should also privilegesmaller, more specialized engineering firms orthose involved in joint partnerships becausethey offer the greatest opportunity for technology transfer.

These challenges are large. Canadian consultingengineers and public sector funding agenciesmust address these issues at collective and individual levels. The larger societal role ofCanadian engineering companies—and ourengineers as individuals—cannot be ignored.“As engineers we have been intimately involvedin raising the edifice of technology. As a society,we have seen that technology can be a two-edgedsword and that has sparked much debate.Unfortunately, the voices of those who designand implement the technologies have not madethemselves heard often enough,” says CCPE’sVerreault.94

By committing themselves to multidisciplinarythinking, Canadian engineers can utilize theircomplex problem-solving skills to meet sustain-

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C A N A D I A N E N G I N E E R S

P R O V I D E L E A D E R S H I P T O

A D V A N C E T H E Q U A L I T Y

O F L I F E T H R O U G H T H E

C R E A T I V E , R E S P O N S I B L E ,

A N D P R O G R E S S I V E

A P P L I C A T I O N O F

E N G I N E E R I N G P R I N C I P L E S

I N A G L O B A L C O N T E X T.

VISION STATEMENT FOR THE

CANADIAN ENGINEERING

PROFESSION, TORONTO,

MAY 1996

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able goals. But they need to take the lead andfind answers to unresolved questions: How cantheir decisionmaking incorporate sustainabilitybenchmarks? How can their designs be sustain-able from economic, environmental, and socialperspectives? How can they remain financiallysuccessful when social and environmental

responsibility means declining projects that donot meet sustainability benchmarks? Canadianengineers have a solid international reputation.By consistently promoting consideration ofsocial and environmental impacts in decision-making, they can achieve remarkable results.

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N O T E S

1 World Bank, World Development Report 1994: Infrastructure forDevelopment (Washington, D.C.: The Bank, 1994), p. 14.2 UNDP, Human Development Report (New York: Oxford UniversityPress, 1997). 3 World Bank, World Development Report 1994.4 CIDA, Infrastructure Services Discussion Paper CIDAhttp://www.acdi-cida.gc.ca 1997.5 International Telecommunications Union (ITU),Telecommunication Indicators of the Least Developed Countries(Geneva: ITU, 1995).6 Due to the long waiting period in many developing countries, theofficial list may significantly underrepresent demand. That is,many people who would like telecommunications access do noteven put themselves on the list because the wait is hopelessly long.7 ITU, 1995.8 See World Development Report 1994.9 Thanks to comments by John Kozij, CIDA.10 World Development Report 1994.11 Private sector participation encompasses a broad spectrum ofmanagement approaches, with full privatization at one end and avariety of contractual arrangements at the other.12 Thanks to John Kozij for these insights.13 Mary Powers Buckner, “This siren is singing a samba,” ENR,September 2, 1996, p. 8.14 World Bank, World Bank Annual Report, Washington, DC, 1997, p. 32.15 World Development Report 1994, p. 2.16 While privatization offers corporations many opportunitiesunder BOT, BOO, and BOOT schemes, there are definite risks: in-adequate returns, inflexibility in user fees, depreciation of currency,cultural barriers, lack of full operational rights, lack of regulatoryframeworks, nonstandard business practices, and political conflictsin developing countries. All contribute to a challenging businessenvironment. See Donald D. Liou, “Barricades on the roads,” CivilEngineering, April 1997.17 Ibid., p. 64.18 ITU, 1995.19 World Commision on Environment and Development, Our CommonFuture (Oxford, New York: Oxford University Press, 1987), p.43.20 World Development Report 1994, p. 48.21 Amulya K.N. Reddy; Robert H. Williams; and Thomas B.Johansson, Energy After Rio. Prospects and Challenges, ExecutiveSummary. UNDP, in collaboration with International EnergyIntiative and Energy 21, Stockholm Environment Institute, and inconsultation with the Secretariat of the UN Commission forSustainable Development (New York, NY: UNDP, 1997), p. 7.22 Ibid., p. 20.23 Dennis Anderson and Kulsum Ahmed, “Where We Stand WithRenewable Energy,” Finance & Development, June 1993, pp. 40-43.24 Jay Jayadev, “Harnessing the Wind,” IEEE Spectrum, November1995, pp. 78-83.25 The Canadian Global Change Program is a program of the RoyalSociety of Canada. Founded in 1985, it brings together researchpartners from various institutes and universities and is supportedby the Canadian government and a number of private companiesincluding TransAlta and Hydro-Québec.26 The Canadian Climate Program Board is responsible for theCanadian Climate Program which is an independent body, formedin 1979 and comprised of experts from senior levels of the federaland provincial governments, the private sector, and nongovern-mental organizations. It advises policymakers and decisionmakersabout the impacts of climate change on economic and social concerns, and on natural ecosystems and resources.

27 Hugh Morris, “Choosing our path: Canadian business andglobal change,” in Michael Keating, ed., Canada and the State of thePlanet (Toronto: Oxford University Press, 1997), p. 21.28 CIDA, “Infrastructure Services Policy: Background DiscussionPaper,” September 13, 1996, p. 24.29 World Development Report 1994, p. 82.30 CIDA, 1996, p. 28.31 Hugette Labelle, “Telecommunications and SustainableDevelopment.” Speech to the ITU World TelecommunicationsDevelopment Conference, Buenos Aires, March 21-29, 1994.32 Gerard Kenney, “The Missing Link—Information,” Speech to theITU World Telecommunications Development Conference, BuenosAires, March 21-29, 1994.33 Interviews with Conserval officers and company documents, June 1997.34 UNDP, Human Development Report (New York: Oxford UniversityPress, 1990), p. 82.35 Paul Hawken, “Natural Capitalism: The Next IndustrialRevolution.” Speech to the National Round Table on theEnvironment and the Economy, Ottawa, March 21, 1995.36 Personal interviews; Zenon company documents; Michael JantziResearch Associates Inc. (MJRA), Canadian Social InvestmentDatabase, 1996. 37 Personal interviews; Trojan company documents; MJRA,Canadian Social Investment Database, 1996.38 CIDA website http://www.acdi-cida.gc.ca39 Jayadev, p. 80.40 Ibid., pp. 78-83.41 Reddy et al, Energy After Rio.42 Ibid., pp. 29-30.43 See “Consulting Engineers: Canadian Position, Main Challenges,Strategic Direction, Contacts,” by Strategis: International BusinessInformation Network, March 20, 1997. Also see “ConsultingEngineers,” by Strategis, June 1, 1996.44 See the Canadian Council of Professional Engineers website athttp://www.ccpe.ca45 See Peter Reina and Gary J. Tulacz, “The Top 200 InternationalDesign Firms: Big Year, Big Plans,” ENR, July 21, 1997, pp. 39-75.46 Jacques Lamarre, “The demands of the new world context: Atime for choices.” Speech delivered to the Board of Trade ofMetropolitan Montreal, October 15, 1997, SNC-Lavalin websitehttp://www.snc-lavalin.com47 In correspondence to author Whiteman, October 7, 1997.48 Jorge, Niosi; Petr Hanel; and Liette Fiset, “Technology Transfer toDeveloping Countries Through Engineering Firms: The CanadianExperience,” World Development, vol. 23 (10) 1995, pp. 1,815-1,825.49 See Strategis, 1996, 1997.50 Ibid.51 CCPE website at http://www.ccpe.ca52 Personal interview, November 1997.53 See SNC-Lavalin website http://www.snc-lavalin.com54 See, for example, UNDP, Human Development Index, 1994.55 ACEC, “Environmental Code of Conduct,” 1995 , p. 1.56 See CCPE website at http://www.ccpe.ca57 Personal interview, November, 1997.58 Scott Ferguson and Martin ter Woort, “Draft: China’s Three GorgesWater Resources Project—An Overview,” Acres International Ltd,company document, 1995.59 Ibid., p. 2.60 Ibid., p. 2.

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N O T E S (continued)61 Lawrence R. Sullivan, “Upheaval on the Yangzi: Population relo-cation & the controversy over the Three Gorges Dam,” China RightsForum, Summer, 1996 http://www.hrichina.org62 Ferguson and ter Woort, 1995.63 International Rivers Network, “Eminent US dam expert criticizesThree Gorges,” Press Release, April 22, 1996.64 Ferguson and ter Woort, 1995, p. 16.65 Laura Eggertson, “Ottawa backs Chinese dam,” The Globe andMail, Report on Business, September 1, 1997, pp. B1, B6.66 MJRA, Canadian Social Investment Database, 1996.67 Eggertson, 1997, pp. B1, B6.68 Ferguson and ter Woort, 1995. 69 Personal interview, November 1997.70 L.J.M. Haas, “Medium Hydropower Development in Nepal:Results of the Screening and Ranking Study Conducted under TheMedium Hydropower Study Project.” Acres International Ltd,company document, 1997.71 The assumptions behind cost-assessments for social and environ-mental impacts can also be critiqued. In particular, the notion thatwe are able to estimate and aggregate the effects of environmentaldegradation is seen by some academics as both arrogant and mis-leading. Costing requires a cut-and-dried abstraction away from thecomplex holistic interaction of the ecosystem. This approach alsoassumes that these costs can be weighed appropriately against ben-efits in a linear fashion which ignores complex issues of scale anddynamic interaction (although assessments of a cascade ofhydropower projects may study cumulative effects).72 The US Export-Import Bank‘s (Ex-Im) human rights policy statesthat: “Ex-Im Bank can deny its financing for human rights reasonsonly if the President, through authority delegated to the Secretary ofState, determines that such a denial would be in the national interest.A specific human rights review is conducted by the State Departmentfor every transaction over $10 million to determine if it may give riseto significant human rights concerns. This review examines both thegeneral status of human rights and the effect of the export on humanrights in the importing country.” See the Bank’s website at:http://www.exim.gov

73 CIDA and CIPM Yangtze Joint Venture. “Three Gorges WaterControl Project Feasibility Study, Vol 1: Feasibility Report,” August, 1988, pp.1-4.74 Lamarre, 1997.75 Interview, November 1997.76 ACEC, 1995, p. 5.77 Telephone conversation, November 1997.78 MJRA, Canadian Social Investment Database, 1996.79 Stanley H. Goldstein and Robert A. Rubin, “Engineering Ethics,”Civil Engineering, October 1996, pp. 41-44.80 Niosi et al, p. 1,816.81 ACEC, 1995.82 Lamarre, 1997.83 Niosi et al, p. 1,817.84 Ibid., p. 1,821.85 Niosi et al also found that the social and economic environmentof the developing country affects the degree of technology transfer.Specifically, only a “few African projects were successful, whilemost Latin American or Asian projects of Canadian firms achievedtheir goals in terms of technology transfer. The transmission ofknowledge is also easier, according to the Canadian ECs, when gov-ernments in developing countries put fewer restrictions and regula-tions on inward technology transfer,” pp. 1,822-823.86 CCPE website at http://www.ccpe.ca87 Ibid, pp. 1-2.88 ACEC, 1995, pp. 1-2. 89 CCPE website at http://www.ccpe.ca90 Niosi et al, 1995.91 Lamarre, 1997.92 Bjorn Stigson, “How business can play a major role in educa-tion,” Earth Times News Service, 1998. http://www.earthtimes.org93 For information about WEPSD, see the American Association ofEngineering Societies website at http://sol.asee.org94 CCPE website at http://www.ccpe.ca

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109

C H A P T E R S I X

THE

BUSINESS OF

DEVELOPMENT?M A N A G E M E N T C O N S U L T I N G

Marlene Benmergui

M A R L E N E B E N M E R G U I I S A J O U R N A L I S T , P R O D U C E R , A N D

W R I T E R / B R O A D C A S T E R S P E C I A L I Z I N G I N P U B L I C P O L I C Y

I S S U E S .

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If the 20th century was noted for the globaltrade in goods, the next will be dominated by

the trade in “invisibles,” those exports we don’tsee but which are a burgeoning and increasinglylucrative sector of global commerce: businessservices and rights for which fees and royaltiesare paid.1

According to the World Bank, average annualgrowth in trade in services from 1980 to 1993was 7.7 percent, compared with 4.9 percent formerchandise trade (in nominal terms). Now valued at more than US$1,200 billion a year, itaccounts for 20 percent of world trade and con-tinues to exhibit strong growth. In 1995, thevalue of world trade in services increased by 14percent.2 It will receive a further boost in com-ing years as the General Agreement on Trade inServices (GATS) opens up prospects of new mar-kets through liberalization and brings the tradeunder a rules-based multilateral system.3

Statistics Canada reports that Canadians set newrecords in 1996 for the value of services boughtand sold in international markets.4 Exporters

increased overall sales of services in 1996 by 8 percent to $38.9 billion. Purchases by Canadianimporters advanced at a slightly lower 5 percentto reach $48.8 billion (see Table 1). As shown inTable 2, the United States continued to beCanada’s major trading partner for services.

Do service companies have a particular responsi-bility in developing markets? It can be arguedthat, by the very nature of the services they pro-vide, these companies have important capacitybuilding roles: in building capital, in the case offinancial services; in building physical capacity inthe case of infrastructure and engineering ser-vices; and in building human capability in thecase of commercial and management services. Buthave Canadian management and other consul-tants set this as a goal, or is it a case of ”what’sgood for the company is often good for the peo-ple,” as Jean-Louis Bourbeau, Chairman ofWilliam Mercer Ltd in Canada, opines?5 There aremany in the services sector who share his view.

T H E C A N A D I A N I N D U S T R Y

If Canadian service companies cannot be con-sidered major players in the developing world,their contribution is growing. The growth leaderis commercial services,6 which grew an averageof 13 percent a year betwen 1990 and 1995. Anumber of export markets—many of themdeveloping—outpaced the 13 percent annualrate: Brazil; Sweden; Republic of Korea; andIndonesia, Malaysia, Philippines, Singapore, andThailand as a group (see Table 3). Managementconsulting has been growing by 10 percent ayear overall: for the big players, that figure canreach 30 percent.7

According to Statistics Canada, the internationalmanagement consulting business in Canadaconsists of a relatively few large companies—some of which may be better known for theiraccounting services—and a myriad of smallerfirms, and covers everything from strategicplanning and organizational renewal to forestmanagement. It also includes internal manage-ment consulting divisions of corporations working for third parties and nongovernmentalorganizations (NGOs) that provide advice todeveloping countries using project funding

C H A P T E R S I X M A N A G E M E N T C O N S U L T I N G

THE BUSINESS OF

DEVELOPMENT?

TABLE 1 Canada’s International Transactions in Services, 1992-96( $ M I L L I O N S )

Category Receipts Payments1992 1993 1994 1995 1996 1992 1993 1994 1995 1996

Travel 7,898 8,611 9,703 11,026 12,092 14,255 14,359 13,679 13,970 15,122Transportation 5,232 5,959 6,616 7,234 7,900 7,989 9,833 10,530 10,936 11,027Commercial Services 11,080 13,065 15,275 16,713 17,971 14,050 16,799 19,461 20,687 21,882Government Services 912 868 994 936 923 951 877 735 730 747Total 25,122 28,503 32,587 35,909 38,886 37,245 41868 44,406 46,323 48,778

Source: Statistics Canada, Canada’s International Transactions in Services 1961-1996, (Catalogue 67-203-XPB) (Ottawa: Minister of Industry, 1997), Table 1, p. 73.

TABLE 2 Canadian Exports of Services by Region and Category, 1996( $ M I L L I O N S )

Category US UK Other Of whichOther EU Japan Other OECD All other countries

Travel 6,506 679 4,907 1,554 719 454 2,180Transportation 4,237 547 3,116 1,003 580 230 1,303Commercial Services 11,232 1,244 5,496 1,314 309 764 3,108Government Services 203 15 704 76 26 35 567Total 22,178 2,485 14,223 3,947 1,635 1,482 7,159

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.

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from the Canadian International DevelopmentAgency (CIDA) or the international developmentbanks.8

A survey by the Canadian Institute of CertifiedManagement Consultants, concludes that “for-eign markets as a source of revenue tend toincrease with firm size.”9 Globally in 1996, forexample, KPMG earned $242 million; Andersen

Consulting, $224 million; and Coopers andLybrand, an estimated $171 million. But asStatistics Canada notes, many large firms arearms of multinationals, linked to global part-ners. It can be difficult to determine how muchconsulting is carried out abroad since thesefirms mainly serve a Canadian market and passinternational contracts to their affiliates in othercountries. As Table 4 demonstrates, Canadianfirms are estimated to export $215 million ofmanagement consulting services, with importsof slightly more than $125 million.10

KPMG may be unique among management con-sulting firms in that it has an ethics andintegrity practice. Part of this work involvesassisting governments and corporations developa more ethical business environment, essentialto attract trade and promote economic develop-ment. For example, the firm was invited to par-ticipate in a United Nations Task Forceinvestigating organized crime and corruption ina country of the Middle East, to identify causesand formulate recommendations for dealingwith the issues locally.11


BOX 1 TOWARD FREER TRADE INSERVICES

Produced as part of the final act of theUruguay Round of the GATT negotiations,the General Agreement on Trade inServices (GATS) lays the groundwork forthe movement of capital, technology, andlabour across borders, necessary to theexpedient provision of services. Accordingto services analyst Bimal Ghosh, thisenhances prospects for the establishmentof new markets in developing countries.

The Agreement—of which Canada is a sig-natory—extends multilateral rules and disci-plines to services. It covers four modes ofdelivery of services: cross-border supply ofdata and transport services; foreign directinvestment or representative offices andbranches; tourism; and the movement ofpersonnel, that is, consultants. GATS is a sig-nificant achievement for the sector in manyrespects, not least of which is the fact that aframework is now in place which is bound toopen the door to further liberalization.

Some of the GATS basic principles andobligations include:

Most favoured nation treatment: Underthis general obligation any trade concessionoffered to one member country for the sup-ply of a service must be extended to all othermember countries; exemptions are allowed,however, subject to certain procedures.

National treatment: Treatment for foreignservices and service suppliers should be noless favourable than that accorded to its services and service suppliers.

Transparency: Relevant policies and measures, including those presenting barriers to market access and discriminatoryrestrictions, must be published.

Domestic regulation: Measures to autho-rize supply of services (technical standards,leasing requirements) are to be based onobjective and transparent criteria and shouldnot be burdensome in ensuring quality.

The GATS also includes principles concern-ing recognition requirements (for example,educational background and experience)for the purpose of authorization, licensingand/or certification in the services area.

Source: Bimal Ghosh, Gains from Global Linkages (New York,NY: St Martin’s Press, 1997).

T H E C U S T O M E R I S K I N G .

B U T K I N G C U S T O M E R I S

S H O W I N G S I G N S O F

B E I N G B O R E D W I T H T H E

C O N S U L T A N C I E S ’

S E C R E C Y A N D P U T O F F

B Y T H E G A U D I E R

P R A C T I T I O N E R S . . .

I N O R D E R T O R E G A I N

T H E T R U S T O F A N

I N C R E A S I N G L Y

S K E P T I C A L P U B L I C ,

[ M A N A G E M E N T

C O N S U L T I N G ] N E E D S

T O B E C O M E M O R E

E T H I C A L — J U S T L I K E

O T H E R P R O F E S S I O N S .

TOM PETER QUOTED IN

“MANAGEMENT CONSULTING:

THE ADVICE BUSINESS.”

THE ECONOMIST,

MARCH 22, 1997

TABLE 3 Growth in Canada’s Exportsof Commercial Services byGeographic Area 1990-95

Leading Export 1990 1995 AverageMarket for ($millions) ($millions) annualCommercial changeServicesa %

Brazil 11 88 51.6Sweden 31 202 45.5Republic of Korea 26 161 44.0Indonesia, Malaysia, 68 294 34.0Philippines, Singapore,ThailandIreland 54 174 30.5Middle East 50 173 28.2South America 89 247 22.7(except Brazil)Switzerland 127 314 19.9India 17 42 19.8Mexico 33 76 18.2Taiwan 5 11 17.1Norway 16 33 15.6Germany 183 348 13.7United Kingdom 545 1,019 13.3Total of above 1,255 3,182 20.5Total commercial 9,061 16,713 13.0services

Notes: a Countries and areas exceeding the average annualgrowth for all commercial services, 1990-95.

Source: Statistics Canada, Canada’s International Transactionsin Services, 1961-1996, Table 2, p. 15.

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But according to KPMG partner Norman Inkster,former Commissionner of the Royal CanadianMounted Police, little of the ethics practiceinvolves developing country clients. KPMG has,however, been called on to help both Canadianand developing-country corporations investigatefraud and establish standards and regulations toprevent its occurrence. And it is now working witha large Canadian firm to set up child labour stan-dards comparable to those of the InternationalLabour Organization, and develop tools to moni-tor developing country suppliers’ adherence tothose standards. “The aim,” says Inkster, “is tobring about evolutionary rather than revolution-ary change. They are taking a very responsibleapproach to the issue.” Inkster believes this is thefirst corporation in Canada to take a “ratheraggressive” approach to the problem of childlabour. Other initiatives on this front by Canadianfirms, he says, have been in response to pressurefrom a US parent company (see Chapter 3).

For many international management consul-tants, developing-country public sector restruc-turing and legislative and regulatory reform aregenerating impressive revenue. “Public sectororganizations around the world are respondingto pressures from deficits and public debt,changes in the workforce, citizens’ demands forimproved services, and industry demands for abusiness friendly environment that enhancestheir competitiveness in a global marketplace,”explains the ARA Consulting Group Inc. “Manygovernments are now seeking smaller, moreflexible, streamlined bureaucracies; alternativesfor providing services directly; ways to imple-ment new information technology; and organi-zational and legislative or regulatory reformsthat allow for their vision of an efficient andeffective public service.”12

Much of this work is funded by internationaldevelopment agencies, including CIDA, theWorld Bank, the regional development banks,and various UN agencies. At the end of 1997, forexample, CIDA listed 76 service contracts worthover $263 million in the category of “institu-tional support and management.”13

For Toronto-based ARA, specializing in publicand the not-for-profit sector reform has paid off:the consultancy’s gross revenues are in excess of$20 million annually. The firm has been activein over 50 countries of the Caribbean, East andWest Africa, Asia, and the Pacific: this interna-tional practice accounts for half of ARA’s annualrevenues. Canadian models and structures serveARA well in their developing-country practice.14

If you ask Murray Glow, partner in charge ofARA’s Public Sector Reform Practice, what he andhis 17 partners actually do, he replies: “We’rehuman capital builders.” To assist them to do so,they work with local partners. CIDA obviouslyagrees with their approach. In 1997, ARAreceived a Canadian Award for InternationalDevelopment for managing the 10-year CanadaTraining Awards Project (CTAP) which increasedthe managerial capacity and technical skills of15,000 people working in agriculture, tourism,and education in nine eastern Caribbean coun-tries. 15 The award recognized ARA’s efforts inincorporating women into the project—78 percent of the training officers involved werewomen, as were more than half the recipients.“In addition,” says CIDA, “CTAP encouragedwomen to participate in nontraditional trades,such as construction work, and delivered train-ing activities that overcame the obstacles towomen’s participation.” It further notes that“the project also helped to strengthen localtraining and educational resources and con-tributed to the creation of a rich network oftraining resources among the islands.”16

CIDA is also an important source of contractsfor Coopers and Lybrand Consulting whoseOttawa practice is currently working on $110million worth of CIDA-funded accounting andmanagement projects. “Even though whatCanada offers is small compared to the WorldBank, the Canadian way of doing things is wellaccepted in developing countries,” says Ottawa-based partner Ken Parent.17 Coopers andLybrand was among 13 finalists for the 1997Canadian Awards for International Developmentfor its management of two projects promotingthe transfer of Canadian technology through

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C H A P T E R S I X M A N A G E M E N T C O N S U L T I N G : D E V E L O P I N G B U S I N E S S O R T H E B U S I N E S S O F D E V E L O P M E N T ?

TABLE 4 Canadian InternationalManagement Services,a 1990-96

Year Exports Imports Balance($ millions)

1990 91 62 +291991 116 79 +371992 138 65 +731993 152 94 +581994 170 83 +871995 187 128 +591996 215 127 +88

Notes: a These refer to the types of management servicesthat are exported from Canada, rather than everything theindustry produces and sells abroad.

Source: Statistics Canada, Canada’s International Transactionsin Services, 1961-1996, p. 36.

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joint ventures in Thailand and Malaysia. Parentreasons that being involved in this type of pro-ject enables Coopers and Lybrand to meet itscorporate goals and contribute socially.

For William Mercer Ltd, pension design andadministration is its vehicle for exercising itssocial responsibility, says Jean-Louis Bourbeau.Mercer developed Chile’s privatized pension system in the 1980s. Many argue that pensionreform anchored the country’s economic success,especially the spectacular rise in the national savings rate from 8.2 percent of GDP in 1981 to27.6 percent in 1995. As well, its stock marketcapitalization of more than 100 percent of GDPhas boosted the long-term bond market. Thosewere not the goals, however: “We didn’t go toChile and Argentina to do good deeds, we wentthere to do business. But by doing business thereis a benefit to society at large, “ says Bourbeau.18

But not everyone agrees. Some have alleged that private pension plans only serve theemployed and do nothing to bolster those onsocial security rolls or help the unemployed.Bourbeau counters by saying that the allocationof the money saved is up to the country itself.Mercer can save them money, what they dowith it is a national concern.

Certified management consultants are profes-sionally bound to adhere to a “uniform code ofprofessional conduct,” developed by the Instituteof Certified Management Consultants.19 Whilethis code addresses all areas of professional practice—disclosure, conflict of interest, andpractical working ethics, for instance—it does notcover the complexities of international business.Nor do standards outlined in the Vision projectdeveloped by the Canadian Institute of CharteredAccountants, says Jim Goodfellow, FCA, NationalDirector, at Deloitte and Touche CharteredAccountants and one of the project’s managers.Although it “has been active in internationalstandard-setting activities, the primary focus, priorities, and member support mechanisms of the institute remain focused on domesticissues, in isolation from any international considerations.” 20

But Dorothy Riddle, a Vancouver-based servicesector specialist, considers that, for profession-als, the matter of corporate social responsibilityshould be covered in a company’s code of conduct. Difficulties arise when associationsonly monitor or care about what they do in thedomestic market and have not even thoughtabout their ethical behaviour in foreign

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BOX 2 CORPORATE RESPONSIBILITY:KEYS TO SUCCESS

What factors contribute to increasing acompany’s competitiveness while con-tributing to sustainable development in ahost country? An analysis of approaches tocorporate responsibility adopted by five forward-thinking Canadian companies indeveloping countries,1 carried out by theConference Board of Canada in 1996,found they had one thing in common: they understood that to be successful, the company had to become an integral partof the community in which it operates.“They view their corporate responsibilityinitiatives as long-term strategic invest-ments that promote their business objec-tives and enhance their image asresponsible corporate citizens with keystakeholders,” say Stelios Loizides andGeorge Khoury.2

Among the factors they identified that contribute to success:

• A strong public and community rela-tions effort at the earliest stage of acompany’s business development plan.

• A local partner with a reputation forbeing a responsible corporate citizen.

• Cross-cultural sensitivity.

• Hiring local staff, up to highest levels,wherever possible.

• Human resource development, benefits,health and safety standards comparableto those used by the company inCanada.

• Maintaining a relationship with unionsbased on frankness, mutual respect, andgood faith.

• Positive communications with key stake-holders to explain the benefits of thecompany’s operations; and early conflictresolution.

• An internationally recognized environ-mental management policy.

• The establishment of a mechanism toaddress long-term needs associated withinfrastructure, education, and health, aswell as support of community economicdevelopment projects.

N O T E S

1 Alcan Jamaica Company, Jamaica (Alcan AluminumLimited); Babcock & Wilcox Gama, Turkey (Babcock &Wilcox); Falconbridge Dominica, Dominican Republic(Falconbridge Limited); PT International Nickel Indonesia;Indonesia (Inco Limited); Scotia Enterprises, Guyana(Scotiabank).2 Stelios Loizides and George Khoury, Corporate Responsibilityin Developing Countries: Key Success Factors, Report 165-96(Ottawa: The Conference Board of Canada, 1996).

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developing markets.21 James Hunter, Vice-President of KPMG Investigation and SecurityInc. in Toronto, concurs: “A critical area formany Canadian companies expanding overseaswill be their policies on ethics in countrieswhere standards are different from ours,” hesays.22 And as the Conference Board of Canada(CBC) notes, these “policies will need to reflect,not only local laws, but also local customs.”23

Also an issue for management companiesabroad is the choice and use of local partners,which can determine their understanding ofneeds and conditions, and ultimately their success. Indeed, “selecting an established localpartner can be one of the most effective ways ofestablishing a presence in a foreign country,”says the CBC.24 While multinational firms suchas KPMG and Coopers and Lybrand can draw ontheir national affiliates, smaller companies mustseek out firms and individuals that will enablethem to make the local connection on a con-tract-by-contract basis. “Getting a local partneris more or less a requirement, but we also believein the strategy as a company,” says Bob Simpson,partner in Development Partnerships Ltd. “Ourunderlying purpose is to ensure a transfer ofskills.” Admittedly, since local consultants areoften paid at local rates, the strategy also helpskeep costs lower, he adds.25

T H E P R O F E S S I O N A L S : B E Y O N D B U S I N E S S

Procedure-driven professions like law are alsotaking their services globally. Statistics Canadareports that trade in legal services is an evolving,dynamic aspect of the new global economy.26

In 1996, exports of legal services totaled $263million. About two-thirds of the total businesswas with the United States; most of the remainderwas with Britain and Hong Kong.

Trade in this sector is expected to grow. Globaltrading agreements such as the North AmericanFree Trade Agreement (NAFTA) have not onlyfacilitated trade in legal services, but legal ser-vices themselves have become part of formalinternational agreements: both the GATS andNAFTA have recognized the role of foreign legalconsultants and allowed them to provide adviceregarding the law of the country in which thelawyer is authorized to practice.

Most international legal business is in commer-cial law, supporting Canadian clients in theiroverseas operations as well as foreign interestsin respect of operations in Canada. Some also

advise foreign governments and internationalorganizations in the areas of privatization andproject finance. But as Bob Rae, a partner at theToronto firm of Goodman, Phillips & Vinebergand former Premier of Ontario, points out,“there’s been an interesting shift for ourselves,as well as other Canadian law firms, as we aregetting into issues of civil society, public policy,and governance. Canada’s traditions of bothcommon and civil law make it well poised tomake a contribution,” he says, ”particularly inlarge regions like Latin America where the civillaw system is used.”27 The firm of McCarthyTétrault, for example, was engaged by theInternational Monetary Fund to rewrite thefinancial legislation and Central Bank Acts ofZambia and Ghana, and has advised theGovernment of Mexico on the drafting of acomprehensive new telecommunications regula-tion. It has also participated in the negotiationand drafting of the United Nations Conventionon International Bills of Exchange andPromissory Notes and the Model Law forInternational Credit Transfers.28

Individual Canadian lawyers are also working to increase skills and strengthen the legal systemin developing countries. A committee of theCanadian Bar Association, for example, is helpingto train lawyers in emerging democracies.Launched in 1989 as a means of assisting fledg-ling democracies in Eastern and Central Europe,it has expanded with CIDA support to includeSouth Africa, Cambodia, Vietnam, and China.Lawyers from these regions spend several weeksin Canada studying the legal and parliamentarysystem, and train with Canadian lawyers. Dozensof lawyers also travel abroad, donating their timeto work closely with counterparts on simple commercial issues as well as on complex consti-tutional matters. Payment, says committee chairJim Klotz, is “a sense of satisfaction from helpinglawyers who truly need and crave the help.” And as Halifax labour lawyer Ronald Pink toldThe Globe and Mail: “I just think it’s one of thebest things that the Canadian bar can do: transport its knowledge base and its love of agood legal system.” 29

A S S E S S I N G T H E B E N E F I T S

As laudable as these efforts are, are they suffi-cient? Is doing no wrong and offering advan-tages such as sporadic training opportunitiesenough or do service providers have larger socialresponsibilities toward the communities inwhich they operate?

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C H A P T E R S I X M A N A G E M E N T C O N S U L T I N G : D E V E L O P I N G B U S I N E S S O R T H E B U S I N E S S O F D E V E L O P M E N T ?

E V E R Y O N E H A S A

P A R T I C U L A R M I N D S E T

A N D C O M E S F R O M A

P A R T I C U L A R P A R A D I G M

T H A T I N F L U E N C E S

P A T T E R N S O F M E A N I N G

A N D U N D E R S T A N D I N G .

[ . . . ] T H E M E A N I N G O F

R I G H T A N D W R O N G C A N

B E H I G H L Y C U L T U R E

D E P E N D E N T.

CHONG JU CHOI AND

MIHAELA KELEMEN IN

CULTURAL COMPETENCES:

MANAGING CO-OPERATIVELY

ACROSS CULTURES

(BROOKFIELD, VT:

DARTMOUTH PUBLISHING,

1995)

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Most Canadian service companies continue tosee social issues and business objectives as sepa-rate—their principal focus is business viability. As Coopers and Lybrand’s Ken Parent puts it: a company is in developing countries “as business agent and not human rights libera-tor.”30 It is a reflection of what Dorothy Riddledescribes as “the secondary attention relegatedto corporate responsibility abroad by most companies.”31

For management consultants, however, the issuemay not be that they are doing “business asusual” in developing countries, but that much of“the business” serves development goals. In fact,this type of external technical assistance canhelp address some of the constraints that devel-oping countries face in strengthening their services sector and increasing their own participation in trade-in-services.32

As they increasingly work outside Canada, how-ever, management consultants need to developclear codes of conduct and ethics training pro-grams for both Canadian and local employees—tools with which they can make ethicaldecisions that conform with the companies’policies and goals. Moreover, these codes need

to go beyond issues such as bribery and corrup-tion to take a developmental focus. Monitoringmechanisms must also be built into codes ofethics or of social responsibility, and the resultsmade available to the public. Progress has beenmade on some of these fronts. In Canada, agroup of Canadian firms launched an“International Code of Ethics for CanadianBusiness” in late 1997 (see Chapter 1, p. 16).And the Organisation for Economic Co-opera-tion and Development has adopted an inter-national code to monitor corrupt businesspractices and policies (Chapter 1, p. 15).

For the title of “human capital builders” to res-onate, Canadian service companies need to takea more deliberate, less circumstantial approachto training and professional development forlocal counterparts and employees. They shouldencourage local business partnerships and,through them, internship opportunities. Theyshould also help developing-country counter-parts set up accreditation programs. In regionswhere low wage scales provide Canadian companies with a comparative advantage, theyshould consider providing additional alternateforms of compensation, such as better benefits.

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N O T E S

1 Bruce Little, “The noticeable export gains of invisibles,” The Globeand Mail, August 11,1997, p. A6.2 World Trade Organization, “Overview of World Trade in 1995and Outlook for 1996,” Press/44, March 1996.3 Bimal Ghosh, Gains from Global Linkages (New York, NY: St.Martin’s Press, 1997), p. 2.4 Canada, Statistics Canada, Canada’s International Transactions inServices 1961 to 1996 (Ottawa: Minister of Industry, June 1997), p. 7.5 Personal interview, June 1997.6 Little, 1997.7 Consultants News, March 1997.8 Statistics Canada, 1997, pp. 32-369 Ibid, p. 33.10 Statistics Canada, 1997.11 Telephone interview, March 11, 1998.12 The ARA Consulting Group Inc., “The Public Sector ReformPractice” website: http://www.aragroup.com13 Canada, CIDA, Service Contracts and Lines of Credit, 1997http://www.acdi-cida.gc.ca14 ARA website at http://www.aragroup.com and personal inter-view with Murray Glow, September 1997.15 CIDA, “Minister Boudria Presents Canadian Awards forInternational Development,” News Release (97-59), Ottawa, May26, 1997.

16 CIDA, “Thirteen Finalists for the Canadian Awards 1997 forInternational Development” website: http://www.acdi-cida.gc.ca17 Personal interview, September 1997.18 Personal interview, June 1997.19 Institute of Certified Management Consultants of Canada,“Uniform Code of Professional Conduct” website:http://www.cmc-consult.org20 Personal interview, June 1997.21 Personal interview, May 1997.22 James Hunter, “Good Ethics Mean Good Business,” CanadianBusiness Review, Spring 1996, pp. 14-17.23 Stelios Loizides and George Khoury, Corporate Responsibility inDeveloping Countries: Key Success Factors, Report 165-96 (Ottawa:The Conference Board of Canada, 1996), p. 4.24 Ibid.25 Personal interview, September 1997.26 Statistics Canada, 1997, p. 2627 Personal interview, September 1997.28 McCarthy Tétrault, “International Assignments” website:http://www.mccarthy.ca29 Sean Fine, “Lawyers sign on to train counterparts abroad,”The Globe and Mail, August 12, 1997, p. B28.30 Personal interview, September 1997.31 Personal interview, May 1997.32 Ghosh, p. 116.

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117

C H A P T E R S E V E N

SELLING

CANADIAN

VALUESE N C O U R A G I N G P R I V A T E S E C T O R

A C T I V I T Y I N T H E S O U T H

Ted Paterson

T E D P A T E R S O N I S D I R E C T O R O F F I N A N C E A N D

S P E C I A L P R O J E C T S A T T H E N O R T H - S O U T H

I N S T I T U T E .

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In late January 1998, the first steps were takentoward the creation of a global university for

Indigenous peoples. More significant than theagreements signed between the SaskatchewanIndian Federated College and two universities inMexico, was that it occurred during the TeamCanada mission to Latin America.

Saskatchewan Premier Roy Romanow said thistype of arrangement is somewhat of a landmarkfor Team Canada because it shows a real con-cern for social as well as economic issues. “Theshift from the original Team Canada purpose,which is straight business to business, is some-thing I would encourage and promote withrespect to future trade missions and interna-tional trade agreements that are being negotiated,” he said.1

Past Team Canada missions have accorded littleattention to guaranteeing “that those on thebottom rung of the economic scale benefit fromthe annual trade mission.”2 The thrust hasunabashedly been on business dealmaking. Aquick tour of statistics shows why. Each billiondollars in exports creates 11,000 jobs,3 andCanada’s exports more than doubled over thepast decade, reaching $260 billion in 1996. Theratio of exports to gross domestic product (GDP)rose from 25 percent in 1990 to 37 percent in1995, a year when net exports accounted foralmost 60 percent of Canada’s overall economicgrowth4 and was the only cylinder firing in thegovernment’s “Jobs, Jobs, Jobs” engine. Alongwith deficit reduction, export performance isthe Canadian success story of the 1990s.

Team Canada missions to the emerging marketsof Asia and Latin America have directed thespotlight to the role of the Canadian privatesector in developing countries. Governmentpolicies and programs designed to stimulateactivity in developing countries by Canada’sprivate sector can be split into two broadgroups: international commercial programs asthese relate to developing countries, and inter-national development programs which involvethe Canadian private sector. The commercial programs affect many moreCanadian firms than the aid program.

The full gamut of Canadian international commercial activity includes exports fromCanada; imports into Canada; foreign invest-ments made by Canadians; and investmentsinto Canada by foreigners. Canadian govern-ments at all levels focus their attention on thefirst—promoting exports—plus attractinginward investment by foreign firms. To devel-oping countries, however, Canada’s importpolicies are far more significant, and the economic damage suffered by developing countries because of trade restrictions againstagricultural products, textiles, and other low-tech manufactured goods likely outweighs by alarge margin the aid Canada provides.

The promotion of Canadian prosperity isclearly the principal objective of mostCanadian policies and programs. But how dosuch efforts relate to Canada’s other foreignpolicy goals, including our desire to assistdeveloping nations, and the objectives ofCanada’s international aid program? Whatsteps might make Canada’s commercial policiesand programs more consistent with thisbroader set of objectives, and more beneficialto countries in the South?

In focusing on existing government policies andprograms, this chapter only skirts the importantdebates between free trade purists and theirdetractors. Whatever the theoretical merits ofthe free trade position, few countries actuallyfollow its precepts. As conceded by one promi-nent trade economist: “Anyone who has tried tomake sense of international trade negotiationseventually realizes that they can only be under-stood by realizing that they are a game scoredaccording to mercantilist rules, in which anincrease in exports—no matter how expensiveto produce in terms of other opportunities fore-gone—is a victory, and an increase in imports—no matter how many resources it releases forother uses—is a defeat.”5

F I R S T , A G R E E O N T H E R U L E S

National governments have the authority torestrict the movement of goods and peopleacross their boundaries. They have used thisauthority to tax imports, encourage “infant”

118

C H A P T E R S E V E N E N C O U R A G I N G P R I V A T E S E C T O R A C T I V I T Y I N T H E S O U T H

SELLING

CANADIAN VALUEST H E A C T I O N S O F

C O R P O R A T I O N S F L Y I N G

T H E C A N A D I A N F L A G

H E L P D E F I N E C A N A D A’ S

R E P U T A T I O N A B R O A D ,

J U S T A S T H E A C T I O N S O F

G O V E R N M E N T S E S T A B L I S H

T H E P O L I C Y , L E G A L ,

A N D R E G U L A T O R Y F R A M E -

W O R K W I T H I N W H I C H

C O R P O R A T I O N S A C T .

JOE CLARK, “THE BUSINESS OF

HUMAN RIGHTS,” BEHIND THE

HEADLINES, OCTOBER 1996

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industries, withhold the latest technology fromcompetitors, and promote “nation-building.”6

One of the basic challenges of trade policy,therefore, is simply securing access for yourcountry’s firms and their products in othernation’s markets. This is done principallythrough trade negotiations.7

Since the late 1940s, the rules for market accesshad been negotiated through the GeneralAgreement on Tariffs and Trade (GATT), wherevia multilateral agreements, each country agreesto exchange “trade concessions” with the othersignatories. But, as Box 1 indicates, there hasbeen an explosion of new trade agreements inthe past decade, many of which have been bilateral or regional rather than multilateral. In addition, recent negotiations have movedbeyond the export of goods to cover serviceexports (the General Agreement on Trade inServices or GATS), and intellectual propertyrights. The Canadian government also intervenes on behalf of individual firms to protect their access to foreign markets.8

N O W H O W C A N W E C H E A T ?

Before market access rules are negotiated, however, most governments have taken steps toboost the chances of their exporters, throughtrade promotion programs. These programscould be divided into three broad categories:subsidies to exporting firms (or their customers),services to improve information about foreignmarkets, and direct marketing activities.

SUBSIDIZING EXPORTS

Within the first, direct export subsidies (that is,“bribing” customers to buy your products) areto trade what steroids are to athletics. As such,GATT/World Trade Organization (WTO) agree-

ments ban their use by industrialized countries,which leads governments to find ever moreinnovative methods to funnel tax money toexporters. Rich country governments use officialdevelopment assistance (ODA) to subsidize theirown firms (see Box 2). They can subsidize thefirms that export rather than the exports them-selves, including support for research and devel-opment to develop products that are mainlyexported, such as new aircraft. Governmentscan provide such support directly, or throughspecial tax treatment.9 Finally, governments cansubsidize exporters by providing a variety of services, such as those described below, at give-away prices.

PROVIDING MARKET INFORMATION

There are respectable economic reasons for agovernment to provide services to overcomeinformation constraints faced by its exporters.Companies do business in markets they know,and may overlook customers in far-flung or culturally distinct markets. Market information,provided it is timely, may benefit both the firmand its potential customers, who might other-wise be unable to obtain a suitable product foras good a price. Governments already have foreign embassies and, arguably, can collectsome commercial information at less cost thancan industry associations and individual firms.10

Many governments also organize participationby their nation’s firms in international tradefairs and trade missions to help these firms learnabout new markets.

Governments can help reduce commercialuncertainty stemming from information constraints in two other important ways: theycan help finance exports to countries the com-mercial banks don’t serve because they don’tknow that market (or, sometimes, because theydo). They can also insure their firms’ foreignsales and investments against certain types ofrisks, such as payment defaults or expropriationresulting from sovereign or “political risk.”11

As noted, many countries provide such informa-tion and insurance services at below marketcost, thereby subsidizing exporters. In general,Canada’s subsidization of export finance andinsurance appears modest by international stan-dards,12 but it is more generous than otherindustrial countries in providing market infor-mation or support from its trade commissionersat no cost (see Box 4).

119


BOX 1 RECENT TRADE AGREEMENTSINVOLVING CANADA

Year Name Scope

1989 Free Trade Agreement with the US (FTA) Bilateral1994 North American Free Trade Agreement (NAFTA) Regional

Conclusion of the Uruguay Round of GATT MultilateralCommitment to Free Trade in the Pacific Rim RegionalCommitment to Free Trade in the Americas Regional

1995 Establishment of the World Trade Organization Multilateral1997 Free Trade Agreement with Israel Bilateral

Free Trade Agreement with Chile Bilateral“Exchange of Documents” with Mercosur RegionalTelecommunications Services MultilateralInformation Technology Multilateral

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BOX 2 THE BUSINESS OF AID

Most people think that foreign aid is, or atleast should be, directed primarily to those inneed: poor countries and, ideally, the poor-est people in those countries. In fact, muchaid is designed to promote businesses in thedonor country. Perversely, because the primary purpose of official development assis-tance is supposedly development rather thantrade promotion, it is generally exempt fromWTO rules. This exemption is broad enoughto drive a truck through and, indeed,Canada and other donors have required aidrecipients to purchase many such trucks, aswell as road graders, railway cars, and airplanes. Significant aid is also tied to theemployment of “development experts” fromthe donor country.1 Such tied aid is thoughtto reduce benefits by 10-20 percent becausethe recipient country could have purchasedbetter, cheaper, or more appropriate goodson the international or local market.

The cost of tied aid increases when donorsuse it to subsidize uncompetitive productsand firms, which they frequently do.2 TheDevelopment Assistance Committee (DAC)of the OECD—the main donors’ club—hastried over the years to reduce the percent-age of tied aid by publishing figures andadmonishing members to increase theuntied proportion.3 But donors havecooked up some particularly unpalatablevariants of tied aid in recent years.

One souped-up version is the provision ofaid on the condition that the recipient coun-try purchase some entirely different productsfrom the donor. An infamous example wasBritain’s promise to build the £234 millionPergau Dam in Malaysia—”a very bad buy”according to its own assessment—on thecondition that Malaysia agree to a £1.3 billion deal for British fighter planes.4

Countries also try to “leverage” their ODAby combining it with other funds through abewildering number of associated financeschemes.5 One recipe is mixed credits, inwhich ODA is blended with commercial

loans to subsidize aid recipients if they pur-chase products from the donor country.Reviews show such schemes tend to shiftaid from poorer to middle-income countries,increase the import content of projects,encourage capital-intensive approaches,exclude local suppliers and financial institu-tions, and reduce the money available forprojects designed to benefit the poor.

Evidence is also clear that product pricesincrease when financed by mixed credits,which means much of the subsidy is cap-tured by the donor-country suppliers ratherthan the recipient country. Finally, the prolif-eration of mixed credit schemes has resultedin “spoiled markets” (i.e., countries where nofirm can make a sale unless its governmentkicks in a financial sweetener). It should comeas no surprise that there is a good deal ofoverlap between the list of “spoiled markets,”such as China and Indonesia, created bydonors, and the list of countries criticized bydonors for high levels of corruption.

Other flavours of associated finance are usedby donors to help their firms win big capitalprojects financed by the international finan-cial institutions (IFIs), such as the World BankGroup and the regional development banks.6Many donors establish “consultant trustfunds” at the IFIs, which are used by thoseinstitutions to hire consultants from thedonor country to design capital projects.7The donor country hopes this will give theirfirms a “market intelligence” advantagewhen the project is put out to tender. Otherdonors eschew intelligence for direct bribery,by providing co-financing (paying part of thecost of the IFI project) or parallel financing(paying for a different, but closely relatedproject), in the hope their firms will win thebid for the IFI project itself.8

Some argue that Canada doesn’t divert suf-ficient aid money to associated finance toallow us to win our “fair share” of IFI-funded procurement. For the World Bank, in1995 Canada ranked 15th in terms of the

dollar value of procurement won by itsfirms, although it is sixth in terms of totalcontributions to the Bank. However, thesesame studies indicate that Canadian firmswin over 40 percent of the contracts onwhich they bid: the major problem may besimply that not many Canadian firms bid,whether for lack of interest or because theydon’t supply the goods and services neededin such development projects.9 For exam-ple, the graph below indicates that Canadadoes not export much machinery andtransportation equipment except to the USas part of the integrated auto industry.

The past couple of years have seen someefforts by the principal aid donors to curtailtheir use of associated financing10 and toincrease penalties against firms promotingcorruption.11 These steps have reduced theproblem of spoiled markets and the mostegregious diversions of aid funds to promote commercial objectives.

GRAPH 1 CANADIAN EXPORTS OFMACHINERY AND TRANSPOR-TATION EQUIPMENT, 1994

N O T E S

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 financingpackages 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 associatedfinancing 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 100biggest capital projects overseas and coordinate government support to the large American engineering firms competing for these contracts. Canada has recently established a CapitalProjects 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 ser-vices (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.org11 On December 17, 1997, 29 OECD countries signed the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

20.00

18.00

16.00

14.00

12.00

10.00

8.00

6.00

4.00

2.00

0.00

All Imports from Canada as % age of Total

Machinery and Transportation Equipment

D e s t i n a t i o n

Imp

orts f

ro

m C

an

ad

a a

s %

ag

e o

f to

ta

l

US EU JAPAN ALL OTHER

120

Source: WTO, International Trade: Trends and Statistics,Geneva 1995, Tables A.7, A.8, A.9, A.10, A.14. Trade data is for 1994.

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DIRECT MARKETING ASSISTANCE

Canada’s direct marketing efforts on behalf offirms working internationally used to be mod-est, such as having trade commissioners shep-herd business people around trade fairs. Arecent article in The Economist noted that, untilrecently, it was thought unseemly for a high-profile politician to flog merchandise, and that“…de Gaulle of France once refused to meet aJapanese prime minister, dismissing him as a‘transistor salesman’.”13 Now the leaders ofmany governments, including Canada’s, placetrade missions at the top of their agendas.

In many respects, the new hard sell tactics havebeen an outstanding success. Team Canada mis-sions raise our profile in the countries visited,especially among local politicians and theirbureaucrats. The onslaught of the 11 mostsenior politicians in a country must impresseven hard-nosed private sector dealmakers in far-flung markets. And the government has claimeddeals aplenty: the running total before the 1998mission exceeded $22 billion, with more than 96 percent of these deals still “in effect.”14

And now with a tally of 306 signings worth$1.78 billion, Team Canada 1998 inked themost deals signed on any trade mission.15

However, the best proof that Team Canada isgood for Canadian business is that the many hun-dreds of business people who participate pay theirown way.16 In addition to having senior politi-cians open foreign markets for them, participantsin a Team Canada mission have tremendousopportunities for doing business among them-selves—or perhaps to have a sit down with a premier to see what kind of incentives are on offerif they move a factory to, say, New Brunswick.

Rising exports, and the public and private sec-tors and 11 Canadian politicians working hap-pily together: What are we doing right?

T H E N E W G A M E P L A N

During the 1993 federal election, the Liberalsattacked the cozy relations with the UnitedStates developed under Prime Minister BrianMulroney’s government, and promised votersan independent foreign policy. This commit-ment, plus the priority placed on job creationand deficit reduction, resulted in the followingbroad changes:17

• Trade diversification. To lessen our depen-dence on, and vulnerability to, the US market, the government seeks to diversifyexports. Accordingly, it has pushed aheadwith new trade pacts (WTO, Chile, Israel),and is emphasizing non-US markets in itstrade promotion programs.

• Multilateralism. While it ratified the NorthAmerican Free Trade Agreement (NAFTA)early in its first term, the Liberal governmentsoon switched emphasis to multilateral agreements covering both trade and foreigninvestment. Such agreements give middle-power countries such as Canada the optionto take trade disputes to an internationalforum so they need not confront such economic powers as the US on their own.

• Better coordination. With shrinking resources,and under pressure from the private sector toreduce confusion caused by duplication, federal departments have agreed to bettercoordinate among themselves and with theprovincial export promotion units. This, confusingly, is also called the Team Canadaapproach.18 There is, however, one overallstrategy, called Canada’s InternationalBusiness Strategy (CIBS), plus a series of 27more detailed sector strategies.

• Greater focus. Given shrinking resources andthe mandate for trade diversification, CIBS

121


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 toeliminate 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 dollarsevery year, its premiums for country and sovereign risk insurance are not high enough to cover itslong-term insurance claims plus operating costs. Such low premiums constitute a trade-distortingsubsidy 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 tomanage their exporters’ expectations…” (i.e., come to grips with the startling propositionthey will not be subsidized by taxpayers); and

• the new arrangement will be a “soft law” (i.e., a nonbinding, voluntary agreement).

N O T E S

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

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stresses the need to focus on a limited number of fast growing, “emerging” markets,and niches in which Canadian businesses areinternationally competitive. Individualdepartments also are trying to assess theircomparative advantage vis-à-vis other government bodies to reduce duplication,and to put more of their declining resourcesinto those specific services.19

• Increased cooperation with the private sector.The overall thrust of the government’s policyand program changes is in keeping with therecommendations of a private sector taskforce—the Wilson Report (headed by Red Wilson of BCE Inc.)—commissioned toreview Canada’s international business development strategy. In addition, the TeamCanada sector strategies are developed inconjunction with representatives from theprivate sector, academics and, occasionally,union representatives who sit on NationalSector Teams, supported by an InternationalTrade Advisory Committee (ITAC)20 and 27Sectoral Advisory Groups on InternationalTrade (SAGITs).21

• Promotion of small and medium-sized enterprises.Given shrinking resources and the pressure to create jobs, a higher percentage of publicsector resources available through the stan-dard trade promotion programs are reservedfor small and medium-sized enterprises(SMEs), which are believed to create the bulkof new jobs.22 The target is to double thenumber of SMEs which export by the year2000. Virtually all departments and agenciesinvolved have developed new “SME-friendly”products and services.

• Performance measurement. Prodded in part bythe Auditor General, all agencies involved inthe International Business Strategy are work-ing on new systems to determine whethertheir services are delivering value for money.There also is increased emphasis on gettingrepaid when public subsidies assist firms inmaking sales in a new market,23 and eventalk of charging companies for at least someof the services traditionally provided free bythe government.

• Use of information technology. To cope with all this coordination, consultation, and networking, government agencies haveinvested heavily in information technology.Companies can register with WINexport, adatabase that allows trade commissioners tocheck on which Canadian companies sell

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BOX 4 CANADIAN POLICY INITIATIVES AND PROGRAMS FORINTERNATIONAL TRADE AND INVESTMENT

Securing Market AccessTrade negotiations (multilateral, plurilateral, regional, bilateral) ................................................DFAIT“Fronting” private sector companies in deals with foreign governments.....................................CCC

that wish to deal on a government-to-government basisInterventions for specific sectors or markets ..............................................................................DFAITCoordinating Government PoliciesCanada’s International Business Strategy (CIBS) ...................................................................DFAIT, ICCoordination with other national policies...............................................................................CabinetSubsidies 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)Program for International Business Development (PIBD).....................................DFAIT3 ($26 million)CIDA INC.............................................................................................................CIDA4 ($65 million)Private sector development projects................................................................CIDA5 (total unknown)Other tied aid .................................................................................................CIDA6 (total unknown)Consultant trust funds .........................................................................................CIDA ($13 million)7

Other subsidies and subsidized servicesDFAIT (information & training services in Canada & abroad) ................................$213+ million2

Industry Canada (information & training services in Canada)....................................$69 million2

Agriculture & Agri-Firm Canada ......................................................................................$27 million2

(export credits for agri-food, plus Information & training services in Canada & abroad)Other federal government departments ..................................................................$29+ million2

Provincial governments (information & training services in Canada & abroad) .......$260 million8

Appropriations to CCC ..............................................................................................$11 million9

CSIS (market intelligence; industrial espionage)........................................................................naOther Subsidies to Firms (not necessarily exporters)R & D co-investment in pre-commercial innovation ....................................................TPC ($varies)10

R & D for small and medium-sized enterprises.................................................................NRC–IRAP11

Special tax treatmentR & D tax credits ........................................................................................................$1 billion12

Employment income earned abroad (federal & nine provinces) ...............................................naEmployment income earned abroad on CIDA projects (Québec)..............................................na

Other Services to Exporters (Mainly on commercial terms, with little or no subsidy)Loans to buyers of Canadian products ..............................................................EDC $3,678 million13

Export insurance .............................................................................................EDC $18,352 million14

Export finance ........................................................................Business Development Bank of CanadaExport finance....................................................................................Various provincial governmentsCoordination of support for large international capital projects .....................................DFAIT (CPAT)Services to Canadian Firms Investing AbroadForeign investment insurance ............................................................................EDC ($928 million)14

Private investments in developing countries....................................................CIDA INC4 (see above)Joint ventures with local firms .......................................................................CIDA (various projects)5

K E Y :CCC:.............................Canadian Commercial Corporation EDC: ...............................Export Development CorporationCIDA: ...........Canadian International Development Agency IC:...............................................................Industry CanadaCIDA INC:...............CIDA, Industrial Cooperation Program IRAP:.......................Industrial Research Assistance ProgramCPAT:.......................................Capital Projects Action Team NRC:...........................................National Research CouncilDFAIT: ......Department of Foreign Affairs and International Trade TPC: ...................................Technology Partnership Canada

N O T E S

1 The Export Development Corporation provides a range of finance and insurance products to Canadian exporters andinvestors, but on commercial terms and according to prudent insurance practices. However, the federal governmentuses the EDC as a vehicle “…to support Canadian export transactions which, on the basis of prudent risk manage-ment…cannot be supported by the Corporation.” Canada, Report on the Canada Account Study (Ottawa: ExternalAffairs, 1992), p.1. This is called the Canada Account, and the figure shown is for concessional loan disbursements andloan provisioning for 1996-97.2 Canada, OAG, Report of the Auditor General of Canada to the House of Commons: Chapter 25—Canada’s Export PromotionActivities (Ottawa: Public Works & Government Services, 1996). Figures are for 1995-96. Some grants may be repaid ifthe firm is successful.3 Ibid.4 Ibid. Note that a significant proportion of CIDA INC funds are to assist Canadian firms invest in, rather than exportto, developing countries.5 See CIDA website, http://www.acdi-cida.gc.ca and IFInet.6 The last DAC review of Canadian development assistance reported that 40% of Canadian bilateral aid is “tied” to thepurchase of Canadian goods and services, and another 20% is “partially untied” (i.e., goods and services can be pur-chased from developing countries, but not from competitors in industrialized countries), leaving 40% untied, far lowerthan the DAC average of 59%. Other studies indicate 70 cents of every Canadian aid dollar are spent purchasingCanadian goods and services. ACTIONAID, The Reality of Aid: An Independent Review of International Aid (London: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.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 1996-97.10 Liberal Party of Canada, Securing Our Future Together: Preparing Canada for the 21st Century, Ottawa, 1997. Moniesinvested 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.12 The Conference Board of Canada, “Canada a Leader in R & D Tax Incentives,” The Inside Edge, vol. 1, no. 2, p. 5.13 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.14. Ibid. Figure shown is balance of foreign investment insurance outstanding as of 31 December 1996.

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which product, and alert them of a possiblesale elsewhere. They also can log ontoStrategis (the Industry Canada website), andfrom there connect to ExportSource (theDepartment of Foreign Affairs andInternational Trade website), StatisticsCanada, the Alliance of Manufacturers andExporters Canada, and any number of relatedsites. They can surf the IFInet to study theWorld Bank’s project pipeline, then checkwhat’s on offer from the CanadianInternational Develoment Agency (CIDA).

It appears Canada is on a winning streak, with asteady string of positive annual trade balances,and is now strategically re-deploying its forcesto win the battle for emerging markets.

A R E W E W I N N I N G Y E T ?

A closer look at trade statistics paints a different,more confusing, picture. What about those highprofile Team Canada missions to the fast grow-ing Asian markets? In fact, Canada’s trade withthe fastest growing markets has been decliningas a share both of our total exports, and of theirtotal imports.24 Overall, Canada is at the bottomof the list of G-7 countries with respect to tradewith developing countries. Meanwhile, ourtrade dependence on the US market continuesto increase, with the share of our exports goingto the US rising from 62 percent in 1980 to 80percent in 1997. A full 35 percent of theseexports are accounted for by intra-firm tradebetween US-controlled firms and their Canadiansubsidiaries.25 As Graph 2 depicts, our exports toMichigan now exceed Canadian exports to allnon-US countries, while exports to Marylandexceed total exports to all of Africa.26

What then of our strategy to focus on small andmedium-sized enterprises? The fact remains thatwhile “Canada is a trading nation, we are not anation of traders.” An estimated 70 percent ofour firms do not export at all, while 70 percentof our total exports are supplied by fewer than100 enterprises27 and 95 percent by about 5,000firms—perhaps one-half of 1 percent ofCanada’s registered enterprises. Fewer than3,000 firms make use of Export DevelopmentCorporation (EDC) services, and only 17 percentof EDC’s business volume is accounted for byfirms with annual sales of $25 million or less.28

Of course, SMEs go to the head of the subsidyqueue primarily for the government’s standardtrade promotion programs, of which the Programfor Export Market Development (PEMD) is the

best known. The budget for this has been cutfrom $19 million to $11.5 million over the pasttwo years.29 This is, quite frankly, small changecompared with subsidies to the huge high-techfirms, such as Bombardier Inc., Pratt & WhitneyCanada Inc., and Atomic Energy of CanadaLimited (AECL).30 And in spite of new productstailored to the needs of SME exporters, the vastbulk of financing and insurance provided by theEDC flows to huge firms such as NorthernTelecom Ltd (Nortel), Bombardier Inc., and SNC-Lavalin International Inc.31

Further shuffling of the data reveals other toughquestions. Has our share of exports to the USclimbed so significantly? One official inter-viewed mentioned that $1 billion in grainexports to Asia didn’t show up in our export figures to Asia in 1995. Given Canadian transportation bottlenecks, it seems likely these shipments were routed through the US, perhapswithout all the correct paperwork, and thenrecorded as exports to the US. No one is surehow much trade is wrongly classified, but itseems reasonable to assume it could total a fewbillion dollars.32 As well, many of the bona fideCanadian exports to the US are components forfinal products, which are ultimately destined forexport outside the US.

Another complication is raised when one ques-tions the “nationality” of a Canadian export. If,for example, a seat frame is manufactured inMexico, then shipped to Tennessee for uphol-

123


$0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000

Graph 2 Some 1996 Canadian Export Comparisons: Selected States & Regions of the World

MICHIGAN

ALL NON-US COUNTRIES

NEW YORK

ALL DEVELOPING COUNTRIES

CALIFORNIA

ALL ASIA (except Japan)

WISCONSIN

ALL AMERICAS

C $ M i l l i o n s

MARYLAND

ALL AFRICA

Source: Industry Canada, "Strategis. Trade Data Online"http://strategis.ic.gc.ca

C O M P E T I T I O N I S

B E C O M I N G I N C R E A S -

I N G L Y F I E R C E I N T H E

M A R K E T P L A C E A N D S O

Y O U H A V E T O D I F F E R E N -

T I A T E Y O U R S E L F F R O M

Y O U R C O M P E T I T O R S .

I F Y O U A R E W O R K I N G T O

M A K E A D I F F E R E N C E I N

T H E C O M M U N I T Y I N

W H I C H Y O U A R E S E L L I N G

Y O U R P R O D U C T S A N D

S E R V I C E S , I T D O E S

H E L P. G O O D E T H I C A L

P R A C T I C E S D I F F E R E N -

T I A T E Y O U A N D A D D

V A L U E T O Y O U R

P R O D U C T S A N D

S E R V I C E S .

COLIN LATHAM,

PRESIDENT & CEO

MARITIME TEL. & TEL., IN

SIO, “THE BEST OF THE TSE

300,” THE FINANCIAL POST

500 MAGAZINE,

MAY, 1997,

P. 30

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stering before being sent to Canada in a Germantruck so it can be fitted into a car designed inJapan, with engines from Taiwan that wereshipped on a Norwegian boat registered inPanama, should Canadians take credit of theentire value of the car as an export? Of course wedo, if only because it would be impractical to tryto keep track of all the transactions. There are,however, various methods used to estimate theaverage “local value-added” in exports of certainproducts or from certain sectors. A recent set ofestimates33 indicates that Canada’s muchvaunted trade surplus with the US is muchsmaller if calculated on a value-added basis. Aswell, much of Canada’s high-tech industry, cov-eted and cosseted precisely because its productsare high value-added, appears so dependent onimported components that little of the value isactually added in Canada. It may be that Canadadoes better on average with our traditionalexports of semi-processed raw materials.

W H A T ’ S T H E G A M E A G A I N ?

During the 1996 meeting of world trade minis-ters in Singapore, Prime Minister Mahathir ofMalaysia said that he had heard quite enoughabout “level playing fields.” He wanted to knowwhat game we were meant to play on thesefields, and if it was American football, hewanted no part of it. A good throw-away lineindeed, but it also shows there are some funda-mental questions concerning Canada’sInternational Business Strategy in today’s world.

Take, for example, the apparently straightfor-ward question: What is a Canadian company?For the vast majority of firms, the answer is per-fectly clear. But the vast majority of Canadianfirms don’t export. A few dozen enterprises,many foreign-owned, account for the bulk ofCanadian trade, much of which is simply salesbetween two plants, owned by the same firm,located in different countries. Such transnation-als loom large in the modern global economy.

Foreign policy analysts in other industrial coun-tries are asking similar questions. As onerecently asked: “...does Northern Telecom, aCanadian firm with substantial manufacturingoperations throughout the United States,deserve the same support from the Americangovernment as, say, Bell Atlantic?”34

The next question is: What are these transna-tionals trying to do? Do they care about theircontribution to Canada’s trade balance? Giventhat they operate in many countries, do they

really worry about what specific borders theirproducts cross to get to the final buyer, or dothey simply care whether they make that saleand record a profit with as little fuss as possible?Canadian politicians may be opening doors toemerging markets, and the Canadian govern-ment may be picking up the tab for researchand development, but it should be clear that thegame these transnationals are playing has littleto do with the size of Canada’s trade surplus.

For such firms, the goal is not to sell exports, butrather to “contest” markets. Making products inCanada and shipping them to some other coun-try may be a winning strategy for contesting thatcountry’s market at one point in time, but itmight be a complete loser some years later. Someindustries are dominated by giant transnationalscompeting against one another across the globe.Because the cost of developing new products—such as commercial jets or nuclear reactors—then equipping plants to manufacture them, isso enormous, the world market will support onlya small number of firms, each of which needs areasonable share of the global market to survive.Such firms must “go global,” but are forced todevise suitable strategies to contest market-by-market. A firm might start in an emerging mar-ket by exporting, but then move to licensing itstechnology to a local producer, or forging a jointventure with a state enterprise, or building itsown plant to manufacture the product locally.35

Or it may form a “strategic alliance” with erstwhile competitors to contest the emergingmarket against other strategic alliances.

The switch in emphasis from trade balances tocontesting markets is also apparent in theexpanded scope of “trade” negotiations duringthe present Liberal government’s first term.NAFTA includes side-agreements on labour andthe environment, plus a number of provisionson investments. Canadian negotiators now arebusy working on “mutual recognition agree-ments” on industrial and safety standards, harmonization of customs procedures, “nonbinding principles” for government pro-curement practices, and developing “a commonunderstanding on competition policy.”36

Finally, the world’s industrialized countries arenegotiating rules governing the treatment offoreign investors: the Multilateral Agreement onInvestment (see Chapter 3, p. 58).35

It should be clear that the obsession with grow-ing exports and the balance of trade is largelythat—an obsession. As noted by economist SylviaOstry, Distinguished Research Fellow at the

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A N D W H E R E V E R

G O V E R N M E N T S , D O N O T,

C A N N O T O R S H O U L D N O T

A C T, T H E B U R D E N S H I F T S

T O T H E M A N A G E R S O F


C O M P A N I E S T O E X E R C I S E

T H E I R R E S P O N S I B I L I T Y A S

M O R A L I N D I V I D U A L S .

JAMES HUNTER,

THE 1997 BUSINESS

ETHICS SURVEY REPORT,

KPMG INVESTIGATION

AND SECURITY INC.,

TORONTO, 1997

Pages a-138 (152) 4/24/98 6:11 PM Page 124

Centre for International Studies at the Universityof Toronto, “the present phase of acceleratingworld integration is dominated less by increasingtrade linkages than by growing investment andtechnology linkages facilitated by the explodingfinancial linkage of the 1980s.”38 The principallinks—financial, investment, trade, and technol-ogy—are increasingly situated between andwithin transnational corporations that are contesting markets across the globe.

Given the complications and connections of themodern global economy, it is impossible toassess the real impact of Team Canada missions.While these missions certainly boost theapproval ratings of the participating politiciansand benefit some firms, claims concerning“deals” made during these missions wouldpolitely be described as hyperbole39 (see Graph3). Perhaps the greatest benefit to Canada ismuch the same as that achieved by the originalTeam Canada, when Paul Henderson scored hisfamous goal in Moscow a quarter of a centuryago: these missions demonstrate to Canadiansthat they can compete with the best on some ofthe toughest playing surfaces in the world.

A N D W H A T D O T H E T I C K E T S

C O S T ?

It also is difficult to get a true reckoning of the costsassociated with Canada’s International BusinessStrategy, except to say these have been greatlyunderstated. Look, for instance, at the three pillarsof the Liberal government’s foreign policy:

• The promotion of prosperity and employment;

• The protection of our security, within a stableglobal framework; and

• The projection of Canadian values and culture.

The government policy statement went on tosummarize the key Canadian values as “respectfor human rights, democracy, the rule of law,and the environment.”40

Consider how well Team Canada projectedCanadian values in its first mission to China in 1994. During their private meeting withChinese Premier Li Peng, then Premier of NovaScotia John Savage couldn’t recall whetherPrime Minister Jean Chrétien even raisedChina’s notorious human rights record.41 Ourchief salesman refused to meet local humanrights activists to avoid anything that would“publicly embarrass his hosts.”42 Since that mission, Canada has also reversed its long-standing policy of co-sponsoring the motioncensuring China at the annual meeting of theUN Human Rights Commission,43 and, unlikethe UK or US, sent a minister to attend the handover ceremonies in Hong Kong, at whichtime the elected legislature was disbanded andmany laws restricting freedoms came into effect.44

Team Canada members also failed to project thevalue Canadians place on the environment, sign-ing deals with China to participate in the notori-ous Three Gorges Dam and preparing thegroundwork for the subsequent sale of CANDUreactors—exempted, from environmental impactassessments required by Canadian law.45 Thisexemption was granted in a Cabinet meeting onNovember 6, 1996 and was passed into law thefollowing day, although it was not gazetted untilNovember 27, the day after the CANDU deal wassigned.46 Even if such action is held to be legal,how does it project Canadian values such asdemocracy and the rule of law?

Indeed, it seems that the Team Canada missionto China racked up quite a bill in exchange forsome trade and investment deals, trading onCanada’s integrity and credibility, the hopes ofhuman rights campaigners in China, and, perhaps, global security based on nuclear non-proliferation and environmentally sound development.47 This could readily have beenforeseen. Consider the negotiating position ofCanada’s prime minister once he agrees to leadsuch a mission. Desperate to deliver on hispromise of jobs, anxious to diversify exportsaway from the US, surrounded by hundreds ofinfluential business leaders hungry for deals,and by Canadian journalists anxious for stories,Mr Chrétien is under tremendous pressure tosign agreements. His interlocutors are under nopressure to please their citizens, have everyincentive to stand up to Western pressure so

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$0 $5,000 $10,000 $15,000 $20,000 $25,000

Graph 3 Team Canada Success Claims

DEALS CLAIMED BYTEAM CANADA

$22,000

EXPORTS TO ALL TEAM CANADA COUNTRIES $7,891

C $ M i l l i o n s

Notes: Covers Team Canada missions of 1994, 1996, 1997.Sources: Industry Canada, "Strategis.Trade Data Online." http://strategis.ic.gc.ca; Government of Canada; and author'scalculations.

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they are not seen to be weak, and are perfectlyhappy to walk away from the table because theyhave offers of similar technology, at firesaleprices, from other countries.

Observers have noted how perilous it is to dealwith countries such as China. “China did whatAmerica would not. It made human rights atough part of its policy—but the communist way[...] if Western companies said a critical word, orfailed to urge appeasement on their govern-ments, they would lose trade and contracts.”48

Another interesting question is what theCanadian government requires from the firms it assists, and what actions it takes to prepare

them, not only as exporters of goods and services, but also as promoters of Canadian values and global security. A recent study oninternational business and human rights clearlydocuments that Canada does little to require oreven encourage Canadian businesses to promoterespect for human rights overseas, lagging significantly behind the US in this regard.49 Itdoes not reward Canadian firms for establishingcorporate codes of conduct governing theirinternational operations,50 nor promote independent monitoring of Canadian businessactivities abroad. Since the international cam-paign against the apartheid regime in SouthAfrica, the Canadian government has not

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BOX 5 ONE COUNTRY—TWO VIEWS

In February 1997, the federal Department ofForeign Affairs and International Trade(DFAIT) issued a report on Colombia called AGuide for Canadian Exporters and Investors. InOctober 1997, the Inter-Church Committeeon Human Rights in Latin America (ICCHRLA)issued a report on Colombia called One StepForward...Three Steps Back, Human Rights inColombia Under the Samper Government.

Two reports on one country. But if the country name in each report was blackedout, the casual reader—say a potentialexporter or investor—would never know theywere about the same place.

In the ICCHRLA report, the reader wouldlearn that in 1996 the democratically electedLiberal government of Ernest Samper Pizanohad declared a state of emergency, and that,while it was in force, the government hadproposed a series of reforms which wouldhave “maintain(ed) the country under a permanent state of emergency.” While thecountry’s Constitutional Tribunal eventuallystruck down the state of emergency, “thevery fact that these reforms were presentedand defended by significant sectors withinthe government, military and business community is indicative of the erosion of ademocratic commitment and the growingtendency to seek an authoritarian solution tothe country’s problems.”

And the reader would have learned that“Colombian human rights monitors havecontinued to register an average of approxi-mately 10 people killed every day as a resultof political violence, human rights abuses andattacks against marginal sectors of society.”

Could this be a country in which Canadiancompanies would want to invest, to establishbusinesses, to export into? Well, accordingto the DFAIT guide, which doesn’t even whis-per a mention of human rights abuses orinstitutional instability, but does provideadvice on clothing options for particular

weather conditions, “Colombia’s economy isone of the most stable and dynamic in LatinAmerica.”

DFAIT notes that “the on-going decertifica-tion of Colombia by the United States, whichhas frozen export credits from the US Export-Import Bank, has opened opportuni-ties for Canadian financial entities such as theEDC (Export Development Corporation) andCanada’s private banks, as well as for UScompanies that no longer have access toExport-Import Bank credits.” Later it states,“EDC views this policy measure (US decertifi-cation) as providing a window of opportunityfor new EDC lending in support of Canadianexport programs in Colombia.” As a conse-quence, “Colombia is the largest market forEDC’s Foreign Investment Insurance policieswith over $300 million in exposure, particu-larly in the oil and gas and telecom sectors.These policies cover the exporter against thepolitical risks of war/insurrection,transfer/convertibility and expropriation.”

So which Canadian companies have takenadvantage of opportunities in this countrythat, says DFAIT, has such “excellent creditrisk conditions,” “investment grade credits ofBBB- from Standard and Poors,” and “stableeconomic conditions,” but which, saysICCHRLA, is the worst country in LatinAmerica for overall human rights violationsand which, says the InternationalConfederation of Free Trade Unions, is theworst in the world for trade union violations?They include Canadian Occidental PetroleumLtd, TransCanada PipeLines Ltd,Interprovincial Pipe Line Ltd, Bell CanadaInternational, Northern Telecom, BellHelicopters, Bombardier, John Labatt Limited,and McCain Foods Ltd, according to DFAIT.

Stephen Law at ICCHRLA reports that thefederal government has said it will review itsdocuments and presentation of Colombia.

- SUSAN BRANDUM

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developed guidelines for Canadian firms operating in countries in which human rightsviolations are prevalent. It does not vet thehuman rights records of companies participat-ing in Team Canada missions or receiving services from our trade commissioners, and does not brief companies on local human rights issues as a matter of routine (see Box 5). It provides subsidies to firms operating in countries with repressive governments and doesnot even require that the firms receiving thesegovernment subsidies adopt or adhere to a corporate code of conduct.51

P L A Y I N G T O W I N - W I N

Economic integration tends to produce distinctwinners and losers. Advocates expect big gainsas increased competition leads to more rapidinnovation, in addition to greater choice andlower prices for consumers. But people do morethan simply consume: they also work, pay taxes,own homes, raise families. If transnationals relo-cate manufacturing to a developing country,demand for less-skilled workers declines inindustrialized countries. This tends to reducereal wages to, or employment of, less-skilledworkers, resulting in increased poverty unlessgovernments implement compensating mea-sures—better training programs, or reduced pay-roll taxes. But such measures are expensive, andincreasing globalization is forcing governmentsto shift the tax burden from “footloose factorsof production, such as profits and savings,toward consumption and labour […] especiallyunskilled workers who are least mobile.”52

Conversely, globalization implies that the better-trained can expect good jobs, better andcheaper consumer products, and lower taxes ontheir salaries and investments.

There are similar implications for developingcountries. Globalization has seen a surge in private sector investment flows to developingcountries from $25 billion in 1990 to $129 billion in 1996, but this is highly concentratedin the bigger markets and the wealthier marketsegments. Countries which, through savvy orserendipity, were “linkage-intensive” at the startof the 1990s have become the new “growthpoles,” awash in private investment.53

Assuming proponents of globalization are correct that closer economic integration willincrease world growth rates, the total economicbenefits of integration will exceed the totalcosts. In theory this means the winners could

compensate the losers, and there still would be a net economic benefit. What can be done to ensure the losers from globalization are compensated, and that the majority of theworld benefits from this growth?

Perhaps the most important step is to ensurethat market access is not denied to developingcountries for those products they can producecompetitively, such as textiles; many agricul-tural products, such as sugar; and low-techindustrial products. The next step would be toreverse the decline in aid budgets, increasingthem until the long promised target of 0.7 per-cent of GNP is reached. The third importantchange is for industrialized nations to stopusing developing countries as a battlefield in themodern trade wars. Perversely, however, becauseGATT/WTO rules have been broadened andbeen given more teeth while most aid remainsexempt from these rules, the incentive for mer-cantilists to use aid funds as ammunition in thetrade wars has increased in recent years.

Consider aid programs in Canada. The privatesector task force commissioned by the Liberalsto review trade programs—the Wilson Report—came up with the following, quite remarkablerecommendations:

Given decreasing demands for conces-sional financing, we recommend that theGovernment of Canada trade off $60 mil-lion annually of Canada Account conces-sional funds for an increase in the CanadaAccount nonconcessional facility, wheredemand is increasing. We further recom-mend that Canada align itself with itsmajor competitors and use a portion of itsofficial development assistance budget tofund concessional financing. This wouldmake available up to $120 million toreduce the deficit.54

What does this reveal, other than an interestingapproach to arithmetic?55 There is a claim thatdemand for concessional finance through theCanada Account at EDC has decreased, and arecommendation that Canada should use ODAto fund concessional financing. The reason isthat there are tighter international rules govern-ing trade-distorting subsidies, but these rules donot adequately cover aid.56

Such commercial motivations strongly distort theaid program, biasing it toward markets—largerand relatively richer countries,57 and the better-off in every country—rather than toward thepoor. But vastly increased flows of private sector

127


. . . C A N A D A C A N ,

I N D E E D M U S T , A C C O M -

M O D A T E T H E P R O M O T I O N

O F B O T H E X P O R T S A N D

H U M A N R I G H T S

S I M U L T A N E O U S L Y.

JOE CLARK, “THE BUSINESS

OF HUMAN RIGHTS,”

BEHIND THE HEADLINES,

OCTOBER, 1996

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128


BOX 6 THE PRIVATE SECTOR IN DEVELOPMENT: THE GOOD, THE BAD, AND THE UGLY

N O T E S

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 ofthese 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 genderequity. 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 con-tracts 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 institutionsto 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 wereinstalled 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 engineerscouldn’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 organiza-tion 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 fromthose 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 firmsundoubtedly 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

There are persuasive arguments forinvolving Canada’s private sector in ourdevelopment program. First, it isimportant to recognize that privatesector firms from the North haveextensive experience in supplying thegoods and services required—theyalready transfer far more technologyand financial resources to the Souththan do governments. But these areprovided through standard commercialarrangements such as direct invest-ments, supplier credits, licensing agreements, and training given by suppliers to their customers. Successfulprivate sector initiatives are then “sus-tainable” in the financial sense becausethey generate profits needed for continued operations.

Second, private firms often are betterequipped than governments or non-governmental organizations (NGOs) toprovide certain types of services1 thatare provided through the official aidprogram, ranging from the manage-ment of construction projects, throughmanagement consulting, softwaredevelopment, and training in manytechnical areas. Third, like NGOs, pri-vate firms often have the flexibility andincentive to be more innovative thangovernment agencies, and there aremany examples of excellent projectswhich, simultaneously, have promoteddevelopment and Canadian commercialinterests.2 As well, the fate of Canada’said program ultimately depends on thesupport of the Canadian public, includ-ing those working or investing in private firms.

Finally, many donors, includingCanada, now include private sectordevelopment as one of the explicitobjectives of their aid program. Whilenot universally accepted, many devel-opment experts in both the North andSouth agree that a healthy private sec-tor is necessary for development, and

support the use of aid to help poornations establish a “propitious environ-ment” for growth of the private sector.3

However, there are very important dif-ferences between:

• recognizing that a good deal of“development” is the result of commercial activity, and suggestingthat commercial activities should be subsidized as part of the developmentprogram;

• recognizing the contribution of pri-vate firms as suppliers or contractorsto the development program, andsuggesting private firms should dictatewhat goods and services are providedthrough the development program;

• improving the environment for pri-vate sector growth in a developingcountry, and subsidizing specificbusiness ventures by specific firms in a donor country.

Official development assistance pro-grams are most effective when theintended beneficiaries can determinetheir priorities and then obtain the rightgoods and services to address thoserequirements: such programs are“demand driven.” Tied aid typicallyincreases the costs of these aid programsby restricting the choice of availablegoods and services, and may even makespecific projects ineffectual because thedonor country does not supply theappropriate goods.4 But trying to pro-mote commercial interests through theaid program can do even greater dam-age: it can create a “supply driven” pro-gram in which we no longer ask whatdeveloping countries need, but ratherlook first to what we have on offer.

For example, the CIDA INC (IndustrialCooperation Division) program providesmoney ($65 million in 1995-96) toCanadian firms for feasibility studies,investment support, and professional ser-

vices (usually, to design capital projectswith the hope of winning the bid toimplement if it should go ahead). A1992 evaluation of CIDA INC was gener-ally positive, but noted that “…becausethe program is driven by Canadian firms,project formulation tends to focus first onpotential results for the Canadian firmand secondarily on what developmentgoals may be attained.”5 It recom-mended that CIDA clarify the develop-ment goals for the program to ensure aidfunds are used to promote development,as well as business, objectives.6

CIDA INC has taken steps to improve theprogram since 1992, most critically bygiving more support to projects featuringreal investments in developing countriesas opposed to subsidizing Canadian firmslooking for contracts on capital projects.However, a recent survey found that “In the minds of most [firms receivingCIDA INC grants], developmental activi-ties are clearly peripheral, not integral, tothe advancement of business interestseven in developing countries.”7 A morethorough evaluation is now underwaywhich may document what might bedone to ensure CIDA INC projects givepriority to developmental, rather thancommercial objectives. At the sametime, however, CIDA has recentlyannounced that Canadian private firmscould propose projects for funding bythe bilateral program, in addition to the$65 million available via CIDA INC.8

There are other “aid” projects whichare clearly designed to promoteCanadian exports. One example is theProgramme fonds de développementdu secteur privé (PFDSP) that seeks to“respond to the needs of Morocco’s pri-vate sector entrepreneurs by providingaccess to Canadian know-how andtechnology” by providing 25 percent to30 percent subsidies for Canadian tech-nology and “shared-cost interventions”for training and consultancy services.9

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investment are already flowing to the larger andthe richer. These are market opportunities thatare being addressed by market mechanisms.

It would be wrong, however, to conclude thataid should not support private sector develop-ment, or that the Canadian private sectorshould be excluded from our aid program (seeBox 6). However, after years of aid budget cuts,it is crucial that Canada’s aid program reassertsthe priority of developmental, rather than commercial, objectives. Scarce aid dollars shouldbe increasingly targeted to basic education,health, and social services which benefit thepoor but are not commercially viable, to thepoorest countries which are overlooked by private investors, and to rural areas far fromnew growth poles.

P O S T G A M E H I G H L I G H T S

Officially, Canada’s foreign policy has threeobjectives: prosperity, security, and the projec-tion of Canadian values. In its first term, thepresent government’s actions were clearly biasedtoward the first, with trade considerations dominating the policy agenda.

In turn, trade policy has been predicated on twoprincipal objectives: increasing benefits accruingto Canadian firms from the existing process ofglobalization, and slowing down the rate of economic integration with the United States. As such, the government has pressed ahead withtrade negotiations at both the multilateral leveland with blocs of emerging markets in Asia andLatin America. It also has refocused its assis-tance toward the bigger emerging markets. Butthe total amount of financial assistance hasbeen cut and the sums available, however welltargeted, seem inadequate to significantly influ-ence the aggregate export and investment plansof the Canadian corporate sector and measurablydecrease our dependence on the US market.

In place of money, Canadian politicians havesubstituted their prestige to directly promoteCanadian products and firms via Team Canadamissions. In spite of the seemingly impressivefigures for “deals” signed during those missions,it remains far from clear that this approach willhave a significant and sustained impact on thepattern of Canada’s international commercialactivity. At the same time, the pressure to makethe Team Canada missions appear successfulseems to have led to the sacrifice of other policyobjectives, including environmental security,the promotion of human rights and democracy

and—in some eyes at least—respect for the ruleof law. Canada’s politicians have ample oppor-tunities to promote Canadian exports withoutproviding succour to repressive regimes.

Budget cuts to trade promotion programs and tighter rules relating to trade-distorting subsidies also increase the pressure from thosewho wish to use the aid budget to promoteCanada’s commercial interests. This divertsfunds available to the poorest countries andpeoples, whose interests have already been damaged by massive cuts to Canada’s aid pro-gram. These same people and countries are alsothe least likely to benefit from the increasedtrade and investment flows brought about byglobalization.

S O M E M O D E S T P R O P O S A L S

A recent international poll found that Canada is seen as a country of natural beauty, wherepeople enjoy personal freedom, good healthcare, and a peaceful, albeit frigid, environment.Canadians are seen as honest, friendly, andpolite. Canadian businesses have a solid reputa-tion for reliability and honesty, although opinions vary widely whether our products aretechnologically advanced or competitivelypriced.58 Solid and stolid.

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$0 $500 $1,000 $1,500 $2,000 $2,500 $3,000

Graph 4 Canadian 1996 Export Comparisons: Selected US States and Countries

MISSOURI

CHINA

NORTH DAKOTA

TAIWAN

SOUTH CAROLINA

BRAZIL

ARKANSAS

INDONESIA

OKLAHOMA

THAILAND

DELAWARE

ALGERIA

C $ M i l l i o n s

Source: Industry Canada, "Strategis. Trade Data Online"http://strategis.ic.gc.ca

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Such perceptions offer a significant competitiveadvantage. Canadian CEOs confirm that we arewell regarded overseas, and that our main shortfall is “lack of aggressiveness.”59 A reviewof Canadian procurement through IFIs foundCanadian consulting firms were well accepted indeveloping countries, and that Canadian politi-cal support and financial assistance were held inhigh esteem.60 Almost all International Tradeand CIDA officers interviewed mentioned that

Canadian businesses have a significant advan-tage in many developing countries and withinmultilateral organizations because of Canada’sinternational reputation, and because our firmshave a reputation for honest dealings.

How to capitalize on this potential competitiveadvantage? The answer cannot be for Canada’scurrent government to undermine the country’sfavourable reputation, built-up over decades.Just as a government subsidy to one companyresults in higher taxes for the rest of us, pander-ing to repressive regimes to promote the interests of a few firms imposes costs on otherCanadians who must live and travel in a lesssecure world. Other Canadian firms competingin international markets may also have to overcome the negative publicity that inevitablyaccompanies a story in which a leader of ademocratic country provides tacit support torepressive regimes. Finally, even the short-termcommercial victories may prove pyrrhic if a corrupt regime is overthrown and the new government decides to favour companies andcountries that did not aid and abet its predecessor.

Canada should, at all costs, maintain its reputa-tion of an international stance of enlightened self-interest. To achieve this, the governmentshould simply follow through on its stated foreignpolicy objectives. Some modest proposals follow:

1 FOR THE DEPARTMENT OF FOREIGN AFFAIRS

AND INTERNATIONAL TRADE

• Our department of foreign affairs prepareshuman rights evaluations, but does notrelease these, in spite of the Liberal promisewhile in opposition, to publish annual reportcards on the human rights performance offoreign governments. These should be pub-lished, along with the criteria used in gradinghuman rights performance.61

2 FOR TEAM CANADA

• That the Prime Minister no longer lead trademissions to countries whose policies areinconsistent with fundamental Canadian values, as documented in the annual humanrights evaluation.

• That the government compile a report onlocal human rights and environmental con-cerns for all countries to be visited on TeamCanada missions, and distribute this inadvance to all participants.


BOX 7 RECOGNIZING SUCCESS

“Active and successful in the developing world?” asks a brochure fromthe Canadian International Development Agency and the Alliance ofManufacturers and Exporters Canada. “Be recognized for your achieve-ment—apply for an International Development Award.”

Launched in 1992, the annual national awards recognize “the importantcontribution that Canadian businesses make to international develop-ment,” says Don Boudria, former Minister for International Cooperation.“Their activities promote the transfer of skills and technology to develop-ing countries. This is beneficial for their economies and strengthens ourcommercial ties with them.”1

To date, 23 companies have been recognized. Each award is sponsored bya Canadian corporation and recognizes achievements in particular cate-gories—improving physical or social infrastructure, for example, the devel-opment of an industrial base, the promotion of gender equity, naturalresource conservation, and so forth. And while firms may apply on theirown, most anyone can nominate a company. The winners are selected bya panel representing government, industry, and the NGO community.

WINNERS IN 1997 Company Sector Country Sponsor

AGRA Earth & Improvement of social infrastructure Russia BabcockEnvironmental Ltd and environmental protection & WilcoxARA Consulting Inclusion of women in development Caribbean Bank of Group MontrealCPCS Transcom Ltd Growth of industrial sector Kenya General Motors

of Canada(Diesel Division)

SR Telecom Inc. Improvement of physical infrastructure Peru SNC-LavalinThiessen Equipment Advancement of technical capability Chile Nortel

PREVIOUS WINNERS2

1996: Agrodev Canada Inc.; Cowater International Inc.; Dessau International Ltd;Ocelot Energy Inc. & TransCanada Pipelines Ltd; Southern Alberta Institute ofTechnology.

1995: Associated Engineering International Limited; John Van Nostrand Associates Limited;Canadian Fishery Consultants Limited; Engine Control Systems Limited; Deloitte & ToucheManagement Consultants; Vitronov Inc.

1994: Agrodev Canada Inc.; N.D. Lea International Ltd; Roche International; The Bank of Nova Scotia.

1993: Champion Road Machinery Limited; MacDonald Dettwiler & Associates Ltd;Mitel Corporation; Sundel Laboratories.

1992: Canac International Inc.; Cartier Group Limited; Coopers & Lybrand; Novaport;Reid Crowther International Ltd.

N O T E S

1 CIDA, News Release (97-59), “Minister Boudria Presents Canadian Awards for InternationalDevelopment,” Ottawa, May 26, 1997.2 CIDA and AMEC, Canadian Awards for International Development 1997.

130

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3 FOR OTHER TRADE AND INVESTMENT

PROMOTION PROGRAMS

• That direct government finance62 should notbe used in any way to support commercialactivities in countries whose policies are incon-sistent with fundamental Canadian values, asdocumented in the annual human rights eval-uation, or for projects that do not meet mini-mum Canadian standards legislated forenvironmental impact assessment.

• That firms receiving public subsidies63 in sup-port of international activities be required tosign codes of conduct specifying corporateresponsibilities with respect to basic humanrights and the environment.64

• That the government work with humanrights organizations, labour groups, and busi-nesses to develop country-specific guidelinesindicating how businesses should operate toavoid contributing to human rights abuses orunnecessary environmental degradation.65

• That the government compile information onlocal human rights abuses and include this inthe information provided to Canadian compa-nies investigating business opportunities inforeign markets.

4 FOR THE AID PROGRAM

In addition, adoption of the following proposalswould ensure that Canada’s development assistance program, which has done so much toenhance Canada’s reputation, is not subvertedby short-term commercial interests.

• That cuts to the international aid program bereversed and the government make a crediblecommitment to reaching the long-standingtarget of allocating 0.7 percent of Canada’sGNP to aid.

• That Canada allocate at least 50 percent ofany future increases in its aid budget to pro-grams addressing poverty and basic needs indeveloping countries.64

• That CIDA support for “private sector devel-opment” focus on measures to promote a pro-pitious environment for the private sector indeveloping countries rather than specificcommercial projects.

T H R E E S T A R S E L E C T I O N

A final suggestion—the government sponsorsmany awards that recognize significant achieve-ments of the many Canadian firms promotingprosperity in the international arena. Why notrecognize three stars, giving recognition as wellto those firms that best “protect our securitywithin a stable global framework” and “projectCanadian values” encompassing respect forhuman rights, democracy, the rule of law, andthe environment? Three awards might remindus all that Canadian foreign policy has threegoals—prosperity, security, and values—and thatTeam Canada can only be truly successful if itmaintains a modicum of balance among these.

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1 David Vienneau, “Indigenous peoples university planned,”The Toronto Star, January 21,1998, p. A72 Ibid.3 James McCormack, “The Impact of Exports: An Input-OutputAnalysis of Canadian Trade.” Policy Staff Paper No. 94/24 (Ottawa:Department of Foreign Affairs and International Trade, 1994).4 Canada, Office of the Auditor General (OAG), Report of theAuditor General to the House of Commons: Chapter 25—Canada’sExport Promotion Activities (Ottawa: Public Works & GovernmentServices, 1996).5 Paul Krugman, Development, Geography, and Economic Theory(Cambridge, Mass: The MIT Press, 1995), p. 114.6 From the “National Policy” of John A. MacDonald, to PierreTrudeau’s “Third Option,” Canadian governments have used tradepolicy to keep the country from becoming integrated into theUnited States. Such policies were heartily endorsed by our manufac-turing sector, the main beneficiary of protection from US competi-tion, until the mid-1980s when many of the larger firms decidedour domestic markets were too small and they needed to protecttheir access to the US market through a free trade agreement.7 Governments also work to develop internationally accepted standardsto secure access to foreign markets. Most of these are through theInternational Standards Organization (ISO), but some are bilateral (e.g.,in January 1998 Canada and the European Union signed the“Agreement on International Humane Trapping Standards” which willallow Canada to continue exporting furs to Europe, which purchases75 percent of Canadian furs. Susan Smith, “Trapping accord ensures EUmarket for Canadian furs,” The Globe and Mail, January 7, 1998, p. B12.8 See, for example, Laura Eggertson, “Chrétien seeks probe inMexico,” The Globe and Mail, September 29, 1997, pp. B1, B5.9 The major tax “incentives” are provided to corporations for capi-tal investment and R & D purposes, but there are dozens of otherschemes. For example, the Government of Canada and, by exten-sion, the nine provinces for which the federal government collectspersonal income taxes, waive income tax on salaries paid byCanadian firms to their Canadian employees working overseas ondevelopment projects financed by multilateral agencies. This allowsfirms to pay lower salaries and undercut foreign competitors.Quebec matches this, and gives the same treatment to Quebec resi-dents working on CIDA projects. This allows Quebec firms toundercut salaries paid by other Canadian firms by perhaps 10-15percent for CIDA-funded projects. See Revenue Canada,“Interpretation Bulletin IT-497R: Overseas Employment Tax Credit,”Ottawa, 1985 and Ministère du Revenu du Québec, “Guide to theStatement of Employment Income Earned Outside Canada,” 1990.10 Many governments also have spy networks left over from theCold War, giving them another comparative advantage over pri-vate market intelligence providers. As well, at least some govern-ments enlist state enterprises in the effort to obtain marketintelligence—for example, in the early 1990s, Air France reportedlybugged first-class seats and employed state intelligence officers asattendants in the first-class section. Jonathan Calof, “What’s YourCompetitive Intelligence Quotient (CIQ)?” Working Paper: 96-48(Ottawa: University of Ottawa, 1996), p. 11.11 Of course, private insurers could also do this. But governmentsmay have a comparative advantage in insuring political risk asthey are in direct dialogue with foreign officials and may be betterable to assess and monitor risks relating to currency restrictions,expropriation, and selective tax measures, and are better at enforcing contract compliance by foreign governments.12 Toni Haniotis and S. Schich, “Should Governments SubsidizeExports through Export Credit Insurance Agencies?” UNCTADDiscussion Papers, No. 103 (Geneva: UNCTAD, 1995).13 “Thoroughly modern mercantilists,” The Economist, February 1,1997, p. 23.14 A cautionary note: international trade boffins employ a some-what cavalier use of the word “deal,” and many of these agree-ments will never culminate in large sales or investments.15 Vincent Chetcuti, “Small is Big News in Exporting!”Government of Canada Information Supplement inserted inMacLean’s, March 23, 1998.16 The sum was $13,000 for the 1998 mission to Mexico, Brazil,Argentina, and Chile. Heather Scoffield, “Trade mission to sailagain,” The Globe and Mail, January 8, 1998, pp. B1, B8.17 See also Claire T. Sjolander, “International Trade as ForeignPolicy: Anything for a Buck,” in Gene Swimmer, ed., How OttawaSpends 1997-98—Seeing Red: A Liberal Report Card (Ottawa:Carleton University Press, 1997).

18 In reality, the Team Canada approach is one strategy (we’re allone team) with two components. Domestically, the public sectoragencies (federal, provincial, and municipal) try to coordinate bet-ter among themselves and with the private sector. Internationally,federal and provincial political leaders agree to work together firstto “sell Canada” as a prelude to selling Canadian products.19 For example, the Department of Foreign Affairs and InternationalTrade has determined that its niche is on-the-ground support in for-eign markets. Accordingly, it is deploying more trade commission-ers overseas, cutting back services in Canada which can be done byIndustry Canada, the Business Development Bank, provincial andmunicipal governments, or trade associations.20 In October 1997, the ITAC was replaced by a “Team Canada Inc.Advisory Board,” chaired by Red Wilson. Apparently the ITAC,which included representatives from labour, was considered toolarge and unwieldy (i.e., too many interests were represented).21 There are some revealing omissions in the coverage of these. Forexample, there is no SAGIT for the banking sector because (in thewords of one trade official) “Canadian banks have never lackedchannels for policy input.”22 It is not clear that this belief is correct. See for example, G. Picot;J. Baldwin; and R. Dupuy, “Small Firms and Job Creation—AReassessment,” Canadian Economic Observer, January 1995, pp. 3.1-3.18.23 Budget estimates for the Department of Trade target a 50 percentincrease, to $5.55 million, from such repayments. CIDA INC. hasjust begun to collect significant repayments from its successfulclients; one such repayment totalled $700,000 for two projects.24 The share of Canada’s total exports destined for Pacific Rimcountries fell from 13 percent in 1988 to 9 percent in 1996;Canada supplied only 1.7 percent of China’s 1996 imports, downfrom 5.5 percent in 1981. “Canada’s share of exports to Asia falls,”The Globe and Mail, June 17, 1997, p. B5. It should be noted thatthe decision to provide enhanced attention to the emerging mar-kets in Asia is recent, and extra staff are only now being deployedto those countries. It will take some years before an assessment canbe made whether this new strategy is meeting its objectives.25 OAG, 1996.26 Trade within Canada is even more important to our country’sprosperity: “...the provinces carry out 14 times as much trade witheach other as they do with US states of comparable size and dis-tance.” John McCallum, “The Role of the Nation-State,” Tradewinds,1997 http://www.tradewinds-tv.com27 Andrew Griffith, “From A Trading Nation to a Nation of Traders:Toward a Second Century of Canadian Trade Development,” PolicyPlanning Staff Paper, No. 92/5 (Ottawa: DFAIT, 1995).28 Export Development Corporation, Annual Report, 1996.29 The budget for the Program for International BusinessDevelopment, which covers activities such as trade shows initiatedby DFAIT, and which may include SMEs on a cost-shared basis, hassimilarly been cut from $34 million to $16 million. Total DFAITexpenditures have been cut by about 70 percent over the pastdecade. 30 Bombardier Inc. received $144 million in 1996 to defray develop-ment costs for new models of planes, with a primary view to theexport market, and may have received $1.2 billion from theCanadian government over the past 15 years. The Economist,“Subway to the sky,” August 23, 1997, p. 52. In 1997, Pratt &Whitney received $147 million for R & D on an engine to go into aBombardier plane. “Pratt & Whitney gets federal handout,” TheGlobe and Mail, January 10, 1997, p. A1. These handouts, which arerepayable if the products are successful in the market, came fromthe Technology Partnerships Canada program administered byIndustry Canada. Canada also provided a subsidy to AECL of $172million for 1996-97 alone, and by some estimates had provided atotal of $13 billion in subsidies over the life of the corporation. Inaddition, in 1996 it funnelled a $1.5 billion loan via EDC to theChina National Nuclear Corporation to purchase two CANDU reac-tors. David Martin, Exporting Disaster: The Cost of Selling CANDUReactors (Ottawa: Campaign for Nuclear Phaseout, 1996).31 For example, Nortel and Bell Canada International, both sub-sidiaries of BCE Inc., received between them 49.8 percent of the$643 million in loans disbursed in fiscal years 1988-89 and 1989-90 under the Canada Account administered by the EDC. Canada,Report on the Canada Account Study (Ottawa: Department ofExternal Affairs and International Trade, 1992). As well, financingairplane sales has taken so much of EDC’s money that it has estab-lished a joint venture subsidiary with Bombardier, called CRJCapital Corporation, to handle this business.

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32 Most countries, including the US, keep statistics on “re-exports,”or goods that enter their country but are then shipped to a thirdcountry with little value-added. In principle therefore, StatisticsCanada could obtain such figures from their counterparts in the US. 33 James McCormack, “The Impact of Exports: An Input-OutputAnalysis of Canadian Trade,” Policy Staff Paper, No. 94/24 (Ottawa:DFAIT, 1994).34 Jeffrey Garten, “Business and Foreign Policy,” Foreign Affairs,May/June 1997, p. 71.35 See John H. Dunning, Multinational Enterprises and the GlobalEconomy (Wokingham; Addison Wesley, 1993), on “the eclecticparadigm” of international production, which seeks to explaintransnational business operations in terms of Ownership,Locational, and Internalization advantages (OLI).36 Quotes taken from “Canada’s International Market AccessPriorities” found on the DFAIT website.37 The MAI will entail two core obligations: “national treatment”or the obligation to provide equal treatment between foreign anddomestic investors; and “most-favoured nation treatment” or theobligation to treat all foreign investors and investors the same way.The government advertises MAI both as a means to protect theinterests of Canadians investing abroad, and as a way of makingCanada more attractive to foreign investors. Opponents bill theMAI as “NAFTA on steroids.” 38 Quoted in Alan Alexandroff, “Global Economic Change:Fashioning Our Own Way,” in Maureen Molot and H. vonRiekhoff, eds, Canada Among Nations: A Part of the Peace (Ottawa:Carleton University Press, 1994), p. 39.39 As of June 1996, only $3 billion (35 percent) of the $8.6 billionin deals from the 1994 Team Canada mission to China had materi-alized. As of June 1997, the comparable figures for the 1996 mis-sion are $2.45 billion (28 percent) of the claimed total of $8.72billion. See Scoffield, “Trade Mission to Sail Again.” Analysis of the1997 mission to South Korea, the Philippines, and Thailand hasnot been completed, but the financial crisis in those countries doesnot bode well.40 Canada, Canada in the World: Government Statement (Ottawa:Canada Communication Group, 1995).41 The Amnesty International 1997 summary for China:“Hundreds, possibly thousands, of suspected opponents of thegovernment were arrested during the year, while thousands ofpolitical prisoners detained in previous years remained imprisoned.Some were sentenced after unfair trials. Others were administra-tively detained without charge or trial. Torture and ill-treatmentcontinued to be widespread...” Amnesty International, AnnualReport 1997, p. 118.42 Sjolander, 1997.43 Germany and France also refused to co-sponsor, making a com-mon EU position impossible. “A suitable target for foreign policy?”The Economist, April 12, 1997, p. 15. The German Chancellor hasalso led trade missions to China.44 See David Cozac and Melanie Gruer. Don’t Shoot the Messenger: AGuide for Canadian Journalists on Promoting Press Freedom. (Ottawa:The North-South Institute, 1997).45 The Sierra Club has launched a suit against four governmentministers on this issue.46 Stephen Dale, “Canada Shanghais its own law,” Canadian Forum,March 1997, p. 18.47 Of course, similar observations could be made about missions toIndonesia.48 A.M. Rosenthal, “Laughing in Beijing,” The Globe and Mail, July 7, 1997.49 Craig Forcese, Putting Conscience into Commerce: Strategies forMaking Human Rights Business as Usual (Montreal: InternationalCentre for Human Rights and Democratic Development, 1997).50 An earlier study indicated only 14 percent of large Canadianbusinesses operating abroad have codes of conduct covering mini-mal human rights standards (Forcese, 1997, p. 8). Recently how-ever, business leaders have been vocal in their support for codes of

conduct. See for example the remarks of Thomas d’Aquino,President of the Business Council on National Issues, in “SummaryReport—Globalization, Trade and Human Rights: The CanadianBusiness Perspective” (Montreal: ICHRDD, February 22).51 Unlike Canada’s EDC, the US Overseas Private InvestmentCorporation (OPIC) is required by law “...to withold investmentinsurance to projects in countries that fail to take steps to adoptlaws that extend internationally recognized worker rights to itsemployment force.” Forcese, 1997, p. 83.52 “Disappearing Taxes,” The Economist, May 31, 1997, p. 23.53 OECD, DAC, Development Co-operation Annual Report, 1997. Seeespecially section II-7, “Development cooperation investments tosupport linkage intensive development.” Of course, the recentfinancial meltdown in a number of Asian countries shows that pri-vate foreign capital can exit even faster than it enters, devastatingeconomies dependent on these funds.54 Canada, International Business Development Review Report, “TheWilson Report,” September 30, 1994, p. ii.55 “Concessional” financing is money provided at below-marketrates of interest. The difference between the market-rate of interestand the interest-rate specified in the financing deal is a subsidy,the cost of which is borne by taxpayers and which must thereforebe shown as a “budgetary” item by the government. A “trade off”of $60 million concessional for an equal amount of nonconces-sional funds would reduce the reported budget deficit by $60 mil-lion as the government must show the concessional finance on itsconsolidated budget while nonconcessional finance is “nonbud-getary.” How this then adds up to $120 million remains unclear.56 There is a “nonbinding” agreement to limit the most egregiousabuses called the “Helsinki disciplines.”57 The proportion of CIDA funding going to relatively richer countriesof special interest to Canadian businesses has increased from 10 per-cent in 1975, to 20 percent in 1978, and 25 percent a decade later.Cranford Pratt, “Canadian Development Assistance: A Profile,” inPratt, ed., Canadian International Development Assistance Policies: AnAppraisal (Montreal and Kingston: McGill-Queen’s University Press,1994), p. 18.58 All from Angus Reid Group: 1997.59 Susan Bourette, “Corporate Canada lacks aggression, new studyfinds,” The Globe and Mail, July 15,1997, p. B2.60 R. D. Gladu, “Strategic Review: Consultant Trust Funds at theWorld Bank” (Ottawa: CIDA, 1994).61 Jeff Sallot, “Election agenda: a foreign policy for the 1990s,” The Globe and Mail, April 26, 1997, pp. D1, D9.62 This would include any funds supplied via the Canada Accountof EDC.63 This would include concessional financing via the CanadaAccount, PEMD, and CIDA INC.64 While Foreign Affairs Minister Lloyd Axworthy came out invocal support of the International Code of Ethics for CanadianBusiness (see Chapter 1), the EDC has declined to become a signa-tory of that code as “...it needs to in time adapt to allow morecommercial enterprises to subscribe to that as well.” Quote fromevidence given by A. Ian Gillespie President of EDC, to theStanding Committee on Foreign Affairs and International Trade,November 6, 1997. 65 General codes of conduct may not give sufficient guidance forspecific firms working in specific countries, and country-specificcodes may be more useful. See for example James Cooney,“International Ethical Business Conduct: The Issue of Self-Regulation.” Presentation to the Conference on InternationalBusiness Ethical Conduct, University of Ottawa, Human RightsResearch and Education Centre, February 27, 1997.66 As recently as February 1995, Canada committed itself to allo-cate 25 percent of its ODA to basic human needs—a target it hasnot yet achieved. Alison Van Rooy, A Partial Promise? CanadianSupport to Social Development in the South (Ottawa: The North-SouthInstitute, 1995). This commitment, until it is reached, should takeclear priority over other interests served by Canada’s aid program.

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LIST OF

CONTACTS

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

Caledon Institute of Social Policy1600 Scott Street, Suite 620Ottawa, Ontario K1Y 4N7Tel: (613) 729-8778Fax: (613) 729-3896E-mail: [email protected]: www.cyberplus.ca/~caledon

The Canadian Centre for Business in the CommunityThe Conference Board of Canada255 Smyth RoadOttawa, Ontario K1H 8M7Tel: (613) 526-3280Fax: (613) 526-4857Website: www.conferenceboard.ca

Canadian Centre for Ethics and Corporate Policy50 Baldwin StreetToronto, Ontario M5T 1L4Tel: (416) 348-8691Fax: (416) 348-8689E-mail: [email protected]: www.ethicscentr.com

The Clarkson Centre for Business EthicsFaculty of ManagementUniversity of Toronto105 St George StreetToronto, Ontario M5S 3E6Tel: (416) 978-4930Fax: (416) 978-4629E-mail: [email protected]: www.mgmt.utoronto.ca/~stake

EthicScan Canada LtdLawrence Plaza Postal StationPO Box 54034Toronto, Ontario M6A 3B7Tel : (416) 783-6776Fax: (416) 783-7386E-mail: [email protected]: www.interactive.yorku.ca/ethicscan

Human Rights Research and Education CentreUniversity of Ottawa57 Louis PasteurOttawa, Ontario K1N 6N5Tel: (613) 562-5775Fax: (613) 562-5125E-mail: [email protected]: www.uottawa.ca/~hrrec

Institute for Research on Environment and EconomyUniversity of Ottawa5 Calixa Lavallée StreetPO Box 450, Station AOttawa, Ontario K1N 6N5Tel: (613) 562-5895Fax: (613) 562-5873E-mail: [email protected]: www.web.net/iree

International Centre for Human Rights and DemocraticDevelopment63, rue de BrésolesMontreal, Quebec H2Y 1V7Tel: (514) 283-6073Fax: (514) 283-3792E-mail: [email protected]: www.ichrdd.ca

KPMG Ethics and Integrity ServicesPO Box 31Commerce Court Postal StationToronto, Ontario M5L 1V2Tel: (416) 777-8500Fax: (416) 777-8818E-mail: [email protected]: www.kpmg.ca

Michael Jantzi Research Associates Inc.372 Bay Street, Suite 1906Toronto, Ontario M5H 2W9Tel: (416) 861-0403Fax: (416) 861-0183E-mail: [email protected]

The National Round Table on the Environment and theEconomy344 Slater Street, Suite 200Ottawa, Ontario K1R 7Y3Tel: (613) 992-7189Fax: (613) 992-7385E-mail: [email protected]: www.nrtee-trnee.ca

Public Information Advocacy Centre1 Nicholas Street, Suite 1204Ottawa, Ontario K1N 7B7Tel: (613) 562-4002Fax: (613) 562-0007E-mail: [email protected]: www.web.net/piac

Social Investment Organization366 Adelaide Street East, Suite 443Toronto, Ontario M5A 3X9Tel: (416) 360-6047Fax: (416) 360-6380E-mail: [email protected]

Taskforce on the Churches and Corporate Responsibility129 St Clair Avenue West, Suite 21Toronto, Ontario M4V 1N5Tel: (416) 923-1758Fax: (416) 927-7554Website: [email protected]

Transparency InternationalBusiness Ethics200F Schulich School of BusinessYork University4700 Keele StreetNorth York, Ontario M3J 1P3Tel: (416) 736-5809Fax: (416) 736-5762E-mail: [email protected]: www.transparency.de

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 A N A D A

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O U T S I D E C A N A D A

Business for Social Responsibility609 Mission Street, 2nd floorSan Francisco, California 94105-3506USATel: (415) 537-0888Fax: (415) 537-08889E-mail: [email protected]: www.bsr.org

Centre for Social and Environmental AccountingResearchUniversity of DundeeDundee DD1 4HNScotlandTel: 44 (0) 138 234-4789Fax: 44 (0) 138 222-4419E-mail: [email protected]: www.dundee.ac.uk/accountancy/csear

Coalition for Environmentally Responsible Economies711 Atlantic AvenueBoston, Massachusetts 02111USATel: (617) 451-0927Fax: (617) 482-2028E-mail: [email protected]: www.ceres.org

Corporate WatchWebsite only: www.corpwatch.org

Council for Ethics in Economics125 East Broad StreetColumbus, Ohio 43215-3605USATel: (614) 221-8661Fax: (614) 221-8707E-mail: [email protected]: www.businessethics.org

Council on Economic Priorities30 Irving PlaceNY, New York 10003USATel: (212) 420-1133Fax: (212) 420-0988E-mail: [email protected]: http://www.-2.realaudio.com

Global Futures Foundation801 Crocker RoadSacramento, California 95864USATel: (916) 486-5999Fax: (916) 486-5990E-mail: [email protected]: www.globalff.org

Institute for Global EthicsPO Box 563Camden, Maine 04843USATel: (800) 729-2615Fax: (207) 236-4014E-mail: [email protected]: www.globalethics.org

Institute for Social and Ethical Accountability112-116 Whitechapel RoadLondon, E1 1JEEnglandTel: 44 (0) 171 377-5866Fax: 44 (0) 171 377-5720E-mail: [email protected]: www.accountability.org.uk

Interfaith Center on Corporate Responsibility475 Riverside Drive, Room 550New York, New York 10115USATel: (212) 870-2296E-mail: [email protected]

The Multinational MonitorPO Box 19405Washington, DC 20036USATel: (202) 387-8030Fax: (202) 927-4178E-mail: [email protected]: www.essential.org/monitor

The Prince of Wales Business Leaders Forum15-16 Cornwall TerraceRegents Park, London NW1 4QPEnglandE-mail: [email protected]: www.oneworld.org/pwblf

The Rocky Mountain Institute1739 Snowmass Creek RoadSnowmass, Colorado 81654-9199USATel: (970) 927-3851Fax: (970) 927-4178E-mail: [email protected]: www.rmi.org

Social Venture NetworkPO Box 29221San Francisco, California 94129-0221USATel: (415) 561-6501Fax: (415) 561-6435E-mail: [email protected]: www.svn.org

Stockholm Environment InstituteLilla Nygatan 1Box 2142, S-103 14Stockholm, SwedenTel: 46 (8) 412-1400Fax: 46 (8) 713-0248E-mail: [email protected]: www.sei.se

UN Research Institute for Social DevelopmentPalais des NationsCH - 1211Geneva 10, SwitzerlandTel: 41(22) 798-8400Fax: 41(22) 740-0791E-mail: [email protected]: www.unrisd.org

World Business Council for Sustainable DevelopmentStrandveien 37PO Box 3011324 LysakerOslo, NorwayTel: 47 (6) 758-1800Fax: 47 (6) 758-1875E-mail: [email protected]: www.wbcsd.ch/foundation

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STATISTICAL

ANNEX

Andrew Clark and Lawrence Latimwith Kerry Max

T H E D A T A I N T H I S S T A T I S T I C A L A N N E X F O R T H E 1 9 9 8

C A N A D I A N D E V E L O P M E N T R E P O R T W A S A S S E M B L E D A N D

A N A L Y Z E D B Y A T E A M O F R E S E A R C H E R S A N D A S S O C I A T E S

F R O M T H E N O R T H - S O U T H I N S T I T U T E , L E D B Y S E N I O R

R E S E A R C H E R A N D R E W C L A R K .

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

TABLE 2 THE DEVELOPING COUNTRIES: SELECTED INDICATORS 144

TABLE 3 CANADIAN OFFICIAL DEVELOPMENT ASSISTANCE: 148BASIC 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 156COUNTRY (1995-96)

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

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

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

TABLE 9 MOVEMENT OF PEOPLES 172

TABLE 10 HUMAN LINKAGES BETWEEN CANADA AND THE 176DEVELOPING WORLD

TABLE 11 CANADA-DEVELOPING COUNTRY LINKAGE INDICES 180

TECHNICAL NOTES 184

141

TABLE OF CONTENTS

142

T A B L E 1

CANADA AND OTHER HIGH HUMAN DEVELOPMENT

ECONOMIES: SELECTED INDICATORS

This first table puts into context someof Canada’s relations with develop-

ing countries which are covered in latertables. It does so by comparing Canadawith other high human developmentcountries, that is, those countries with ahuman development index (HDI) of0.890 or greater in 1994. Developed bythe United Nations Development Programme (UNDP), the HDI measurescountries’ level of development by tak-ing health and education indicators intoaccount, as well as per capita income.As column 1 shows, Canada achievedthe highest ranking in the world with aHDI index of 0.960 out of a theoreticalmaximum of 1.000. Significantly, thistable also includes countries, such asBarbados, Cyprus, and Greece, whoseachievements in health and educationhave earned them a high HDI despiterelatively low per capita incomes.

Column 2 shows that Canada ranks sixteenth on the GNP per capita scale:at US$19,380 in 1995, Canada’s GNPper capita was significantly lower thanthe high human development countryaverage of US$25,100. However, if onetook cost of living into account, Canadawould again rank near the top in termsof standard of living.

The following seven columns (3 to 9)present some of the main features ofeach country’s aid program, the mostimportant policy tool that governmentstarget toward developing countries.Column 3 shows that a total US$55.1billion in official development assis-tance (ODA) was disbursed in 1996, adrop of US$3.9 billion over the pastyear. Japan remained the largest donorin absolute volume with US$9.4 billion,a drop of US$5 billion since 1995. TheUnited States rose from fourth to secondplace, followed by Germany and Francein third and fourth place, respectively.

Comparing Canada to other well estab-lished donor country members of theOECD in terms of ODA as a percentageof GNP (column 5) gives cause for con-

cern. In 1996, Canada’s aid programrecorded a precipitous decline in realterms of 15 percent over the previousyear: only in Portugal and Japan did aidlevels fall more sharply. This fall wassufficient to move Canada from sixth toeleventh most generous donor, placingit in the bottom half of the OECD’s 21donor countries for the first time sincethe 1960s. Canada’s ODA/GNP ratio of0.31—the lowest since 1969—was theresult of repeated cuts in the aid budgetsince 1992. Another sobering compari-son: Canada, with a population of 30million, had an aid program in absolutedollar terms only US$9 million largerthan Denmark’s whose populationnumbers 5 million. Moreover, thedecline in Canada’s ODA/GNP ratio willcontinue for at least another two yearsif announced cuts are implemented.

In general, aid declined across the boardby 4.2 percent in real terms during1996, and the overall weighted averageODA/GNP ratio fell to 0.25—the lowestlevel ever recorded. This overall declinemasked considerable differences in indi-vidual donors’ aid budgets: 10 donorsincreased their contributions while 11registered decreases. With ODA/GNP

ratios of 0.8 or better, the most gener-ous continued to be the Scandinaviancountries and the Netherlands. Leastgenerous was the United States, at 0.12,followed by Italy and Japan.

Other aspects of aid help indicate itseffectiveness. As a general rule, thehigher the share of aid going throughmultilateral channels, the less it is tiedto domestic procurement. In 1995exactly one-third of Canada’s aid wasdelivered through multilateral channelssuch as the United Nations and themultilateral banks, a figure slightlylower than in the past but still abovethe OECD average of 31.1 percent (column 7). While most EuropeanUnion (EU) countries had a significantlyhigher multilateral share, much of thiswas channeled through EU aid programs which, being restricted to EUdonors, are only partially multilateral.Australia, New Zealand, the US, andFrance delivered the largest part of theiraid through bilateral channels.

Most countries delivered their aid asgrants rather than as subsidized or “soft”loans: the most important exceptionswere Japan, Spain, Germany, France,and Austria. Significantly, the percent-age of Canadian aid provided as grantsfell from 100 to 94 percent in 1995,largely because a significant amount ofExport Development Corporation softloans were recorded as aid.

The share of aid going to the poorestcountries is another indicator of aidprograms’ effectiveness. While morethan half of Canadian aid still went tomiddle-income countries in 1994-95,recent cuts in ODA in Canada, as inother OECD countries, have tended toincrease the concentration of aidamong the poorest countries. The OECDaverage in 1994-95 was 52.1 percent(column 9); Canada was slightly belowaverage at 46.5 percent.

In terms of its share of trade with devel-oping countries (columns 10 and 11), in1995 as in 1994, Canada had the lowest

ODA as a percentage of the GNP of Members of the Development Assistance Committee (1996)

Denmark

Norway

Netherlands

Sweden

France

Luxembourg

Belgium

Finland

Switzerland

Germany

Canada

Ireland

Australia

Austria

United Kingdom

Spain

New Zealand

Portugal

Italy

Japan

United States

South Korea

Taiwan

1.04

0.85

0.83

0.82

0.48

0.41

0.35

0.34

0.34

0.32

0.31

0.30

0.29

0.28

0.27

0.22

0.21

0.21

0.20

0.20

0.12

0.03

0.03

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0

143


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

Net Private OfficialShare Financial Bilateral

Total Net % Change Share of Share of Total Flows to Debt StocksUNDP 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

1 2 3 4 5 6 7 8 9 10 11 12 13

Australia 0.931 18,720 1,093 -15.1 0.29 13 22.4 100.0 48.8 47.8 29.0 1,341 1,228Austria 0.932 26,890 640 -14.0 0.28 14 27.0 80.0 50.1 25.7 15.3 59 7,401Bahamas 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) 4,043Canada 0.960 19,380 1,782 -15.4 0.31 11 33.0 94.3 46.5 8.1 13.8 2,360 10,635Cyprus 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 1,874Finland 0.940 20,580 409 9.3 0.34 8 43.3 98.7 58.5 26.5 19.4 57 707France 0.946 24,990 7,430 -11.3 0.48 5 23.9 82.0 37.9 22.8 18.2 4,417 42,804Germany 0.924 27,510 7,515 3.8 0.32 10 36.0 79.5 58.4 25.0 25.3 12,835 53,917Greece 0.923 8,210 ~ ~ ~ na ~ ~ ~ 36.3 21.0 ~ ~Iceland 0.942 24,950 ~ ~ ~ na ~ ~ ~ 5.9 11.7 ~ ~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 14,508Japan 0.940 39,640 9,437 -24.7 0.20 19 28.1 46.8 61.5 52.2 52.8 22,262 121,028Luxembourga 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 7,920New 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 1,040Portugal 0.890 9,740 221 -15.6 0.21 17 33.9 100.0 81.8 9.5 16.9 35 645Singapore 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 8,757Sweden 0.936 23,750 1,968 7.6 0.82 4 30.2 100.0 50.1 18.4 11.6 465 2,799Switzerland 0.930 40,630 1,021 -1.6 0.34 8 28.0 100.0 53.3 22.8 9.8 (160) 3,173Taiwan ~ 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 10,862United 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.

share of its exports (8.1 percent) directedto these markets. This was slightly higherthan the previous year’s 6.9 percent,and reflects the high concentration ofCanadian trade with other industrializedcountries, particularly the US. A slightlyhigher share (13.8 percent) of Canada’simports came from developing coun-tries, placing Canada sixth lowest andwell below the average of 30.8 percent.

Column 12 shows the net amount of pri-vate capital flowing to (or, in the cases of

Belgium and Sweden, from) developingcountries through fast-growing foreigndirect investment, portfolio capitalinvestment, and private transfersthrough NGOs.1 In 1995, this amountedto almost US$98 billion, or 56 percentmore than net aid flows. Canada, withnet long-term private flows of some US$2.4 billion, ranked seventh amonghigh human development countries.

Column 13 gives Eurodad’s estimate ofthe debt owed in 1994 by developing

countries to industrial-country governments and their agencies, such as export/import banks or bilateraldevelopment banks. Canada againranked seventh among creditors, withUS$10.6 billion in official debts.

1 The figures on net long-term private financial flowsto developing countries shown in this table, takenfrom the OECD, are substantially lower than figures onfinancial flows recently released by the World Bank.This is partly because both organizations measuredifferent things and use different sources. It alsoreflects a considerable statistical discrepancy amonginternational agencies on the magnitude of these flows.

144

T A B L E 2

THE DEVELOPING COUNTRIES: SELECTED INDICATORS

This table offers a context for Canada-developing country relations by

providing a quick statistical snapshot ofdeveloping countries themselves. Itincludes such basic information as population, GNP per capita, economicgrowth rates, adult literacy rates, andunder-5 mortality rates.

The first two columns provide two ver-sions of the UNDP’s human developmentindex (as explained in Table 1): the basichuman development index (HDI) andone adjusted to take into account thesituation of women—the gender-relateddevelopment index (GHDI). In 1994, theGHDI was lower than the unadjustedindex in every country, indicating thatmen are better off than women through-out the world. As column 1 shows, thedisparity between women and men wasgreatest in Asia and the least marked inAfrica, although Asian women were “better off” in absolute terms than theirAfrican counterparts. Saudi Arabiashowed the greatest gender disparity asmeasured by the difference between thebasic HDI and the GHDI.

Column 3 shows that, in 1995, the GNPper capita varied much more widelybetween countries than did the HDI.Incomes per person ranged from a low ofUS$80 to more than US$17,000 in someoil-exporting developing countries of theMiddle East. On a regional basis, theAmericas had the highest income perperson at US$3,320, followed by EasternEurope at US$2,260; Asia and Africa werewell behind at US$710 and US$490,respectively. Interestingly, EasternEurope’s level of development, as measured by the HDI, was slightly higher than that of the Americas, largelybecause of higher attainments in healthand education.

The income disparity between highhuman development economies anddeveloping countries is stark: on average,the high HDI economies had incomesper capita some 23 times larger thandeveloping countries. Column 4 shows

this gap is narrowing, however: between1985 and 1995, developing countries’GNP per capita grew at an average rate of2.9 percent annually, compared to anaverage growth of 2.0 percent in highhuman development countries. There islittle cause for great optimism since thisgrowth was concentrated in a few coun-tries. Three of the top five performerswere in Asia: Thailand (8.4 %), China(8.3 %), and Indonesia (6.0 %).Botswana and Chile tied at 6.1 percent.

On a continent-wide basis, the disparitiesin per capita income growth were quitemarked. During the past decade, EasternEuropean economies collapsed at a rateof 4.6 percent annually. This trend istentatively starting to reverse as countriescomplete the difficult transition fromcentrally planned to market economies.The situation is more distressing in Africawhere incomes continued to fall fromalready very low levels, although morerecent positive per capita growth providesreason for cautious optimism. Asia con-tinued to grow at 4.7 percent per capitaannually, although some economies,notably in the Middle East and CentralAsia, encountered negative growth. TheAmericas’ annual per capita growth ratewas barely positive at 0.3 percent.

In terms of dependence on external loansand foreign aid (columns 9, 10, and 11),Africa was by far the most dependent. At82 percent, the continent’s 1995 debt

load in relation to its GNP was doublethat of any other region. Nine countrieshad long-term debts in excess of 200 percent of their GNP, and in 1993-94, 19 African countries spent more—some-times three and four times more—on servicing their debt than on education.While Asia’s debt load was quite low at32 percent, Syria and Laos had debts inexcess of 100 percent of their GNP, andIndonesia, Pakistan, the Philippines, andJordan spent more than twice as muchon debt service as on education. Andwhile the Americas’ debt as a share ofGNP was low, most countries spent moreon debt service than on education.Guyana and Nicaragua had the dubioushonour of having two of the world’smost unsustainable debt/GNP ratios: well in excess of 300 percent.

Africa’s aid/GNP ratio was almost 10 per-cent, compared to 2 percent in theAmericas and 1 percent in Asia. In Asia,Cambodia, Laos, and Mongolia werehighly aid-dependent. Nicaragua andHaiti also were heavily dependent withaid/GNP ratios of more than 36 percent.

Column 12 highlights an increasinglyimportant North-South issue: per capitaemissions of CO2—the world’s mostimportant greenhouse gas. The UNFramework Convention for ClimateChange calls for limits and eventualreductions in the world’s CO2 emissions.At 11.9 tons per capita, the heavily indus-trialized high HDI countries emittedalmost five times as much CO2 per capitaas developing countries. Africa’s emissionswere the lowest at 0.9 tons. Emissions indeveloping countries are increasing rapidly, however. The challenge will be toadopt a much cleaner growth path thandid the already “developed” countries.Eastern Europe’s relatively high per capitaemissions are expected to decline as lessefficient, dirty industries are cleaned up.Only a few oil-exporting developingcountries had per capita emissions higherthan industrialized countries’. Canadawas among the top five emitters of CO2

per capita in the world.

90

80

70

60

50

40

30

20

10

0

Key Economic Indices 1995

ADULT LITERACY RATE

EXTERNAL DEBT/GNP

AID/GNP

AFRICA AMERICAS ASIA

145


TABLE 2 THE DEVELOPING COUNTRIES: SELECTED INDICATORS

UNDP GNP/Capita Under-5 DebtGender- UNDP Growth Adult Mortality Service Paid CO2

Related Human GNP Average Literacy Rate External as % of EmissionsDevelopment 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 1 2 3 4 5 6 7 8 9 10 11 12

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

146

T A B L E 2 ( C O N T I N U E D )




AMERICAS 1 2 3 4 5 6 7 8 9 10 11 12

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 3.52Belize ~ 0.806 2,630 3.9 568 0.2 70.0 40 46.9 2.9 82.2 1.32Bolivia 0.557 0.589 800 1.8 6,131 7.4 82.5 105 90.6 11.9 120.3 0.88Brazil 0.728 0.783 3,640 -0.8 688,085 159.2 82.7 60 24.0 0.1 176.8 1.39Chile 0.785 0.891 4,160 6.1 67,297 14.2 95.0 15 43.3 0.3 211.1 2.56Colombia 0.811 0.848 1,910 2.6 76,112 36.8 91.1 36 28.2 0.3 156.7 1.83Costa Rica 0.825 0.889 2,610 2.8 9,233 3.4 94.7 16 42.5 0.3 146.1 1.21Cuba 0.699 0.723 ~ ~ ~ 11.0 95.4 10 ~ ~ ~ 2.64Dominica ~ 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 1.36Ecuador 0.675 0.775 1,390 0.8 17,939 11.5 89.6 40 84.1 1.4 220.4 1.72El Salvador 0.563 0.592 1,610 2.8 9,471 5.6 70.9 40 27.0 3.2 263.1 0.66Grenada ~ 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 0.59Guyana 0.615 0.649 590 0.6 493 0.8 97.9 59 377.2 15.8 451.1 1.03Haiti 0.332 0.338 250 -5.2 2,043 7.2 44.1 124 39.8 36.1 14.2 0.11Honduras 0.544 0.575 600 0.1 3,937 5.9 72.0 38 124.6 11.2 310.4 0.55Jamaica 0.726 0.736 1,510 3.6 4,406 2.5 84.4 13 134.9 3.4 307.8 3.26Mexico 0.770 0.853 3,320 0.1 250,038 91.8 89.2 32 69.9 0.2 110.5 3.77Nicaragua 0.515 0.530 380 -5.4 1,911 4.4 65.3 60 589.7 42.0 302.3 0.62Panama 0.802 0.864 2,750 -0.4 7,413 2.6 90.5 20 101.4 0.7 100.3 1.69Paraguay 0.649 0.706 1,690 1.2 7,743 4.8 91.9 34 29.4 1.9 126.6 0.59Peru 0.656 0.717 2,310 -1.6 57,424 23.8 88.3 55 54.1 0.8 ~ 0.99St 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 ~ 4.58Trinidad and Tobago 0.841 0.880 3,770 -1.7 5,327 1.3 97.9 18 53.6 0.5 296.0 16.30Uruguay 0.842 0.883 5,170 3.1 17,847 3.2 97.1 21 32.4 0.5 156.8 1.61Venezuela 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 1 2 3 4 5 6 7 8 9 10 11 12

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

➤

147





ASIA (continued) 1 2 3 4 5 6 7 8 9 10 11 12

Malaysia 0.782 0.832 3,890 5.7 85,311 20.1 83.0 13 42.6 0.1 159.5 3.74Maldives 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 4.03Nepal 0.321 0.347 200 2.4 4,232 21.5 27.0 114 53.3 ~ 66.4 0.07North Korea ~ 0.765 ~ ~ ~ 23.9 95.0 30 ~ ~ ~ 11.21Oman ~ 0.718 4,820 0.3 12,102 2.2 35.0 25 29.5 0.6 135.7 6.12Pakistan 0.392 0.445 460 1.2 60,649 129.9 37.1 137 49.5 1.3 208.1 0.59Papua New Guinea 0.508 0.525 1,160 2.3 4,901 4.3 71.2 95 53.3 8.2 ~ 0.55Philippines 0.650 0.672 1,050 1.5 74,180 68.6 94.4 53 51.5 1.2 328.3 0.77Qatar 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 ~ 13.85Sri Lanka 0.694 0.711 700 2.6 12,915 18.1 90.1 19 64.4 4.3 113.0 0.29Syria 0.646 0.755 1,120 0.9 16,783 14.1 69.8 36 134.8 2.2 ~ 3.19Tajikistan 0.575 0.580 340 ~ 2,009 5.8 96.7 79 35.0 3.4 0.3 0.70Thailand 0.812 0.833 2,740 8.4 167,056 58.2 93.5 32 34.9 0.5 147.7 2.02Turkey 0.737 0.772 2,780 2.2 164,789 61.1 81.6 50 44.1 0.2 183.5 2.49Turkmenistan 0.712 0.723 920 ~ 5,156 4.5 97.7 85 10.0 0.7 2.3 10.96United Arab Emirates 0.727 0.866 17,400 -2.8 39,107 2.5 78.6 19 ~ 0 ~ 42.28Uzbekistan 0.655 0.662 970 -3.9 21,590 22.8 97.2 62 7.5 0.4 3.3 5.75Vietnam 0.552 0.557 240 ~ 20,351 73.5 93.0 45 130.2 ~ ~ 0.29West Bank and Gaza ~ ~ ~ ~ ~ 2.0 ~ ~ ~ ~ ~ ~Yemen ~ 0.361 260 ~ 4,790 15.3 41.1 110 155.2 4.4 ~ 0.81Oceania ~ 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 1 2 3 4 5 6 7 8 9 10 11 12

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

148

T A B L E 3

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

In 1995-96—the latest year for whichdata is available—Canadian ODA

totaled $2.68 billion, an unprecedented13 percent drop from the previous year,reflecting the impact of budget cuts tothe aid program. Indeed, Canadian aidas a proportion of the country’s GNPwas 0.36 percent, the first time it hasfallen below 0.40 percent since 1970.1

Of that amount, one-third, or $900 mil-lion, was delivered through multilateralchannels, such as the internationalfinancial institutions (IFIs) and the UNsystem. The remaining two-thirds weredelivered through Canadian institutionsor bilateral channels.

The top three recipients of Canadian aidin 1995-96 were China ($139 million),Zambia ($128 million), and Bangladesh($112 million). The top 10 recipientcountries absorbed almost 43 percent ofthe allocated aid in 1995-96. Half of thetop 50 beneficiaries of Canadian aidwere in Africa, 15 were in Asia, nine inthe Americas, and one in EasternEurope.2 The geographical distributionof aid was as follows: Africa, 48 percent;Asia, 34 percent; the Americas, 16 percent;and Eastern Europe, 2 percent.

Cuts to Canada’s foreign aid budgetduring the past decade have meant thatonly a few countries saw the real valueof bilateral aid increase. In Africa theseincluded Côte d’Ivoire, Egypt, Ghana,Malawi, Mozambique, and South Africa;in the Americas, Bolivia and Nicaragua;and in Asia, China, the Philippines, andVietnam. Several former major recipi-ent countries saw Canadian aid fallabruptly, whether for political reasonssuch as Congo-Kinshasa (Zaire) andNiger, or for budgetary reasons such asKenya, Tanzania, Sri Lanka, andJamaica.

Canada’s ranking among other bilateraldonors (column 4) gives a sense ofCanada’s potential leverage in a givencountry—the likelihood that our aid, orother influence, will engender change.Our most important presence was in theCaribbean, although Canada was the topdonor in only one country, St Lucia.And while Canada was the world’sseventh largest donor in 1995, in only 16 of 129 aid-eligible developing coun-tries did we rank among the top fivedonors. Canadian aid was widely dispersed for many reasons: we were present in a large number of countries; alarge—and increasing—percentage of aidwas allocated on a regional rather thanon a country basis, particularly in Africaand Asia; and because a large part, alsoincreasing, was not allocable by country,as in the case of refugee support, scholar-ships, and other foreign student costs.In some cases, the recipient country wasnot specified.

Although the allocation by continentof multilateral and bilateral aid wasapproximately the same, the imputedvalue of Canadian contributions tomultilateral aid agencies sometimesexceeded Canada’s bilateral presence inthat country. While that is often thecase in a number of small countries, in1995-96 it was also true in some largereconomies such as Zambia, Kenya,Uganda, Colombia, Honduras, andVietnam.

This allocation of Canada’s bilateral aidby sector was remarkably stable overthe past decade, with one exception:support to the energy sector declined infavour of health and population, whichin 1995-96 received 16 percent ofCanada’s bilateral aid. As the chart illustrates, almost one-third of Canada’sbilateral aid was allocated to humanresource development—education andinstitutional support—although a toohigh percentage went to tertiary (university and college level) rather than primary and basic education. Morethan 25 percent was allocated in theform of economic and financial supportor nonproject aid (including monetizedfood aid) designed to assist countriesrestructure their economies. Of theremaining, 9 percent went to agriculture(including forestry and fisheries); 6 percent each to transportation/com-munications and industry; and 5 percent to the energy/mining sector.

1 This figure differs from the ODA/GNP ratio given for Canada in Table 1 because it corresponds to the1995-96 fiscal year. The Table 1 figure corresponds tothe 1996 calendar year.2 Most Eastern European countries, apart from Albaniaand countries of the former Yugoslavia, are not eligibleto receive aid. This is indicated in the table as “na” for“not applicable.” Assistance to these countries intransition is tracked separately.

Distribution of Bilateral Aid by Sector 1995-96

HUMAN RESOURCE DEVELOPMENT 31%

ECONOMIC & FINANCIAL SUPPORT 27%

HEALTH & POPULATION 16%

AGRICULTURE 9%

TRANSPORTATION/COMMUNICATIONS 6%

INDUSTRY 6%

ENERGY/MINING 5%

149


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

B I L A T E R A L Rank of RecipientTotal 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 1 2 3 4 5 6 7

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

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( I N M I L L I O N S O F C A N A D I A N D O L L A R S )

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AMERICAS 1 2 3 4 5 6 7

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

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

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151





ASIA (continued) 1 2 3 4 5 6 7

Malaysia 4.52 3.19 3.5 5 0.80 5.31Maldives 0.03 0.02 4.1 8 0.43 0.46Mongolia 0.04 ~ ~ ~ 1.29 1.33Nepal 6.09 8.87 -3.7 10 4.84 10.93 39North Korea 0.10 ~ ~ ~ 0.17 0.27Oman 0 ~ ~ ~ 0 0Pakistan -0.06 73.19 ~ 12 17.39 17.33 27Papua New Guinea 0.08 0.56 -17.7 13 0.51 0.59Philippines 22.84 8.06 11.0 7 1.40 24.24 20Qatar 0 ~ 0 ~ 0 0Saudi Arabia 0 ~ 0 ~ 0.24 0.24Sri Lanka 7.74 27.99 -12.1 9 4.52 12.26 37Syria 0 0.20 -100.0 10 1.17 1.17Tajikistan 0.03 na na 7 0.06 0.09Thailand 16.43 15.55 0.6 7 0.65 17.08 29Turkey 4.93 -1.73 ~ 9 0.32 5.25Turkmenistan 0.02 na na ~ 0 0.02United Arab Emirates 0 ~ ~ ~ 0 0Uzbekistan 0.02 na na ~ 0.13 0.15Vietnam 12.39 0 ~ 11 15.30 27.68 17West Bank and Gaza 2.00 0.38 18.1 na 6.48 8.48 45Yemen 0.72 0.52 3.3 10 2.27 2.99Oceania 4.13 1.62 9.8 9 3.57 7.70 47Asia Regional 36.09 9.17 14.7 na 6.74 42.83Other 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 1 2 3 4 5 6 7

Albania 0.13 ~ ~ 16 2.69 2.82Belarus na na na na na naBosnia Herzegovina ~ ~ ~ ~ ~ ~Bulgaria na na na na na naCroatia ~ ~ ~ ~ ~ ~Czech Republic na na na na na naEstonia na na na na na naHungary na na na na na naLatvia na na na na na naLithuania na na na na na naMacedonia, FYR ~ ~ ~ ~ ~ ~Moldova na na na na na naPoland na na na na na naRomania na na na na na naRussian Federation na na na na na naSlovak Republic na na na na na naSlovenia ~ ~ ~ ~ ~ ~Ukraine na na na na na naEx-Yugoslavia 19.46 ~ ~ 11 8.90 28.36 16Other 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 1,832.43Countries not Specified 262.93 159.32 5.1 158.51 421.45Unallocable 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.

152

T A B L E 4

CANADIAN BILATERAL ODA BY CHANNEL AND

BY COUNTRY (1995-96)

If debt forgiveness is excluded, Canadadevoted 28 percent of its government-

to-government assistance to thefollowing five countries: Bangladesh at$73 million, China at $62.2 million,India at $43.9 million, Ghana at $29.7 million, and Haiti at $25.5million. The next five—Peru, Bolivia,the Philippines, Cameroon, and Mali—comprised another 12 percent. Thesecontributions best reflect the intendedfocus of Canadian assistance becausegovernment-to-government is thechannel over which the Canadian government has the greatest control. In the top 10 recipients, seven areamong the poorest developing coun-tries and three (Bolivia, Peru, and thePhilippines) are middle-income coun-tries. This concentration of aid on thepoorest countries has increased asCanada’s aid budgets have been reduced.The cuts have also resulted in reductionsin government-to-government aid: in1995-96 only six countries have govern-ment-to-government aid programs inexcess of $20 million, compared to 19 countries only five years before.

Canada is a large contributor of foodaid (column 3), composed mainly ofwheat. Also in the basket are vegetableoils, pulses, and fish products. In 1995-96, Canada’s contributions,including food aid delivered throughthe World Food Programme (WFP),totaled $260 million, or close to 10 percent of total Canadian aid. Thisyear, however, the amount of food aiddelivered through bilateral channelsexceeded that channeled through the

WFP (see Table 5), largely because theworld experienced fewer emergencyfood shortages. In 1995-96, the mainrecipients of humanitarian assistancewere the former Yugoslavia, Rwanda,Burundi, Sudan, and Haiti, all countriesin political conflict.

Worth noting is the amount of ODA thattook the form of debt forgiveness inAfrica, almost all to Egypt ($71.5 million)and Côte d’Ivoire ($18.8 million). In1995-96, 5.1 percent of total bilateral aidwas debt forgiveness, largely in the formof cash paid out to the Canadian WheatBoard (CWB) and the Export

Development Corporation as the government guaranteed their loans.Canada still holds approximately $1 billion of bilateral debt with theworld’s poorest countries.

In 1995-96, CIDA’s Partnership Branchdelivered 16 percent of Canada’s bilateralaid: more than 75 percent was disbursedthrough the not-for-profit sector—uni-versities and colleges, nongovernmentalorganizations (NGOs), and churches.The remainder was channeled throughthe private sector by CIDA’s IndustrialCooperation Program (CIDA INC).Although most of the funding to thenot-for profit sector is not country-specific, a study carried out by the Canadian Council for International Co-operation and CIDA’s Policy Branchhas shown that 45 percent of this aidwent to Africa, 33 percent to the Americas, and 23 percent to Asia. Aidchanneled through CIDA INC has tended to go to middle-income or fast-growing economies such as China orIndonesia.

Finally, note that part of the largeamount of bilateral aid not allocable bycountry is spent in Canada rather thanin developing countries. In 1995-96 thisamounted to $430.4 million. Some $153 million or 8 percent of total bilateralaid was spent on the resettlement ofrefugees from developing countries inCanada and another 4 percent ($69 million) was spent on the directand indirect costs of supporting studentsfrom developing countries in Canada.

Distribution of Bilateral ODA by Channel 1995-96

GOVERNMENT-TO-GOVERNMENT AID 39%(excluding Bilateral Food Aid)

BILATERAL FOOD AID 8%

OFFICIAL BILATERAL DEBT RELIEF 5%

PARTNERSHIP BRANCH 16%

IHA 3%

IDRC 5%

REFUGEE COSTS IN CANADA 8%

ADMINISTRATIVECOSTS 9%

OTHER 7%

153


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

P A R T N E R S H I P B R A N C H International Int’l Centre Government-to- Rank Official Industrial International Development Human RightsGovernment Aid of Recipient Bilateral Institutional Nongovernmental Cooperation Humanitarian Research and Democratic

(including bilateral Country Bilateral Debt Cooperation Organizations Program Assistance Centre DevelopmentCountry food aid) (if in top 30) Food Aid Relief (ICDS) (NGOs) (CIDA INC) (IHA) (IDRC) (ICHRDD) Total

AFRICA 1 2 3 4 5 6 7 8 9 10 11

Algeria 3.60 2.78 0 0.02 0 0.26 0 0 0 3.89Angola 0.36 0.05 0 0 0.06 0 3.65 0 0 4.07Benin 13.82 18 0 0.04 0.22 0 0.84 0.05 0.55 0 15.52Botswana 1.77 0 0 0 0 0.08 0 0.09 0 1.94Burkina Faso 10.56 25 0 0 0.20 0.06 0.02 0 0.84 0 11.68Burundi 0.62 0 0 0 0 0.20 4.72 0.03 0 5.57Cameroon 19.27 9 0 0 0.33 0 0.44 0 0.40 0 20.45Cape Verde 0.56 0 0 0 0 0.04 0 0 0 0.59Central African Republic 1.25 0 0 0 0 0.05 0 0 0 1.30Chad 0.60 0 0 0 0 0.12 0 0 0 0.72Comoros 0 0 0 0 0 0 0 0 0 0Congo - Brazzaville 0.14 0 0 0 0 0 0 0.04 0 0.19Congo - Kinshasa (Zaire) 0.37 0 0 0 0.01 0 0.60 0.02 0 0.99Côte d’Ivoire 12.24 20 0 18.80 0.03 0 0.45 0 0.21 0 31.72Djibouti 0.18 0 0 0 0 0 0 0 0 0.18Egypt 12.17 21 0.04 71.46 0.06 0.16 4.32 0 1.08 0 89.24Equatorial Guinea 0.14 0 0 0 0 0 0 0 0 0.14Eritrea 4.65 3.13 0 0 0 0.08 0.40 0 0.11 5.23Ethiopia 16.21 15 12.90 0 0.02 0.02 0.77 0.40 1.06 0 18.47Gabon 3.23 0 0 0 0 0.03 0 0 0 3.26Gambia 0.40 0 0 0.19 0.13 0 0 0 0 0.72Ghana 29.73 4 3.97 0 0.35 0.01 0.34 0 0.48 0 30.91Guinea 5.67 0 0 0.15 0 0.15 0 0 0 5.98Guinea-Bissau 0.67 0 0 0 0 0.05 0 0.01 0 0.73Kenya 5.77 0 0 0.39 0.11 0.35 0 1.06 0.02 7.71Lesotho 0.75 0 0 0 0.21 0 0 0 0 0.97Liberia 1.08 1.08 0 0 0 0 0.98 0 0 2.06Libya 0 0 0 0 0 0 0 0 0 0Madagascar 1.16 1.69 0 0 0.01 0.28 0 0.06 0 1.51Malawi 12.75 19 2.33 0 0.05 0.36 0.15 0 0.20 0 13.51Mali 18.86 10 0 0 0.03 0.04 0.12 0.50 0.33 0 19.88Mauritania 1.05 0 0 0 0 0 0 0 0 1.05Mauritius 0.14 0 0 0.07 0 0.11 0 0 0 0.33Morocco 6.75 30 0 0 0.27 0 1.65 0 0.48 0 9.15Mozambique 18.67 11 11.23 0 0.26 0 0.08 0 0.15 0 19.16Namibia 1.13 0.03 0 0.21 0 0.04 0 0 0 1.38Niger 4.93 0 0 0 0 0 0 0 0 4.93Nigeria 0.94 0 0 0.44 0 0.04 0.05 0.75 0.01 2.23Rwanda 9.27 27 0.21 0 0 0 0 7.78 0.25 0.17 17.47São Tomé and Principe 0.21 0 0 0 0 0 0 0 0 0.21Senegal 17.01 14 0 0.14 0.08 0 0.44 0 1.94 0 19.62Seychelles 0.64 0 0 0 0 0 0 0 0 0.64Sierra Leone 0.18 0 0 0.21 0 0 0.25 0 0 0.64Somalia 0.11 0 0 0 0 0 1.50 0.01 0 1.63South Africa 10.79 23 0 0 1.02 0.32 1.50 0.75 2.06 0 16.43Sudan 0.52 0.06 0 0 0 0.29 3.85 0 0 4.67Swaziland 0.85 0 0 0 0 0 0 0.01 0 0.85Tanzania 10.75 24 0 0 0.12 0.01 0.33 0 0.71 0.07 11.98Togo 0.78 0 0 0 0 0.06 0 0.05 0.05 0.94Tunisia -0.86 0 0 0.04 0 0.53 0 0.30 0 0.02Uganda 1.03 0 0 0.27 0.18 0.14 0 0.62 0 2.23Zambia 9.76 26 0.54 0 0.01 0.02 0 1.00 0.56 0 11.35Zimbabwe 14.79 16 1.81 0 0.13 0.06 0.64 0.32 0.74 0 16.68Regional 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

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154




AMERICAS 1 2 3 4 5 6 7 8 9 10 11

Antigua and Barbuda 0.03 0 0 0 0 0 0 0 0 0.03Argentina 0.25 0 0 0.14 0 1.14 0 0.60 0 2.14Belize 0.30 0 0 0.03 0.01 0 0 0.01 0 0.35Bolivia 19.30 7 2.34 0 0.01 0.05 0.35 0 0.13 0 19.85Brazil 1.90 0 0 1.33 0.40 1.03 0 1.14 0 5.80Chile 0.04 0 0 0.30 0 1.25 0 0.57 0 2.16Colombia 2.00 0 0 0.01 0.07 1.53 0.35 1.01 0 4.97Costa Rica 1.88 0 0 0.40 0.03 0.39 0 1.19 0 3.89Cuba 0.36 0 0 0.05 0.36 0.70 0 0.40 0 1.88Dominica 1.12 0 0 0.05 0 0.01 0 0 0 1.19Dominican Republic -0.02 0 0 0.04 0.23 0 0 0.19 0 0.44Ecuador 2.27 0 0 0.13 0.04 0.85 0 0.36 0 3.65El Salvador 1.71 0 0 0.05 0.19 0.44 0 0 0.06 2.45Grenada 0 0 0 0 0.02 0.03 0 0 0 0.06Guatemala 2.96 0 0 0.01 0.28 0.87 0 0.21 0.07 4.40Guyana 3.38 0 0.05 0 0 0.16 0 0.10 0 3.69Haiti 25.81 5 5.07 0 0.02 0.90 0.94 3.05 0 0.08 30.80Honduras 5.57 0 0.55 0.29 0.09 0.54 0 0.17 0 7.20Jamaica 6.72 0 0 0.55 0.05 0.08 0 0.14 0 7.54Mexico 0.37 0 0 0.47 0.01 3.42 0.10 0.45 0.14 4.96Nicaragua 17.76 12 0 0 0.12 0.16 0.06 0 0.22 0 18.32Panama 0.24 0 0 0 0.03 0.44 0 0 0 0.72Paraguay 0.16 0 0 0 0 0 0 0.18 0 0.34Peru 22.57 6 5.91 0 0.35 0.01 1.19 0 1.61 0.10 25.82St Kitts and Nevis 0.04 0 0 0 0 0 0 0 0 0.04St Lucia 4.91 0 0 0.30 0 0.09 0 0.01 0 5.30St Vincent/Grenadines 0 0 0 0 0 0 0 0 0 0Suriname 0.10 0 0 0 0 0 0 0 0 0.10Trinidad and Tobago 1.10 0 0 0.31 0 0.18 0 0.01 0 1.60Uruguay 0.32 0 0 0 0 0.88 0 0.64 0 1.85Venezuela 0.32 0 0 0.01 0 0.65 0 0.28 0 1.26Regional Caribbean 16.29 0 0 0.06 0.06 0.43 0.26 0.03 0 17.12Regional Latin America 13.45 0 0 0.10 0.09 1.70 0.60 1.52 0.36 17.80Other Americas 0.10 0 0 0 0 0.16 0 0.04 0 0.28Total Americas 153.26 13.32 0.60 5.14 3.10 19.48 4.36 11.23 0.81 197.97

ASIA 1 2 3 4 5 6 7 8 9 10 11

Afghanistan 0.64 0 0 0 0 0 5.50 0 0 6.14Armenia 0 0 0 0 0 0 0 0 0 0Azerbaijan 0.05 0 0 0 0 0 0 0 0 0.05Bahrain 0 0 0 0 0 0 0 0 0 0Bangladesh 73.03 1 19.98 0 0.21 0 0.52 0 0.46 0 74.22Bhutan 0.25 0 0 0.02 0 0 0 0.07 0 0.34Burma 0 0 0 0 0 0 0 0 0.18 0.18Cambodia 2.17 0 0 0.27 0 0.34 0 0.74 0 3.52China 62.22 2 0 0 1.05 0.01 6.09 0.10 1.39 0 70.86Georgia 0.06 0 0 0 0 0 0 0 0 0.06India 43.88 3 32.49 0 0.16 2.19 3.12 0.50 1.88 0 51.74Indonesia 17.16 13 0 0 0.26 0 4.21 0.35 0.33 0 22.31Iran 0 0 0 0 0 0 0 0 0 0Iraq 0 0 0 0 0 0 2.10 0 0 2.10Jordan 11.90 22 0 0 0.13 0.02 0.59 0 0.31 0 12.94Kazakhstan 1.12 0 0 0 0 0 0 0 0 1.12Kuwait 0 0 0 0 0 0 0 0 0 0Kyrghzstan 0.06 0 0 0 0 0 0 0 0 0.06Laos 0.22 0 0 0 0.02 0.56 0 0.53 0 1.34Lebanon 2.55 0 0 0 0.04 0.21 1.13 0.22 0 4.16Malaysia 3.40 0 0 0.03 0 0.94 0 0.15 0 4.52Maldives 0.03 0 0 0 0 0 0 0 0 0.03

➤

155


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



ASIA (continued) 1 2 3 4 5 6 7 8 9 10 11

Mongolia 0 0 0 0 0 0 0 0.04 0 0.04Nepal 4.93 0 0 0.19 0.23 0.16 0 0.57 0.01 6.09North Korea 0 0 0 0 0 0 0.10 0 0 0.10Oman 0 0 0 0 0 0 0 0 0 0Pakistan -1.04 0 0 0.01 0.04 0.63 0 0.25 0.06 -0.06Papua New Guinea 0 0 0 0 0 0.08 0 0 0 0.08Philippines 19.27 8 0 0 0.08 0.14 2.23 0.08 1.04 0.01 22.84Qatar 0 0 0 0 0 0 0 0 0 0Saudi Arabia 0 0 0 0 0 0 0 0 0 0Sri Lanka 4.58 0 0 0.22 0 0.81 1.92 0.20 0 7.74Syria 0 0 0 0 0 0 0 0 0 0Tajikistan 0.03 0 0 0 0 0 0 0 0 0.03Thailand 14.76 17 0 0 0.15 0.07 0.88 0.08 0.41 0.07 16.43Turkey 2.87 0 0 0 0 1.97 0 0.09 0 4.93Turkmenistan 0.02 0 0 0 0 0 0 0 0 0.02United Arab Emirates 0 0 0 0 0 0 0 0 0 0Uzbekistan 0.02 0 0 0 0 0 0 0 0 0.02Vietnam 7.84 28 0 0 1.18 0.08 2.78 0 0.51 0 12.39West Bank and Gaza 0 0 0 0.13 0.08 0.15 1.20 0.44 0 2.00Yemen 0.15 0 0 0 0 0.48 0 0.10 0 0.72Oceania 3.91 0 0 0.20 0.02 0 0 0 0 4.13Asia Regional 34.02 2.00 0 0.43 0.35 0 0.07 1.13 0.10 36.09Other Asia 0.33 0 0 1.00 0 0 0 0.50 0 1.83Total Asia 310.43 54.47 0 5.72 3.26 26.75 13.13 11.36 0.43 371.09

EASTERN EUROPE 1 2 3 4 5 6 7 8 9 10 11

Albania 0.13 0 0 0 0 0 0 0 0 0.13Belarus na na na na na na na na na naBosnia Herzegovina ~ ~ ~ ~ ~ ~ ~ ~ ~ ~Bulgaria na na na na na na na na na naCroatia ~ ~ ~ ~ ~ ~ ~ ~ ~ ~Czech Republic na na na na na na na na na naEstonia na na na na na na na na na naHungary na na na na na na na na na naLatvia na na na na na na na na na naLithuania na na na na na na na na na naMacedonia, FYR ~ ~ ~ ~ ~ ~ ~ ~ ~ ~Moldova na na na na na na na na na naPoland na na na na na na na na na naRomania na na na na na na na na na naRussian Federation na na na na na na na na na naSlovak Republic na na na na na na na na na naSlovenia ~ ~ ~ ~ ~ ~ ~ ~ ~ ~Ukraine na na na na na na na na na naEx-Yugoslavia 6.94 29 0 0 0 0 0 12.52 0 0 19.46Other Europe -0.03 0 0 0 0.01 0 0 0 0 -0.02Total 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 153.02Scholarships na na na na na na na na na na 8.90Imputed Foreign Student Costs na na na na na na na na na na 68.66Administrative Costs na na na na na na na na na na 157.68Other (See Technical Notes) na na na na na na na na na na 42.18Total 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

156

T A B L E 5

CANADIAN MULTILATERAL ODA BY AGENCY AND

BY COUNTRY (1995-96)

With the exception of Canada’scontribution to the World Food

Programme (WFP),1 multilateral aid iscompletely untied to donor-countrygoods, and international competitivebidding practices usually allow for anefficient administration of aid. There isa further benefit in that multilateral aidgoes to many countries where Canadadoes not have a substantial bilateralprogram, for instance in Central Africaand Oceania.

Table 5 imputes Canada’s contributionsto specific countries by allocatingCanada’s portion for 1995-96 accordingto individual agencies’ overall spending.For example, the World Bank (column 2)allocated 1 percent of its concessionalresources to Madagascar and Nigeria, andCanada’s contribution was computedproportionately. As a major multilateraldonor, Canada sits on the governingcouncils and executive boards of theseagencies, and has a say in the allocationof funds.

Where did Canada’s multilateral contri-butions go in 1995-96? More than 60 percent went to the internationalfinancial institutions (IFIs): the WorldBank , the International Monetary Fund(IMF), and the Regional DevelopmentBanks (one each for Africa, Asia, theAmericas, and the Caribbean). Canada’sWorld Bank and IMF contributions—administered by the Department ofFinance—were the first and secondlargest channels for Canadian multi-lateral aid, respectively. The IMF, which

until recently only lent funds at marketrates of interest, has become, through itsconcessional lending window, ESAF (theEnhanced Structural Adjustment Facili-ty), a major provider of developmentassistance. The Regional DevelopmentBanks continue to be an importantsource of aid funds, but as column 4shows, Canada made no new commit-ments to the soft-window funds of theAfrican or Asian Banks as replenishmentsto these funds were under negotiation.Negotiations have since been completed,so funding will resume to these chan-nels, if at a much reduced level.

Less than 30 percent of our multilateralcontributions, or 10 percent of all Canadian aid, was allocated to UnitedNations agencies, with slightly less thanhalf going to the Rome-based WFP. Andalthough the UNDP, with field offices invirtually every developing country,received the second highest allocation at $43 million, this was $10 million lessthan the previous year. Fundingincreased, however, to the UN’s special-ized agencies, such as the Food and Agriculture Organization, the WorldHealth Organization, and the International Labour Organization.These agencies were spared from thecuts which were effected in other sectorsof ODA because they rely on member-ship assessments rather than voluntary contributions.

Other multilateral channels were alsoable to avoid cuts in 1995-96 andaccounted for 10 percent of multilateralaid disbursed. Comprised mainly ofCommonwealth and La Francophonieagencies such as the CommonwealthFund for Technical Cooperation andl’Agence de coopération culturelle ettechnique, these channels help giveCanada standing among these organizations’ member countries, animportant political consideration.

1 Most of the aid contributed by Canada to the WFP isin the form of Canadian food products and is thereforedirectly tied to Canadian procurement.

Distribution of Canadian Multilateral ODA by Organization 1995-96WORLD BANK 31%

INTERNATIONAL MONETARY FUND 20%

REGIONAL DEVELOPMENT BANKS 4%

UNSPECIFIED IFIs 7%

WFP 14%

UNDP 5%

OTHER UN AGENCIES 9%

OTHER MULTILATERAL 10%

157


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

Total O F W H I C H

International Regional Total O F W H I C H OtherFinancial World IMF Development UN Other UN Multilateral

Country Institutions Bank (ESAF) Bank Agencies WFP UNDP UNICEF Agencies Channels Total

AFRICA 1 2 3 4 5 6 7 8 9 10 11

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

( E S T I M A T E D I N M I L L I O N S O F C A N A D I A N D O L L A R S )

158


Total O F W H I C H



AMERICAS 1 2 3 4 5 6 7 8 9 10 11

Antigua and Barbuda 0.01 0 0 0.0059 0.01 0 0 0 0 0.33 0.34Argentina 0.77 0 0 0.7694 2.89 0 2.78 0.04 0.08 0.04 3.71Belize 0.76 0 0 0.7579 0.10 0 0.03 0.01 0.05 0.32 1.18Bolivia 8.10 3.59 2.08 2.4232 5.17 3.97 0.45 0.12 0.64 0.07 13.34Brazil 2.42 0 0 2.4207 3.51 0 2.96 0.22 0.33 0.11 6.05Chile 0 0 0 0.0000 0.45 0 0.34 0.02 0.10 0.02 0.48Colombia 0.46 0 0 0.4647 9.35 7.10 1.97 0.02 0.25 0.02 9.83Costa Rica 0 0 0 0.0000 0.74 0.30 0.13 0.01 0.29 0.09 0.83Cuba 0 0 0 0.0000 0.20 0 0.09 0.03 0.08 0 0.20Dominica 0.27 0.01 0 0.2675 0.04 0 0.01 0 0.04 0.97 1.29Dominican Republic 1.53 0 0 1.5314 0.65 0.16 0.32 0.02 0.15 0.02 2.20Ecuador 2.63 0 0 2.6305 0.57 0 0.23 0.06 0.28 0.02 3.22El Salvador 1.34 0 0 1.3415 1.79 1.09 0.54 0.03 0.13 0.02 3.15Grenada 0.36 0 0 0.3634 0.01 0 0 0 0.01 0.41 0.79Guatemala 0.78 0 0 0.7819 0.48 0 0.30 0.03 0.15 0.04 1.31Guyana 2.75 0.55 1.12 1.0805 0.22 0.06 0.11 0.01 0.03 1.02 3.99Haiti 3.32 0 0 3.3175 1.06 0.67 0.08 0.09 0.23 0.60 4.98Honduras 7.40 2.87 2.52 2.0110 0.55 0.08 0.20 0.02 0.26 0.04 8.00Jamaica 1.03 0 0 1.0260 0.28 0 0.19 0.04 0.05 0.71 2.02Mexico 0 0 0 0.0000 1.53 0.73 0.24 0.06 0.49 0.07 1.59Nicaragua 6.41 2.35 0 4.0644 0.83 0 0.42 0.06 0.34 0.09 7.33Panama 0.23 0 0 0.2323 0.84 0.45 0.33 0.01 0.05 0.02 1.10Paraguay 1.31 0 0 1.3090 0.55 0.13 0.32 0.03 0.07 0 1.86Peru 0 0 0 0.0000 3.08 0 2.61 0.12 0.35 0.13 3.21St Kitts and Nevis 0.68 0.01 0 0.6738 0.02 0 0.02 0 0 0.14 0.84St Lucia 1.10 0.01 0 1.0925 0.02 0 0.01 0 0.01 0.19 1.31St Vincent/Grenadines 0.57 0 0 0.5680 0.02 0 0.01 0 0.01 0.28 0.87Suriname 0 0 0 0.0012 0.01 0 0 0 0.01 0 0.01Trinidad and Tobago 0.22 0 0 0.2244 0.04 0 0.02 0 0.02 0.20 0.46Uruguay 0.03 0 0 0.0300 0.58 0 0.45 0.02 0.11 0.02 0.63Venezuela 0 0 0 0.0000 0.27 0 0.17 0.02 0.08 0.02 0.29Regional Caribbean 0 0 0 0.0000 0.02 0 0.02 0 0 0 0.02Regional Latin America 0.55 0 0 0.5527 3.16 0 0.82 0.15 2.19 1.24 4.96Other 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 1 2 3 4 5 6 7 8 9 10 11

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

➤

159


Source: CIDA, Statistical Report 1995-96.

Total O F W H I C H



ASIA (continued) 1 2 3 4 5 6 7 8 9 10 11

Lebanon 0 0 0 0.0000 1.65 0 0.11 0.04 1.49 0.04 1.69Malaysia 0.01 0 0 0.0069 0.20 0 0.12 0.01 0.07 0.59 0.80Maldives 0.27 0.25 0 0.0204 0.09 0 0.05 0.02 0.02 0.07 0.43Mongolia 0.98 0.77 0 0.2019 0.31 0 0.10 0.02 0.19 0 1.29Nepal 3.65 3.43 0 0.2223 1.06 0 0.34 0.17 0.54 0.13 4.84North Korea 0 0 0 0.0000 0.15 0 0.10 0.01 0.04 0.02 0.17Oman 0 0 0 0.0000 0 0 0 0 0 0 0Pakistan 15.88 14.62 0 1.2668 1.37 0 0.44 0.28 0.65 0.13 17.39Papua New Guinea 0.06 0 0 0.0597 0.23 0 0.16 0.02 0.05 0.22 0.51Philippines 0.40 0.19 0 0.2056 0.89 0 0.14 0.16 0.59 0.11 1.40Qatar 0 0 0 0.0000 0 0 0 0 0 0 0Saudi Arabia 0 0 0 0.0000 0.22 0 0.20 0 0.02 0.02 0.24Sri Lanka 3.84 3.51 0 0.3297 0.47 0 0.22 0.06 0.20 0.21 4.52Syria 0 0 0 0.0000 1.14 0 0.08 0.02 1.05 0.02 1.17Tajikistan 0 0 0 0.0000 0.06 0 0 0.04 0.02 0 0.06Thailand 0.01 0 0 0.0148 0.52 0 0.11 0.06 0.34 0.11 0.65Turkey 0 0 0 0.0000 0.27 0 0.06 0.03 0.18 0.04 0.32Turkmenistan 0 0 0 0.0000 0 0 0 0 0 0 0United Arab Emirates 0 0 0 0.0000 0 0 0 0 0 0 0Uzbekistan 0 0 0 0.0000 0.13 0 0.03 0.03 0.08 0 0.13Vietnam 13.41 5.69 7.50 0.2144 1.70 0 0.53 0.27 0.91 0.19 15.30West Bank and Gaza 0 0 0 0.0000 6.48 0 0.73 0.05 5.70 0 6.48Yemen 1.66 1.66 0 0.0000 0.45 0 0.15 0.07 0.23 0.16 2.27Oceania 0.18 0.14 0 0.0389 0.19 0 0.08 0 0.11 3.20 3.57Asia Regional 0.07 0 0 0.0718 4.67 0 0.36 0.05 4.27 1.99 6.74Other 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 1 2 3 4 5 6 7 8 9 10 11

Albania 2.46 1.58 0.89 na 0.23 0 0.05 0.02 0.16 0 2.69Belarus na na na na na na na na na na naBosnia Herzegovina na na na na na na na na na na naBulgaria na na na na na na na na na na naCroatia na na na na na na na na na na naCzech Republic na na na na na na na na na na naEstonia na na na na na na na na na na naHungary na na na na na na na na na na naLatvia na na na na na na na na na na naLithuania na na na na na na na na na na naMacedonia, FYR na na na na na na na na na na naMoldova na na na na na na na na na na naPoland na na na na na na na na na na naRomania na na na na na na na na na na naRussian Federation na na na na na na na na na na naSlovak Republic na na na na na na na na na na naSlovenia na na na na na na na na na na naUkraine na na na na na na na na na na naEx-Yugoslavia 3.62 3.62 0 na 5.28 0 0.03 0.37 4.88 0 8.90Other 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

160

T A B L E 6

CANADIAN BALANCE OF TRADE WITH DEVELOPING

COUNTRIES (1996)

In 1996, Canada’s trade with develop-ing countries totaled $39.5 billion in

imports and exports, almost 15 timesCanada’s aid disbursements of $2.3 billion.1 This represented 31 per-cent of Canada’s trade with countriesother than the United States. Our topfive developing-country trading part-ners were China ($7.8 billion), Mexico($7.2 billion), Brazil ($2.5 billion),Malaysia ($2.1 billion), and Thailand($1.6 billion). Next in importance wereIndonesia, Saudi Arabia, Venezuela,Algeria, and India.

Canada’s trade with developing coun-tries has evolved significantly over thepast 10 years. Developing countries’share of Canadian total trade has grownfrom 6.5 to 8.0 percent, largely at theexpense of non-US developed countries.While Canadian exports to and importsfrom developing countries have bothgrown in real terms, imports havegrown at a rate of 13 percent per year,or twice as quickly as exports, whichgrew at an annual rate of 6.5 percent.The net result is that Canada has movedfrom a trade surplus with developingcountries of $1.2 billion in 1986 to adeficit of $9.3 billion in 1996. However,Canadian exports to industrializedcountries grew more than 20 percentfaster than exports to developing countries over the past decade.

Broken down by continent, this tradewas dominated by Asia (47 percent oftotal trade), followed by the Americas at39 percent, Africa at 9 percent, andEastern Europe at 5 percent (see chart).As in the previous year, growth in Canadian export markets reflected therelative economic dynamism of theseregions: exports to Asia increased by 10 percent a year and to the Americasby 7 percent, while exports to Africa

stagnated, increasing by 4 percent only.Exports to Eastern Europe collapsed,declining at a rate of almost 6 percent ayear since the end of the Cold War.More recently, however, Canadianexports and imports to both Africa andEastern Europe have begun to increaseas these regions’ economies show signsof renewed growth.

Columns 9 and 10 show tariff revenuecollected on developing countryimports in 1996. In column 10, thisrevenue is expressed as a percentage oftotal imports to arrive at the averagetariff rate these countries faced. In gen-eral, the 3.4 percent tariff rate faced byall developing countries’ imports wasthree times the rate faced by developedcountries—although this latter figure isdistorted by the large share of duty-freeimports from the United States. Thiscompares favourably with last year’s fig-ures which indicated a rate almost fourtimes higher for developing countries.

Countries exporting commodities toCanada faced low tariff rates—the aver-age tariff for imports from Africa wasonly 0.7 percent. However, tariffs onimports from 26 developing countries—in most cases dominated by clothing,textiles, and footwear (see Table 7)—averaged more than 10 percent. Devel-oping countries have a comparativeadvantage principally in these areas,and it is in those very categories thatCanada and other industrialized coun-tries continue to maintain their protec-tionist walls. Revenue Canada collected$360 million in duties on imports fromChina, and almost $70 million onimports from Mexico. These tariffs—if we assume that half are borne bydeveloping country producers—place aheavy burden on poorer countries, par-ticularly those in South Asia where itmight have reached $53 million. Eventhese numbers understate the problemsince they say nothing about the non-tariff barriers faced by these countries.

Because detailed figures on trade in services are not available, the figures inthis table represent only trade in goodswith developing countries. Canada’stwo-way trade in services with develop-ing countries was approximately $5.5 billion in 1996, or roughly 14 percent of its trade in goods: itsexports, such as engineering consultingand insurance services, totaled approx-imately $3.1 billion in 1996, largely tothe Americas. Canada enjoyed a small surplus in its trade in services withdeveloping countries while running afairly large deficit in trade in serviceswith industrialized countries.

1 It should be noted that South Korea and Singapore,both major Canadian trading partners, are no longerclassified as developing countries.

Total Canadian Trade with Developing Countries by Continent 1996

AFRICA 9%

AMERICAS 39%

ASIA 47%

EASTERN EUROPE 5%

161


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

% Change % Change Total Tariff AverageTotal Total Balance Total Total Balance Per Year Per Year Revenue Tariff

Exports Imports of Trade Exports Imports of Trade Exports Imports Collected RateCountry 1996 1996 1996 1986 1986 1986 1986-96 1986-96 1996 1996

AFRICA 1 2 3 4 5 6 7 8 9 10

Algeria 418,206 738,067 (319,860) 193,531 11,502 182,029 8.0 51.6 46 0.01Angola 7,398 165,626 (158,227) 1,248 42,428 (41,180) 19.5 14.6 0 0Benin 3,073 28 3,045 2,388 12 2,376 2.6 8.9 0 0.48Botswana 23,779 1,005 22,774 ~ ~ ~ ~ ~ 176 17.49Burkina Faso 2,720 4 2,716 ~ ~ ~ ~ ~ 0 7.04Burundi 2,641 114 2,527 ~ ~ ~ ~ ~ 0 0.10Cameroon 11,672 1,077 10,595 12,771 304 12,467 -0.9 13.5 6 0.55Cape Verde 294 30 264 ~ ~ ~ ~ ~ 0 0.55Central African Republic 332 896 (564) ~ ~ ~ ~ ~ 6 0.72Chad 56 61 (5) ~ ~ ~ ~ ~ 0 0.40Comoros 14 11 3 ~ ~ ~ ~ ~ 0 3.06Congo - Brazzaville 567 127 440 ~ ~ ~ ~ ~ 1 0.69Congo - Kinshasa (Zaire ) 11,283 20,984 (9,700) 16,614 33,945 (17,331) -3.8 -4.7 5 0.02Côte d’Ivoire 12,838 35,221 (22,383) 7,310 15,760 (8,450) 5.8 8.4 2 0.01Djibouti 1,064 1 1,063 ~ ~ ~ ~ ~ 0 0Egypt 125,886 19,282 106,604 133,107 5,118 127,989 -0.6 14.2 2,117 10.98Equatorial Guinea 36 224 (189) ~ ~ ~ ~ ~ 0 0Eritrea 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 0.05Gabon 5,344 319 5,025 12,630 5,770 6,860 -8.2 -25.1 11 3.34Gambia 425 195 231 61 84 (23) 21.4 8.8 0 0.22Ghana 74,595 2,661 71,934 28,778 65 28,713 10.0 44.9 16 0.59Guinea 10,116 25,474 (15,358) 2,766 15,169 (12,403) 13.8 5.3 5 0.02Guinea-Bissau 47 19 28 ~ ~ ~ ~ ~ 0 0Kenya 33,170 18,540 14,630 49,255 20,868 28,387 -3.9 -1.2 271 1.46Lesotho 355 5,751 (5,396) ~ ~ ~ ~ ~ 1,219 21.20Liberia 3,440 106 3,334 2,459 1,260 1,199 3.4 -21.9 5 4.79Libya 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 1.98Malawi 6,484 2,105 4,379 847 1,560 (713) 22.6 3.0 36 1.72Mali 11,710 2,935 8,775 ~ ~ ~ ~ ~ 15 0.50Mauritania 242 251 (9) 268 24 244 -1.0 26.5 36 14.43Mauritius 3,583 18,863 (15,280) 987 13,474 (12,487) 13.8 3.4 3,516 18.64Morocco 199,206 82,145 117,060 154,590 19,358 135,232 2.6 15.6 1,199 1.46Mozambique 17,595 718 16,877 6,531 110 6,421 10.4 20.6 0 0.01Namibia 1,204 49,972 (48,769) na na na na na 1 0Niger 11,871 14,849 (2,978) ~ ~ ~ ~ ~ 54 0.36Nigeria 41,964 311,094 (269,130) 18,943 368,210 (349,267) 8.3 -1.7 23 0.01Rwanda 4,550 100 4,450 ~ ~ ~ ~ ~ 2 1.98São Tomé and Principe 49 0 49 ~ ~ ~ ~ ~ 0 5.22Senegal 19,479 1,670 17,809 15,167 58 15,109 2.5 39.9 5 0.32Seychelles 228 436 (208) ~ ~ ~ ~ ~ 4 0.86Sierra Leone 1,007 14,875 (13,869) 156 8,211 (8,055) 20.5 6.1 142 0.96Somalia 207 105 102 1,817 78 1,739 -19.5 3.0 0 0.37South Africa 224,750 439,574 (214,824) 151,529 373,241 (221,712) 4.0 1.6 4,996 1.14Sudan 8,530 91 8,439 23,112 27 23,085 -9.5 13.0 0 0.26Swaziland 97 1,188 (1,091) ~ ~ ~ ~ ~ 37 3.14Tanzania 18,306 1,402 16,904 25,108 3,062 22,046 -3.1 -7.5 1 0.06Togo 906 44,132 (43,226) 4,798 3,182 1,616 -15.4 30.1 1 0Tunisia 40,898 3,716 37,181 75,550 9,359 66,191 -6.0 -8.8 350 9.43Uganda 11,970 12,588 (618) 1,311 2,360 (1,049) 24.8 18.2 4 0.03Zambia 5,794 5,310 484 12,532 84 12,448 -7.4 51.4 4 0.07Zimbabwe 8,905 13,231 (4,326) 7,558 6,737 821 1.7 7.0 274 2.07Other 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➤

( I N T H O U S A N D S O F C A N A D I A N D O L L A R S )

162




AMERICAS 1 2 3 4 5 6 7 8 9 10

Antigua and Barbuda 27,668 1,858 25,810 ~ ~ ~ ~ ~ 15 0.83Argentina 189,600 186,434 3,166 60,015 87,269 (27,254) 12.2 7.9 5,579 2.99Belize 2,840 7,954 (5,113) 3,973 1,211 2,762 -3.3 20.7 23 0.29Bolivia 26,118 17,613 8,504 8,926 9,591 (665) 11.3 6.3 39 0.22Brazil 1,335,890 1,133,560 202,330 656,046 821,500 (165,454) 7.4 3.3 30,717 2.71Chile 398,902 342,231 56,671 90,550 127,480 (36,930) 16.0 10.4 2,644 0.77Colombia 459,182 296,960 162,223 160,692 124,153 36,539 11.1 9.1 5,422 1.83Costa Rica 49,624 146,678 (97,054) 26,402 56,557 (30,155) 6.5 10.0 4,267 2.91Cuba 260,473 401,164 (140,691) 364,549 71,310 293,239 -3.3 18.9 4,492 1.12Dominica 2,161 1,181 981 ~ ~ ~ ~ ~ 60 5.07Dominican Republic 76,267 91,910 (15,642) 52,980 36,049 16,931 3.7 9.8 4,761 5.18Ecuador 71,691 128,736 (57,045) 78,718 92,227 (13,509) -0.9 3.4 1,197 0.93El Salvador 10,869 27,766 (16,897) 11,261 64,188 (52,927) -0.4 -8.0 1,999 7.20Grenada 4,249 559 3,690 ~ ~ ~ ~ ~ 33 5.89Guatemala 67,010 103,239 (36,229) 15,065 40,362 (25,297) 16.1 9.8 2,267 2.20Guyana 11,137 204,033 (192,897) 4,517 27,161 (22,644) 9.4 22.3 1,421 0.70Haiti 29,763 2,948 26,815 20,788 12,245 8,543 3.7 -13.3 369 12.51Honduras 16,295 51,049 (34,755) 13,971 20,678 (6,707) 1.6 9.5 3,367 6.59Jamaica 85,335 239,099 (153,763) 70,026 149,903 (79,877) 2.0 4.8 4,537 1.90Mexico 1,211,489 6,033,751 (4,822,261) 397,438 1,176,504 (779,066) 11.8 17.8 69,690 1.16Nicaragua 16,379 9,764 6,615 22,683 34,111 (11,428) -3.2 -11.8 571 5.84Panama 45,292 23,827 21,464 40,624 27,965 12,659 1.1 -1.6 135 0.56Paraguay 5,842 2,917 2,925 2,386 7,243 (4,857) 9.4 -8.7 22 0.75Peru 172,460 126,359 46,101 110,918 65,668 45,250 4.5 6.8 1,690 1.34St Kitts and Nevis 2,616 2,959 (343) ~ ~ ~ ~ ~ 120 4.04St Lucia 5,389 1,602 3,786 ~ ~ ~ ~ ~ 22 1.37St Vincent/Grenadines 3,204 139 3,066 ~ ~ ~ ~ ~ 7 5.21Suriname 4,988 26,181 (21,193) 1,308 1,665 (357) 14.3 31.7 35 0.13Trinidad and Tobago 79,606 46,575 33,031 85,984 53,736 32,248 -0.8 -1.4 640 1.37Uruguay 23,987 33,550 (9,563) 12,653 14,862 (2,209) 6.6 8.5 712 2.12Venezuela 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 1 2 3 4 5 6 7 8 9 10

Afghanistan 448 224 224 132 45 87 13.0 17.4 13 5.87Armenia 416 37 379 na na na na na 0 0.91Azerbaijan 381 58 323 na na na na na 0 0.29Bahrain 14,815 1,479 13,336 7,604 3,594 4,010 6.9 -8.5 235 15.87Bangladesh 62,065 87,659 (25,593) 101,296 18,492 82,804 -4.8 16.8 14,810 16.90Bhutan 392 5 387 ~ ~ ~ ~ ~ 0 0.55Burma 1,755 14,587 (12,832) 319 1,556 (1,237) 18.6 25.1 1,809 12.40Cambodia 1,664 1,337 327 28 35 (7) 50.4 43.9 258 19.29China 2,827,843 4,925,856 (2,098,013) 1,118,969 566,083 552,886 9.7 24.2 360,281 7.31Georgia 747 437 310 na na na na na 16 3.63India 346,382 603,968 (257,586) 352,359 165,405 186,954 -0.2 13.8 56,642 9.38Indonesia 900,938 625,838 275,100 251,953 114,189 137,764 13.6 18.5 48,271 7.71Iran 560,876 237,855 323,021 35,683 236,062 (200,379) 31.7 0.1 578 0.24Iraq 771 0 771 105,435 815 104,620 -38.9 -65.4 0 0Jordan 34,424 1,438 32,986 6,857 1,633 5,224 17.5 -1.3 188 13.08Kazakhstan 12,980 4,988 7,992 na na na na na 2 0.03Kuwait 74,830 208 74,623 24,366 293 24,073 11.9 -3.4 32 15.18Kyrghzstan 27,235 351 26,883 na na na na na 73 20.72Laos 19 1,107 (1,088) ~ ~ ~ ~ ~ 242 21.81Lebanon 56,445 5,612 50,833 17,623 1,060 16,563 12.3 18.1 314 5.59Malaysia 510,239 1,580,086 (1,069,847) 104,397 150,204 (45,807) 17.2 26.5 37,262 2.36

➤

163




ASIA (continued) 1 2 3 4 5 6 7 8 9 10

Maldives 19,647 185 19,462 ~ ~ ~ ~ ~ 33 18.05Mongolia ~ ~ ~ ~ ~ ~ ~ ~ 103 ~Nepal 3,041 4,354 (1,314) 1,175 813 362 10.0 18.3 579 13.31North Korea 454 86 368 1,273 614 659 -9.8 -17.9 29 33.18Oman 11,011 599 10,412 5,906 4,380 1,526 6.4 -18.0 209 34.97Pakistan 84,099 165,283 (81,184) 65,053 146,858 (81,805) 2.6 1.2 23,519 14.23Papua New Guinea 6,369 733 5,637 11,762 563 11,199 -5.9 2.7 1 0.15Philippines 285,377 552,636 (267,259) 49,477 109,411 (59,934) 19.2 17.6 27,094 4.90Qatar 17,429 371 17,058 7,642 594 7,048 8.6 -4.6 80 21.46Saudi Arabia 627,719 650,736 (23,017) 211,985 186,894 25,091 11.5 13.3 203 0.03Sri Lanka 51,830 71,466 (19,636) 30,447 35,824 (5,377) 5.5 7.2 9,159 12.82Syria 21,251 29,155 (7,904) 12,307 48 12,259 5.6 89.8 188 0.65Tajikistan 24 0 24 na na na na na 0 0Thailand 514,608 1,043,309 (528,701) 107,290 150,267 (42,977) 17.0 21.4 47,704 4.57Turkey 259,057 151,778 107,279 201,848 56,753 145,095 2.5 10.3 9,173 6.04Turkmenistan 439 12 427 na na na na na 2 18.77United Arab Emirates 160,271 14,660 145,611 24,278 2,100 22,178 20.8 21.4 0 0Uzbekistan 8,125 18,323 (10,198) na na na na na 25 0.14Vietnam 44,219 97,783 (53,564) 2,845 6,671 (3,826) 31.6 30.8 10,957 11.21West Bank and Gaza na na na na na na na na na naYemen 5,721 11,179 (5,458) 15,653 77 15,576 -9.6 64.5 1 0.01Oceania 5,858 10,486 (4,628) ~ ~ ~ ~ ~ 337 3.21

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 1 2 3 4 5 6 7 8 9 10

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

164

T A B L E 7

TRADE: TOP EXPORTS AND IMPORTS WITH DEVELOPING

COUNTRIES (1996)

This table reveals the nature ofCanada’s trade in 1996 by listing

the top three exports to and importsfrom each developing country, by value.Items in mauve account for 75 percentor more of total bilateral trade with thatcountry. The magnitude and nature ofdirect Canadian military exports is alsoshown.1

Canada’s exports to developing coun-tries are generally quite predictable andreflect our traditional natural wealth: in1996, agricultural and fisheries productswere among the top three exports to 58of 129 developing countries. Wheatdominated these exports to 20 develop-ing-country markets and ranked in thetop three exports to seven others.Developing countries took a dispropor-tionately large share—more than 75percent—of Canada’s total exports ofwheat. Milk and dairy products, on theother hand, were among the topexports to only five countries: interest-ingly, Canada imported milk powderfrom Lithuania. Also important wereexports of newsprint and paper prod-ucts, ranking as the top export to 16countries and among the top threeexports to 30 countries. In 1996,Canada also had significant exports oftelecommunications equipment to 17developing countries.

In 1996, Canadian imports were domi-nated by agricultural commodities,clothing and textiles, and mineral oresand oil. As many as 66 developingcountries, mainly in Africa and theAmericas, exported agricultural goods toCanada: coffee, tea, cocoa, cotton, andtropical fruits and nuts. Most of the 44countries which supplied us with cloth-ing and textiles were in Asia. Paradoxi-cally, used clothing from Canadaranked as one of the top three exportsto 18 countries in Africa, as well as to

Cambodia. Mineral ores from 41 coun-tries included uranium, bauxite, tin,gold, diamonds, and oil. The diversityof trade is reflected in some of the lessconventional goods that found theirway into Canada, including musicalinstruments from Burkina Faso, bakingequipment from Lebanon, antiquesfrom Ubzbekistan, and waste paperfrom the Ukraine. On the Canadianside, unusual exports included cameraparts to the Gambia, casks and barrelsto St Vincent and the Grenadines, key-board instruments to Paraguay, andpeat to Bosnia Herzegovina.

Surprisingly, considering the publicitygiven to inexpensive manufactured andhigh-tech goods from developing countries, these products were amongthe top three imports from relativelyfew developing countries. It should benoted that most of the major exceptions

to this trend—Mexico, Brazil, China,the Philippines, and Malaysia—are allcountries which rank among our mostimportant developing-country tradingpartners.

The last two columns show that Canadaregistered direct military sales to 53developing countries, worth $264 millionin 1996 according to figures supplied bythe Department of Foreign Affairs andInternational Trade (DFAIT). While thevalue of military exports to non-USmarkets dropped by 1 percent in 1996,exports to Africa more than doubled—a 224 percent increase—while sales tothe Americas and Asia increased by 35 percent and 14 percent, respectively.2

Sales to all developing countriesaccounted for close to 60 percent oftotal Canadian military exports tocountries other than the United States.By far Canada’s largest military market,the United States imported an estimated$500 million worth of Canadian mili-tary goods. (Indirect sales of militaryequipment and firearms through thirdcountries, such as the US are not included.) The sale to Saudi Arabia oflight armoured vehicles and parts, air-craft parts, targets, and radios accountedfor 74 percent of the value of all mili-tary exports to developing countries.Other important buyers includedBotswana, Malaysia, Turkey, and Thailand. In 1995, Canada was theworld’s tenth largest arms supplier tothe developing world, accounting foralmost 1 percent of total arms exports.3

1 These figures, particularly for smaller developingcountries, may not be as accurate and complete assimilar figures for developed countries because a largepart of Canadian trade with developing countries,particularly exports, is channeled through the UnitedStates. It is thus sometimes included in exports to the US.2 Comparisons are based on DFAIT’s revised figures for1995 military exports.3 Project Ploughshares, Armed Conflicts Report 1997.

Canadian Military Exports to Non-US Markets1996 total: $459 million

TURKEY 1.3%

MALAYSIA 4.0%

BOTSWANA 4.6%

THAILAND 1.0%

OTHER DEVELOPING COUNTRIES 4.0%

SAUDI ARABIA 42.5%

REMAINING NON-US MARKETS 42.6%

165


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 MilitaryExports 1996 Exports from

Country 1 2 3 1 2 3 (Cdn dollars) Canada

AFRICA 1 2 3 4 5 6 7 8

Algeria wheat milk powder lentils crude petroleum petroleum products dates 45,442 simulator partsAngola used clothing asbestos canola oil crude petroleum low value imports ~ 0Benin cigarettes used clothing books, printed matter returned goods low value imports ~ 0Botswana 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, ammunitionBurundi prefabricated buildings used clothing lentils coffee returned goods low value imports 0Cameroon canola oil paper fertilizers other natural rubber tech. specified natural rubber cotton 0Cape Verde iron/steel articles spectrometers beans ploughs electric trains equipment static electric converter 0Central 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 0Comoros data processing machines tires ~ sweet potatoes jewellery essential oils 0Congo - Brazzaville rolled iron products data processing machines taps, cocks, valves nonindustrial diamonds low value imports stuffed toys 0Congo - Kinshasa (Zaire) used clothing canola oil lentils unwrought cobalt cobalt ores industrial diamonds 0Côte d’Ivoire medicine paper potassium chloride cocoa beans cocoa butter, fat & oil veneer 0Djibouti lentils used clothing food preparations electric pressure appliances low value imports ~ 0Egypt bituminous coal newsprint lumber iron or nonalloy bars t-shirts, singlets & vests women’s trousers 785,161 aircraft & ammunition partsEquatorial Guinea bulldozer blades telephone parts ~ cocoa butter, fat & oil tuna bananas 0Eritrea ~ ~ ~ ~ ~ ~ 0Ethiopia 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, ammunitionGambia insulating glass plastic articles camera parts aircraft parts parts of calculators metal moulds 0Ghana locomotives used clothing fuses cocoa beans industrial diamonds sweet potatoes 0Guinea transmitters coal or rock cutters mechanical appliances aluminum ores tech. specified natural rubber other natural rubber 0Guinea-Bissau sauce preparations machine parts telephone parts coffee low value imports ~ 0Kenya 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 0Liberia peas canola oil used clothing silk products women’s trousers gold powder 0Libya durum wheat milk & creams other wheat & meslin low value imports ~ ~ 0Madagascar 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 0Mali wheat transmitters mining equipment cotton cathode ray tubes:bipolar metal cathode ray tubes: metal 0Mauritania parts of data processors printing machinery used clothing t-shirts, singlets & vests preserved olives women’s trousers 0Mauritius telephone sets lentils telephone parts women’s blouses women’s trousers men’s shirts 0Morocco wheat sulphur butter mandarins fluorspar petroleum products 232,400 simulator parts Mozambique wheat used clothing milk powder cashew nuts live animals low value imports 0Namibia 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 0Nigeria polyethylene electrical switches wheat crude petroleum cocoa beans noncrude petroleum 0Rwanda used clothing lentils contractors’ equipment black tea soya sauce vegetables 0São Tomé and Principe bovine meat beans telephone parts low value imports ~ ~ 0Senegal sulphur aircraft paper storage units fresh or chilled fish data processing machines 0Seychelles agricultural equipment electrical switches parts of data processors aircraft parts input or output units cinnamon 0Sierra Leone soya bean oils asphalt used clothing aluminum oxide parts of data processors crystal lead glassware 0Somalia contractor’s equipment used clothing medicine parts of data processors grapes, fresh input or output units 0South Africa sulphur chemical wood pulp wheat platinum oranges other ferro-chromium 180,123 firearms, rockets & partsSudan disc harrows machine parts mechanical appliances coffee iron/steel pipe arrowroot, tubers 0Swaziland magnesium ~ ~ fresh/dried oranges fresh/dried grapefruit signal generators 0Tanzania 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 0Tunisia sulphur construction machinery wheat spectacles, goggles, etc. dates pullovers, cardigans 0Uganda used clothing potato seeds heterocyclic compounds coffee air heaters activated carbon 0Zambia 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➤

166




AMERICAS 1 2 3 4 5 6 7 8

Antigua and Barbuda aircraft prefabricated buildings aircraft parts cotton groundnuts bovine & equine leather 0Argentina 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 0Bolivia 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 partsChile 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 0Costa Rica paper newsprint malt bananas coffee brassieres 19,961 firearms & parts Cuba peas maize chicken cuts nickel oxide sinters raw sugar cane lobsters, crawfish 0Dominica lumber low value exports tires coffee ceramic ware cathode ray tubes 0Dominican Republic newsprint smoked herring fish gold coffee men’s shirts 0Ecuador wheat newsprint barley bananas frozen shrimp, prawns flowers & flower buds 0El Salvador newsprint potassium chloride films & sheets coffee pullovers, cardigans electrical capacitors 0Grenada whisky low value exports lumber nutmeg mace low value imports 0Guatemala wheat newsprint potassium chloride coffee raw sugar cane sesame seeds 0Guyana 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 0Honduras newsprint office furniture potassium chloride coffee bananas fresh melons 0Jamaica newsprint telephone parts low value exports aluminum oxide rum & tafia t-shirts, singlets & vests 0Mexico rape or colza seeds wheat motor vehicle parts automobiles ignition wiring sets engines, spark-ignition 304,818 ammunition, gas-mask partsNicaragua urea polyethylene newsprint gold men’s trousers shrimp & prawns 0Panama petroleum oils malt lentils gold coffee shrimp & prawns 0Paraguay 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 0St Lucia groceries printed matter medicine paper & paper articles tin articles picture frames 0St 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 0Trinidad and Tobago newsprint wheat or meslin flour potatoes petroleum products iron or nonalloy bars urea 0Uruguay newsprint paper potato seeds bovine & equine leather woven fabrics (heavy) woven fabrics (light ) 0Venezuela 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 1 2 3 4 5 6 7 8

Afghanistan paper canola oil flat rolled iron products carpets antiques hand-woven rugs 0Armenia ethyl alcohol whisky paper knotted carpets not knotted carpets pears & quinces: fresh 0Azerbaijan contractors’ equipment telephone parts taps, cocks, valves returned goods semiconductor devices aircraft parts 0Bahrain newsprint chemical wood pulp paper men’s shirts women’s trousers aluminum alloy 25,928 aircraft & radar partsBangladesh mustard seeds poles newsprint men’s anoraks men’s shirts (cotton) men’s shirts (man-made) 81,810 sonar parts & firearmsBhutan bulldozer blades ~ ~ voltage instruments oil seeds articles of silver 0Burma pumps low value exports equipment to be re-exported shrimp & prawns t-shirts, singlets & vests men’s shirts 0Cambodia low value exports used clothing medical instruments men’s anoraks men’s swimwear men’s shirts 0China 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 0India 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 0Iraq low value exports ~ ~ low value imports ~ ~ 0Jordan aircraft automobiles logs, poles men’s shirts aircraft parts turbo propellers 1,160,184 aircraft software & partsKazakhstan machine parts laboratory equipment mechanical appliances natural uranium ferro chromium flat rolled iron/nonalloy 0Kuwait automobiles paper taps, cocks, valves women’s garments men’s shirts pullovers, cardigans 542,325 radios, aircraft parts, ammunitionKyrghzstan machine parts coal or rock cutters drilling machines women’s dresses & pyjamas plain woven cotton fabrics returned goods 0Laos vaccines telephone parts ~ men’s shirts (man-made fibers) men’s shirts (cotton) men’s anoraks 0Lebanon 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

➤

167




ASIA (continued) 1 2 3 4 5 6 7 8

Maldives aircraft contractors’ equipment aircraft parts t-shirts, singlets & vests men’s shirts low value imports 0Mongolia ~ ~ ~ ~ ~ ~ 0Nepal aircraft parts cartridges transmitters men’s shirts carpets pullovers, cardigans 0North Korea fish shrimp & prawns bovine tongues, edible offal ceramic ware plastic ware. paper (rolls or sheets) 0Oman automobiles contractors’ equipment machine parts women’s trousers men’s shirts men’s anoraks 896,488 aviation-related parts, ammunitionPakistan bituminous coal peas machine parts cotton yarn toilet & kitchen linen men’s shirts 2,569,082 radios, fire-control systemsPapua New Guinea taps, cocks, valves parts of electric motors graders & levelers coffee parts for turbo-jets other aircraft parts 0Philippines wheat copper ores zinc 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) 0Saudi 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 suitsSyria aluminum poles impregnated fabrics crude petroleum petroleum products t-shirts, singlets & vests 0Tajikistan paper ~ ~ low value imports ~ ~ 0Thailand 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 0United Arab Emirates helicopters aluminum automobiles buoys, beacons stainless steel bars jewellery 24,504 firearms, ammunitionUzbekistan telephone answering machines transmitters electrical parts (for telephones) natural uranium cotton antiques 0Vietnam artificial filament tow wood pulp potassium chloride coffee shrimp & prawns plastic containers 18,850 radios, firearm partsYemen paper printed matter furniture petroleum products coffee biscuits, waffles, wafers 0

Total Asia 236,880,791

EASTERN EUROPE 1 2 3 4 5 6 7 8

Albania stamps, cheque, certificates machine parts printed matter women’s blouses essential oils statuettes 0Belarus ethyl alcohol (<80% vol.) vaccines ethyl alcohol (>80% of vol.) flight simulators milk powder casein 0Bosnia Herzegovina diesel trucks peat doors, windows perfumes & toilet water orange juice bolts/screws 0Bulgaria 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 0Czech 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, firearmsLatvia transmitters ethyl alcohol prefabricated structures frozen shrimp, prawns crude petroleum plywood 0Lithuania maize laboratory equipment veneer frozen shrimp, prawns frozen fish milk powder 0Macedonia, FYR transmission apparatus impregnated fabrics chicken, capon cuts, offal footwear, outer sole bedroom furniture ferro-silicon 0Moldova fuel pumps centrifugal pumps tents apple juice men’s shirts women’s blouses & shirts 0Poland wheat purifying machinery ham cuts mechanical appliances parts for turbo-jets bars, rods (copper-zinc) 8,684 bomb-disposal suits, firearmsRomania 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, firearmsSlovak republic gas supply meters purifying machinery remote control lathes heterocyclic compounds petroleum products 43,445 bomb-disposal suits, firearmsSlovenia 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.

168

T A B L E 8

CANADIAN FINANCIAL RELATIONS WITH DEVELOPING

COUNTRIES (1996)

This table offers a glimpse of Canada’sfinancial relations with the develop-

ing world. Despite the importance ofthese linkages, figures for private orcommercial debt are difficult to obtain,as reflected by the number of gaps in thetable. Similarly, statistics on yearly flowscan at best be estimated, and then onlyfor the largest developing countries.

In 1996, total claims by Canadian publicagencies and Canadian banks on devel-oping country institutions and indivi-duals were estimated to have reached $43.5 billion, an increase of $10 billionover the previous year. Informationsupplied by the Bank of Canada to theBank for International Settlements indi-cates that Canadian banks alone held 56 percent of these debts, representingclaims of $24.5 billion on residents ofdeveloping countries (both private sec-tor and sovereign lending). Much ofthis lending—75 percent—was to theAmericas with most of the remainder toAsia. Most indebted to Canada wereMexico, Brazil, China, and Argentina.Individual Canadian banks had onlylimited exposure to “problem” develop-ing-country debtors as designated by the Office of the Superintendent ofFinancial Institutions. The Bank ofNova Scotia was most exposed, withmuch of its $1.5 billion in loans considered not to be fully collectible.

At approximately $19 billion in 1996, thedebt owed by developing countries to theCanadian government or its agencieswas substantial, though marginally higher than in 1995. (It should be noted,however, that 1996 figures are based onmore complete information than thosein 1995 and hence comparisons shouldbe made with caution.) Of this total,only 10 percent—1.9 billion—was debtowed directly to the government ofCanada, mostly in the form of conces-sional debt owed to CIDA. As CIDA nolonger provides bilateral loans, the out-standing debt will decrease year by year:nonetheless, in fiscal year 1995-96, debtservicing to the Canadian governmentcost developing countries more than

$65 million. Because most of the debtowed by the poorest countries hadalready been forgiven, the remaining debtwas concentrated in Asia—notably inIndia, Pakistan, Indonesia, and Sri Lanka.

The rest of Canada’s official debt withdeveloping countries was held by twocrown corporations: the Export Develop-ment Corporation (EDC) and the Canadian Wheat Board (CWB) which,for reasons of commercial confidentiality,are not required to release detailed information on their lending practices.In 1996, the EDC held approximately $8.5 billion in outstanding loans fromdeveloping countries, mainly on its nonconcessional corporate account. TheEDC’s gross exposure through the corpo-rate account was significantly lower thana year earlier, especially in Africa as aresult of debt forgiveness through theParis Club and debt write-downs. Loansoutstanding under the EDC’s “CanadaAccount” (some of it concessional andguaranteed by the Canadian govern-ment) were up slightly, mainly becauseof a $93 million loan to China.1

The Canadian Wheat Board held $6.5billion in outstanding credit grain salesto 13 developing countries, a reduction

of 2 percent from last year. While theWheat Board does not release detailedcountry figures, Russia, Algeria, andBrazil most likely accounted for thelion’s share of the outstanding debt.

Column 11 provides a rough breakdownof Canada’s foreign direct investment(FDI) stock—direct investment or owner-ship in companies—in developing coun-tries. FDI is held in another country’sphysical assets as opposed to financialassets, such as stocks or bonds. Canadaheld approximately $16.1 billion in FDIin developing countries. Fully 63 percentof this was located in the Americas:Chile, Brazil, and Mexico were in the topfour developing-country recipients ofCanadian FDI. (The Caribbean nationsof the Bahamas and Barbados, both highhuman development countries, account-ed for another large share of CanadianFDI.) Next in importance was Asia, particularly Indonesia, followed distantlyby Thailand and China. Developingcountry companies, in turn, had some$1.4 billion invested in Canada. In percentage terms, some 10 percent ofCanada’s total FDI stock was invested indeveloping countries while developingcountries accounted for less than 1 percent of FDI in Canada.

Although of growing importance, littleinformation is available about Canadianportfolio investment in developing-country stocks and bonds. The popu-larity of mutual funds, large pools ofpension savings, and low interest rateshave contributed to a rapid increase inthis form of investment: Canadian portfolio investment in non-OECDcountries was some $10 billion in 1996,a four-fold increase since 1990. Whilemuch of this was probably invested inemerging markets such as Singapore,South Korea, Hong Kong, and Taiwan,an increasing amount undoubtedlyreached developing countries.

1 The Canada Accounts are loans by the EDC authorizedby the Government of Canada to foreign customerswhere the liability is for a term, or in an amount inexcess of that normally assumed by the EDC. Financeddirectly by the Canadian government, these loans areadministered by the EDC on the government’s behalf.

Official Debt Owed to Canada by Agency1996 total: $16.9 billionCANADIAN GOVERNMENT (CIDA) 10%

UNKNOWN 11 %

CANADIAN WHEAT BOARD 34%

EXPORT DEVELOPMENT CORPORATION 45%

169


TABLE 8 CANADIAN FINANCIAL RELATIONS WITH DEVELOPING COUNTRIES (1996)

P U B L I C O R O F F I C I A L D E B T P R I V A T E O R C O M M E R C I A L D E B T T O T A L F D IExport Development Export Development Export Stock of Stock of

Corporation Corporation Development Total Bank of Total Foreign ForeignGovernment 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 1 2 3 4 5 6 7 8 9 10 11 12

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 197Sudan 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 ~ 0 0 ~ ~ ~ ~ ~ ~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 197M e m o r a n d u m I t e m s :

Africa unspecified 0 0 0 814.59 0 814.59 ~ 22 480.86 ~ 510 ~➤


170






AMERICAS 1 2 3 4 5 6 7 8 9 10 11 12

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 240Chile 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 239Nicaragua 16.02 0 0 ~ 0 16.90 ~ ~ ~ 16.90 ~ ~Panama 0 0 0 ~ 0 3.70 ~ ~ 543.52 547.22 96 91Paraguay 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 570M e m o r a n d u m I t e m s :

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 1 2 3 4 5 6 7 8 9 10 11 12

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 242Georgia 0 0 0 ~ 0 0 ~ ~ ~ ~ ~ ~India 567.29 0 69.19 ~ 0 964.60 ~ ~ 504.01 1,468.61 196 9Indonesia 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 ~ ~ ~ ~ ~ ~

➤

171


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 EconomicAnalysis Division; and World Bank, Financial Flows and the Developing Countries May 1997.





ASIA (continued) 1 2 3 4 5 6 7 8 9 10 11 12

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 41Maldives 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 ~ ~ ~ ~ ~ 40Sri 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 ~ 0 4,555.20 10,479.15 4,697 332M e m o r a n d u m I t e m s :

Asia Unspecified 0 0 0 219.07 0 ~ ~ ~ 817.32 1,036.39 1,248 ~

EASTERN EUROPE 1 2 3 4 5 6 7 8 9 10 11 12

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 12Slovak 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 12M e m o r a n d u m I t e m s :

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 1,446M e m o r a n d u m I t e m s :

Developing Country Unspecified 0 0 0 0 6,521.86 ~ 35 0 1,031.19 7,553.05 0 335

172

T A B L E 9

MOVEMENT OF PEOPLES

To smooth out what can be fairlylarge year-to-year fluctuations, the

figures in Table 9 present averages for1994-96, the last three years for whichdata is available. During this period,approximately two-thirds of immigrantsto Canada came from developing coun-tries, roughly the same proportion as 10years before. Total immigrationincreased an average of 8 percent a year,from its historically low levels of adecade ago. Developing countries inAsia, Africa, and Eastern Europeaccounted for the largest part of theincrease—an average of 10 percentannually—while immigration from theAmericas remained fairly constant.

By region, Asia provided the most immi-grants—60 percent—but proportionatelyfewer than its share of the developingworld population (68 percent). The topthree sending countries in 1994-96 wereIndia (18,201), the Philippines (15,707),and China (14,067). Next in importancewere Sri Lanka, Bosnia Herzegovina, Pakistan, Vietnam, Iran, Jamaica, andRomania. The Americas and EasternEurope were overrepresented in terms oftheir percentage of developing-worldpopulation, each accounting for 15 per-cent of developing country immigrationto Canada. Africa was underrepresented:with 15 percent of developing countrypopulation, it accounted for just 10 per-cent of Canadian immigration, a ratiowhich has risen slightly over the pastdecade. Significant drops in immigrationwere noted from only a few areas: Indo-China and Central America becauseof declines in refugee flows, and some ofthe wealthier countries of EasternEurope, notably the Czech Republic,Poland, and Hungary.

There are four broad classes of immi-grants—independent, refugee, business,and family class (that is, sponsored by arelative who arrived earlier). Familyclass arrivals made up 53 percent of allimmigrants from developing countriesin 1994-96: India and the Philippines

again had the most family class mem-bers accepted, followed by Vietnam.Independents made up 25 percent ofnew immigrants from developing coun-tries to Canada while refugees account-ed for 18 percent. More than 95 percentof refugees to Canada came from devel-oping countries in 1994-96, mainlyfrom Bosnia Herzegovina, Sri Lanka,and Iraq—all countries torn by conflict.Surprisingly, Africa—home to one-thirdof the world’s refugees—accounted foronly 13 percent of refugees to Canada.

Entrepreneurs and investors admitted toCanada under the business class madeup only 10 percent of all immigrants in1994-96 and only one-quarter of thosewere from developing countries. Thelargest number were from the MiddleEast, with Saudi Arabia, Kuwait, theUnited Arab Emirates, Egypt, Jordan, andIran providing 50 percent of developing-country business class immigrants.

Overall, during 1994-96, women wereslightly better represented than menamong immigrants to Canada, makingup 52 percent of the total. Arrivals fromdeveloping countries were also well balanced, with women accounting for51 percent. Within immigration classesthe gender balance tipped slightly:women made up 55 percent of the familyclass but only 45 percent of refugees.But while men are preponderant in therefugee class, their spouses sometimesenter later under the family class. Menand women were represented almostequally in the business class, suggestingthat men and women are paired in thiscategory. Among independent entrants,women slightly outnumbered menbecause of the large numbers of womenwho enter Canada as domestic workers:in 1994-96, the Philippines and Chinawere the leading developing countries oforigin for independent migrants.

100,000

90,000

80,000

70,000

60,000

50,000

40,000

30,000

20,000

10,000

0AFRICA AMERICAS ASIA EASTERN EUROPE

AVERAGE 1994-961986

OTHER

Numbers of Immigrants by Continent of Origin 1986 and 1994-96(averaged)

Developing Country Immigration by Class 1994-96

INDEPENDENT 25%

REFUGEE 18%

BUSINESS 3%

FAMILY CLASS 53%

173


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

( A V E R A G E O F L A S T T H R E E Y E A R S A V A I L A B L E 1 9 9 4 - 9 6 )

A V E R A G E 1 9 9 4 - 1 9 9 6 Total % ChangeFAMILY 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 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

Algeria 77 117 194 188 98 286 9 8 17 297 241 538 571 463 1,035 87 28.09Angola 0 1 1 12 5 17 0 0 0 0 0 1 13 6 19 42 (7.63)Benin 3 3 6 2 1 3 0 0 0 3 2 5 8 5 14 6 8.58Botswana 3 5 8 4 1 4 0 0 0 9 8 16 16 13 29 4 21.91Burkina Faso 2 4 7 0 0 0 0 0 0 1 1 2 3 5 9 7 2.16Burundi 4 9 13 95 93 188 1 1 2 3 3 5 103 105 208 11 34.17Cameroon 26 24 50 14 10 24 9 8 17 31 20 51 80 62 142 14 26.07Cape Verde 24 16 40 17 10 27 0 0 0 25 17 42 66 43 109 11 25.78Central African Republic 1 3 4 0 0 0 0 0 0 1 0 1 2 3 5 ~ ~Chad 1 2 3 1 1 1 1 1 2 1 0 2 4 4 8 8 0Comoros 3 2 5 8 2 9 0 0 0 1 0 1 11 4 15 2 22.32Congo - Brazzaville 1 0 1 1 0 2 0 0 0 0 1 1 3 1 4 1 14.87Congo - Kinshasa (Zaire) 59 71 130 204 157 361 4 2 6 11 9 20 279 239 517 77 20.98Côte d’Ivoire 5 3 7 2 1 3 0 0 0 1 0 1 8 4 12 52 (13.88)Djibouti 22 26 48 3 4 7 0 0 0 1 1 2 26 31 57 12 16.86Egypt 329 398 727 48 43 91 190 164 354 816 555 1,371 1,383 1,159 2,542 510 17.43Equatorial Guinea ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ 1 ~Eritrea 13 36 49 2 3 5 0 0 0 1 0 1 16 39 54 na naEthiopia 188 356 544 235 229 464 2 3 4 17 13 30 441 601 1,042 989 0.52Gabon 3 3 6 0 0 0 1 1 3 3 2 5 7 7 14 1 29.89Gambia 5 5 10 1 0 2 0 0 0 4 1 5 10 6 16 5 12.57Ghana 451 568 1,019 94 62 156 1 0 2 71 63 135 617 694 1,311 235 18.76Guinea 11 12 23 10 4 14 0 0 0 3 2 5 23 18 41 6 21.19Guinea-Bissau 0 1 1 1 0 1 0 0 0 0 0 0 1 1 2 1 8.84Kenya 224 272 496 78 70 147 15 19 33 56 59 115 373 419 792 359 8.24Lesotho 1 2 3 1 1 2 0 0 0 1 1 2 3 4 7 3 8.84Liberia 4 3 7 25 13 39 2 1 2 1 0 1 32 17 49 10 17.14Libya 15 19 34 22 5 27 5 6 11 52 36 89 95 66 161 28 19.14Madagascar 6 7 13 0 0 0 0 0 0 4 5 9 10 12 22 42 (6.40)Malawi 4 3 7 1 2 4 0 0 0 3 2 5 9 8 16 9 6.14Mali 14 10 24 7 2 9 0 0 0 5 3 8 25 15 41 2 35.15Mauritania 1 0 1 4 3 8 0 0 0 1 1 1 6 4 10 1 26.31Mauritius 34 49 83 0 0 0 1 2 3 24 21 45 59 72 131 312 (8.29)Morocco 200 248 449 4 6 10 13 17 30 178 153 331 396 424 819 403 7.35Mozambique 0 1 1 1 1 2 0 1 1 1 0 1 2 3 5 36 (18.48)Namibia 1 2 3 0 0 0 1 1 1 2 1 3 4 4 8 3 9.84Niger 2 0 3 1 0 1 2 0 2 3 2 5 8 3 11 1 27.10Nigeria 98 85 183 64 35 99 8 7 15 75 54 129 245 181 426 154 10.71Rwanda 8 10 18 63 65 128 1 1 1 3 4 7 75 79 154 45 13.09São Tomé and Principe ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ 1 ~Senegal 20 13 33 6 5 10 5 5 10 18 12 30 49 35 84 12 21.43Seychelles 7 6 13 5 4 9 0 0 0 2 2 4 15 12 26 12 8.18Sierra Leone 8 14 22 9 6 15 1 1 1 6 4 10 24 25 49 14 13.27Somalia 109 152 261 469 440 910 0 0 0 14 9 23 593 601 1,194 54 36.29South Africa 301 375 676 4 2 7 74 69 143 644 600 1,244 1,024 1,046 2,070 942 8.19Sudan 18 41 59 200 124 324 5 2 7 22 16 39 246 184 429 55 22.81Swaziland 2 2 4 2 3 5 0 0 0 1 1 2 6 6 12 3 14.55Tanzania 87 97 183 3 4 7 16 10 26 22 23 45 128 134 261 343 (2.68)Togo 9 5 14 11 5 16 0 0 0 5 4 8 25 14 39 8 17.16Tunisia 40 52 92 7 6 13 1 0 1 83 39 122 131 97 228 63 13.73Uganda 13 17 29 11 7 18 1 1 2 6 5 11 31 30 61 82 (2.97)Zambia 27 25 52 5 4 9 3 2 4 36 34 70 70 65 135 39 13.22Zimbabwe 13 16 29 4 3 7 1 1 2 12 10 22 30 30 60 51 1.58

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➤

174




AMERICAS 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

Antigua and Barbuda 9 13 22 0 0 0 0 1 1 2 1 3 12 15 27 57 (7.32)Argentina 77 101 177 36 31 67 47 49 96 74 70 144 234 251 485 244 7.10Belize 10 12 22 1 1 3 1 2 3 2 2 5 14 18 32 25 2.50Bolivia 24 22 46 10 8 19 1 1 2 3 3 6 39 33 72 80 (1.05)Brazil 95 150 245 2 4 6 30 30 60 140 122 262 267 306 573 241 9.05Chile 2,221 117 2,337 29 28 57 2 1 3 20 24 44 2,271 170 2,441 639 14.34Colombia 79 142 221 19 16 35 6 9 15 44 53 97 148 219 367 262 3.44Costa Rica 26 44 69 4 6 10 1 0 1 12 13 25 43 63 106 138 (2.60)Cuba 99 156 254 106 72 178 0 0 0 5 5 9 209 232 441 133 12.74Dominica 22 24 45 0 0 0 0 0 0 4 11 16 26 35 61 48 2.48Dominican Republic 153 159 311 3 4 7 0 0 0 6 10 15 161 172 333 322 0.35Ecuador 135 170 305 19 22 41 4 3 7 9 11 20 167 207 374 250 4.12El Salvador 212 300 512 166 148 314 0 0 0 20 16 37 398 465 863 3,198 (12.28)Grenada 104 121 225 2 1 3 0 0 0 20 63 83 125 185 311 242 2.53Guatemala 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 17 3 5 7 41 109 150 1,556 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 1.40Honduras 70 97 166 50 44 94 3 3 6 11 7 18 133 151 284 105 10.46Jamaica 1,523 1,617 3,140 0 3 3 5 4 9 120 273 393 1,648 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 4.48Nicaragua 28 45 73 19 15 34 0 1 1 16 11 27 64 71 135 733 (15.54)Panama 16 21 36 9 7 16 6 4 10 5 3 8 35 35 70 21 12.74Paraguay 97 133 230 123 132 255 7 6 13 33 37 70 260 308 568 70 23.28Peru 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 0 1 1 0 0 0 13 41 54 68 111 179 46 14.55St Lucia 2 3 5 0 0 0 1 1 2 0 0 0 4 4 7 95 (22.60)St Vincent/Grenadines 26 27 53 0 0 0 0 0 0 4 17 21 30 44 74 207 (9.78)Suriname 16 19 35 1 2 4 2 1 4 3 4 8 23 27 50 13 14.34Trinidad and Tobago 895 1,001 1,896 6 8 14 18 22 40 192 219 411 1,111 1,250 2,361 942 9.62Uruguay 29 31 60 21 16 37 1 1 3 27 26 53 78 74 152 137 1.07Venezuela 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 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

Afghanistan 80 153 234 588 532 1,120 1 0 1 6 4 10 675 689 1,364 597 8.61Armenia 12 20 32 6 7 13 2 1 3 11 9 20 31 37 68 na naAzerbaijan 3 4 7 4 4 8 0 0 1 4 3 8 12 12 24 na naBahrain 38 44 82 2 1 3 20 22 42 130 114 243 190 181 371 15 37.83Bangladesh 417 559 976 311 183 494 14 14 27 184 129 313 926 885 1,811 459 14.71Bhutan 0 0 0 1 0 1 0 0 0 0 0 0 1 0 1 ~ ~Burma 19 21 40 52 26 78 2 1 3 8 10 17 81 57 139 14 25.77Cambodia 51 137 188 15 14 29 0 0 0 1 2 3 67 153 219 1,751 (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 22.06Georgia 8 10 18 5 5 11 0 0 1 12 9 21 26 24 50 na naIndia 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 10.07Indonesia 37 64 101 4 6 11 40 42 82 14 15 29 96 127 222 142 4.59Iran 478 715 1,193 759 554 1,313 250 242 492 577 474 1,050 2,063 1,984 4,047 2,000 7.30Iraq 99 171 270 866 494 1,360 47 41 88 62 54 115 1,074 760 1,834 243 22.40Jordan 122 176 299 48 40 88 191 162 353 176 139 315 538 517 1,055 104 26.07Kazakhstan 4 9 12 17 20 37 1 2 2 13 14 28 35 45 79 na naKuwait 66 67 133 96 60 156 286 241 527 251 224 474 698 593 1,291 228 18.93Kyrghzstan 0 2 2 1 1 2 0 0 0 3 2 5 4 5 8 na naLaos 8 20 28 5 3 8 0 0 0 1 1 1 13 24 37 641 (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

➤

175




ASIA (continued) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

Maldives 0 0 0 0 0 0 0 0 1 0 0 0 1 0 1 ~ ~Mongolia 0 0 1 0 0 0 0 0 0 1 1 2 1 2 3 1 11.61Nepal 6 7 13 1 1 1 2 3 4 28 24 52 36 34 71 12 19.40North Korea 1 0 1 0 0 0 0 0 1 0 0 0 1 1 2 ~ ~Oman 41 40 81 2 0 3 5 3 7 75 70 146 123 114 237 11 35.92Pakistan 1,059 1,138 2,197 337 230 567 235 198 433 1,205 751 1,956 2,837 2,317 5,154 647 23.06Papua New Guinea 2 4 6 0 1 1 2 1 3 3 2 5 7 8 15 3 17.20Philippines 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 14.29Qatar 24 21 45 7 5 12 31 31 62 80 70 149 142 127 269 18 31.04Saudi Arabia 225 157 382 63 29 92 277 228 505 776 629 1,405 1,341 1,043 2,384 361 20.78Sri 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 15.09Syria 107 182 289 48 28 77 56 46 101 229 157 386 440 413 853 401 7.84Tajikistan 0 1 1 0 1 1 0 0 0 2 1 3 2 3 5 na naThailand 42 104 146 44 19 63 6 5 11 16 35 51 108 163 271 86 12.16Turkey 158 239 397 84 47 130 20 18 38 112 81 193 374 385 758 251 11.69Turkmenistan 0 0 0 0 0 0 0 0 0 1 1 2 1 1 2 na naUnited Arab Emirates 204 183 387 16 12 28 223 214 437 478 433 911 921 842 1,763 233 22.43Uzbekistan 3 6 9 6 6 12 0 0 0 10 10 20 19 22 41 na naVietnam 1,253 2,432 3,685 279 230 509 0 0 0 12 13 25 1,545 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 naYemen 10 18 28 13 11 24 7 6 14 11 7 18 41 42 83 3 39.43Oceania 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 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

Albania 6 16 22 8 7 15 0 0 1 22 15 37 37 38 75 4 34.00Belarus 16 21 37 3 3 6 1 2 3 46 37 82 66 63 128 na naBosnia Herzegovina 98 117 215 2,588 2,543 5,131 0 0 1 40 37 77 2,726 2,698 5,424 na naBulgaria 80 105 185 73 73 145 4 4 8 181 158 339 338 340 678 42 32.07Croatia 114 165 279 229 219 448 1 2 3 73 67 140 418 453 871 na naCzech Republic 39 91 129 2 2 4 1 1 2 42 70 112 84 164 247 840 (11.5)Estonia 7 18 25 23 20 43 1 1 2 17 16 33 49 55 104 1 59.1Hungary 70 126 196 8 8 17 7 5 11 71 76 147 156 215 371 706 (6.2)Latvia 13 22 35 13 14 27 2 3 5 39 36 75 67 76 143 na naLithuania 9 25 33 1 1 2 3 3 6 9 13 22 22 42 64 na naMacedonia, FYR 58 77 135 4 4 8 0 0 0 20 18 38 82 99 181 na naMoldova 11 20 31 68 64 132 2 1 3 14 11 24 95 96 191 na naPoland 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 88 233 3 4 7 1,281 1,174 2,455 1,746 1,741 3,487 868 14.92Russian Federation 163 265 428 106 117 224 30 24 54 567 529 1,097 867 935 1,802 107 32.63Slovak Republic 22 48 70 1 1 3 1 2 4 34 50 84 58 101 160 na naSlovenia 6 12 18 6 6 12 1 2 3 9 7 16 23 26 49 na naUkraine 208 337 545 74 102 176 13 12 24 605 572 1,176 899 1,022 1,921 na naEx-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.

176

T A B L E 1 0

HUMAN LINKAGES BETWEEN CANADA AND THE

DEVELOPING WORLD

The linkages that Canada has withdeveloping countries go beyond

aid, trade, and investment. Perhapsmore meaningful are the numbers ofpeople in each other’s country, whetheras visitors, students, or workers. Thistable gives some indication of howstrong the human links have become.In 1996, for instance, 76,444 Canadianswere registered with our diplomaticmissions as working or living in devel-oping countries; 14,505 students fromdeveloping countries attended Canadianuniversities and colleges; and Canadiansmade more than 2 million trips to thedeveloping world while Canadareceived 745,098 visits.

In 1996, the number of Canadians regis-tered with our embassies or high com-missions was 17 percent higher than theprevious year. Of the 76,444 Canadiansin developing countries, 5,346 were inSouth Africa, which replaced Saudi Arabiaas the country with the largest Canadiancontingent. Mexico, Haiti, and Indiaalso had sizeable Canadian communities.It is interesting to note that not manymore Canadians were living in Asia thanin Africa (24,756 compared to 20,899),although Canadian residents in Africamight have been more likely to registerwith a mission. A small caveat: the figuresfor Canadian residents living abroad areunlikely to be completely accurate asCanadians are not required to register ata mission. Most who do are working inthat country in private industry or as aidworkers, or are concerned about security.The figures can also be distorted by visitorswho registered although they stayedonly a few days.

Excluding visits to the United States,Canadians headed for developing coun-tries 36 percent of the time. The numberof visits by Canadians to developingcountries increased by almost 4 percentduring the past year. The top four desti-nations were tourist havens close tohome: Mexico, which received morethan twice as many visits as any other

developing country, Cuba, the Domini-can Republic, and Jamaica. In fifth,sixth, and seventh place were more dis-tant locales: China, Malaysia, and Thai-land, likely business destinations.Canada, however, welcomed 11 percentfewer developing-country visits: 745,098in 1996 compared to 834,627 in 1995.Our most frequent guests were fromMexico, China, India, and Brazil, whichtogether accounted for 37 percent ofdeveloping-country visitors. And withthe notable exception of 14 countries,including Brazil, Argentina, Kuwait,Saudi Arabia, India, and Pakistan, moreCanadians visited each country than wereceived visitors from there—not surpris-ing given the cost of international travel.

While the number of students frommiddle- and high-income countries roseslightly in 1996, the number fromdeveloping countries declined by 8 per-cent, a reflection of rising universityand college tuition costs and a slightlyappreciated Canadian dollar. Theynevertheless accounted for almost halfof all foreign students in Canada. As in1995, the greatest numbers were fromChina (1,839), Malaysia (1,171), Iran(874), and India (808). Some 25 percentof the students were from membercountries of La Francophonie, roughlyproportionate to the population shareof francophones in Canada. It is alsointeresting to note the relatively largeproportion (35 percent) of African

students. As in previous years, male students dominated this enrolment and the gender gap shows no sign ofnarrowing: this year as last, women students accounted for only 33 percentof developing-country students.

As shown in column 7, Canada was rep-resented by an in-country embassy orhigh commission in only 74 developingcountries. Others were covered by amission located in a neighbouringcountry. We had diplomatic representa-tion in a further 25 embassies located inhigh human development countries.The 806 Canadian diplomats posted indeveloping countries represented 56percent of all Canadian diplomatsabroad at the end of December 1996.And while the average Canadian missionfor a developing country consists of astaff of 11 Canadians, actual numbersvary—from China with an embassy staffof 55 to the several countries with onlya single official posted in a CanadianDevelopment Cooperation Office.Although 90 developing countries hadmissions in Canada with an averagestaff of eight, they tended to be smaller.A notable exception was China whichmaintained 88 diplomats in Canada—the same number as the United States.Other developing countries with a rela-tively strong diplomatic presence inCanada included Mexico (46), Russia(40), India (23), and Indonesia (23).

8,000

7,000

6,000

5,000

4,000

3,000

2,000

1,000

0AFRICA AMERICAS ASIA EASTERN EUROPE

FEMALEMALE

OTHER

Numbers of Foreign Students by Gender and Continent of Origin 1996

177


TABLE 10 HUMAN LINKAGES BETWEEN CANADA AND THE DEVELOPING WORLD

Canadian Number of Country Number ofCanadians Visits to Foreign Students Embassy or High Diplomatic Embassy or High DiplomaticRegistered Canadian Canada Enrolled from Commission Staff in Commission Staff inAbroad 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 1 2 3 4 5 6 7 8 9 10

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

178

T A B L E 1 0 ( C O N T I N U E D )



AMERICAS 1 2 3 4 5 6 7 8 9 10

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

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

➤

179




ASIA (continued) 1 2 3 4 5 6 7 8 9 10

Mongolia 1 1,200 47 ~ ~ 0Nepal 451 5,200 418 37 13 50North Korea 0 ~ 54 49 23 72Oman 20 900 764 5 0 5Pakistan 945 7,100 12,241 142 35 177 • 22 • 6Papua New Guinea 203 200 477 1 1 2Philippines 1,772 34,200 34,364 45 44 89 • 27 • 18Qatar 5 800 686 5 0 5Saudi Arabia 4,374 4,200 12,233 285 32 317 • 16 • 14Sri Lanka 330 9,200 3,103 99 50 149 • 8 • 5Syria 790 4,200 1,304 14 1 15 • 18Tajikistan 2 ~ 71 1 1 2Thailand 1,138 46,400 27,951 62 87 149 • 17 • 11Turkey 803 32,000 5,135 64 32 96 • 12 • 13Turkmenistan 0 ~ 19 2 2 4United Arab Emirates 1,692 11,800 4,280 6 1 7 • 6Uzbekistan 4 100 63 15 19 34Vietnam 328 15,400 1,954 59 35 94 • 9 • 8West Bank and Gaza ~ ~ ~ 1 3 4Yemen 316 ~ 211 5 0 5 • 5Oceania 123 14,700 2,362 4 5 9Other 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 1 2 3 4 5 6 7 8 9 10

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

180

T A B L E 1 1

Drawing on the previous tables, thistable highlights Canada’s human,

political, and economic linkages withdeveloping countries through twoindices: columns 1 to 4 rank the impor-tance of each developing country toCanada; columns 5 to 8 present theimportance of Canada to each country.1

Both indices represent a composite ofthree separate indices—for immigration,trade, and aid—each accounting for athird of the composite index and serv-ing as a statistical representation of people linkages, economic ties, andpolitical ties, respectively. The formula-tion of each index differs, depending onwhether it attempts to measure theimportance of the developing countryto Canada or vice versa.2 (See “TechnicalNotes,” p. 184)

THE IMPORTANCE OF DEVELOPING

COUNTRIES TO CANADA

In 1994-96, China, India, the Philippines,and Sri Lanka were most important toCanada in “people” terms, as shown incolumn 1 which measures the immigra-tion from each country as a percentage oftotal developing-country immigration.China was equally important to Canadain terms of trade, as was Mexico: theirtrade indices (column 2, which presentseach country’s imports and exports as apercentage of Canada’s trade with alldeveloping countries in 1996) were threetimes as high as Brazil’s and Malaysia’s, inthird and fourth place, respectively.China, Egypt, and Bangladesh wereranked at the top of the aid index (col-umn 3) which measures each country’sproportion of bilateral aid in 1995-96.

Averaging the three indices shows thatChina was by far the most “important”developing country to Canada: at0.1196, its composite index was almosttwice as high as the next most impor-tant, India. Asia ranked as the mostimportant continent. On a continent bycontinent basis, the most importantcountries to Canada were as follows:

Asia Africa Americas1 China Egypt Mexico2 India South Africa Brazil3 Philippines Algeria Haiti4 Bangladesh Ghana Jamaica5 Indonesia Côte d’Ivoire Chile6 Malaysia Ethiopia Venezuela7 Sri Lanka Morocco Peru8 Thailand Cameroon Guyana9 Saudi Arabia Senegal Colombia10 Iran Mali Cuba

It is interesting to note the even distribu-tion of countries across Asia. In additionto China, four were from Southeast Asia,two from the Middle East, and threefrom the Indian sub-continent. Whilemost had fairly strong immigration links,only China, India, and the Philippineshad both strong trade and aid linkages.The remaining either had strong tradelinks— Malaysia, Thailand, Saudi Arabia,Indonesia, and Iran—or strong aidlinks—Sri Lanka and Bangladesh.

In Africa, the better-off countries ofNorth Africa and the Republic of SouthAfrica were clearly the most importantto Canada, largely because of trade link-ages. The seven sub-Saharan countriestended to have strong aid links and rel-atively weak immigration and tradelinks. Also notable is the presence of sixmembers of La Francophonie.

Trade linkages dominated Canada’s rela-tions with six of the Americas’ top 10:the large economies of Brazil and Mexico, as well as Chile, Venezuela,Colombia, and Cuba. Aid was the mostimportant linkage with Peru and Haiti,while immigration was key to Canada’sties with Jamaica and Guyana. Notablewas the absence of Central Americancountries and of Argentina, the region’ssecond largest economy.

THE IMPORTANCE OF CANADA TO

DEVELOPING COUNTRIES

There is little doubt of Canada’s impor-tance to the countries of the Caribbean,from human, trade, and aid perspec-tives. Guyana tops the list, followed byJamaica and St Lucia. Of 10 countriesfor which Canada is most important,seven are from the Caribbean, one fromCentral America, and two from Asia.

The Caribbean islands’ high ranking isdue largely to the relatively high pro-portion of their citizens who emigrateto Canada, as shown in the immigra-tion index (column 5). Because thisindex measures emigration to Canadain terms of total population, countriessuch as China and India have lowerrankings despite high emigration levels.In terms of trade (the index measuresimports from and exports to Canada asa share of that country’s GDP), Guyanais a clear front runner: its trade withCanada accounted for 32 percent ofGDP. Caribbean and African countriesalso rank highly on the aid index whichmeasures bilateral aid received fromCanada as a share of total aid.

On a continent by continent basis,Canada was most important to the following countries:

Asia Africa Americas1 Maldives Ghana Guyana2 Malaysia Angola Jamaica3 Bangladesh Niger St Lucia4 Philippines Benin Costa Rica5 Oceania Togo Trinidad and Tobago6 Thailand Mali St Kitts and Nevis7 China Egypt Dominica8 Jordan Tanzania Grenada9 Lebanon Cameroon Peru10 Sri Lanka Zimbabwe Haiti

Many of the 10 Asian countries for whomCanada is very important are equallyimportant to Canada: Bangladesh, thePhilippines, Thailand, China, Malaysia,and Sri Lanka. Overall, however, theindices for most Asian countries arequite low compared to Africa and theAmericas. There is also significant overlap between the leading Africancountries, although Togo and Beninscored relatively low in the “importanceto Canada” index. Of the Americas’ top10, eight are in the Caribbean.

1 Of course these indices do not, nor do they intendto, cover all the many, often subtle and complex, waysin which countries are linked to Canada. One shoulduse these indices with caution, not weighting any onecountry’s specific ranking too heavily, but rather usingthem for what they indicate more generally aboutCanada-developing country relations. 2 Countries from the former Soviet Union and EasternEurope are not included in the index as informationrelating to Canadian official finance to these countrieswas not available.

CANADA-DEVELOPING COUNTRY LINKAGE INDICES

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TABLE 11 CANADA-DEVELOPING COUNTRY LINKAGE INDICES

I M P O R T A N C E O F D E V E L O P I N G C O U N T R Y T O C A N A D A I M P O R T A N C E O F C A N A D A T O D E V E L O P I N G C O U N T R Y

Composite Composite Linkage Linkage

Immigration Trade Aid Index Immigration Trade Aid IndexCountry Index Index Index 33/33/33 Country Index Index Index 33/33/33

1 2 3 4 5 6 7 81 China 0.0971 0.1963 0.0652 0.1196 1 Guyana 0.0409 0.3204 0.0396 0.13372 India 0.1256 0.0241 0.0476 0.0657 2 Jamaica 0.0142 0.0541 0.0662 0.04483 Mexico 0.0063 0.1835 0.0046 0.0649 3 St Lucia 0.0005 0.0096 0.1057 0.03864 Philippines 0.1084 0.0212 0.0210 0.0502 4 Costa Rica 0.0003 0.0156 0.0748 0.03025 Egypt 0.0175 0.0037 0.0822 0.0344 5 Trinidad and Tobago 0.0182 0.0174 0.0350 0.02356 Bangladesh 0.0125 0.0038 0.0683 0.0282 6 St Kitts and Nevis 0.0437 0.0193 0.0000 0.02107 Brazil 0.0040 0.0625 0.0053 0.0240 7 Maldives 0.0000 0.0582 0.0000 0.01948 Indonesia 0.0015 0.0387 0.0205 0.0203 8 Malaysia 0.0002 0.0180 0.0391 0.01919 Malaysia 0.0033 0.0529 0.0042 0.0202 9 Dominica 0.0084 0.0113 0.0333 0.017710 Sri Lanka 0.0499 0.0031 0.0071 0.0200 10 Grenada 0.0341 0.0130 0.0000 0.015711 Thailand 0.0019 0.0394 0.0151 0.0188 11 Ghana 0.0008 0.0090 0.0347 0.014812 Saudi Arabia 0.0164 0.0324 0.0000 0.0163 12 Peru 0.0001 0.0038 0.0393 0.014413 Iran 0.0279 0.0202 0.0000 0.0161 13 Angola 0.0000 0.0341 0.0090 0.014414 South Africa 0.0143 0.0168 0.0151 0.0154 14 Niger 0.0000 0.0105 0.0322 0.014315 Vietnam 0.0291 0.0036 0.0114 0.0147 15 Haiti 0.0028 0.0118 0.0252 0.013216 Haiti 0.0137 0.0008 0.0284 0.0143 16 Benin 0.0000 0.0015 0.0362 0.012617 Pakistan 0.0356 0.0063 -0.0001 0.0139 17 Togo 0.0001 0.0337 0.0032 0.012318 Algeria 0.0071 0.0293 0.0036 0.0133 18 Mali 0.0000 0.0044 0.0299 0.011519 Jamaica 0.0245 0.0082 0.0069 0.0132 19 Egypt 0.0004 0.0023 0.0313 0.011320 Ghana 0.0090 0.0020 0.0285 0.0131 20 Bangladesh 0.0002 0.0038 0.0297 0.011221 Ex-Yugoslavia 0.0200 0.0002 0.0179 0.0127 21 Tanzania 0.0001 0.0040 0.0288 0.011022 Chile 0.0168 0.0188 0.0020 0.0125 22 Philippines 0.0023 0.0083 0.0220 0.010923 Venezuela 0.0030 0.0301 0.0012 0.0114 23 Oceania 0.0277 0.0046 0.0000 0.010824 Peru 0.0023 0.0076 0.0238 0.0112 24 Cameroon 0.0001 0.0012 0.0297 0.010325 Guyana 0.0236 0.0054 0.0034 0.0108 25 Mexico 0.0001 0.0213 0.0095 0.010326 Côte d’Ivoire 0.0001 0.0012 0.0292 0.0102 26 Venezuela 0.0002 0.0116 0.0185 0.010127 Colombia 0.0025 0.0191 0.0046 0.0088 27 Zimbabwe 0.0001 0.0025 0.0254 0.009328 Ethiopia 0.0072 0.0007 0.0170 0.0083 28 Seychelles 0.0036 0.0010 0.0231 0.009229 Cuba 0.0030 0.0168 0.0017 0.0072 29 Rwanda 0.0002 0.0030 0.0236 0.009030 Morocco 0.0057 0.0071 0.0084 0.0071 30 South Africa 0.0005 0.0036 0.0228 0.009031 Trinidad and Tobago 0.0163 0.0032 0.0015 0.0070 31 Honduras 0.0005 0.0126 0.0136 0.008932 Turkey 0.0052 0.0104 0.0045 0.0067 32 Senegal 0.0001 0.0032 0.0211 0.008133 Cameroon 0.0010 0.0003 0.0188 0.0067 33 Guatemala 0.0007 0.0086 0.0149 0.008134 Jordan 0.0073 0.0009 0.0119 0.0067 34 Algeria 0.0004 0.0205 0.0032 0.008035 Lebanon 0.0147 0.0016 0.0038 0.0067 35 Thailand 0.0000 0.0068 0.0168 0.007936 Bolivia 0.0005 0.0011 0.0183 0.0066 36 China 0.0001 0.0082 0.0152 0.007837 Senegal 0.0006 0.0005 0.0181 0.0064 37 Malawi 0.0000 0.0043 0.0191 0.007838 Mali 0.0003 0.0004 0.0183 0.0063 38 Nicaragua 0.0003 0.0100 0.0122 0.007539 Nicaragua 0.0009 0.0007 0.0169 0.0061 39 Côte d’Ivoire 0.0000 0.0035 0.0183 0.007340 Mozambique 0.0000 0.0005 0.0176 0.0060 40 Botswana 0.0002 0.0042 0.0174 0.007341 Rwanda 0.0011 0.0001 0.0161 0.0057 41 Bolivia 0.0001 0.0052 0.0163 0.007242 United Arab Emirates 0.0122 0.0044 0.0000 0.0055 42 Belize 0.0015 0.0140 0.0062 0.007243 Zimbabwe 0.0004 0.0006 0.0154 0.0054 43 Jordan 0.0025 0.0043 0.0148 0.007244 Afghanistan 0.0094 0.0000 0.0057 0.0050 44 Ecuador 0.0003 0.0082 0.0123 0.006945 Argentina 0.0033 0.0095 0.0020 0.0050 45 Morocco 0.0003 0.0064 0.0141 0.006946 Iraq 0.0127 0.0000 0.0019 0.0049 46 Colombia 0.0001 0.0073 0.0130 0.006847 Benin 0.0001 0.0001 0.0143 0.0048 47 Chile 0.0017 0.0081 0.0100 0.006648 Nigeria 0.0029 0.0089 0.0021 0.0046 48 Lebanon 0.0053 0.0041 0.0095 0.006349 Kenya 0.0055 0.0013 0.0071 0.0046 49 Sri Lanka 0.0040 0.0070 0.0072 0.006150 Tanzania 0.0018 0.0005 0.0110 0.0044 50 Burkina Faso 0.0000 0.0009 0.0166 0.005851 Guatemala 0.0048 0.0043 0.0041 0.0044 51 Guinea 0.0001 0.0071 0.0103 0.005852 Malawi 0.0001 0.0002 0.0124 0.0043 52 Uruguay 0.0005 0.0024 0.0145 0.005853 Zambia 0.0009 0.0003 0.0105 0.0039 53 Panama 0.0003 0.0068 0.0102 0.005854 Ecuador 0.0026 0.0051 0.0034 0.0037 54 Namibia 0.0001 0.0124 0.0048 0.005755 Burkina Faso 0.0001 0.0001 0.0108 0.0036 55 Indonesia 0.0000 0.0057 0.0113 0.005756 Kuwait 0.0089 0.0019 0.0000 0.0036 56 St Vincent/Grenadines 0.0067 0.0097 0.0000 0.005557 Honduras 0.0020 0.0017 0.0066 0.0034 57 Sierra Leone 0.0001 0.0141 0.0015 0.005258 Somalia 0.0082 0.0000 0.0015 0.0032 58 Tunisia 0.0003 0.0018 0.0126 0.004959 Oceania 0.0053 0.0004 0.0038 0.0032 59 Nigeria 0.0000 0.0097 0.0047 0.004860 Costa Rica 0.0007 0.0050 0.0036 0.0031 60 Mozambique 0.0000 0.0092 0.0053 0.0048

182

T A B L E 1 1 ( C O N T I N U E D )




1 2 3 4 5 6 7 861 El Salvador 0.0060 0.0010 0.0023 0.0031 61 Mauritius 0.0012 0.0042 0.0090 0.004862 Angola 0.0001 0.0044 0.0037 0.0028 62 Swaziland 0.0001 0.0009 0.0126 0.004563 Sudan 0.0030 0.0002 0.0043 0.0025 63 Kenya 0.0003 0.0042 0.0089 0.004564 Syria 0.0059 0.0013 0.0000 0.0024 64 Vietnam 0.0006 0.0051 0.0074 0.004465 Dominican Republic 0.0023 0.0043 0.0004 0.0023 65 Dominican Republic 0.0004 0.0109 0.0016 0.004366 Guinea 0.0003 0.0009 0.0055 0.0022 66 Tajikistan 0.0000 0.0000 0.0124 0.004167 Burundi 0.0014 0.0001 0.0051 0.0022 67 Iran 0.0006 0.0092 0.0016 0.003868 Nepal 0.0005 0.0002 0.0056 0.0021 68 Zambia 0.0002 0.0020 0.0092 0.003869 Congo - Kinshasa (Zaire) 0.0036 0.0008 0.0009 0.0018 69 Brazil 0.0000 0.0026 0.0079 0.003570 Niger 0.0001 0.0007 0.0045 0.0018 70 United Arab Emirates 0.0071 0.0033 0.0000 0.003471 Eritrea 0.0004 0.0000 0.0048 0.0017 71 Nepal 0.0000 0.0013 0.0087 0.003372 St Lucia 0.0001 0.0002 0.0049 0.0017 72 India 0.0002 0.0022 0.0075 0.003373 Cambodia 0.0015 0.0001 0.0032 0.0016 73 Gambia 0.0001 0.0012 0.0084 0.003274 Libya 0.0011 0.0035 0.0000 0.0015 74 Kuwait 0.0076 0.0021 0.0000 0.003275 Paraguay 0.0039 0.0002 0.0003 0.0015 75 Burundi 0.0003 0.0019 0.0073 0.003276 Uruguay 0.0011 0.0015 0.0017 0.0014 76 Ethiopia 0.0002 0.0039 0.0052 0.003177 Gabon 0.0001 0.0001 0.0030 0.0011 77 Bahrain 0.0064 0.0026 0.0000 0.003078 Uganda 0.0004 0.0006 0.0021 0.0010 78 Lesotho 0.0000 0.0044 0.0044 0.002979 Bahrain 0.0026 0.0004 0.0000 0.0010 79 Saudi Arabia 0.0013 0.0075 0.0000 0.002980 Panama 0.0005 0.0018 0.0007 0.0010 80 Cambodia 0.0002 0.0008 0.0074 0.002881 Tunisia 0.0016 0.0011 0.0000 0.0009 81 Kazakhstan 0.0000 0.0006 0.0069 0.002582 Namibia 0.0001 0.0013 0.0013 0.0009 82 Pakistan 0.0004 0.0030 0.0040 0.002583 Botswana 0.0002 0.0006 0.0018 0.0009 83 El Salvador 0.0015 0.0030 0.0026 0.002484 Liberia 0.0003 0.0001 0.0019 0.0008 84 Cape Verde 0.0029 0.0007 0.0036 0.002485 Grenada 0.0021 0.0001 0.0001 0.0008 85 Argentina 0.0001 0.0010 0.0058 0.002386 Qatar 0.0019 0.0005 0.0000 0.0008 86 Mauritania 0.0000 0.0003 0.0065 0.002387 Togo 0.0003 0.0011 0.0009 0.0008 87 Kyrghzstan 0.0000 0.0067 0.0000 0.002288 Kazakhstan 0.0005 0.0005 0.0010 0.0007 88 Gabon 0.0001 0.0009 0.0055 0.002289 Oman 0.0016 0.0003 0.0000 0.0006 89 Madagascar 0.0000 0.0014 0.0049 0.002190 Mauritius 0.0009 0.0006 0.0003 0.0006 90 Qatar 0.0042 0.0018 0.0000 0.002091 Madagascar 0.0001 0.0002 0.0014 0.0006 91 Yemen 0.0001 0.0026 0.0029 0.001892 Yemen 0.0006 0.0004 0.0007 0.0006 92 Uganda 0.0000 0.0032 0.0019 0.001793 Dominica 0.0004 0.0001 0.0011 0.0005 93 Bhutan 0.0000 0.0010 0.0041 0.001794 Burma 0.0010 0.0004 0.0002 0.0005 94 Guinea-Bissau 0.0000 0.0002 0.0042 0.001595 Laos 0.0003 0.0000 0.0012 0.0005 95 Armenia 0.0002 0.0002 0.0032 0.001296 St Kitts and Nevis 0.0012 0.0001 0.0000 0.0005 96 Paraguay 0.0012 0.0008 0.0014 0.001197 Sierra Leone 0.0003 0.0004 0.0006 0.0004 97 Chad 0.0000 0.0001 0.0032 0.001198 Cape Verde 0.0008 0.0000 0.0005 0.0004 98 Central African Republic 0.0000 0.0008 0.0024 0.001199 Central African Republic 0.0000 0.0000 0.0012 0.0004 99 Laos 0.0001 0.0005 0.0026 0.0010100 Suriname 0.0003 0.0008 0.0001 0.0004 100 Syria 0.0006 0.0022 0.0003 0.0010101 Lesotho 0.0000 0.0002 0.0009 0.0004 101 Turkey 0.0001 0.0018 0.0010 0.0010102 Mauritania 0.0001 0.0000 0.0010 0.0003 102 Comoros 0.0003 0.0001 0.0023 0.0009103 Uzbekistan 0.0003 0.0007 0.0000 0.0003 103 Congo - Brazzaville 0.0000 0.0002 0.0016 0.0006104 Antigua and Barbuda 0.0002 0.0007 0.0000 0.0003 104 Oman 0.0011 0.0007 0.0000 0.0006105 Swaziland 0.0001 0.0000 0.0008 0.0003 105 Papua New Guinea 0.0000 0.0011 0.0000 0.0004106 Belize 0.0002 0.0003 0.0003 0.0003 106 Uzbekistan 0.0000 0.0009 0.0000 0.0003107 Kyrghzstan 0.0001 0.0007 0.0001 0.0003 107 Albania 0.0002 0.0007 0.0000 0.0003108 Gambia 0.0001 0.0000 0.0007 0.0003 108 Georgia 0.0001 0.0004 0.0000 0.0002109 Seychelles 0.0002 0.0000 0.0006 0.0003 109 Azerbaijan 0.0000 0.0001 0.0000 0.0000110 Chad 0.0001 0.0000 0.0007 0.0002 110 Turkmenistan 0.0000 0.0001 0.0000 0.0000111 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 ~ ~ ~ ~

183





1 2 3 4 5 6 7 8124 Tajikistan 0.0000 0.0000 0.0000 0.0000 124 Burma ~ ~ ~ ~125 Turkmenistan 0.0000 0.0000 0.0000 0.0000 125 Iraq ~ ~ ~ ~126 Bosnia Herzegovina 0.0374 0.0001 ~ ~ 126 Mongolia ~ ~ ~ ~127 Russian Federation 0.0124 0.0193 ~ ~ 127 North Korea ~ ~ ~ ~128 Romania 0.0241 0.0037 ~ ~ 128 West Bank and Gaza ~ ~ ~ ~129 Poland 0.0179 0.0077 ~ ~ 129 Belarus ~ ~ ~ ~130 Ukraine 0.0133 0.0013 ~ ~ 130 Bosnia Herzegovina ~ ~ ~ ~131 Croatia 0.0060 0.0008 ~ ~ 131 Bulgaria ~ ~ ~ ~132 Bulgaria 0.0047 0.0015 ~ ~ 132 Croatia ~ ~ ~ ~133 Czech Republic 0.0017 0.0041 ~ ~ 133 Czech Republic ~ ~ ~ ~134 Hungary 0.0026 0.0023 ~ ~ 134 Estonia ~ ~ ~ ~135 Slovenia 0.0003 0.0021 ~ ~ 135 Hungary ~ ~ ~ ~136 Slovak Republic 0.0011 0.0009 ~ ~ 136 Latvia ~ ~ ~ ~137 Moldova 0.0013 0.0001 ~ ~ 137 Lithuania ~ ~ ~ ~138 Macedonia, FYR 0.0013 0.0002 ~ ~ 138 Macedonia, FYR ~ ~ ~ ~139 Latvia 0.0010 0.0003 ~ ~ 139 Moldova ~ ~ ~ ~140 Estonia 0.0007 0.0005 ~ ~ 140 Poland ~ ~ ~ ~141 Belarus 0.0009 0.0002 ~ ~ 141 Romania ~ ~ ~ ~142 Lithuania 0.0004 0.0006 ~ ~ 142 Russian Federation ~ ~ ~ ~143 São Tomé and Principe ~ 0.0000 0.0002 ~ 143 Slovak Republic ~ ~ ~ ~144 Equatorial Guinea ~ 0.0000 0.0001 ~ 144 Slovenia ~ ~ ~ ~145 Mongolia 0.0000 ~ 0.0000 ~ 145 Ukraine ~ ~ ~ ~146 West Bank and Gaza ~ ~ 0.0018 ~ 146 Ex-Yugoslavia ~ ~ ~ ~

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TECHNICAL NOTES

G E N E R A L C O M M E N T S

Virtually all data shown in these tables is avail-able or derived from existing publicly accessibleinformation put out by the Government ofCanada, the Organisation for Economic Co-operation and Development (OECD), andUnited Nations agencies. The North-SouthInstitute selected the data presented in thisannex chiefly for its development interest.However, the availability of data, as well as itsability to be updated yearly, were also importantfactors. It is hoped that future Canadian Development Reports will contain expanded,more complete statistical annexes.

SELECTION OF DEVELOPING COUNTRIES

Tables 2 through 10 list a common set of devel-oping countries. For this report, countries wereclassified as “developing” if their UnitedNations Development Programme (UNDP)human development index (HDI) in 1994 (thelatest year available) was below 0.890. This listof developing countries therefore includes suchrelatively well-off countries as Argentina andKuwait, but excludes the Bahamas and Israel.As well, since last year’s report, three countries—South Korea, Singapore, and Barbados—havebeen removed from the list of developing coun-tries as their HDI now exceeds the cut-off point.(At time of writing, South Korea was undergoingsevere economic upheaval and was embarkingon an IMF-imposed program of austerity.) Theselection of the HDI cut-off point is arbitrary,but consideration is given to having a list that isas inclusive as possible and corresponds withmost people’s perceptions of what constitutes adeveloping country. The use of the HDI as adevelopment indicator was thought preferableto an indicator based solely on per capitaincome, which would have excluded a numberof oil-rich developing countries.

All countries listed are independent and notoverseas territories or administrations of othercountries. However, two countries classified inthese tables and identified in italics—the WestBank and Gaza, and Oceania—are not, strictlyspeaking, “independent.” Oceania compriseseight Pacific island micro-states with a total

population of 1.7 million: Fiji, Kiribati, Nauru,the Solomon Islands, Tonga, Tuvalu, Vanuatu,and Western Samoa. The small island states ofthe Caribbean were not similarly groupedbecause Canada has significant bilateral relations with them.

YEAR OF COVERAGE

The data given is generally for the latestcalendar year for which a more or less completedata set exists, normally 1996. However, in the case of Official Development Assistance(ODA) numbers in Tables 3, 4, and 5, the data is forfiscal year 1995-96 (April 1, 1995 to March 31, 1996).

S Y M B O L S

na = “not applicable”~ = “not available”0 = zero

Unless otherwise indicated, figures are in Canadian dollars.

TABLE 1 CANADA AND OTHER HIGH HUMAN

DEVELOPMENT ECONOMIES: SELECTED

INDICATORS

Countries included in this table had an HDI of0.890 or greater in 1994. The HDI is taken fromthe UNDP’s Human Development Report 1997.The GNP/capita numbers are from the WorldBank’s World Development Report 1997. Data onforeign aid and net private financial flows istaken from the DAC’s Development CooperationReview 1996. Numbers on export and importshares to and from developing countries arefrom the International Monetary Fund’s Direction of Trade Statistics Yearbook 1996; andthe information on Official Bilateral Debt Stockscomes from Eurodad’s World Credit Tables 1996.

TABLE 2 THE DEVELOPING COUNTRIES:SELECTED INDICATORS

Figures on the HDI, the Gender-Related Devel-opment Index, and the Adult Literacy Rate aretaken from the UNDP’s Human DevelopmentReport 1997. Figures on GNP per Capita, its 10-

185


year growth rate, total GDP, Population, and theAid/GNP Ratio are taken or derived from theWorld Bank’s World Development Report 1997.The Under-5 Mortality Rate comes fromUNICEF’s State of the World’s Children 1997. The External Debt/GNP Ratio comes from GlobalDevelopment Finance 1997 (a World Bank publi-cation). Debt Service Paid as a Percentage ofExpenditure on Education was derived by theNorth-South Institute from information con-tained in the Global Development Finance tablesand the UNDP’s Human Development Report.Finally CO2 Emissions per Capita for 1992 aretaken from World Resources 1996-97, publishedby the World Resources Institute. Regionaltotals for Africa in this table generally relate tosub-Saharan Africa only, excluding North Africa.

TABLE 3 CANADIAN OFFICIAL DEVELOPMENT

ASSISTANCE: BASIC DATA (1995-96)

TABLE 4 CANADIAN BILATERAL OFFICIAL

DEVELOPMENT ASSISTANCE BY CHANNEL AND BY

COUNTRY (1995-96)

TABLE 5 CANADIAN MULTILATERAL OFFICIAL

DEVELOPMENT ASSISTANCE BY AGENCY AND BY

COUNTRY (1995-96)

The basic data on Canadian official developmentassistance in Tables 3, 4, and 5 is taken directlyfrom, or derived from, the Canadian Interna-tional Development Agency’s (CIDA) StatisticalReport on Development Assistance for fiscal year1995-96. This report is put out by CIDA’s Inter-national Development Information Centre.Specifically, most of the information in thetables is taken from “Table M. Total Disburse-ments by Country.” Information on Canada’srank among other bilateral donors in recipientcountries is derived from the OECD’s GeographicDistribution of Financial Flows to Aid Recipients1991/1995. Under the classification “Other” atthe bottom of Table 4 on Bilateral ODA are included imputed interest costs, other govern-ment department costs and services, provincial government support to development, andCIDA’s Public Outreach (Development Information) Program.

Finally, the imputed shares of Canadian Multi-lateral Assistance by Agency and Country werecomputed from supplementary information tothe Statistical Report provided to the North-South Institute by CIDA. These figures are esti-mates only of how general Canadian funds to

multilateral agencies are allocated to each country. The figures tend to understate howmuch multilateral aid goes to relatively smalldeveloping countries. Please note that, exceptfor Albania and ex-Yugoslavia, countries in Eastern Europe are not eligible for ODA and are considered to be “countries in transition” rather than developing countries.

TABLE 6 CANADIAN BALANCE OF TRADE WITH

DEVELOPING COUNTRIES (1996)

TABLE 7 TRADE: TOP EXPORTS AND IMPORTS

WITH DEVELOPING COUNTRIES (1996)

The data on exports and imports was obtainedfrom Statistics Canada Catalogues # 65-003 and#65-006 for 1996 and 1986. The informationon Tariff Revenue Collected on imports fromdeveloping countries was provided by theDepartment of Finance, and the Average TariffRate was calculated by the North-South Instituteby dividing the total tariff revenue collected bytotal imports for each country and expressingthis as a percentage. The world total of customsrevenue was taken from the Public Accounts ofCanada 1995-96, prepared by the Receiver General of Canada. The information on the TopThree Exports and Imports was obtained using aStatistics Canada database (TIERS) for 1996 andsorting imports and exports by value at the six-digit level of the Harmonized System (HS) ofcommodity classification. Some of the categorynames have been simplified for presentationpurposes. The data on Military Exports is takendirectly from the Department of Foreign Affairsand International Trade and its 1996 AnnualReport on “The Export of Military Goods fromCanada.”

TABLE 8 CANADIAN FINANCIAL RELATIONS WITH

DEVELOPING COUNTRIES (1996)

Data on stock of Canadian government debtand the debt of the “Canada Account” of theExport Development Corporation (EDC) istaken directly from the Public Accounts ofCanada 1995-96, Volume 1, Chapter 9, “Loans,Investments and Advances.” Updated aggregateinformation on the stock of Canadian govern-ment and agency debt was provided by theInternational Finance and Economic AnalysisDivision of the Department of Finance. Data onthe Corporate Account of the EDC is derivedfrom the EDC’s 1996 Annual Report and supple-mentary information provided by the EDC.

186

T E C H N I C A L N O T E S

Data on the developing country debt stock ofthe Canadian Wheat Board is derived from theBoard’s 1996 Annual Report. The information onthe debt stocks of the Royal Bank of Canada and the Bank of Nova Scotia are from theirannual reports and is for sovereign debt with“Designated Less Developed Countries” only.These are countries identified by the Superintendent of Financial Institutions ascountries where full sovereign debt repayment is at risk. The column on Total Canadian BankClaims is taken from information published inthe World Bank’s Financial Flows and the Developing Countries, May 1997, which is in turnderived from data provided to the Bank forInternational Settlements. These claims includeboth lending to governments and the privatesector in developing countries and bond holdings.Finally, numbers on Canadian foreign directinvestment in developing countries and foreigndirect investment (FDI) by developing countriesin Canada were provided by Statistics Canada’sBalance of Payments Division.

TABLE 9 MOVEMENT OF PEOPLES

TABLE 10 HUMAN LINKAGES BETWEEN CANADA

AND THE DEVELOPING WORLD

Information on Immigration to Canada FromDeveloping Countries by Immigration Class andGender was provided by the Department of Citizenship and Immigration. For presentationpurposes, the North-South Institute simplifiedthe immigration classes to four: “Family Class”includes “CR8 dependents” and assisted rela-tives; “Refugee Class” includes both Conventionrefugees and “Designated Class;” “BusinessClass” includes both the investor and entrepre-neur classes; and “Independent Class” covers allother classes, including live-in caregivers, self-employed, and retired. To smooth out year-over-year fluctuations, the North-South Institutecalculated average immigration levels over thelast three years available (1994-96).

Data on Canadian Visits To and Visits to Canada From, as well as foreign student enrol-ment, was provided by Statistics Canada. Dataon Canadians Registered Abroad was providedby the Department of Foreign Affairs and Inter-national Trade, as was the information on diplo-matic representation in Canada and abroad.

TABLE 11 CANADA-DEVELOPING COUNTRY

LINKAGE INDICES

Two composite indices have been designed tomeasure the linkages between Canada anddeveloping countries. The first composite indexmeasures the “importance” of each developingcountry to Canada. The second index measuresthe “importance” of Canada to each developingcountry. Countries are then ranked accordingto each index. Both indices are a simple averageof three sub-indices—trade relations, immigra-tion, and aid relations—which are also indicatedin the table for each developing country.

The sub-indices for the first composite indexmeasuring the “importance” of a developingcountry to Canada are calculated as follows:

• The Immigration Index is the share of thecountry’s immigration to Canada as share oftotal immigration from developing countriesto Canada for the period 1994-96.

• The Trade Index is the share of a country’stwo-way trade with Canada as a share of totaldeveloping country two-way trade withCanada in 1996.

• The Aid Index is the share of Canada’s bilateral aid with that country as a share ofCanada’s total bilateral aid for the fiscal year1996. All data is taken directly from Tables 1 through 10.

The sub-indices for the second composite indexmeasuring the “importance” of Canada to a givendeveloping country are calculated as follows:

• The Immigration Index is the share of thecountry’s immigration to Canada 1994-96 asa share of the country’s total population in1995. Ideally, the denominator for this indexwould be total emigration from this countryto the world, but data is not readily available.Because the resulting number is so small—and in order for the immigration index tohave an impact on the composite index rankings—the immigration index was grossedup across the board by a factor of 10.

• The Trade Index reflects each country’s totaltwo-way trade with Canada as a share of thatcountry’s GDP.

• The Aid Index measures total bilateral aidfrom Canada to that country as a share of thetotal aid received by that country in 1995.Data for this aid index was taken from theOECD publication Geographic Distribution ofFinancial Flows to Aid Recipients 1991-95.

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The data sets for both these indices are incom-plete. In particular, figures on Canada’s officialfinance to countries in transition in EasternEurope and the former Soviet Union were notavailable. As well, GDP data for several develop-ing countries, required for the second tradeindex, was not available. Where such data wasnot available, no index was calculated; thesecountries were moved to the bottom and listedas not available (~).

CANADIAN

CORPORATIONS

AND SOCIAL

RESPONSIBILITY

CA

NA

DIA

ND

EV

EL

OP

ME

NT

RE

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19

98

CANADIAN

CORPORATIONS AND

SOCIAL RESPONSIBILITY

The private sector now

dominates North-South

relations. But are trade and

investment substitutes for

foreign aid? What should

corporations contribute to

the welfare of the global

community, particularly its

poorest citizens? How

should government trade

promotion programs

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

statistical annex analyzes

the full range of Canada’s

relations with countries in

the South.

ISBN 1-896770-17-7

Printed in Canada


Canadian Corporations and Social Responsibility

Documents

Transcript of Canadian Corporations and Social Responsibility