SPEECHES

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NOTES FOR AN ADDRESS BY

THE HONOURABLE SERGIO MARCHI

MINISTER FOR INTERNATIONAL TRADE

TO THE CANADA-RUSSIA

INTERGOVERNMENTAL ECONOMIC COMMISSION

OPENING PLENARY

OTTAWA, Ontario

October 10, 1997

This document is also available on the Department's Internet site: http://www.dfait-maeci.gc.ca

Deputy Prime Minister Serov,

Minister Orlov,

Ambassador Belonogov,

Ambassador Leahy,

Members of the Russian delegation, ladies and gentlemen:

Our bilateral IEC [Intergovernmental Economic Commission] is about business, and this year there is a great deal to talk about.

It is a pleasure to see such an unprecedented level of corporate and government interest in bringing Canada-Russia trade and investment up to their enormous potential.

As this year's IEC opens, Russia's Soviet economic legacy is slipping faster than ever before into the past, as Russia continues to take the hard steps necessary to put its market economy on a firm basis.

When Prime Ministers Chrétien and Chernomyrdin launched our IEC two years ago here in Ottawa, the story in Russia and about Russia was still political. Was reform succeeding or faltering? Would the next parliament look forward or backward? Who would be president, and who would govern?

That story has since been completed, and this year has yielded to an altogether different story, an economic story. The Russian economy is now on the global scene, not only as a burgeoning emerging market, but also as an investor and an investment destination to be reckoned with.

At home, the Russian government has put in place a liberalizing economic system marked by competition, restructuring and consistent reformist signals from policy makers. The consumer has more choice and the entrepreneur more room to manoeuvre than ever before. Real income in many regions is already on the rise.

On the international scene, Russia has taken an open, forthright and responsible attitude. It has joined the Paris Club and is making strides toward WTO [World Trade Organization] membership. It is a valued partner in the Summit of the Eight, and a future colleague in other key forums. This progress is taking Canadian technology, capital investment, and goods and services across the Atlantic, Pacific and Arctic Oceans in growing quantities. Canada and the world want to be part of the New Russia.

The past year has been one of substantial bilateral accomplishment. The ratification of our Double Taxation Agreement is a welcome achievement. After years of moderate activity on Russia, the Export Development Corporation (EDC) has made larger than ever commitments in financing Canadian exports to Russia, and Russia is climbing through the ranks of our exporters' priority countries.

The Russian-Canadian Financial Forum held over the past two days in Montreal has brought Russia's dynamic banking sector to Canada en masse for the first time. It has captured the attention of our financial and business communities. We know that this year's staggering performance by Moscow's stock market is only the beginning.

Paris Club membership is a symbol of Russia's financial revival, and Monday's London Club debt rescheduling helps close a chapter in Russia's financial transformation. President Yeltsin's announcement that current IMF [International Monetary Fund] loans will be Russia's last bespeaks a new confidence that economic turnaround is under way, and that Russia will soon be financing its own inward investment boom.

There is no more important initiative driving Russian integration into the global trading community than its decision to join the WTO. It is a point of pride for us that Canada, a charter member in the club of trade liberalizers, is assisting in Russia's preparations for membership. We are committed to being a loyal partner for Russia in its efforts to achieve WTO membership.

Each one of these international events is by itself cause for optimism. Together they represent a strategy that will position the Russian economy for growth and competitive success in the next millennium.

The work is far from over. The Russian economy is not yet operating within the legal and fiscal frameworks that will sustain a high-growth future. Our companies are experiencing difficulties symptomatic of institutional overhauls that are incomplete. It is not enough simply to pass laws and announce regulations. There must be transparency and consistency in implementation. Courts and prosecutors need the status and the clout to be independent.

The greatest competition Russia faces is for foreign investment. Such investments were formative for Canada. They continue to play a critical role in keeping our economy competitive. But investment capital is a "globally traded" commodity for which all nations must compete.

Russia has already done well in the quest for portfolio investment. But to win the big prize -- direct investment in infrastructure and production -- the focus will have to remain on education and training; a consistent regulatory and tax framework; a clear decision-making and approval process; cohesion between and within federal and regional authorities; a responsible fiscal policy; a careful monetary policy; and an open, competitive economy where new ideas, better processes and better quality are keys to success.

Canada is involved on all these fronts. We are regearing our training initiatives toward Russia's goal of educating a new generation of private sector managers to meet global challenges. We are also involved with technical questions from veterinary standards to construction practices, from farm radio networks to Arctic ice monitoring. Above all, our managers and professionals are entering the Russian market, and shaping the business environment around them. All of this is evidence that we are serious about our investment, and that we are in Russia for the long haul.

Many Russian sectors have already taken up these challenges, and the explosive recent growth in Russian exports is there to prove it. Canada is not so much interested in Russia's lead sectors today, but in the areas where we have the best long-term potential.

Our current IEC working groups are in areas of current strength. Construction, agriculture and energy are all natural areas for Canada-Russia alliance, areas where we have always had to face the same elements and the same constraints.

The new areas this year have just as much to do with geography. In aerospace, Russia has had the largest aircraft manufacturing and civil aviation systems in the world for decades. Canada has one of the world's fastest-growing aerospace sectors, and our companies have found natural niches in parts of the Russian market where it lacks capacity. Our long-term goal is to be a strategic partner for Russia in aerospace, and the work now under way between us on aircraft, aeronautics, flight simulation, helicopters and space launches is all part of this.

Similarly in telecommunications. Canada's leading players have products that are already selling well in Russia, and we recognize your potential in research, satellite technology and other areas. The larger story is that we can conquer new markets together, with the fibre optics and other tools we have used to make geography a lighter burden.

I am delighted Industry Canada has taken the lead in bringing our two countries' companies together in these cutting-edge sectors, where there is so much potential.

Science and technology is another area that deserves our attention and our efforts. You would all be surprised to know how many dozen Canadian and Russian government agencies already have ties in this area. Private sector links are now multiplying as well. Our object should be to make these alliances work for business. Russian science has unique credentials, as Canadian geologists, aerospace researchers, medical researchers and many others know. I strongly support our bilateral initiative to undertake a compatibility study, which will map out the way ahead.

The resource sector is the greatest repository of potential between us, and the one that needs the most attention. Within our IEC, and within the economic relationship overall, the resource sector is the one we have so far done the least to structure and to harness to our overall goals.

As you know, our oil and gas sector has had successes in Russia: it has had at least as many setbacks. Mining, forestry and environmental services hold great potential, but some serious impasses have blocked our progress.

The legislative framework for production-sharing agreements is a key pivot. Here we would strongly urge Russia to select a wide variety of oil, gas and mineral deposits for exploration and development; to establish transparent rules of bidding; and to organize international tenders. The best technologies and companies will yield the highest revenues for government, both leveraged from a competitive bid process and over the long term. Equally important, the country will have the advantage of seeing its mineral resources developed in an environmentally responsible way, and with significant technology transfer to local Russian corporate partners. Canada at least is committed to making this sort of partnership work.

If we can commit to these strategic goals, I think we can look forward to new working groups in the sectors that will underpin our future relations. Without engaging these sectors, we will be hard-pressed to make goods and services, capital and technology really move between us.

Our countries would seem to be a perfect fit in natural resources. Canada has one of the world's largest and most competitive mining sectors, with vast international experience. Russian geology and Russian potential are probably unparalleled in the world. Once the business framework is sound, our financial markets can generate the capital necessary to launch a new era in mining development in Russia.

We can do as much, and perhaps even more, in forestry. The presence here today of Mr. Serov's colleague, Russian Minister of Natural Resources Viktor Orlov, is a sign that we should not let these opportunities go unseized any longer.

There is also work to do to make the natural connections between us in power generation and transmission. Our ambassador recently met with United Energy Systems, the Russian national electricity company, and by some measures the largest utility in the world. Canadian companies can help retool the Russian power sector. We are a potential Russian partner in high-voltage direct-current transmission from Irkutsk to China, and Russia as an energy exporter -- like Canada -- has a real interest in becoming "interconnected" with neighbouring markets, and the world.

Building on solid foundations, our next efforts belong to aerospace, telecommunications, mining and all other sectors of promise. I look forward to your proposals, to our discussions and to your advice.

I spoke earlier of positive developments in the Russian business climate. After years of exploring new markets in Asia and Latin America, Canadian companies are now picking up the trail to Moscow and the other 88 Subjects of the Russian Federation. More and more quality Canadian enterprises are taking a serious look at business opportunities in Russia.

This new interest is apparent in the Financial Forum, in the launch of the Canada-Russia Business Forum in Toronto last week, and in the strengthening of the Canadian Business Association in Russia, the Canada-Eurasia Energy and Industry Alliance in Alberta and our Western Canadian links with the Russian Far East and North.

Mr. Serov, our work plan is quite full and our time is quite limited. We should aim to use this opportunity to bring to our respective business communities the relevant, accurate business information that will allow them to press ahead with their projects.

Business people require stability, transparency and predictability in a legislative and fiscal framework. They also need a strategic sense of where Russia and Canada see their greatest potential, and of what governments are prepared to do to unlock it.

Let's take advantage of the momentum in your reforms, and the interest in our business communities. Let's use the session before us to show that our future as business partners is still only just beginning.

Thank you.