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foundation of canada 

1 

The Asia Pacific Foundation of Canada (APFC) is a national non-profit 

organization established by an Act of the Federal Parliament in 1984. 

As Canada’s think-tank on Asia, the Foundation brings together 

people and knowledge to provide the most current and comprehensive 

research, analysis and information on Canada’s transpacific relations. 

It promotes dialogue and debate on economic, political, social and 

development issues to help shape effective Canadian public and private 

policy. It also houses the APEC Study Centre in Canada. A subsidiary 

of APFC, the GLOBE Foundation of Canada, organizes the GLOBE series 

of international conferences and trade shows on business and the 

environment. Another subsidiary, the Canadian Education Centre 

Network, markets Canadian education services through its offices in 

Asia and Latin America. 

Asia Pacific Foundation of Canada 

666 - 999 Canada Place, Vancouver, BC, Canada V6C 3E1 

Tel: 604-684-5986 Fax: 604-681-1370 

E-mail: info@apfc.apfnet.org Internet: www.asiapacific.ca

ACKNOWLEDGEMENTS 

EDITORIAL BOARD : 

Dr. John D. Wiebe, President and CEO 

Yuen Pau Woo, Vice President, Research and Chief Economist 

Ron Richardson, Executive Editor 

EXTERNAL READERS : 

Dr. Joshua Mendelsohn, Senior Vice President and Chief Economist 

Canadian Imperial Bank of Commerce 

Dr. Pitman Potter, Director, Institute of Asian Research 

University of British Columbia 

2 

WRITER AND SENIOR EDITOR : 

Ron Richardson 

PROJECT MANAGER AND ART DIRECTOR : 

John Wellwood 

COVER GRAPHICS : 

RichardDesigns (Photography: Kiku Hawkes, Richard Stroh) 

RESEARCH STAFF : 

Yuen Pau Woo, Vice President, Research and Chief Economist 

Jim Storey, Research Analyst 

Kathy Zastawny, Information Specialist 

Kirsten Thomas, Researcher 

Paul Irwin, Research Analyst 

Steven Moyes, Research Analyst 

Marc Lanteigne, Graduate Research Intern 

Keisuke Sato, Graduate Research Intern 

Deborah Johnson, Researcher 

The work and ideas of many people at the Asia Pacific Foundation of Canada and beyond have 

gone into the production of Canada Asia Review 2000, only some of whom are recognized above. 

We thank all those who have shared their insights with us in the past year. 

We gratefully acknowledge the contribution of our external readers, who provided useful 

comments on the draft of this publication. Responsibility for any errors and omissions rests 

solely with APFC. 

© Copyright 2000 by Asia Pacific Foundation of Canada. 

All rights reserved. Canada Asia Review 2000 may be excerpted or reproduced 

only with the written permission of the Asia Pacific Foundation of Canada. 

Également diffusé en français 

ISSN 1495-5008 

Statistics Canada information is used with the permission of the Minister of Industry, 

as Minister responsible for Statistics Canada. Information on the availability of the 

wide range of data from Statistics Canada can be obtained from Statistics Canada’s 

regional offices, its World Wide Web site at http://www.statca.ca, and its toll-free 

access number 1-800-263-1136. 

All monetary values are in Canadian dollars unless otherwise specified. 

Printed on recyclable paper

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CONTENTS 

INTRODUCTION 

1 : OVERVIEW 

Dr. John D. Wiebe 4 

Asia in Convalescence 7 

Canada Asia Report Card 10 

What is Globalization? 12 

2 : MAJOR EVENTS 

3 

A Year in Review 21 

Asia Day-by-Day 22 

3 : ECONOMIC RELATIONS 

Looking for a New Model 35 

The Team Canada Experiment 42 

4 : NORTH AMERICAN INTEGRATION 

Too Much of a Good Thing? 45 

5 : ASIAN EXPERTISE 

Hidden Advantage or Lost Opportunity? 53 

6 : DEVELOPMENT ASSISTANCE 

ODA for a Borderless World 59 

7 : ASIA PACIFIC FOUNDATION OF CANADA 

Thinking About Asia 65 

Notes 69 

References 72 

Statistical Appendix 76

4 introduction 

In the exuberant language of the late ’80s and early ’90s, the year 2000 was supposed to 

herald the beginning of “The Pacific Century.” Three months into the new century, 

Asia is described in much less glowing terms, using adjectives such as “post-crisis” or 

“recovering.” Scholars and analysts, having tripped over one another trying to explain the 

Asian miracle, are now tripping over each other trying to explain the Asian crisis. If the 

crisis has been good for any one group, it would be the community of Asia watchers who 

have thrived on the puzzlement around the dramatic turn of events of the past few years. 

Since the Asia Pacific Foundation of Canada would qualify as an “Asia watcher,” I make 

this point with some degree of irony. There is already a voluminous amount of material 

written on the Asian crisis and much more on Asia generally, but much of it is neither very 

good, nor very relevant to the needs of Canadians. In this Internet age, getting information 

on just about any topic is not difficult; the challenge is finding quality information that 

is consistent and reliable, with the necessary insight and foresight. 

This is where the Foundation comes in. It has been 10 months since we began the transition 

to a knowledge-based organization. We identified Canada-Asia relations as our niche and 

set out to develop a range of products and services that meet the needs of businesspeople, 

policymakers and the education community. We have put special emphasis on electronic 

distribution, believing that timeliness and the ability to disseminate material widely are no 

less important than the material itself. Recently, we launched Canada-Asia News, a daily e- 

mail bulletin on Canada-related Asian news culled from more than 200 media sources 

around the world. Many of these stories involve business deals, government initiatives, 

or foreign country perspectives that do not find their way into the mainstream Canadian 

press. Another recent product is the Canada-Asia Pacific Research Network (CAPRN), 

an on-line database of expertise on Asia and a forum for the exchange of quality information 

and research on Canada-Asia relations. Befitting this new emphasis on electronic 

dissemination, we completely redesigned our website and re-launched it in December 

1999 as . 

But a good website is not enough. We feel that the time has come for a major event that 

brings together the best ideas on Canada-Asia relations and which clearly signals Canada’s 

commitment to the region. Amazingly, for a country that speaks so often of the 

importance of the Asia-Pacific region, an event of this sort does not already exist. In

October 2000, we will hold the first Asia Pacific Summit at Simon Fraser University’s 

Centre for Dialogue in downtown Vancouver. The centrepiece of the facility — the 

Asia Pacific Hall — is the physical legacy of Canada’s Year of Asia Pacific in 1997, and a 

fitting venue for the launch of what we hope will, over time, be recognised as a 

premier Asia-Pacific conference. 

Our efforts with the new media and the Asia Pacific Summit are extensions of something 

we have been doing with “old” media since 1996. Canada Asia Review remains our flagship 

print publication and we have used it to promote debate on key aspects of Canada-Asia 

relations. This year is no different. You will find in this issue regular features such as the 

year in review, the Canada Asia Report Card, and an expanded statistical annex on Canada- 

Asia relations.The rest of the document is organized around the theme of globalization 

and its implications for Canada-Asia relations. 

5 

In choosing this theme, we are consciously placing Canada-Asia relations in the larger 

context of Canada’s place in the global economy. We do so because the everyday choices 

that are made by Canadian businesspeople, policymakers and individual consumers are 

rarely based on narrow categories such as Canada-Asia relations, but are influenced by a 

range of diverse factors, some more parochial than others. We cannot advance our 

understanding of Canada-Asia relations without understanding the larger context within 

which the relationship exists. For example in Chapter 4, rather than simply asking how 

to enhance Canada-Asia economic relations, we look at what closer economic integration 

with the United States means for Canada-Asia ties, and whether it is in our interest to 

resist certain forms of even closer integration with the US. Likewise in Chapter 6, we 

look at the implications of globalization for all kinds of government international cooperation 

activities, rather than just at Canadian aid to developing Asia as a self-contained policy 

category called “development assistance.” 

One of the underlying messages in this year’s Canada Asia Review therefore is that Canada- 

Asia relations is not some rarefied field for Asian specialists to debate in musty seminar 

rooms. Rather, it is nuts and bolts issues — trade, investment, aid, immigration, tourism, 

study abroad, peace and security — that affect and are affected by mainstream concerns 

in Canada. The Foundation is committed to helping Canadians better understand the 

relevance of the Asia Pacific to their lives and to ensuring that Canada benefits from this 

understanding. 

I hope you find Canada Asia Review 2000 stimulating reading. 

Dr. John D. Wiebe 

President and CEO 

Asia Pacific Foundation of Canada

Canada is lagging in taking advantage of the 

new openness that globalization has brought to 

Asia. Our focus, both at a government and 

industry level, has been on developing trade 

rather than seeking out investment.

OVERVIEW 

1 

asia in convalescence 

7 

Little more than two years after Asia slid into its worst recession of modern times, the 

economies at the epicentre of the turmoil seem to be recovering strongly. Led by South 

Korea and Thailand, all had returned to a growth path by the end of 1999. The economic 

turnaround from the dark days of late 1997 and early 1998 came faster than almost 

anyone had imagined possible, though there is a lot of ground to make up to recoup 

the losses incurred in the downturn. There is still uncertainty clouding the progress 

of Japan and China, each grappling as they are with problems only peripherally caused 

by the Asian recession. But, overall, there is widespread optimism that Asia is well on 

the way to a full recovery. Some of this optimism may be a little premature, however. 

The speed of the apparent recovery has dulled the sense of urgency to the need to 

undertake further fundamental economic reforms. Reluctance to make painful changes 

has seen the restructuring of financial systems and the rationalization of industry 

move ahead more slowly than is suggested by the rapid recovery in output, much of which 

is supported by heavy government deficit spending. Fundamental reform is still needed. 

The worst may be over, but the economies of Asia still face a long period of convalescence 

(as we explain in Chapter 2, A Year in Review). 

For Canada, the recovery in our economic relationship with Asia has hardly begun. For 

Canadian business, “Asia” largely means Japan and China. As long as the Japanese economy 

is struggling and Chinese prospects remain uncertain, our exports to Asia will continue 

to flounder. Imports, on the other hand, are booming, providing a boost to sectors of the 

economy like transport and retailing, to offset the loss of export business in others. There 

has also been a benefit to Canada through lower inflation and hence interest rates in the 

US flowing from the Asian crisis. The negative impact of the Asian downturn on Canada 

was limited to a few industries in specific regions, notably western Canada’s resource 

industries. In the same way, the effect of Asia’s recovery on Canada will also be limited 

and geographically confined. However, it would be wrong to take comfort from this 

limited impact, because, rather than reflecting an area of strength in Canada’s economy, 

it defines our small and shrinking economic involvement with Asia. 

For a decade or more, as globalization eroded international barriers to the flow of goods, 

services and capital, Canadian business has been transfixed by the allure of the American 

market. By most measures, our stake in globalization has been extensive, though largely

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CANADA’S TRADE WITH ASIA (C $BILLIONS) 

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 

8 

1989 

1990 

1991 

1992 

1993 

1994 

1995 

1996 

1997 

1998 

defined by the terms of the Canada-US Free Trade Agreement and its successor, the North 

American Free Trade Agreement (NAFTA). These free-trade deals have been a boon to 

Canadian manufacturing and finance in promoting the rationalization needed to succeed 

in the most competitive market in the world. However, concentration on the US has left 

us economically vulnerable because of dependence on a single, if gigantic, market. Success 

in the US has been achieved at the expense of developing economic links with other 

regions, especially Asia, which has been the fastest growing part of the global economy 

in the last two decades of the century. The result is that Canada’s share of Asia’s major 

markets has slipped from about 2.7% before the free-trade agreement came into force, to 

1.4% in 1998, and to less than 1% in the early months of 1999 as our exports to Asia 

continued to shrink. 1 At the same time, our share of the US market has risen from 17.7% 

to 20%. While the US will always be our biggest customer and supplier, we may have put 

too many eggs in the US basket for the long-term security of the Canadian economy. 

With our economies so closely linked, and following the same business cycles, any 

downturn in the US will compound the inevitably similar slump of the Canadian 

economy. We will also miss out on the full benefits of the likely faster growth in Asia. 

Concentration on the US, therefore, does not provide Canada or Canadian business 

with any hedge against global economic fluctuations. We must develop more 

alternatives to the US market. 

Responsibility for our overly heavy reliance on the US does not lie with individual 

companies, nor with the private sector as a whole. Under the free-market system in which 

we operate, the private sector has a responsibility to shareholders to maximize profits. 

For most Canadian companies acting quite properly in their own self-interest, expansion 

into the US, whether for export or investment, will yield the quickest, largest and easiest 

return on capital. In fact, business has only been following the policy pointers that the 

federal government provided by negotiating the free-trade deals. When the issue is 

national interest or national economic security, it is the responsibility of government to 

set priorities through its policies. It is at a policy level that Canada has failed to move 

resolutely to diversify its economic links now that the US relationship is entrenched. 

To its credit, Ottawa has in recent years — through the various high-profile Team Canada 

missions — provided signals that it believes business should become more active in trade

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NINE-MONTH TRADE COMPARISON (C $BILLIONS) 

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 

1998 

1999 

Canadian Exports to Asia 

Canadian Imports from Asia 

Sources: Adapted from Statistics Canada, Exports by Country, various issues 1989-1999 (Cat. No. 65-003) and Imports 

by Country, various issues 1989-1999 (Cat. No. 65-006). 

9 

with Asia. However, as argued in Chapter 3, Looking for a New Model, in the globalized 

economy, a greater return would likely have come from promoting Canadian direct 

investment in Asia, rather than devoting so much effort to winning export contracts. 

Canada’s active participation in the Asia Pacific Economic Cooperation (APEC) forum is 

another area where the government is trying to encourage business by opening doors 

into Asia (and parts of Latin America) for Canadian trade and investment. However, 

despite Ottawa’s best efforts to give greater direction to the organization, the APEC 

process is diffuse and quite long-term — the target date for removal of all trade barriers 

is 2020. Many observers believe the process of removing formal barriers to trade and 

investment (as opposed to less formal regulatory impediments) has already run out of steam. 

There is another, more direct, approach that Ottawa could take. 

While Canada is almost always committed to seeking multilateral solutions to any 

problems it identifies, trade and investment have a national basis, even in the globalized 

economy. Negotiation of bilateral treaties that enhance security for Canadian investment 

is one avenue Ottawa could follow to support the development of a stronger economic 

relationship with Asia. At present, Canada has investment protection treaties in place 

with only two Asian countries — the Philippines and Thailand — though there are 

non-binding memoranda of understanding with several others. A more promising 

approach was Ottawa’s move in 1994 toward developing a closer relationship with 

South Korea. It established a Special Partnership Working Group with Seoul to explore 

ways for the two countries to increase bilateral economic ties and to work together in 

third-country markets. In 1996, this yielded the Canada-Korea Arrangement on Industrial 

and Technological Co-operation, to help build Canada’s role in Korea’s growing 

services and advanced technology sectors, and last year a treaty on investment in the 

telecommunications sector. Because of the Asian crisis, however, there has been little 

progress in broadening this relationship until recently, when dialogue resumed. There 

are some indications that Ottawa is considering developing a similar relationship or 

even negotiating a free-trade agreement with Japan. Though difficult to envisage, if 

achieved it would provide the strongest possible signal to the private sector to look beyond 

North America for trade and investment. And it would bring 82% of Canada’s global trade 

into a free-trade environment.

Canada Asia Report Card 

GRADE 

CANADA 1999 

‘98 

Security Relations 

B- 

Canada responded to armed conflicts in South and 

Southeast Asia, including sending peacekeepers to East 

Timor, but maintained emphasis on human security 

through initiatives like landmine clearance in Cambodia. 

A successful annual naval visit to Western Pacific was 

tarnished by mechanical problems with HMCS Calgary. 

Forward-looking activities in Northeast Asia included 

a peace and security partnership with Japan which 

allows Ottawa to monitor and influence regional security. 

Canada also initiated a “Track II” project to promote 

dialogue and research on regional development and 

security. North Korea and Canada exchanged 

delegations and, with Canadian help, North Korea 

participated in the Committee for Security Cooperation 

in the Asia Pacific. Breadth of activity earns higher 

grade. 

Projection of 

Canadian Values 

The strong grade in 1998 recognised the greater clarity 

and consistency in foreign policy toward Asia during a 

period of painful economic restructuring. Last year, 

Canada’s outspoken position on such issues as human 

rights and democracy was not matched by constructive 

actions. A downgrade was avoided by a late show of 

Canadian leadership on East Timor (Foreign Minister 

Axworthy organized the side-meeting at the Auckland 

APEC Summit) and on the Commonwealth foreign 

ministers’ delegation to Pakistan following the military 

coup. The longer-term test remains Canada’s ability to 

effect real change. 

Education 

‘98 

B 

‘98 

B- 

Asian student interest in Canada rose sharply in the 

first nine months of 1999, consistent with upturns in 

most Asian economies. Student visa authorizations 

jumped 206% in China, 82% in Korea, and 55% in 

Indonesia. The only market showing decline was 

Taiwan. Authorizations from the top ten Asian markets 

have nearly recovered to 1997 levels. Canadian 

institutions stepped up marketing activities in Asia 

during the year, as seen in Canadian education fairs 

held around the region. Given the fierce competition 

for foreign students, there is no guarantee that Asia’s 

recovery alone will lead to continued growth of student 

arrivals in Canada. 

‘98 

Development Cooperation 

B- 

Canada joined in debt relief to very poor countries and 

announced that Bangladesh would be the first to benefit. 

Otherwise, our aid program in Asia was largely 

unchanged. CIDA announced a new priority for poverty 

eradication, well-suited to much of Asia, but it is 

unclear how this will affect projects that do not have 

poverty reduction as a primary focus. Capacity building, 

institutional strengthening, and governance projects can 

reduce poverty even when directed at the “modern” 

sector. CIDA is also funding high-profile “human 

security” projects, which may not have a direct impact 

on poverty. With an increase in Canada’s ODA promised, 

more clarity and consistency is needed in our foreign 

aid program to earn an improved grade. 

Outward Investment 

‘98 

D 

Canadian direct investment in Asia in the past two 

years is up strongly, in response to the sharp fall in 

asset prices and the need for capital in many Asian 

economies. Canadian-led mergers and acquisitions 

(M&As) rose more than 300% in 1999, to around $3 

billion. M&As in Asia compared to the Canadian total 

worldwide is minuscule, but the figure has doubled since 

1995. Deals are increasingly in manufacturing and 

services sectors rather than resources. Outward 

investment will boost trade in non-traditional products 

and services, and create high-value jobs in Canada. 

Assessment is up a full grade to recognize the response 

of the private sector to new opportunities in Asia.

GRADE 

‘98 

Inward Investment 

C- 

Inward investment from Asia was 1% lower in 1998, a 

surprisingly small decline considering the state of many 

Asian companies. Investment from China, Taiwan and 

South Korea was down, but Hong Kong and Singapore 

increased their stakes in Canada. Asia’s share of global 

investment in Canada is down to around 7%. Reports 

showing Canada’s attractiveness as an investment 

destination plus recovery in Asia should expand inflows 

of Asian money seeking stable, long-term investments. 

However, our attractiveness to high value-added 

investments is largely unexploited in Asia. Kudos to 

the government for appointing “investment champions” 

to promote inward investment from Asia. Concrete 

promotion activities must follow to yield results and 

an improved grade. 

‘98 

Tourism 

C 

After two years of decline, Asian arrivals were up in 

the first nine months of 1999, especially from South 

Korea, Taiwan and China. The rebound is stronger than 

in the US but not as robust as in Australia. However, 

tourism is still well below levels seen before the Asian 

crisis. Disappointingly, the Canadian Tourism 

Commission closed its Singapore office after less than 

two years in the country. The 1999-2000 CTC Strategic 

Marketing Plan is too pessimistic about Asia’s prospects 

for recovery, a sharp about-face from the previous 

strategy developed just before the Asian crisis. It lacks 

the long-term commitment vital to commercial success 

in Asia. More effort needed or grade will slip. 

Canada’s Image in Asia 

‘98 

B 

High point of 1999 was the appointment of Hong Kongborn 

Adrienne Clarkson as Governor General. It signals 

a “mainstreaming” of Canada’s Asian population, which 

adds to our credentials as an Asia-Pacific nation. Paul 

Martin’s leadership of the new G-20, and its inclusion 

of four Asian countries, has also boosted Canada’s 

image. On the negative side, the cancelled Team Canada 

visit to Australia caused diplomatic embarrassment even 

if business deals were largely unaffected. In Beijing, a 

high-profile Canadian-led hospital project ran into 

problems. Bad publicity extended to the federal 

government because of Ottawa’s very public support for 

the project. 

Trade 

‘98 

C 

Exports to Asia in 1999 headed for another year of 

decline, though there were signs of bottoming out in 

the second half. However, there is no end in sight to 

the decline in our share of Asia’s imports, which is 

now about 1%. This earns a lower grade. Asian recovery 

and improving commodity prices may help exports, but 

the downtrend in marketshare will not end until Canada 

exports more high-value goods and services. Import 

growth continues to be robust with the result that twoway 

trade has been expanding since 1998. Our WTO 

deal with China paves the way for Chinese membership, 

but Canada’s ability to compete in a more open Chinese 

market cannot be taken for granted. The planned Team 

Canada mission to China this year is well timed. 

‘98 

Media Coverage 

C+ 

Coverage remained at the high levels started when the 

currency contagion pushed Asia into the headlines. 

However, it was still sporadic and headline-driven, 

offering little continuity or context. Pakistan’s coup was 

the culmination of a steadily worsening situation which 

was largely ignored. This left Canadians ill-equipped 

to judge efforts by Foreign Minister Axworthy to 

intervene with coup leaders. Indonesian coverage 

remained the brightest spot. Detailed past coverage 

meant Canadians “knew” the story. Still, such 

sensational events are hard to ignore. The rest of 

Southeast Asia hardly rated a mention. A change from 

last year’s broader category of “Awareness Building” 

brings no improvement in grade. 

11 

CANADA ASIA REPORT CARD

12 

There was a period in the mid-1990s when our trade and investment links with Asia were 

growing quite strongly, even without extensive government promotion. However, both 

of these measures of our economic involvement had begun to slow even before the Asian 

crisis hit Canadian investors’ confidence and Asian importers’ ability to buy. Now there 

are heartening signs that, at least in terms of investment, there is an upturn. According 

to research by the Asia Pacific Foundation of Canada (APFC), since the Asian recession, 

Canadian business has been taking advantage of the unique opportunity to acquire assets 

at reduced prices or in industry sectors that were previously off-limits to foreign investors. 

In the eleven-and-a-half years before the start of the Asian crisis in mid-1997, 37 Canadian 

companies invested US $1 billion in takeovers of existing assets in Asia. Since July 1997, 

25 Canadian companies have invested US $2.53 billion in Asian takeovers, most of it in 

the manufacturing and financial sectors. This, too, marks an important change. In the years 

before the Asian crisis, Canadian investment in Asia was focused strongly on mining and 

resource industries. Other research suggests that this new interest in investment will 

continue. A survey by APFC at the end of 1999 (covering 68 companies that already have a 

physical presence in Asia Pacific) found that 56% planned to increase their investments 

in the region over the next 12 months, while 74% said they expected to boost their holdings 

within two to five years (most of this in the form of direct investment rather than 

takeovers). This increased investment, an area where the Canadian stake in Asia lags, is 

especially encouraging. It holds out hope that Canada may begin catching up in this key 

element which drives trade in the globalized economy. In recognition of this improved 

outward investment performance, the Foundation has moved Canada’s ranking up by one 

full grade to a C in our annual Canada Asia Report Card (on pages 10 and 11). 

WHAT IS GLOBALIZATION? 

The concept of the free movement of goods and capital across borders is hardly new, dating back at 

least to the late 19th century. However, the accelerated pace of economic integration now tagged 

“globalization” is more modern, the result of a complex mix of uncoordinated, sometimes unplanned 

developments in technology, transportation, trade regulations and ideology over the past 50 years. It 

was not devised or imposed by any international organization, nor by a cabal of giant transnational 

companies acting in collusion. It is part of an evolutionary process that seems to be advancing at an 

accelerating pace. Simply put, globalization is the combination of factors, including knowledge, that 

enables “the design, development, production, distribution and consumption of processes, products 

and services on a global scale.” 1 There have been many advances that are determining the global 

economic integration we see today, with Asia prominent in many of them. Most of the major factors 

promoting globalization could not be reversed, even if the liberalized trading and investment framework 

in which they interact were made more rigid. 

One of the early stages in the post-war surge of globalization that had a significant impact on Asia 

was the development of free trade or export processing zones (EPZs). Free ports (that allowed for the 

duty-free import of goods for storage or repackaging before onward shipment) have existed for 

centuries. But factories located outside the normal taxation structure of a country, producing goods 

for export, appeared only in 1960 with the construction of several plants in the Shannon Free Port 

adjacent to Shannon Airport in Ireland. The model had great appeal to governments in Asia that were 

attracted by the strategy of export-led industrialization. By the early 1970s, EPZs were operating in 

Japan, South Korea, Malaysia, Taiwan, India and the Philippines. The duty-free ports of Hong Kong 

and Singapore had already made their entire territories de facto EPZs. Plants in these zones manufactured 

and assembled goods for export to other markets, using imported components and local labour and

THE CHALLENGE OF GLOBALIZATION 

Underlying the Asian crisis was a widespread lack of understanding of the extent to which 

globalization has changed the world. Asian countries that took advantage of the easier 

access to foreign capital afforded by the emergence of highly liquid global money markets 

neglected to put in place the safeguards needed to integrate these new capital flows 

into their financial systems. The message for Canadians in the Asian crisis is not that 

globalization is a threat, rather it requires reworked rules for trade and investment that 

recognize the benefits of free markets while ensuring the access to information that 

free markets require to avoid destabilizing shocks. In other words, markets must be 

structured so they can operate smoothly. Internationally, Finance Minister Paul Martin is 

heading up the Group of 20, which is attempting to devise new architecture for the 

global financial system. However, this is only one, albeit important, part of the 

equation. In essence, “globalization” describes the process that is changing the entire 

international economic system at the start of the 21st century. It has to be kept in mind 

in developing almost all economic policies, domestic or international. Canada has been at 

the forefront in adapting to globalization: our entry into NAFTA was both a recognition of 

the inevitable integration of the North American economy and a bold — though 

perhaps unintentional — move to force on Canadian industry the type of rationalization 

required to compete in global markets. 2 As already noted, the result has been a rapid 

integration of our economy with that of the US. Since the advent of the Canada-US 

Free Trade Agreement, Canadian investment in the US has risen almost 150%; exports are 

up even more. The process of integration has in many cases been painful, and is far from 

complete. But it has left important parts of Canadian industry in a strong position to 

13 

services. By 1980, 74% of Malaysia’s manufactured exports came from its EPZs. 2 The seeds of 

transnational manufacturing in Asia had been planted. 

At around the same time, a revolution was taking place in global transportation. Containerization of 

cargoes increased speed and efficiency and reduced worldwide shipping costs. Asian exporters quickly 

took to containerization with the result that by the 1980s, Hong Kong and Singapore boasted the 

two busiest containerports in the world. While containerships were cutting shipment times across 

oceans, the movement of goods and people by air also took a huge step forward with the introduction 

of the jumbo jet — Boeing’s 747 in 1969 and the McDonnell Douglas DC-10 the following year. These 

two giant aircraft brought down the cost of international air travel dramatically, and made it possible 

to move perishable cargoes faster and more economically than ever before. It also meant professional 

staff could travel from their head offices to offshore plants with relative ease and at reasonable expense. 

While the movement of physical goods was becoming more efficient, the transmission of information 

was on the threshold of a revolution. The introduction of high-capacity transoceanic co-axial cables, 

then satellite communications and fibre-optic links made communications across oceans or continents 

as easy as a call across a city. By the 1980s, conversations and data could be exchanged almost 

instantaneously. The advent of computer-based communications and, in 1992, the World Wide Web, 

forever removed distance as a barrier to the flow of information. Today an office in North America can 

monitor and manage the inventory or product flow of a plant in Penang or Shenzhen. 

The new ease of communications has had its most dramatic effect in financial services. Funds can be 

moved internationally with a few keystrokes of a computer keyboard. Buy or sell orders can be executed 

in a network of stock markets around the world, 24 hours a day. Whole new markets have emerged

compete in other markets, notably in Asia and Latin America. What has been lacking is a 

policy framework to encourage business to look beyond the US. 

Canada is lagging in taking advantage of the new openness that globalization has brought 

to Asia. Our focus, both at a government and industry level, has been on developing 

trade rather than seeking out investment. While Canadian business has seized the 

significant investment opportunities offered by removal of barriers under NAFTA, it 

shows little interest in taking a stake in the transborder manufacturing network that has 

developed rapidly in Asia in the past decade. After the surge in interest in the late 

1980s, our investment in Asia slowed drastically several years before the Asian crisis hit. 

14 

One obstacle to diversification has been the relative difficulty faced by Canadian business 

in raising capital in Canada for investment outside the familiar environment of North 

America. Most of Canada’s chartered banks, for all their assertions about seeking 

international stature, have been hesitant about expansion in Asia. In fact, the Asian crisis 

saw the Royal Bank close half of its offices in Asia (although the much smaller Bank of 

Nova Scotia increased its commitment to Asia with new ventures in Japan and Sri Lanka). 

Of course, all the world’s leading banks have operations in Asia and are able to fund 

investments there by Canadian companies. However, the Canadian banks’ thin network 

means they are not building up the level of expertise that would enable them to fully 

support the growth of Canadian investment in Asia. Lack of information breeds caution, 

already a hallmark of Canadian business. The banks risk missing out on the rapid 

growth in financial services that will come with the deregulation of markets in most 

Asian countries. 

based on the ability to move funds rapidly. Daily foreign exchange transactions in 1973 ranged between 

US $10-20 billion, mostly related to trade transactions. 3 By April 1998 they had reached US $1.5 trillion a 

day, 4 with only a tiny fraction of this volume related to trade. One of the most significant impacts of 

the globalization of capital markets is on private investment. In the 1990s nearly US $1.3 trillion in 

private capital flowed to the emerging market economies, compared with US $170 billion in the previous 

decade. 5 However, in the wake of the Asian currency contagion of 1997, many observers point to the 

risks inherent in such an inflow of foreign capital — it became apparent that the capital can be 

withdrawn with just as much speed as it can be invested. While the processes of funds transfer were 

improving so rapidly, there was no corresponding “globalization” of capital markets’ regulatory 

framework — something the Canadian-led Group of 20 is now reviewing. 

The technological advances supporting globalization came during a period when the ideology 

underpinning international commerce was also undergoing fundamental change. The world that 

emerged from the Great Depression and World War II accepted the need for cooperative action to 

maintain the health of the global economy and to undo the legacy of protectionist measures which 

remained in place from pre-war years. The “provisional” General Agreement on Tariffs and Trade (GATT), 

launched in January 1948, set some initial rules for international trade. Since then, there have been 

12 negotiating rounds of the GATT, culminating in the Uruguay Round in 1986-94 and the formation 

of the World Trade Organization (WTO). These rounds have led to progressively deeper tariff cuts and 

the introduction of a variety of rules and agreements covering everything from anti-dumping measures 

to the protection of intellectual property. Since the formation of GATT, world trade has experienced 

an unprecedented growth. GATT, then the WTO, provided a framework in which technological advances 

could be harnessed to trade. Underlying this was the ideology of the market economy, which is the

The largest pool of investable Canadian funds, the more than $1.3 trillion held in 

various retirement savings schemes for Canadian workers, are mostly unavailable to support 

Canadian investment in Asia. 3 Under the foreign property rule of the Income Tax Act, no 

more than 25% (rising to 30% in 2001) of funds held in tax-deferred pension savings 

vehicles can be invested in foreign assets, and few institutions look beyond the US in 

placing funds offshore. One small, though notable, exception to this is the investment by 

Quebec’s Caisse de dépôt et placement du Québec of $200 million, jointly with the Asian 

Development Bank, in an Asian Infrastructure Fund to take advantage of the estimated 

US $10 trillion 4 of very long-term funding needed to support infrastructure 

development in Asia over the next 30 years. However, this is far from a typical strategy for 

a Canadian institution. Economists Joel Fried and Ron Wirick have argued in a recent 

C.D. Howe Institute study 5 that the restriction on foreign investment has depressed 

the return to Canadians on their retirement savings by up to $4 billion a year. It has also 

deprived Canadian companies of access to funds that could support greater investment in 

Asia. Canada’s restriction on pension fund investment bucks a trend elsewhere in the 

world where foreign holdings by pension funds are rising rapidly. Figures quoted by Fried 

and Wirick show that foreign assets as a proportion of world pension assets rose from 

8.2% in 1992 to 13.2% in 1997 and are projected to climb to 16.7% by 2002. 

15 

Policies involving such things as the pension savings of Canadians may appear to be entirely 

domestic in their focus. However, the globalization of financial markets means that in an 

open economy such as ours, all major financial policies will have an impact on our 

international position. In this case, relaxation or removal of the restriction on pension 

fund investment would likely boost Canadian corporate investment offshore. The increased 

force driving trade liberalization. This movement gained an added boost at the end of the 1980s with 

the collapse of the communist bloc and the adoption of “market-driven” economies by its former 

members. China’s pending membership of WTO will mark the end of any significant international 

trade outside the rules of this body. With China a member, 136 countries out of the 188 that are 

members of the United Nations will be parties to WTO. 

A further development driving globalization, especially in Asia, was the doubling in the value of the 

yen as a result of the 1985 Plaza Accord reached between major trading nations. To maintain its export 

competitiveness, Japanese industry invested massively in Southeast Asia, building offshore plants to 

supply not only third-country markets, but its domestic market as well. This huge inflow of Japanese 

capital encouraged the development of a network of industries straddling borders, and producing 

Japanese products bearing “Made in Thailand” or “Made in Malaysia” labels, and assembled from 

parts made in two or three neighbouring countries. 

While globalization has had a marked impact on economic efficiency worldwide, many people charge 

that this comes at the price of a weakening of national sovereignty, and that countries have to yield 

effective control over some areas of domestic policy if they wish to remain competitive in the global 

economy. In some areas this is clearly true, and it is explicit. For example, governments that opt to join 

the WTO have an obligation to adhere to its restrictions on supporting certain industries. However, 

the loss of freedom of action tends to be in areas that impinge on economic efficiency. Governments 

that join WTO believe there is a net gain to them and their people if they accept a greater market 

discipline. China, a country jealous of its sovereignty and powerful enough to set its own rules, faced 

up to this choice. It decided that the benefits of WTO membership justified the loss of sovereignty

outflow of capital would have no perceptible impact on domestic interest rates, which 

Ottawa has opted to tie to rates set in Washington, and have little to do with the 

availability of capital in Canadian markets. And in the long run it would have no negative 

impact on Canadian exchange rates as funds invested offshore would lead to an increased 

inflow of profits and dividends, improving the balance of payments and supporting the 

value of the Canadian dollar. (After all, if the rate of return on the funds is greater in 

Canada than overseas, the funds will remain in Canada). 

16 

Trade and other treaties that help bring to Canada-Asia business the same advantages 

enjoyed by Canada-US business, and tax reforms that remove artificial restrictions 

preventing business from seeking out the best location for investments globally, are 

legitimate intrusions by government into areas that affect business decisionmaking. Policy 

innovation in these areas would do no more than provide business with a more level 

plane on which to base its decisions. We are confident Canadian businesses would take 

advantage of the opportunity to increase their stake in the growth markets of Asia. 

REPORT CARD 

For the third consecutive year, the Asia Pacific Foundation has graded Canada’s performance 

in ten different areas of its relationship with Asia, based on the latest available data. 

Our overall grade this year is just above a C+, marginally better than last year, but 

still a reflection of the shallowness of our ties with the region. The slight improvement is 

largely a result of a considerable increase in Canadian direct investment interest in Asia, 

as discussed above, and our enhanced security involvement. Events during 1999 

involved. Of course, within China or any WTO member, there will be losers to the liberalization 

process, but they are victims of a domestic policy decision. 

In other areas, such as macro-economic policy, national options are implicitly limited. Countries that 

continue to deviate too far from the norm in areas like national debt, inflation or taxation levels will 

find themselves bypassed by foreign private investment. However, unlike WTO rules, none of these 

norms are absolutes. Governments have the freedom to trade off some aspects of macro policy against 

others. For example, a high rate of growth can offset high inflation, or high productivity can compensate 

for relatively high tax rates. The art of government has always involved balancing competing policy 

objectives, whether domestic or international. In the globalized world, the distinction between domestic 

and international economic policies has become blurred and the balancing act covers a broader 

range of policies. 

Today globalization shapes our daily lives: whether it is a Wall Street fund manager using a made-in- 

Taiwan computer to send buy messages to a stockbrokerage in Kuala Lumpur; a group of villagers in 

northern India gathered around a TV set to watch MTV rock videos transmitted by satellite; or middleclass 

Thais living in California-style condominium developments. Ironically, most of the demonstrators 

protesting in Seattle against the role of the WTO in globalization during its December Ministerial 

Meeting could not have been in the city nor organized their activities without the globalization of 

transport and communications. And while few of those on Seattle streets would likely acknowledge 

it, the collapse of despotic and inefficient governments under the pressure of globalization has given 

democracy its greatest boost since the American Revolution.

enabled Canada to take a stronger role in advancing its policy of promoting security 

and cooperation in Asia. The most important event was our participation in the East 

Timor independence process. Canada assisted in the transition by providing personnel 

to the United Nations to help supervise the elections in the summer, then contributed 

more than 600 military personnel to the UN-sanctioned peacekeeping forces in the newly 

independent territory. Aiding Canada’s performance in this area was its role as an elected 

member of the UN Security Council during 1999-2000 and its continued involvement 

in informal “Track II” security initiatives in both North and Southeast Asia. 

The only other area where we felt able to award a slightly improved grade was in the 

category of education, which has been redefined from last year (when it also included 

“culture,” now part of Canada’s Image in Asia). Asian student interest in Canada is 

recovering from the downturn of the Asian crisis. The number of applications for student 

visas was up considerably from countries which suffered most during the meltdown. 

Even more impressive was the increase in the number of visas granted. China alone 

posted a staggering 206% growth in the number of visas granted between the first nine 

months of 1998 and the similar period of 1999. 

17 

Offsetting these improvements was a disappointing performance, and hence lower grade, 

in the important area of trade. Our performance deteriorated by almost any measure — 

exports, total trade, marketshare (the proportion of Canadian products in total Asian 

imports), or the proportion of manufactured goods in our exports. The value of exports 

during the first nine months of 1999 was down 7% from the same period of 1998. Over 

the period of the Asian crisis Canada’s exports to Asia Pacific have fallen proportionately 

much more than those of the US or Australia. Our marketshare with our top ten Asian 

customers continued to decline steadily, to less than 1% in the first quarter of 1999 

compared with 1.4% in the same months of 1998 and 1.36% for all of 1998. The proportion 

of commodities and unprocessed products in the mix edged above 70% for 1999. 

There was insufficient improvement or deterioration in the six other rated areas of our 

relationship to vary the grades from last year’s levels. Three categories are the subjective 

areas of “awareness,” “image” and “projection of values.” Canadian awareness of Asia can 

be most readily measured by examining media coverage of the region, so our category this 

year has been redefined to reflect this. While the quantity of coverage last year matched 

the increased volume of the past few years, it still appears to be driven by sensational 

developments in Asia rather than any reassessment of the importance of the region. 

Coverage continued to be sporadic, as the focus of crisis or calamity moved from country 

to country, rarely providing continuing news to place the events in context. The exceptions 

were Indonesia and East Timor. Building on the detailed coverage of Suharto’s fall in 

1998 (which media had been able to tie in to the domestic Canadian saga of the APEC 

inquiry), coverage, including first-hand reporting by Canadian journalists, was extensive. 

As the East Timor crisis came to a head, the dispatch of Canadian peacekeepers provided 

the domestic interest to keep media attention focused. Overall, however, there was no 

real change from the quantity or style of coverage of the previous year, so the grade 

remains unchanged.

18 

Our image in Asia as a welcoming, tolerant society became somewhat confused. On the 

one hand, we gave the highest position of honour in the nation, the post of Governor 

General, to a first-generation Chinese immigrant. On the other, there was a very hostile 

public reaction to the arrival off the BC coast of four boatloads of Chinese who were 

trying to evade immigration laws as they made their way to the US. The government 

adopted a slow and legalistic approach to the situation — much to the consternation of 

the Chinese government, which requested that all the boat people be returned to China. 

Canada also had some image problems in China when a high-profile hospital venture in 

Beijing was halted due to lack of funding. We also faced criticism in Taiwan for our slow 

response in sending aid in the aftermath of the island’s devastating earthquake. The 

Team Canada mission to Japan helped, in a small way, to build Canada’s “brand” in Asia 

as a technologically sophisticated nation, but far more remains to be done. 

The projection of Canadian values, a long-held policy goal, was both promoted and 

overlooked during 1999. Canada demonstrated its priorities through action on landmines 

in Cambodia; support for elections in Indonesia and stability in East Timor; peace-building 

in partnership with Japan; and, most notably, the encouragement of democratic values 

in Pakistan with Foreign Affairs Minister Axworthy’s mission to Islamabad. However, 

China was again the most contentious area in the application of these values. Ottawa 

remained silent about the suppression of the Falun Gong sect and, separately, of Chinese 

political dissidents leading up to the 50th anniversary of the founding of the People’s 

Republic in October. However, it was quick to help clear the way for China’s membership 

of the World Trade Organization. While this did not represent any change in Ottawa’s 

approach to Beijing, it did offend some Canadians who feel we must continue to call China 

to account whenever it prevents what Canadians consider to be a reasonable expression 

of political dissent. 

The remaining three assessment areas — inward investment, development cooperation 

and tourism — all have measurable statistical aspects on which to base assessments. For 

example, the stock of Asian investment in Canada declined slightly according to the latest 

figures (1998). However, in view of Asia’s economic situation in that period, the 

performance is neither surprising nor poor. The study by accounting firm KPMG released 

last year assessing Canada as the most cost-competitive of the G-7 nations can only help 

to attract investment in coming years. 6 So will the federal government’s appointment of 

specific individuals as investment “champions” to actively promote capital inflow into 

Canada from Japan, South Korea, Taiwan and Hong Kong SAR. 

In the area of development cooperation and international assistance, the biggest change 

was in policy for the future, rather than current activities. The Canadian International 

Development Agency (CIDA) adopted an overarching goal of poverty alleviation for its 

programs. This will impact its Asian operations considerably as Asia is home to 70% of the 

world’s poor. During 1999, CIDA generally continued with existing initiatives to provide 

financial and logistical assistance to developing economies in Asia. Events like the anarchy 

in East Timor, the earthquake in Taiwan, floods in Vietnam and a cyclone in India did cause 

some shifts in programs. Many new projects reflected the high priority given by Canada to 

human security. Among these was a $2.4 million package to Cambodia to help with landmine

emoval. However, most of the changes in programs and priorities could be described as 

sideways rather than up or down movements, so a change in grade is not warranted. 

The final category, tourism, was also hit by the Asian crisis, but is beginning to recover. 

Arrivals in the first nine months of 1999 were up from the depressed levels of 1998, 

especially from South Korea, Taiwan and Thailand. The first country is a key source of 

students for ESL schools in Canada, and the much higher tourist arrivals likely reflect a 

recovery in the number of students arriving on tourist visas for short-term classes. The 

number of visitors from the all-important Japanese market was also up a little. It is 

encouraging that the recovery in tourist arrivals to Canada has been considerably faster 

than to the US, although this may reflect the steeper fall in visitors to Canada in 1998. 

The goal of the Canada Asia Report Card is to highlight how Canada as a nation is 

performing in its relationship with Asia. Some of the areas of assessment, like media 

coverage or even projection of our image, may be outside the influence of government 

policy. However, those that pertain to economic relations are not. The generally belowaverage 

grades point up the lack of the concept of an overriding “national interest” in 

our policymaking toward Asia. Non-interference in business decisionmaking is a 

fundamental, and quite proper, policy element of the mainstream political parties 

supported by the large majority of Canadians. However, that does not deny government a 

leadership role where interests at stake are greater than those of an individual business. 

Achieving a greater balance in our international economic relations falls into that category. 

Globalization — and some of the liberalizations coming in the wake of the Asian crisis — 

have given Canada the opportunity to diversify its portfolio of international assets away 

from an over-concentration in the US. Ottawa has a responsibility to guide Canadian 

business in this new direction. 

19

It seems the Asian growth engine is 

powering up again. However, beneath 

the surface remain financial and 

structural problems that the rapid 

recovery is tending to cover up.

MAJOR EVENTS 

2 

a year in review 

21 

After two consecutive years of crisis and contraction, 1999 was the year of recovery for 

the countries of Asia that were caught in the currency collapse of 1997. Economy after 

economy began recovering, led by South Korea that recorded a dramatic turnaround from 

a contraction of 5.5% in its GDP in 1998 to growth of just under 10% last year. Thailand, 

the Philippines, Malaysia and Hong Kong SAR all resumed their expansion after losing 

ground the year before, while Indonesia, the hardest hit of all, saw the contraction of its 

economy almost come to an end as it struggled to bring equilibrium to its political as well 

as its economic system. Overall, it seems the Asian growth engine is powering up again. 

However, beneath the surface remain financial and structural problems that the rapid 

recovery is tending to cover up. The restructuring of debt-ridden corporations has really 

only just begun, while financial bail-outs have forced governments to take on unfamiliar 

debt burdens that will be a drain on national budgets. China and Japan were not contagion 

victims, but continue to wrestle with their own serious domestic problems of anemic 

consumer demand that raise as many questions about public morale as they do about their 

economies. The one unqualified bright spot was India, which missed out on the Asian 

crisis altogether. It turned in yet another year of strong growth, making it the best performer 

in Asia in the second half of the 1990s — if you take China’s GDP figures with a grain of salt. 

It was also a year in which the democratic process, if not achieving full political openness, 

recorded significant advances in the region. Overshadowing all else was Indonesia. It 

managed a surprisingly smooth transfer of power from the transitional presidency of B.J. 

Habibie (a long-time Suharto protégé) to popular Muslim cleric Abdurrahman Wahid. 

Despite having no tradition or recent experience of democracy, the complex congressional 

elections, then the controversial selection of a president, were carried out fairly, if somewhat 

boisterously. In hindsight, the process appears to have reflected the will of the people. 

Most aspects of it were open. Even the unsuccessful attempt by the outgoing Golkar 

government to siphon funds out of Bank Bali to buy the election became a matter of 

public record. India, a country with an established democracy, proved again, with the 

re-election of a coalition government led by A.B. Vajpayee, that a competitive electoral 

system can function in a multi-ethnic nation of more than one billion people. And 

Malaysia demonstrated again that, despite the autocratic tendencies of outspoken Prime 

Minister Dr. Mahathir Mohamad, the country is a functioning democracy, even if the

uling coalition does play a tough electoral game. In November polls the National Front 

coalition retained power in Kuala Lumpur, even as it lost control of a second provincial 

legislature to the main Islamic opposition party. 

22 

While there was progress on the economic and political fronts, the security situation 

continued to worsen. In April, first India, then Pakistan, test-fired long-range missiles 

capable of carrying the nuclear warheads each tested the year before. Within days, the 

most serious fighting in years between the two erupted when Muslim guerrillas stormed 

across a section of the ceasefire line in disputed Kashmir, provoking a full-scale response 

by India. Although the missile tests and Kashmir fighting were not directly related, they 

highlighted the danger posed by nuclear arms in such a volatile region. In Indonesia, in 

the wake of East Timor’s August referendum vote for separation, fighting between 

supporters of independence and pro-Indonesian militias was so bitter that the United 

Nations sanctioned the deployment of a peacekeeping force (including Canadians) until 

the territory completes its transition to independence. Only in North Korea did tensions 

ease somewhat: first, US inspectors concluded that a supposed underground nuclear facility 

had no such purpose; then Pyongyang gave in to pressure from the international community 

and, in return for food aid, abandoned planned tests of a long-range ballistic missile. 

ECONOMIC RECOVERY 1 

With the exception of Indonesia, the economies that suffered directly from the Asian 

currency crisis began 1999 in a recovery mode. Exchange rates had stabilized, interest 

rates were coming down, unemployment had peaked, output was growing again and 

ASIA DAY-BY-DAY 

DECEMBER 1998 

01 US lifts economic sanctions imposed on 

India and Pakistan in May in response to 

nuclear tests. 

04 Khmer Rouge accepts authority of 

Cambodian government, ending long civil 

war. Three top Khmer Rouge leaders remain 

at large. 

04 Kuomintang wins 123 of 225 seats in Taiwan 

legislative elections. 

06 13th Asian Games open in Bangkok. 

07 South Korea’s top five chaebol agree to 

implement restructuring programs. 

07 Cambodia regains UN seat after 15-month 

absence. 

09 Indonesian prosecutors question former 

President Suharto on alleged political and 

economic crimes during his rule. 

10 About 10,000 demonstrators in Jakarta 

demand democracy, prosecution of Suharto. 

13 Japanese government takes control of 

insolvent Nippon Credit Bank. 

15/ Southeast Asian leaders meet in Hanoi for 

17 6th ASEAN Summit. 

25 Khmer Rouge leaders Khieu Samphan and 

Nuon Chea surrender to Cambodian 

government. 

29 Chee Soon Juan, leader of Singapore 

Democratic Party, arrested for making a 

public speech without a permit. 

JANUARY 1999 

12 First South Korean tourists arrive in North 

Korea since Korean War. 

13 New Zealand Prime Minister, Jenny Shipley, 

visits Ottawa. 

19/ Fighting between Muslims and Christians on 

23 Indonesian island of Ambon leaves 50 dead.

stock markets were climbing. As the year progressed, so did the affected economies, with 

the result that over the 12 months all but Indonesia recorded growth. Even in Indonesia 

the marginal decline marked a sharp turnaround from the 13.7% contraction of the previous 

year. While the recovery is welcome and likely to continue, there are still some challenges 

to overcome before the region can earn a clean bill of health. For one, there has been a 

significant increase in the direct involvement of governments in the affected economies, 

which will tend to squeeze out private investment in the next few years. Beyond that, the 

swift return to growth masks continuing financial weaknesses in Asian companies. 

For the 15 years prior to 1997, governments in much of East and Southeast Asia were 

pulling back from a direct role in industry (China and Vietnam being the exceptions). 

State-owned companies were steadily privatized, leaving the private sector greater freedom 

to get on with business. There were exceptions: governments maintained direct ownership 

of one or more banks in most countries, generally kept a stake in some utilities, and 

retained ownership of key industries such as oil production (in Malaysia and Indonesia) 

or automobile manufacturing (Malaysia). While they moved away from direct ownership, 

governments adhered to growth-oriented economic policies, and often set explicit 

goals for industries. But in combatting the crisis set off by the devaluation of the Thai baht 

in July 1997, governments were forced to take back ownership or control of a vast range 

of companies, especially in the key financial sectors. 

23 

During 1997-98, the four most seriously affected economies — South Korea, Thailand, 

Indonesia and Malaysia — had to inject a combined US $78 billion of public funds into 

their banking systems to sustain liquidity and bolster public confidence, and to keep 

28 Indonesian President Habibie offers East 

Timor independence or autonomy. 

29 Hong Kong’s highest court rules that mainland 

Chinese children with parents living in Hong 

Kong have right of abode in SAR. 

29 Independence supporters and opponents 

clash in East Timor after Jakarta offers choice 

on independence. 

FEBRUARY 

08 Philippine government and Moro Islamic 

Liberation Front begin peace talks to end 

insurgency in Mindanao. 

09 About 1,700 Khmer Rouge guerrillas join 

Cambodian army. 

09/ Three-day national strike paralyzes Bangladesh, 

11 with six people dead and 200 injured. 

18 Indonesian government passes antimonopoly 

bill which will impose sanctions 

on anti-competitive business practices. 

19 World Bank approves US $210 million loan 

to India for power generation program, first 

non-humanitarian loan since India’s nuclear 

tests in May 1998. 

20 First bus service between India and Pakistan 

in 50 years arrives in Pakistan with Indian 

Prime Minister A.B. Vajpayee a passenger. 

25 South Korea releases more than 1,500 

prisoners to mark President Kim Dae-Jung’s 

first year in office. 

26 Sultan of Selangor, Salahuddin Abdul Aziz 

Shah, elected king of Malaysia. 

MARCH 

02 Former Malaysian chief of police admits 

assaulting former Malaysian Deputy Prime 

Minister Anwar Ibrahim after his arrest. 

02 Philippine President, Joseph Estrada, ends 

peace talks with communist rebels, withdraws 

immunity from guerrilla negotiators 

after army officers and policeman kidnapped.

24 

money flowing into business. Then a huge amount of private debt was shifted from the 

banks onto the public books. South Korea, Malaysia and Indonesia together moved some 

US $76 billion of non-performing bank loans into government-owned management 

companies (Thailand has left debt with the banks). In effect, government has taken over 

control of the companies owing this money. In Indonesia, for instance, it is estimated 

that 70% of corporate assets are now controlled by the state. The debts already taken over 

do not represent anywhere near all the bad loans. They range from around 26% of the 

non-performing bank loans in South Korea to perhaps 66% in Indonesia, but it is expected 

that the banks will have to be relieved of considerably more debt before the banking 

systems are restored to health. The plan is that the state investment should be repaid by 

the sale of the assets securing the loans. So far, however, only a tiny fraction of these 

assets has been sold off. In addition to injecting funds and taking over corporate debts, 

governments have been forced to take over ownership of many banks and financial 

institutions. In Indonesia, 12 commercial banks have been nationalized, while four in 

South Korea and four in Thailand have passed into public ownership. The result is that 

state banks now account for well over half the outstanding loans still in the banking system 

in Indonesia and South Korea and around 45% in Thailand. A study by one group of 

World Bank economists calculates that, on average, bank loans in Indonesia, South Korea, 

Malaysia and Thailand now held by the state are equivalent to 98% of their GDPs. 

The risk is that the rapid build-up of public debt in these countries could constrain 

economic recovery. By the time all the public funds needed to restore the financial 

systems to health have been allocated, public debt as a percentage of GDP will have 

increased by half in Malaysia, doubled in Indonesia, tripled in South Korea and increased 

06 Last Khmer Rouge leader at large, Ta Mok, 

arrested in Cambodia. 

09/ China’s National People’s Congress debates 

10 constitutional amendments to recognize 

Deng Xiaoping’s “socialist market economy” 

and protect private enterprises. 

09 Sony announces 10% cut to global work 

force, reduction of manufacturing facilities 

from 70 to 55. 

12 Japanese government grants 15 banks 

$95 billion in public funds to help cover bad 

loans. 

12 Japan agrees to lend $1 billion to Indonesia 

and $382 million to Thailand to help 

recovery. 

13 Indonesia closes 38 insolvent commercial 

banks and takes over seven others. 

16 North Korea agrees to let US inspect 

suspected nuclear site in return for food aid. 

17 Japanese government presents $1 trillion 

budget to pull country out of recession. 

19 At least 33 people killed during ethnic riots 

in Kalimantan. 

20 Malaysian soldiers slaughter 40,000 pigs 

believed to be carrying Japanese encephalitis 

virus which killed 61 people. 

22/ Talks between China and Philippines over 

23 possession of Mischief Reef in Spratly Islands 

end with no agreement. 

23 Japanese navy chases two suspected North 

Korean spy boats out of Japanese waters. 

23 ADB approves US $3.06 billion Asian Currency 

Crisis Support Facility to assist countries hit 

hard by the crisis. 

24 Trial of Anwar Ibrahim ends abruptly as his 

lawyers refuse to make closing arguments 

after request to have presiding judge dismissed 

is ignored.

six-fold in Thailand. With the exception of Indonesia, costs of servicing the increased 

debt will not be unmanageable. At less than 15% of government revenue, their burden is 

much smaller than that faced by the government of Canada, which allocates 27% of its 

revenue to debt servicing. But it is taking the countries into unfamiliar fiscal territory. 

When combined with the added costs of developing social safety nets — another result 

of the crisis — it means the region is facing medium-term fiscal pressures, and a need to 

raise revenue, that it has not previously known. The budget deficits of the three affected 

Southeast Asian economies, plus South Korea, ranged between 5% and 6.5% of GDP in 

1999. This level of fiscal pressure may have a dampening effect on investment and 

growth over the next few years as governments either trim spending, or raise taxes and 

their own borrowing. 

The other unresolved problem left over from the financial crisis is corporate restructuring. 

There is a sense within Asia that, with economic growth picking up, the urgency of 

rebuilding balance sheets has eased. Unfortunately, the figures suggest otherwise. Although 

low interest rates and the return to economic growth have reduced the acute financial 

pressures on companies, World Bank calculations suggest a grimmer reality. Even with 

the current low interest rates, almost a quarter of publicly traded Thai corporations and 

more than half of those in Indonesia will still not be able to meet their interest obligations 

by the end of 2002. If interest rates in South Korea return to historically high levels from 

their present abnormal low, about a quarter of firms in that country would also show a 

cash-flow deficit. The problem is that debt-laden companies are resisting the sale of assets 

or conversion of debt into equity. Their preference for rescheduling debt or capitalizing 

unpaid interest is, in effect, putting off radical restructuring in the belief that they can 

25 

30 Thai cabinet announces $5.2 billion 

economic stimulus package, backed by Japan 

and World Bank, to create jobs and cut taxes. 

APRIL 

04 Parti Keadilan Nasional (National Justice 

Party) formed in Malaysia, headed by Anwar 

Ibrahim’s wife Wan Azizah Ismail. 

05 Jailed East Timorese independence leader, Jose 

Alexandre “Xanana” Gusmao, calls for war 

against Indonesian army and pro-Indonesia 

militia groups. 

06/ Chinese Premier, Zhu Ronji, visits US seeking 

14 WTO deal. 

10 AIADMK Party, second largest in India’s 

governing coalition, withdraws from 

government. 

11 India test-fires long-range ballistic missile 

capable of carrying nuclear warhead. 

12 Suharto’s youngest son, Hutomo “Tommy” 

Mandala Putra, charged with corruption over 

1997 property deals. 

13/ Thai Deputy Prime Minister, Supacahi 

17 Panitchpakdi, and Minister of Science, 

Technology and Environment, Suwit Khunkitti, 

visit Ottawa. 

14 Anwar Ibrahim found guilty of abuse of 

power, sentenced to six years in jail. 

14 Pakistan test-fires long-range ballistic missile. 

14/ Chinese Premier, Zhu Ronji, visits Canada to 

20 seek WTO deal. 

16 Nissan announces 5,000 job cuts and lowers 

production from 2 million to 1.5 million cars 

a year. 

25 10,000 Falun Gong followers hold sit-in in 

Beijing’s Tiananmen Square to ask government 

not to outlaw their organization. 

26 Indian parliament dissolved after ruling 

coalition defeated and Congress Party fails 

to form new government.

trade their way out of debt. For this reason, some of the restructuring that appears to 

have taken place is cosmetic. In Thailand about 13% of restructured loans were once again 

in default by last August. 

26 

The problem is not universal, though, and some progress has certainly been made. In 

South Korea, restructuring proceeded the fastest once the government applied political 

pressure on the mammoth chaebol that dominate the economy. The results included 

receivership of the Daewoo group (saddled with a US $79 billion debt) and the sale of 

LG Semicon to Hyundai Electronics for US $5.4 billion. In fact, governments are not 

hesitant or apathetic about restructuring. It is the private sectors that are resisting. In all 

the countries involved, bankruptcy codes have been overhauled and effective out-of-court 

debt resolution systems put in place. As a result, by last August, about a third of corporate 

debt in Malaysia and South Korea had been rescheduled, a quarter in Thailand and 13% 

in Indonesia. 

To help speed restructuring, countries have been relaxing restrictions on foreign ownership 

in a bid to attract foreign investment into troubled banks and corporations. So far this 

has been relatively unsuccessful in the case of banks — only four institutions in the 

region have found foreign buyers. However, foreign takeover activity in other sectors 

has been strong, reflected in a general increase of foreign direct investment (FDI) 

generally. According to the World Bank, an estimated US $35 billion of FDI flowed 

into South Korea, Indonesia and Thailand last year. Part of that financed the record US 

$92 billion that went into takeovers of existing companies and plants (by both foreign 

and local buyers) across Asia, excluding Japan. 2 Even Canadian business, which in 

30 Cambodia admitted to ASEAN. 

MAY 

01 An estimated 1.9 million people gather at 

1,100 locations around Japan calling for 

government to protect jobs. 

08 Chinese Embassy in Belgrade bombed during 

NATO air attacks, killing three and injuring 

more than 20. 

09 Pakistani-backed guerillas capture Indian 

bases in Kashmir, begin shelling town of Kargil. 

10/ Canadian International Trade Minister, Sergio 

12 Marchi, visits Japan to attend 32 nd Quadrilateral 

Trade Ministers’ meeting. 

11 Indian Supreme Court upholds death sentence 

for four men involved in 1991 assassination 

of Prime Minister Rajiv Gandhi. 

15 Banker Edmund Ho Hau-wah chosen to lead 

Macao after its return to China. 

19 Taiwan President, Lee Teng-hui, releases his 

book, Taiwan’s Viewpoint, calling for China 

to divide into seven autonomous blocs, 

including Taiwan and Tibet. 

21 Thousands of students rally in Jakarta to mark 

anniversary of fall of Suharto and demand he 

be brought to trial. 

24 Japanese parliament passes bills to strengthen 

Japan’s security ties with US. 

25 US releases Cox Report accusing China of 

stealing information on US nuclear 

warheads. 

25 Singapore politicians, Chee Soon Juan and 

Wong Hong Toy, each fined $1,600 for 

making public speeches without permission. 

26 India begins air strikes in bid to drive 600 

Pakistan-backed fighters out of Kashmir. 

26 India launches three satellites in country’s first 

commercial rocket launch. 

28 Philippine Senate approves military pact

the past played a very small role in Asian takeovers, became active, with takeovers valued 

at more than US $770 million in South Korea and Malaysia. 

DEMOCRATIC RECOVERY 

According to many observers, one weakness exposed by the Asian crisis was the lack 

of openness in the region’s economic and political institutions. In 1999, that changed 

dramatically in Indonesia, where political and economic decisionmaking previously 

took place in the shadowy environment surrounding the president. The Indonesian 

legislative election on June 7 was a milestone of political openness. For the first time in 

44 years, the nation of 212 million held free elections. The process was aided by a newfound 

ability of political parties to organize and compete and for media to report their views. 

Despite the long hold on power by Golkar (the party of ousted former President Suharto 

that still controlled the presidency, the legislature and vast resources), opposition 

parties captured three-quarters of the votes. The People’s Democratic Party, led by 

Megawati Sukarnoputri (the daughter of Indonesia’s first president), gained more than 

a third of the votes and emerged as the leading force in the legislature. This set the 

stage for the even more important presidential election. The vote, by an electoral 

college made up of members of the legislature, representatives of civic organizations and 

the military, saw Abdurrahman Wahid, a popular and experienced Muslim leader, 

become Indonesia’s fourth president in 50 years. Although Megawati was favoured in 

the urban centres, Muslim Indonesia did not appear ready to accept a woman with little 

political experience as national leader. However, she emerged from the voting as 

Wahid’s vice president. 

27 

JUNE 

allowing country to participate in large-scale 

exercises with US. 

04 About 70,000 attend candlelight vigil in Hong 

Kong marking 10 th anniversary of Tiananmen 

Square uprising. 

07 Indonesia holds first free election in 44 years. 

10 Former Indian Defence Minister Sharad Pawar 

launches Nationalist Congress Party, after 

expulsion from Congress Party for challenging 

Sonia Gandhi’s leadership. 

11 Two frigates flying Taiwan flag make unofficial 

goodwill visit to Manila. China denounces 

visit as violation of Philippines’ one-China 

policy. 

11 Six North Korean patrol boats forced out of 

South Korean waters by South Korea navy. 

14 Malaysian Prime Minister, Dr. Mahathir, 

moves to new administrative capital, Putrajaya, 

25 km outside Kuala Lumpur. 

15 South Korean navy sinks North Korean patrol 

boat during clash in disputed waters. 

21 South Korean tourist visiting North Korea 

detained, accused of encouraging defection. 

24 World Bank approves Western Poverty 

Reduction Project to relocate 1.7 million of 

China’s poorest people to Tibet. 

25 US inspection team concludes there is no 

evidence of nuclear program in suspected 

underground site in North Korea. 

26 Chinese legislature overturns ruling by Hong 

Kong’s top court, thus limiting right of abode 

in SAR of mainland Chinese. 

29 Anti-independence supporters attack UN post 

in East Timor. 

JULY 

04/ South Korean President, Kim Dae-Jung, 

06 accompanied by foreign minister, minister of 

trade, minister of industry and chief of staff, 

visit Ottawa.

28 

While the early months of Wahid’s leadership were marked by a number of (perhaps 

intentional) contradictory pronouncements, they also saw unprecedented events such as 

senior military leaders being called to account publicly for their actions. Just as notable, 

one of Wahid’s first important duties was to attend an informal ASEAN leaders’ summit, 

held in Manila in November. There he brushed aside ASEAN’s long-standing tradition 

of not airing the internal affairs of ASEAN members. He discussed at length the 

independence movement in his own province of Aceh. Other core ASEAN leaders like 

the Philippines’ President Joseph Estrada and Thailand’s Prime Minister Chuan Leekpai 

have also shown they do not feel bound by this rule. With Malaysia and Thailand also 

contributing personnel to the UN-sanctioned peacekeeping force in East Timor, the 

chemistry may be right for ASEAN to finally find a real voice in regional affairs. 

India, unlike Indonesia, has a long and perhaps excessive experience of democratic 

elections, as well as a tradition of institutions being open and responsive to public scrutiny 

and pressure. During September-October, India held its third national election in less 

than four years, returning to power for the third time a varied coalition of parties led by 

the Hindu-nationalist Bharatya Janata Party, with A.B. Vajpayee again as prime minister. 

The coalition comfortably turned aside the challenge of a Congress Party led by Sonia 

Gandhi, widow of assassinated former Prime Minister Rajiv Gandhi. India’s exercise 

confirmed again that popular democracy is quite workable in a country with a huge, 

diverse population and vast area. 

However, the message did not resonate in neighbouring giant China, where the autocratic 

communist leadership seemed to back away from the creeping political liberalization that 

05 Papua New Guinea announces agreement to 

establish diplomatic relations with Taiwan. 

07 Papua New Guinea Prime Minister, Bill Skate, 

resigns following diplomatic row over Taiwan 

recognition. 

09 Taiwan President, Lee Teng-hui, angers China 

by defining China-Taiwan relations as “stateto-state” 

and saying he is leader of sovereign 

state. 

11 Indian and Pakistani military officials agree 

on withdrawal of Muslim guerrillas from 

Kashmir. 

15 Results of Indonesia’s election announced: 

Megawati Sukarnoputri’s People’s Democratic 

Party wins 34.3% of vote, followed by Golkar 

with 22.1%. 

15 China announces it has neutron bomb, but 

denies stealing US technology. 

15/ Chinese Agriculture Minister, Chen Yaobang, 

22 visits Canada. 

21 Incoming Papua New Guinea Prime Minister, 

Sir Mekere Morauta, says PNG will not 

establish diplomatic relations with Taiwan 

and maintains “One China” policy. 

22 China bans Falun Gong sect, detains leaders. 

25/ Foreign Affairs Minister, Lloyd Axworthy, 

29 attends 6 th ASEAN Regional Forum and 32 nd 

ASEAN Post-Ministerial Conference in 

Singapore and visits Bangkok. 

26/ Canada, China and Norway co-host Second 

27 Plurilateral Symposium on Human Rights in 

Qingdao, China. 

30 Bank Bali scandal surfaces with allegations 

US $80 million in IMF bank bailout funds 

diverted to President Habibie’s election 

campaign. 

AUGUST 

09 Japanese Diet approves bill recognizing rising 

sun flag and Kimigayo, the national anthem, 

as official national symbols.

it had allowed in recent years. A mass sit-in by followers of the Falun Gong meditation sect 

in Beijing’s Tiananmen Square in April so unnerved the leadership that it initiated a 

nationwide campaign to destroy the organization. The issue was not that Falun Gong was 

a political movement. Rather, the mere existence of such a widespread organization 

outside party control was seen as a potential threat. President Jiang Zemin and his 

colleagues are aware that there is popular dissatisfaction with the government’s recent 

performance. While there are no opinion polls or similar tools for gauging public sentiment 

in China, the stagnation in consumer demand over the past two years is a strong indication 

that workers are uncertain about the future. Disruptions and job loss associated with the 

ongoing rationalization of state-owned enterprises and government departments have 

persuaded people to hang on to their money. Sporadic outbreaks of public protest have 

pointed up widespread disgust with the endemic corruption and abuse of power within 

the regime. These were factors contributing to nationwide unrest at the time of the 

Tiananmen Square demonstrations in 1989 and the Communist Party is determined that 

no similar challenge to its authority will again emerge. Without the safety valve of a 

democratic outlet for the discontent, the government must be constantly vigilant that 

popular grievances do not coalesce into a political movement. In the party’s mind Falun 

Gong could have become the vehicle for those with grievances. 

29 

Elsewhere in Asia the democratic process was allowed to function, albeit in a somewhat 

curtailed form. Dr. Mahathir Mohamad showed why he has been able to lead Malaysia 

for the past 18 years when he chose just the right time to fight a united opposition in 

one national and 13 state elections in November. Despite a year of simmering discontent 

within sections of the majority Malay community about the arrest and jailing of popular 

10 India shoots down Pakistani aircraft, killing 

all 16 people on board. 

16 IMF demands investigation into allegations 

of Bank Bali transferring US $80 million in 

government funds to Golkar party official. 

18 Portugal announces it will fund an 

independent East Timor for up to five years. 

18 S.R. Nathan declared President of Singapore 

after other candidates ruled ineligible. 

20 More than 150,000 march in Manila, 

protesting President Estrada’s proposed 

changes to constitution. 

20 South Korea’s former Finance Minister, Kang 

Kyong Shik, and former presidential secretary 

for economic affairs are acquitted on charges 

of negligence for failing to prevent Korea’s 

1997 economic crisis. 

20/ Malaysia’s Prime Minister, Dr. Mahathir, visits 

22 China to mark 25 years of diplomatic ties. 

23/ South Korean Defence Minister, Cho Sung 

29 Tae, visits China for talks with Chinese 

Defence Minister Chi Haotian. 

25 Deputy Secretary-General of Malaysia’s 

opposition Democratic Action Party, Lim Guan 

Eng released from prison after serving 12 

months of 18-month sentence for sedition 

and publishing false news. 

30 People of East Timor vote 78.5% in favour 

of independence, thousands rally in streets 

of Dili. 

31 US pays US $4.5 million compensation for 

three killed and nearly 30 injured in Chinese 

embassy bombing in Belgrade. Another 

US $28 million compensation is later agreed 

for property damage. 

SEPTEMBER 

01 Violence erupts in East Timor after 

independence referendum. 

05 Voting begins in Indian general elections.

former Deputy Prime Minister Anwar Ibrahim, Dr. Mahathir and his United Front 

government emerged victorious in all but two predominantly Malay Muslim states. One 

of these states was already held by an opposition party. While Dr. Mahathir and the 

governing coalition use all the advantages of power, plus control of most of the media, to 

support their electoral efforts, there is no question that the electoral process is fair. It 

is this legitimacy that enables Mahathir to thumb his nose at foreign critics of his claimed 

“Asian way” of politics. However, the tide of history seems to be running against him as 

neighbouring Thailand and Indonesia accept unrestricted electoral politics. 

30 

In Japan, a democratic revitalization of another kind was underway. The failure of the 

dominant Japanese bureaucracy to manage the banking crisis that brought the economy 

to the edge of disaster in 1998 caused an important shift of power back to the elected 

legislature. After a generation of being little more than actors reading lines prepared by 

their civil servants, ministers and legislators are again exercising policy leadership. Some 

of this is coming about through a generational change in the legislature, the Diet. 

Another factor has been the slow realignment of political forces, which gave opposition 

parties a majority in the Diet’s upper house, forcing the governing Liberal Democratic 

Party to take on coalition partners to reinforce its position. The results are much more 

active policy debates within the government, plus a change in rules that require ministers 

to answer questions in the Diet, rather than relying on senior advisors to act on their 

behalf. In the Japanese political arena, it is a step toward greater openness. This is 

especially welcome at a time when the Japanese government is facing its own financial 

crisis as the bills mount up from years of pump-priming efforts to get the stagnating 

economy moving again. 

07 Jakarta imposes martial law, sends more troops 

to East Timor, releases jailed independence 

leader Xanana Gusmao. 

12 Indonesia agrees to allow international peacekeepers 

in East Timor. 

12 Team Canada arrives in Osaka for six-day 

Japan mission. 

12/ APEC leaders meet in Auckland for 7th APEC 

13 summit. Malaysian PM Mahathir and 

Indonesian President Habibie do not attend. 

20 Australian-led UN force lands in East Timor. 

21 Severe earthquake hits Taiwan killing 2,101, 

causing estimated $4.4 billion in damage. 

23 Indonesia lifts martial law in East Timor. 

29 Indonesian police detain six suspects in Bank 

Bali scandal. 

30 Uranium processing plant in Tokaimura, Japan, 

leaks radiation in worst nuclear accident 

since Chernobyl. 

OCTOBER 

01 China celebrates 50th anniversary of founding 

of People’s Republic. 

01 Armed exiled Burmese students seize Myanmar 

Embassy in Bangkok, taking 30 hostages. 

04/ Japan’s governing Liberal Democratic Party 

05 forms new coalition with Liberal Party and 

New Komeito Party, gaining majority in both 

houses of parliament. Prime Minister Obuchi 

shuffles cabinet. 

06 Hong Kong Chief Executive Tung Chee-hwa 

in annual policy speech pledges $5.7 billion 

to clean up polluted city. 

07 Outgoing Prime Minister Vajpayee and BJPled 

coalition win India’s 3rd general election 

in three-and-a-half years. 

10 Two Indonesians killed in first deadly exchange 

of fire between pro-Indonesian militias and 

Australian peacekeepers in East Timor. 

12 Pakistan army, led by General Pervez

SECURITY BACKTRACK 

While economic conditions in most of Asia improved, and democratic processes gained 

ground, the security situation deteriorated. Applying either the traditional standard of 

armed threats to state security, or the broader concept of human security, developments 

in South and Southeast Asia saw the already troubled situation of the year before worsen. 

Detonation by India and then Pakistan of nuclear warheads in 1998 heightened tensions 

between the long-antagonistic neighbours. A brief period of apparently improving 

relations came to a sudden end in April with a quick succession of tests of nuclear-capable 

ballistic missiles by each country. Within days, Muslim guerrillas violated the demarcation 

line between the Indian and Pakistan-held portions of the disputed northern 

territory of Kashmir, setting off the most serious conflict between the two countries in a 

decade. Neither side suggested the fighting would spread — though India shot down a 

Pakistani aircraft far to the south of Kashmir — or lead to a nuclear exchange. However, 

the pattern of provocation and retaliation seems clear. A military coup in Pakistan late in 

the year (led by General Pervez Musharraf), ousting Prime Minister Nawaz Sharif and 

his civilian government, was unrelated to the security issues but confused an already 

complex situation. It demonstrated again the dangers of political instability in a 

nuclear-armed state. In countries in which command and control procedures in the 

military are questionable, and the role of the military itself is ambiguous, possession of 

nuclear arms and delivery systems must be considered a threat to regional security. At 

the very least the confrontation may lead to a diversion of scarce resources to military 

uses and turn New Delhi away from the path of rational economic modernization it has 

followed with growing success for the past nine years. For impoverished Pakistan, it 

31 

Musharraf, ousts Prime Minister Nawaz Sharif 

and civilian government. 

14 Hutomo “Tommy” Mandala Putra, youngest 

son of former Indonesian President Suharto, 

acquitted in corruption case. 

14 Japan’s Sumitomo Bank and Sakura Bank 

agree to merge by April, 2002, creating 

world’s second-largest bank. 

15 General Musharraf becomes Pakistan’s “chief 

executive,” announces state of emergency, 

suspends constitution and National Assembly, 

places country under military rule. 

19 Indonesian assembly agrees to independence 

for East Timor. 

20 Abdurrahman Wahid, popularly known as Gus 

Dur, elected Indonesia’s 4th president. 

20 Sonia Gandhi sworn in as first foreign-born 

member of Indian Parliament. 

20 Sri Lankan President Chandrika Kumaratunga 

calls presidential election for December. 

20 Prime ministers of Vietnam, Laos and 

Cambodia meet in Vientiane to discuss 

economic cooperation. 

21 Megawati Sukarnoputri elected vice president 

of Indonesia. 

22 ASEAN nations, South Korea, China and 

Japan meet in South Korea to discuss regional 

economic and security cooperation. 

26 Indonesian President Wahid names new 

cabinet. 

29 Cyclone hits Indian state of Orissa, leaving 

about 10,000 dead. 

30 Last Indonesian troops leave East Timor. 

NOVEMBER 

01 Indonesia releases report into Bank Bali 

scandal; President Wahid says corruption 

investigation of Suharto will continue, but 

he will be pardoned if convicted.

could mean growing dependence on the militant Muslim states to its west in exchange 

for its nuclear know-how. 

32 

The situation in Indonesia, with recurring outbreaks of violence across the country, has 

less potential for mass destruction than a confrontation between India and Pakistan. But 

it shows that crises of human security, even without the acute violence of an invasion or 

a revolution, can be just as destructive. It was this type of chronic violence, rather than 

an overt military conflict, which led to the deployment of Canadian forces in East Timor 

to help provide security during its move to independence. This was only the second time 

since the end of the Korean War in 1953 that Canadians have been in Asia in an active 

role. Ironically, the other deployment was also in what is now Indonesia — in Irian Jaya 

from 1961 to 1963 as part of the UN force during the transfer of sovereignty from the 

Netherlands to Indonesia. The tensions of East Timor’s 23 years of forced integration 

with Indonesia and long oppression by the Indonesian military were unleashed by former 

President Habibie’s ill-thought-out scheme of offering the territory the choice of 

independence, without providing for any neutral security for the population in the event 

they chose independence. Ahead of the UN-organized referendum on separation, pro- 

Indonesia factions, with assistance from elements of the Indonesian military, attempted 

to intimidate independence supporters. Canada provided support during this chaotic 

period as part of the United Nations Mission in East Timor, contributing civilian police 

and a Chief of Public Information. Once the clear vote for independence was in, the 

intimidation turned into random killing by the pro-Indonesia militias, until the arrival of 

an Australian-led, UN sanctioned peacekeeping force, to which Canada contributed 630 

troops, sailors and aircrew. 

02 Hong Kong announces deal with Disney to 

build theme park on reclaimed land near 

airport. 

05/ Pope John Paul II makes controversial 

07 official visit to India. 

06 Australia votes to retain British monarch as 

head of state. 

08 Thousands march in Indonesian province of 

Aceh demanding independence vote. 

10 Malaysian Prime Minister Dr. Mahathir calls 

early election. 

11 Indonesia’s Attorney General appeals 

acquittal of Suharto’s youngest son on 

corruption charges. 

15 American and Chinese negotiators sign 

agreement opening China’s markets and 

clearing way for China to join WTO. 

16/ Indonesian President Wahid says Aceh can 

17 hold referendum in seven months, 

independence will not be an option. 

18 Deposed Pakistani Prime Minister, Nawaz 

Sharif, arrested, charged with criminal 

conspiracy. 

20 China launches first spacecraft, Shen Zhou. 

26 Canada and China sign agreement on market 

access issues related to China’s entry into WTO. 

28 Pro-China Democratic Alliance for the 

Betterment of Hong Kong polls strongly in 

first local elections in Hong Kong since 

1997 handover. 

28 ASEAN leaders meet in Manila at third 

Informal Summit. 

29 Malaysians re-elect coalition government led 

by Dr. Mahathir. Islamic party PAS becomes 

official opposition. National Justice Party 

wins five seats, including one by Wan Azizah 

Ismail, the party leader and wife of Anwar 

Ibrahim. 

29 Labour Party, led by Helen Clark, wins New 

Zealand elections.

Outbreaks of violence in other parts of Indonesia throughout the year attracted less 

international scrutiny than East Timor but were just as deadly. The separatist struggle in 

the northern Sumatra province of Aceh has left an estimated 5,000 dead over the past 

10 years, many at the hands of the Indonesian military. The withdrawal of much of 

the military presence after President Wahid took office, and his offer of a referendum 

on autonomy, eased the violence but has only postponed a resolution of the separation issue. 

The crisis has the potential to develop into a second East Timor or even to destabilize 

Wahid’s government. Wahid himself alleges that elements of the military as well as 

extremist Muslims are deliberately continuing to provoke violence to cause instability. 

In Maluku, another centre of conflict, the causes are different. There have long been 

tensions between neighbouring Christian and Muslim communities over real or imagined 

grievances dating back generations. There seems little immediate political content to 

the issues, although again there are signs that deliberate provocations have fanned the 

animosities. While lacking the strategic importance of Aceh, continuing unrest in Maluku, 

as in other parts of Indonesia, provides the military an excuse for maintaining a central 

role in government. The military has much to gain, and the government much to lose, 

if regional instability continues. 

33 

Separatist movements in East Timor, Aceh and elsewhere in Indonesia, or communal 

hostility in Maluku, were not caused directly by the economic collapse. They are chronic 

situations that were suppressed by the military during the 32 years of Suharto’s rule. The 

economic collapse and weakening of central authority following Suharto’s departure 

allowed the hostilities to erupt into open conflict. However, in the more open post-Suharto 

Indonesia, there is at least a chance for the underlying issues to work themselves out, 

hopefully without the disastrous results of East Timor. President Wahid has shown that 

he realizes this and deserves international understanding, patience and help as he looks 

for solutions. At stake are the welfare of tens of millions of people and the stability of 

the key nation in Southeast Asia.

The share of total Canadian FDI held in Asia has 

dropped steadily since 1994...this does not 

augur well for a resurgence in Canadian exports 

to Asia in the next few years.

ECONOMIC RELATIONS 

3 

looking for 

a new model 

35 

For more than a decade, the Government of Canada and, to a lesser extent, the provincial 

governments, have adopted policies and programs intended to boost Canada’s business 

relationship with Asia. Through membership in the Asia Pacific Economic Cooperation 

(APEC) Forum, through the much-publicized Team Canada trade missions, and through 

support for the Asia Pacific Foundation itself, Ottawa and at least some of the provinces 

have demonstrated their belief that greater economic ties with Asia are beneficial to the 

development of the Canadian economy. They showed this most consistently in their 

support for expanded trade. These efforts seemed to be paying off in terms of exports, 

at least until the Asian economic crisis hit. After six years of stagnation, exports grew strongly 

in the mid-1990s, even though development of markets was hindered by an overly heavy 

reliance on commodities and lightly processed raw materials. 

The other element of the economic relationship with Asia — investment — followed an 

opposite trend. After growing strongly in the early 1990s, at a time when the Canadian 

dollar was strong, Canadian direct investment in Asia (DIA) has been relatively flat since 

1994, perhaps reflecting the low-key promotion of outward investment by Canadian 

governments, a depreciated Canadian currency, plus the strong rival attraction for Canadian 

business of the vibrant US economy. If it were to continue, this slowdown in DIA would 

have a long-term dampening effect on our trade with Asia. Changes that globalization 

brought to the relationship between investment and trade have made foreign direct 

investment (FDI) a major stimulus to trade, rather than a substitute. Canadian governments 

are just beginning to recognize this by looking to a new model for developing commercial 

ties with Asia — one that promotes outward direct investment with equal vigour to 

that given to trade. 

Globalization has changed the way countries trade and the reasons why companies 

invest offshore. Traditionally, economies traded resources which they had in abundance 

or products they could produce more competitively than their rivals. Companies made 

foreign investments to secure their sources of raw materials or to manufacture their 

products inside protected markets on the same terms as domestic firms, without having 

to worry about tariffs and other import barriers. In this environment, foreign investment 

was a substitute for trade. Today that scenario no longer holds true. Foreign

investment is now complementary to trade and, as the most recent studies suggest, 

probably a driver of trade. As a result of liberalization of world trade after the series of 

negotiating rounds under the General Agreement on Tariffs and Trade (GATT), 

dramatic improvements in communications, spectacular gains in product and process 

technologies and global competition for capital, technology and markets, trade is 

much more of an intra-company activity than ever before. (For instance, a staggering 

80% of North America’s trade is carried out by transnational companies, 1 and it is estimated 

that about half the exports of transnational companies in Canada are to their own 

parent companies or overseas affiliates. 2 ) It is no exaggeration to say that overseas 

investment is a key to increased trade. 

36 

Companies invest overseas as a way to continue growth beyond the confines of their 

domestic market, to spread risk, to take advantage of their own technological specialization 

across a broader market, or to minimize transport costs. Nowhere is this more evident 

than in Asia. Research into the development of trade and investment within APEC has 

demonstrated a very close link between FDI and trade. For instance, a study by Industry 

Canada concluded that “investment is leading the integration of APEC economies and 

trade linkages are developing in response to investment patterns.” 3 The study noted 

that “the large increase in FDI flows worldwide as well as among APEC member economies 

is mainly due to the increased globalization of production, innovation and financing 

by multinationals.” 4 Within APEC, the study showed, “the correlation between trade 

and investment patterns . . . strongly suggests that direct investment and trade are 

complements, not substitutes.” 5 It seems greater investment in Asia is one key to increased 

Canadian exports. So how have we been doing? 

ASIAN DIRECT INVESTMENT IN CANADA BY ECONOMY (C $MILLIONS) 

1992 

1993 

1994 

1995 

1996 

1997 

1998 

Australia 

China 

Hong Kong (SAR) 

India 

Japan 

Malaysia 

Singapore 

South Korea 

Taiwan 

Other Asia/Oceania 

825 

49 

2,358 

11 

5,962 

47 

102 

57 

99 

826 

765 

145 

2,496 

9 

6,249 

73 

153 

-2 

102 

1,414 

992 

232 

2,730 

5 

6,587 

104 

201 

44 

121 

1,031 

489 

228 

2,758 

-1 

6,952 

61 

356 

109 

117 

1,143 

656 

206 

2,989 

9 

7,828 

124 

266 

152 

115 

684 

916 

227 

3,045 

12 

8,087 

162 

213 

178 

151 

2,929 

854 

178 

3,372 

n/a 

8,058 

161 

471 

165 

108 

2,376 

Total Asia 

10,336 

11,404 

12,047 

12,212 

13,029 

15,920 

15,743 

Asian Investment 

as % of all Sources 

7.49 

8.06 

7.79 

7.25 

7.26 

8.09 

7.25 

Source: Adapted from Statistics Canada, Canada’s International Investment Position, 1998 

(Cat. No. 67-202), pp. 21-26, Table 12.

TODAY’S DELAY IS TOMORROW’S LOSS 

At the end of 1997, the stock of Canadian direct investment in the Asian members of 

APEC 6 was well below the proportion of our global exports going to the same countries. 7 

The growth of new investment has been slowing. Between 1990 and 1997 — before the 

major impact of the Asian crisis hit trade and began to distort the figures — Canadian 

exports to the Asian members of APEC rose by 55% to make up 8% of Canada’s total 

exports. In the same period, Canadian investment in the same economies rose an impressive 

153% according to Statistics Canada, though starting from a relatively low base. 8 At the 

end of this period it represented 5.9% of Canada’s worldwide stock of foreign investments. 

However, most of that surge in investment was in the period 1990-94 — since then, 

Canadian FDI in Asian APEC has risen by an average of only 4% a year, well below the 

12.8% growth rate of Canadian investment globally. This is surprising, as in recent years 

a number of Asian economies have relaxed their restrictions on inward FDI. The overall 

result is that the share of total Canadian FDI held in Asia has dropped steadily since 

1994. In light of the research on investment-trade linkages, this does not augur well for 

a resurgence in Canadian exports to Asia in the next few years. 

37 

Fortunately there is some evidence that the official statistics gathered of Canadian DIA 

may understate the level of investment. In addition, very recent trends in merger and 

acquisition (M&A) activity that have not yet been captured in official statistics show 

that, in at least that area, DIA has picked up dramatically since the Asian crisis. Just as 

importantly, it has shifted significantly into manufacturing and financial services, away 

from the previous emphasis on mining. 

CANADIAN DIRECT INVESTMENT IN ASIA BY ECONOMY (C $MILLIONS) 

1992 

1993 

1994 

1995 

1996 

1997 

1998 

Australia 

China 


India 

Indonesia 

Japan 

Malaysia 

New Zealand 

Singapore 

South Korea 

Taiwan 

Other Asia/Oceania 

2,565 

43 

883 

98 

877 

2,521 

90 

142 

2,119 

51 

194 

696 

2,483 

225 

1,532 

110 

909 

2,845 

92 

478 

2,217 

123 

150 

795 

2,761 

257 

2,074 

169 

1,259 

3,485 

118 

929 

2,369 

137 

192 

1,011 

3,080 

375 

2,367 

179 

1,472 

2,735 

96 

1,446 

2,342 

146 

252 

1,157 

3,085 

426 

2,670 

128 

1,575 

2,676 

-40 

1,452 

2,213 

188 

248 

1,597 

3,039 

440 

2,610 

119 

1,983 

3,002 

168 

1,973 

2,241 

172 

238 

1,607 

2,953 

464 

2,922 

226 

1,887 

3,150 

216 

2,069 

2,202 

292 

243 

1,590 

Total Asia 

10,279 

11,959 

14,761 

15,647 

16,218 

17,592 

18,214 

Canadian Investment in 

Asia as % of World Total 

9.20 

9.77 

10.09 

9.53 

8.94 

8.55 

7.60 

Source: Adapted from Statistics Canada, Canada’s International Investment Position, 1998 

(Cat. No. 67-202), pp. 9-14, Table 5.

○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 

○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 

○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 

○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 

○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 

EXPORTS TO ASIA PER CAPITA 1998 (C $) 

0 500 1,000 1,500 2,000 2,500 

38 

Canada 

BC 

Saskatchewan 

Alberta 

Manitoba 

Newfoundland 

New Brunswick 

Nova Scotia 

Ontario 

Quebec 

PEI 

Yukon/NWT 

Sources: Adapted from Statistics Canada, 

Exports by Country, January to December 1998 

(Cat. No. 65-003, Vol. 55, no. 4). 

The most puzzling discrepancy in investment data is in the figures for Indonesia. Statistics 

Canada records total cumulative Canadian investment in Indonesia in 1997 at $1.98 billion. 

Figures gathered in Indonesia by the Canada-Indonesia Business Development Office, 

an offshoot of the Alliance of Manufacturers and Exporters Canada, placed investment 

at $8.16 billion, a significant discrepancy. A considerable part of this can be explained by 

differing definitions: Indonesian figures record the total value of companies with a 

significant Canadian investment, including the non-Canadian stake. The Canadian figures 

record only the direct Canadian investment. But even deflating the Indonesian figure by 

two-thirds leaves a sizable gap between the Canadian and Indonesian-sourced figures. 

In South Korea, Canadian figures put the FDI total at $172 million in 1997. South Korean 

figures put the total almost 50% higher. In China there is an apparent understatement of 

$61 million. One source of the variations is in definitions (as in the case of Indonesia) 

and in the basis of collection (investments approved rather than completed, for instance). 

There are no widely followed international standards of data for direct investment, making 

intercountry comparisons difficult. 9 In Canada, in which capital movements are 

unrestricted, monitoring investment outflows is particularly difficult. Statistics Canada, 

recognized as one of the best national statistics agencies in the world, gathers data annually 

from a survey of approximately 2,000 companies. 10 The 100 largest of these account for 

about 80% of the total value of outward FDI, according to StatsCan. 11 

While the survey method will likely capture the major foreign investments by Canadian 

companies in Asia, it will not necessarily record the full range of investments. It appears 

that investments made in third countries by the overseas subsidiaries or associates of 

Canadian companies (those in which the direct equity stake is between 10% and 49.9%) 

are not being captured. This would help explain the relatively high investment in 

Singapore, some of which likely represents indirect Canadian holdings in Indonesia. Just 

as important are deals by smaller companies. A study by the Asia Pacific Foundation 

(APFC) revealed that 19 of the 84 publicly announced Canadian investments in Asia by 

way of M&A during the past thirteen years involved deals of US $1.5 million or less. 12 

None of these deals was by a major company, and some were by first-time overseas 

investors, making it likely they fell through the mesh of StatsCan’s survey net. A 

fuller coverage of smaller Canadian investments might alter the picture on DIA. As 

accurate information on foreign investment is an important policy input, and can have

○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 

○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 

○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 

○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 

○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 

IMPORTS FROM ASIA PER CAPITA 1998 (C $) 

0 500 1,000 1,500 2,000 2,500 

Canada 

BC 

Ontario 

Quebec 

Newfoundland 

Manitoba 

Nova Scotia 

Alberta 

New Brunswick 

Saskatchewan 

PEI 

Yukon/NWT 

Sources: Adapted from Statistics Canada, 

Imports by Country, January to December 1998 

(Cat. No. 65-006, Vol. 55, no. 4). 

39 

a valuable demonstration effect on Canadian businesses thinking of investing in Asia, APFC 

has begun collecting M&A data as a long-term project and as a service to government 

and business. 

Canadian companies, along with investors from most developed countries, have recently 

taken advantage of depressed asset values and relaxed regulations to substantially increase 

their investment in existing Asian-based enterprises. According to a listing prepared by 

the Asia Pacific Foundation, 25 Canadian companies have invested US $2.5 billion in 

Asian purchases since July 1997. This compares with US $1 billion invested by 37 companies 

in the eleven-and-a-half years before the crisis. (In each period, several companies were 

involved in multiple deals, so the total number of transactions exceeds the number of 

companies involved.) In addition, the average size of the deals has increased since 1994. 

There has been a notable shift in the focus of the takeovers as well. More than half the 

deals in the first period involved investments in mining activities — including a spate of 

small acquisitions in Indonesia when the Bre-X gold fever was at its height. Since the 

Asian crisis, fewer than a quarter of transactions have been in the mining sector. This 

is significant as the motivation for offshore investment by mining companies is to secure 

their raw materials. The desire to gain economies of scale by expanding operations may 

also exist, but it is generally secondary to the acquisition of an ore body. There may be 

some benefit to Canadian exports if mining equipment and supplies are involved in the 

project. However, mining investments do not hold out the same promise of long-term 

trade linkages back to Canada as do manufacturing investments. 13 

Renewed interest in Asian investment as the region recovers from the financial crisis is 

also suggested by a survey of investment intentions carried out by APFC late last year. 14 

The survey of companies that already have a physical presence in Asia Pacific, found 

that 56% planned to increase their investments in the region over the next 12 months, 

while 74% said they expected to boost their holdings within two to five years. Only 

four out of the 68 respondents had decided to reduce their exposure in Asia. Just 

under 60% of the respondents were manufacturers or service suppliers targeting Asia- 

Pacific customers. Most of the companies planning increased investments were looking 

to add new facilities or add to existing plant. Only nine out of 56 expected to grow 

through takeovers of existing companies. This could be explained by the motivation

VALUE OF CANADIAN MERGERS AND ACQUISITIONS IN ASIA 

VALUE REPORTED (US $MILLIONS) 

Number 

Year 

of Cases 

Total Average 

1992 

1993 

1994 

1995 

1996 

1997 

1998 

1999 

5 

4 

10 

8 

16 

9 

12 

15 

149.2 

67.1 

83.3 

91.1 

205.6 

283.8 

488.4 

2,022.2 

29.8 

16.8 

8.3 

11.4 

12.9 

31.5 

40.7 

134.8 

40 

Source: Thomson Financial Securities Data, 1999 and published sources. 

for new investment, which in the largest number of cases was to keep up with growth 

in Asian markets or to meet the needs of existing customers. Only two respondents 

cited low asset prices as a reason to invest. 

WHY INVEST OVERSEAS? 

This raises the question of exactly how it benefits Canada to have more direct investment 

in Asia. The question is answered most succinctly in the Consultation Paper on WTO/FTAA 

Investment, issued by the Department of Foreign Affairs and International Trade: “By 

investing abroad, Canadian companies gain new markets and strengthen their operations 

through the acquisition of new technologies, resources and skills.” 15 Canada’s domestic 

market is small, and is supplied in large part by small and medium-sized companies – one 

reason why e-commerce holds out such promise to Canada. Investment offshore opens the 

opportunity for Canadian companies to improve their competitiveness by expanding 

their scale of operations (bringing economies in areas like management and R&D), 

improving their access to skilled workers and finance and by accessing a wider variety of 

technologies, management and marketing practices. A study of 447 major Canadian 

companies by Industry Canada researchers, Rao, Legault and Ahmad, found that “the 

growth and profitability performance of the outward-oriented Canadian firms is 

significantly better than the performance of the domestically oriented firms.” 16 This showed 

up as greater sales growth, asset growth, capital productivity and return on assets, plus a 

dramatically higher level of R&D spending as a proportion of sales. The average salesto-assets 

ratio of transnational companies was found to be more than 60% higher than for 

a group of domestically oriented companies of about the same size and from the same 

mix of industries. The greatest performance difference was in financial sector companies 

and in labour and technology-intensive firms. On the other hand, outward-oriented firms 

involved in mining or in resource-intensive manufacturing showed little better or no better 

performance than those involved only in activities in Canada, perhaps reflecting the tax 

bias favouring resource industries in Canada. It is noteworthy that employment growth 

in the 55 outward-oriented high-tech firms included in the study was higher than in 

their purely domestic competitors. The information technology revolution of the past two 

decades has made it imperative for high-tech companies to trade and market technology 

on a global basis. Expansion overseas opens up a sufficiently large market for the companies

to achieve operating efficiencies that are usually unavailable to firms confined to a purely 

Canadian market. Companies like Northern Telecom or Newbridge Networks have gained 

international competitiveness after moving beyond the restricted Canadian market and 

accepting a level of competition not encountered in Canada. 

WHAT GOVERNMENT CAN DO 

Decisions on foreign investment are rightly taken in the private sector, so the role 

of government in directly supporting outward FDI is actually quite limited. Domestically, 

it will be confined to influencing the broad environment in which decisions are taken 

— ensuring that such things as competition policy, tax regulations and cultural 

protection rules neither impede nor wrongly encourage investment. Government should 

make sure the policies it adopts in one area do not impact inadvertently on outward FDI. 

Issues like taxation treatment of R&D or other headquarters expenditure in Canada, 

undertaken on behalf of a foreign subsidiary, require careful treatment. Of course, 

governments must balance domestic priorities, like ensuring a fair tax yield from 

corporations or employment equity, with policies that are neutral to FDI. However, 

policymakers should keep in mind that FDI in the globalized economy has been shown 

to provide a net gain to the domestic economy over the long term, and should look for 

ways to promote this message at a political level. (Of course, increased trade is not the 

only direct gain from FDI. The repatriation back to Canada of profits and dividends is a 

plus in our balance of payments and adds to our gross national product. In 1998, this led 

to a capital inflow of $12.7 billion from FDI worldwide. 17 ) 

41 

In the case of Asia, trade promotion policies should be reviewed to ensure that outward 

investment is given greater attention. While it is up to private companies to make 

investment decisions, government can facilitate the process with up-to-date information. 

Provision of market information is a major area of government support for exporters, but 

relatively little information is offered on investment opportunities for Canadian businesses 

looking to Asia. Industry Canada, through its excellent Strategis website, 18 already provides 

an extensive background to the investment regimes and regulations in all the major 

Asian economies. The trade sections of Canadian embassies and high commissions in Asia 

could be tasked specifically to collate information they gather on possible investments in 

their respective countries. These could provide the basis for a Team Canada investment 

mission. A promotional effort could usefully be directed at shareholders and managers to 

help overcome an apparent reluctance by Canadians to become involved in foreign 

investments outside the familiar and comfortable US market. 

At present, the closest Ottawa comes to active involvement in promoting FDI is through 

CIDA-INC and through the Export Development Corporation (EDC). CIDA-INC, the 

private-sector promotion arm of CIDA, helps reduce the risks to Canadian firms by sharing 

the special costs of making investments that meet its developmental goals. However, only 

projects in developing countries are considered — immediately excluding Japan, Singapore, 

South Korea, Taiwan and Hong Kong SAR from its coverage — and much of its support 

is limited to feasibility or viability studies. Also CIDA-INC’s institutional focus on projects 

with a developmental component — providing training, the participation of women, or a 

clean environment — deters many companies whose overriding concern when entering a

new market is the commercial risks they are facing. The role of EDC is rather different, 

as its focus is highly commercial. Since its mandate was broadened in 1993, the export 

credit agency has been able to support a limited range of medium-term overseas 

investments in which there is a clear and rapid export benefit to Canada. It can take an 

equity partnership position of up to 25% or $10 million in an offshore company with a 

Canadian investor where the investment is projected to yield a return to Canada of at least 

twice the EDC stake. A recent review of EDC’s mandate and operations has recommended 

that the $10 million limit on its investment in foreign projects should be removed. 19 

42 

It is at the international level that government can do most to help promote outward FDI, 

by continuing to work for the removal of barriers to investment in recipient countries 

— including our own. The major focus of Canada’s official involvement in Asia is through 

APEC, which is working cooperatively toward removing barriers to foreign investment 

within the region. Considerable progress has already been made on increasing the 

transparency of investment regulations in APEC economies and providing forums and 

training to facilitate FDI. With much of the trade liberalization work of APEC passed on 

to the World Trade Organization, at least for the next few years, Ottawa could afford 

to increase its attention to investment facilitation. Beyond this, Ottawa could also increase 

its efforts to negotiate bilateral foreign investment protection agreements (FIPAs) and 

tax treaties with Asian partners. While tax treaties are in place with all the major economies 

in Asia except Hong Kong and Taiwan, Canada has FIPAs with only two Asian countries, 

the Philippines and Thailand, and recently signed a bilateral investment treaty with South 

Korea covering the telecommunications industry. 

THE TEAM CANADA EXPERIMENT 

Since 1994, Canada’s trade and investment promotion in Asia has been built around the high-profile 

Team Canada missions, led by the prime minister and most of the provincial premiers. Canada Asia Review 

noted previously that these missions, accompanied by executives from a range of Canadian companies, 

have gone some way toward raising the rather low profile Canada has in most of the countries 

visited. The high-level political representation opens doors that might not easily be entered by 

businesspeople travelling alone, especially the small and medium-sized company representatives who 

make up the bulk of the missions. The approach of a mission helps move forward deals and decisions 

that have been stalled in “pending” trays for months. However, it is not clear that the broad-brush Team 

Canada strategy has the long-term beneficial impact hoped for (which is one reason future missions 

will have more specific objectives). 

From the time the Team Canada concept was first tried in the mission to China in November 1994, until 

1998, these major traveling showcases visited 12 countries in Asia and Latin America. (In September 

1999, Team Canada went to Japan on a much more focused mission than in previous forays, 

concentrating on high-tech industry. It is too soon to examine the impact of that mission.) A superficial 

analysis of trade figures from these 12 countries shows that in only four cases — China, Indonesia, 

Mexico and the Philippines — were Canadian exports up strongly in the year following the visit 

(measured by comparing export performance to Team Canada targets with export growth to the 

rest of their region in the same periods). In three other countries, Malaysia, South Korea and Chile, 

exports showed very modest growth beyond the regional average. In the other five countries targeted, 

exports were either down or unchanged. However, there was another trade impact: in five countries 

imports by Canada performed better than our exports after Team Canada left. In India and Argentina, 

imports rose (again compared with the regional average trend) while exports fell and in Pakistan,

Finally, foreign investment by Canadian companies in the past has been stigmatized as 

“exporting jobs.” In the short term, a factory closure in Canada by a company investing 

in a plant in a low-wage country in Asia may seem just that. However, there is plenty of 

evidence to show that other higher skill, higher paying jobs in areas like R&D, design 

and management are created in Canada as the overall scale of operations of the investing 

company grows. 20 In addition, the nature of globalized investment and production today, 

where integrated operations are spread over several countries, makes the job loss concerns 

of foreign investment somewhat less than they were in the past. A new plant in Asia is 

just as likely to be a customer for its Canadian parent as it is to be a supplier. Still, to the 

extent that there may be short-term social costs accompanying increased outward 

investment, government has a responsibility to assist with job retraining and other support 

for displaced workers. 

43 

Canadian companies have been late starters in the race to expand operations in Asia. 

Lacking the imperial past of Britain, France or the Netherlands, Canada has not had a 

portfolio of colonial assets to build on. Although a few Canadian companies like Sun Life 

or Placer Dome have had operations in Asia for generations, they are the exception. If 

the fallout from the Asian crisis is indeed creating the “new” Asia that is widely touted 

— one with greater corporate transparency, better governance and less corruption — 

Canadian companies will have an opportunity to catch up. If our governments believe, 

as they say, that our future will be enhanced by increasing economic ties with Asia, they 

must encourage more Canadian companies to join the race. To do otherwise would ignore 

the new relationships emerging in the economy of the 21st century. 

where exports fell, imports fell rather less. Overall, Canada’s merchandise trade deficit with the 12 

countries grew a combined $914 million in the year after Team Canada came to town. 

Although the evidence is far from conclusive — the Asian economic crisis had an effect on the Latin 

American countries on the January 1998 itinerary — Team Canada does not seem to provide quite 

the fillip to Canadian exports in the short term that is portrayed, though many of the trade deals inked 

and contacts made will lead to shipments spread over a longer period than one year. Perhaps one 

reason for the mixed results is that the Team Canada format is more effective in economies like China 

or Indonesia (at the time of the visit) with highly centralized business structures, rather than in countries 

where business is less dominated by government. 

On the other hand, the figures suggest Team Canada may be having an impact on Canadian DIA. While 

the gestation time for investments is somewhat longer than for trade deals, and statistical evidence is 

less readily available, in at least five countries visited — China, South Korea, Indonesia, India and 

Malaysia – Canadian direct investment rose significantly in the two years after a Team Canada visit. 

Although the missions have not been billed as investment-promotion activities, the evidence suggests 

investment opportunities are forefront in the minds of some business participants. Out of 580 specific 

deals itemized in government information released after 11 of the 12 missions, about 100 were 

investment transactions. 1 It is not possible to quantify the total value of investments growing out of 

the missions as no values are reported for many of the deals. However, it seems the Team Canada 

missions have had some positive impact on our investment in Asia. The logical next step would be to 

mount a Team Canada investment mission, aimed specifically at promoting Canadian investment in Asia.

At issue are not the gains that the free-trade 

agreement brings to our economy, but 

the distortion this policy intervention in 

trade flows may be causing in our economic 

relationship with other regions.

NORTH AMERICAN INTEGRATION 

4 

too much 

of a good thing? 

45 

The biggest obstacle to greater Canadian economic involvement in Asia is the lure of the 

US market. Huge, rich and relatively open to Canadians, the US is the obvious foreign 

market of choice for businesses. The more distant and difficult markets of Asia run a 

poor second, no matter how promising their long-term growth prospects. Canada’s 

involvement with our giant neighbour is so extensive and apparently inevitable that 

thoughtful commentators and economists suggest we should further strengthen our ties 

by entering into a customs union with the US or even adopting a common currency. 1 

However, it is important to ask how much of the integration in the North American economy 

goes beyond our fundamental economic compatibility and is driven by government policy 

decisions or businesses’ risk aversion. If we have tied our wagon a little too tightly to the 

US because of political fiat rather than economic rationale, we have to be concerned 

that the level of integration may ultimately have a detrimental impact on Canada. This 

leads to questions about the effect that even greater levels of integration would have on 

our relationship with other regions, specifically Asia. Our close economic relationship 

with the US is Canada’s overriding exercise in globalization. But the globe extends well 

beyond the 49 th parallel. 

By most measures, Canada’s economy appears closely integrated with the US — the border 

between us is only a limited impediment to trade and commerce, as the figures show. 

Some 68% of foreign direct investment in Canada is from the US, while nearly 53% of 

Canadian direct investment abroad is in our southern neighbour. About 53% of foreign 

portfolio investment in Canada — in both stocks and bonds — is held in the US, including 

94% of all Canadian stocks owned by foreigners. Similarly, 58% of overseas portfolio 

investment by Canadians is in the US. In recent years, cross-border investment has leveled 

off. However, that plateau of cross-ownership is clearly at a high level already. 

Our trade ties are even greater than our investment links: fully 85% of Canadian exports 

in 1998 went to the US, which in turn provided 68% of our imports. Much of this exchange 

is taking place at an intercompany level. It is estimated that nearly 50% of Canada-US 

trade is between parts of the same business group, 2 with components or finished goods 

from a plant on one side of the border supplied to an associate on the other side. The 

interchange of similar products shows up even in our gross trade profile: eight of the 

top ten Canadian export categories to the US rank in the top ten US exports to

Canada. Beyond merchandise trade, our communications systems are intertwined, as 

well as our transport and energy networks. In fact, about the only major economic activities 

that are independent — or where we at least maintain the option of independent 

action — are our monetary and fiscal systems, but they are key areas in maintaining 

Canadian independence. 

46 

Yet our integration may not be as close as it seems on the surface. Despite the large 

proportion of Canadian output going across the border, even measured by trade flows, the 

US and Canadian economies are far less integrated than those of the European Union (EU). 

Just under 63% of EU member countries’ exports go to other EU countries, representing 

16% of their combined GDP. 3 The comparable figures for Canada and the US are 37% 

and just 3%. But unlike the level of investment, these proportions are much higher than 

they were a decade ago. Policy intervention seems to be the driving factor. (In the 

current debate about the brain drain, productivity, tax differentials and the possibility of a 

currency union, the extent of integration with the US is often exaggerated. Heightened 

media comment about relatively short-term situations like an “undervalued” Canadian 

dollar, should not drive policy on long-term issues such as increased or decreased 

economic integration.) 

The Canadian economy has changed dramatically since the start of the North American 

Free Trade Agreement (NAFTA) in 1991, which significantly reduced our costs of trading 

with the US relative to other countries. The proportion of our gross domestic product 

accounted for by trade with the US has risen steadily (as the chart on page 48 shows). 

During the 1980s, Canadian shipments to the US were around 17% of GDP. In the early 

1990s, as NAFTA was phased in, the relative importance of our US trade began to grow 

rapidly. By 1998 it had reached 31% of GDP. Imports followed a similar pattern, rising 

from 15% of GDP to 23%. The important automobile industry, our top exporter to the 

US, best demonstrates the way in which policy has shaped our trade flow. Before the 

Canada-US Auto Pact (the first step toward NAFTA) was signed in 1965, effectively 

removing the border as a factor in the industry, auto exports were only 1% of shipments 

south. Today they contribute 23% of all shipments across the border. Meanwhile, auto 

exports to the rest of the world are a mere 0.3% of the total. Is the automobile output of 

southern Ontario or Quebec so unique that Canadian-manufactured vehicles are 

competitive in the US market but nowhere else in the world? Proximity to the US is clearly 

one factor dictating the market, but major producers like Japan and South Korea are able 

to export to markets far away from their home bases. Policy has shaped the trade. 

Close ties between the Canadian and US economies are natural, even inevitable, given 

our geographic proximity and the cultural similarities of our peoples. These ties have 

been reinforced by economic policy. To the extent the policies enhance the inherent 

complementarity of our economies, they are commendable. But policy should be based 

on economic reality. At issue are not the gains that the free-trade agreement brings to 

our economy, but the distortion this policy intervention in trade flows may cause in 

our economic relationship with other regions. If Canadian business had access to 

other markets at the same level they enjoy with the US, the pattern of our economic 

relationship might be less skewed. At present, Canada has a free-trade relationship

similar to that with the US with only three other countries — Mexico, Chile and 

Israel. These countries, none of them economic giants, accounted for just 1.7% of 

our total trade in 1998, compared with the 77% accounted for by the US. 

The way to rectify any imbalance brought about by North American free trade is clearly 

not to forgo the access we have gained to the US, but to seek similar levels of access to 

other major regions, notably Asia. The government has pursued this objective globally 

through the GATT and WTO, and regionally through such groupings as APEC and the 

Free Trade Area of the Americas. Worthy as these efforts may be, they are very long term 

— the GATT/WTO process has been under way for some 52 years and still has a long way 

to go. APEC’s vision of free trade in Asia Pacific is not due to be fully realized until 

2020, and could well run out of steam long before that. A shorter-term solution would 

be to seek free-trade and investment agreements with other major trading partners, 

especially our second-largest partner, Japan. These would be intermediate steps toward 

broader economic liberalization, and would help offset the policy bias that now appears 

to exist toward the US. Once negotiations began, they would promote debate on the 

distortion NAFTA has brought to our economic relationships and send business a signal 

about looking for markets beyond the US. There is no reason this should detract from 

Canada-US investment or trade. Rather it would likely stimulate interest and develop a 

greater level of expertise in areas of trade and investment that are currently neglected 

due to ignorance. Once major Canadian companies or institutions began investing in, say, 

Japan, the way they now do in the US, Toronto stock analysts would quickly develop an 

interest in Japanese investments. 

47 

A BALANCING ACT 

Growing integration, or at least interdependence, is the outstanding feature of today’s 

global economy. The integration is far from even, focused on clusters of countries in North 

America, Europe and East and Southeast Asia. There are few signs of significant crossborder 

integration in Africa or South Asia and it is relatively less developed in Latin 

America, despite efforts underway to create a free-trade area linking North and South 

America. The pattern of integration is also very uneven within countries, concentrated 

in certain industries, especially electronics and high tech. However, the general trend is 

for greater cross-border integration. As argued in What is Globalization? in Chapter 1(page 

12), this integration, whether regional or global, is the result of the interaction of a series 

of developments in technology, communications and transport. It is not directly the result 

of policy decisions by any government or international body like the WTO. However, 

policy choices, especially decisions to remove direct and indirect barriers to flows of goods, 

people or capital, establish the framework within which these factors interact. They can 

have a considerable influence on the resulting pattern of industries. 

Ideally, policy should be balanced, not unduly favouring any of the elements at work in 

the integration process. It should also touch on the broadest possible range of a country’s 

economic relationships. Of course, in the real world of politics and entrenched interests, 

it is impossible to advance on all fronts simultaneously. In the case of Canada and the 

US, the flow of goods and capital between the two countries has been liberalized to a

○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 

○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 

○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 

○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 

○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 

○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 

THE NAFTA BOOST 

% GDP 

40 

35 

30 

25 

20 

15 

10 

Year 

Start of NAFTA 

‘80 ‘81 ‘82 ‘83 ‘84 ‘85 ‘86 ‘87 ‘88 ‘89 ‘90 ‘91 ‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 

48 

Total Exports Total Imports Exports to US Imports from US 

Sources: Bank of Canada and Statistics Canada, CANSIM. 

great extent. However, the movement of labour is quite restricted, with the result that 

only some 660,000 Canadians or Canadian-born people live in the US — equal to about 

2% of the Canadian population. There are only about a third that number of US-born 

residents in Canada, a tiny fraction of the American population. People are far less mobile 

than capital, and most people the world over choose to remain in the country of their 

birth. However, there are significant immigration (as opposed to travel) restrictions still 

in place between Canada and the US. The labour integration process in North America 

is relatively unbalanced, far more so than in the European Union where citizens may live 

and work in any other member country. A result is significant wage and productivity 

differentials between Canada and the US, one reason cited for developing an even closer 

economic union. However, such a strategy could permanently impede our economic ties 

with other countries. The simpler and more “balanced” approach would be to remove 

the barrier to the movement of labour. 

We may, in fact, have reached a point where we gain less from closer ties than we lose 

by not strengthening some alternative links. An important consequence of economic 

integration with the US is the reduced effectiveness of the US as a cushion against a 

downturn in Canada. This should be a major policy concern for government. While it is 

likely in the best interests of individual Canadian companies to look first to the US for 

foreign markets, given the relative cost advantages enjoyed under NAFTA, it is the 

responsibility of government to ensure that this level of involvement in aggregate does 

not lead to a lower benefit to the economy as a whole. A study by researchers Jeffrey 

Frankel and Andrew Rose 4 provides some evidence that the linkage we have with the 

US does reduce the autonomy of the Canadian economy. Frankel and Rose examined 

the degree to which close trade links lead to a greater correlation between business 

cycles. Their finding (from a survey of the performance of 20 countries over a 30-year 

period) was that close trade links do indeed tie countries to similar business cycles. This 

indicates that, over time, the US has become less useful to Canada as a hedge against 

recession. It is no surprise to Canadians to learn that when the US economy weakens, ours 

will follow. 5 Of course, this does not necessarily mean that Canada is worse off — the 

huge American economy is much less volatile than our own would be by itself. However, 

the US economy is not the only damper we could apply for this purpose.

British Columbia provides a recent example of the results of following (or accepting) 

a strategy of more diversified economic relationships. BC has a trade profile quite distinct 

from other Canadian provinces, with proportionately far more of its exports going to Asia 

than is the case with any other province and less to the US (except for Nova Scotia which 

trades heavily with Europe). During the North American recession of 1990-91, BC was 

the only Canadian province to maintain its economic momentum as the rest of the country 

followed the US slump. In the same way, when the Asian crisis hit in 1998, BC was the 

only Canadian province to slip into recession as the rest of the country rode the US boom. 

Canada will always have a closer relationship with the US than with Asia, but Asia can 

provide an insurance policy against over-dependence. Any further integration — for 

instance the adoption of a common currency — would only strengthen our marriage to 

the US business cycle. The prudent strategy for Canada is to diversify its ties to countries 

that do not necessarily follow the same business cycles as North America. (The irony is 

that the closer we become to another economy, the more we are influenced by its 

business cycle. The best strategy is to develop close economic ties with many countries.) 

49 

Canada’s automobile industry offers a model of an area of production that is at potential 

risk because it has relied on the policy component of North American integration to develop 

a very limited range of markets or products. The top Canadian export to the world in 

1998 was motor vehicles with engine capacities in excess of 3,000 cc — mostly minivans 

and SUVs — accounting for 10.9% of all exports. More than 99.5% of these vehicles 

went to the US. If US consumers ever reduce their demand — because tastes change, or 

the stock market declines, or they simply become tired of getting eight kilometres to the 

litre as oil prices rise — both our export market and the economy of southern Ontario 

will be hard hit. The entire basis of this trade is the policy decision by the governments 

of Canada and the US to develop a transborder automobile industry. It is a prime argument 

for finding additional export markets to enhance economic security. 

PLAYING TO THE FUTURE 

The greatest flaw in Canada’s North American integration strategy may be that it looks 

to the past rather than the future. Today the US dominates the world economy, 

contributing an estimated 27.7% of global GDP. But time is on the side of Asia. In a detailed 

analysis of Asian growth (written just before the Asian crisis hit), the Asian Development 

Bank projected that Asia’s share of world income will rise from somewhere under 40% 

today to about 57% by 2025. 6 By that time, GDP per capita in East Asia (excluding China) 

will be virtually the same as that in the US. China’s GDP per person is projected to rise 

from the 10.8% of the US level it recorded in 1995 to 38.2% over the same period, while 

incomes in Southeast Asia will more than double relative to the US. 7 In other words, 

Asia will be catching up with the US — and the numbers of people involved means the 

size of the markets created will be far larger than those in North America. While few 

companies can afford to plan an investment strategy on a 25-year timeline, governments 

must. Our bureaucrats have a responsibility to develop policies today that our business 

people can exploit tomorrow. 

Increased ties with the US also may not provide the greatest benefits to the growth 

industries of the 21st century. Integration is generally considered in terms of increased

50 

trade and investment — variables that are easily measured. Merchandise trade is recorded 

and investment, at least direct investment, is often very obvious — factories are hard to 

miss or hide. However, newer economic activities, especially services and the so-called 

knowledge economy, are less well catalogued and measured, so we may already be 

overstating the overall level of integration because it is the industries we can see most 

easily that appear to be the most heavily integrated. Recently, these established industries, 

such as automobile manufacturing, have been growing. But more dynamic growth in 

future is likely in knowledge-based sectors. These are still in the early stages of policy 

reform or even initial policy formation: services trade discussions are only just beginning 

in the WTO; market access in Japan is still new territory; financial services, especially in 

Asia, are steadily opening up; and e-commerce is in a state of flux in terms of both form 

and content. The prudent approach for policymakers is to be multilateral in their approach 

to reducing barriers to services trade and in attempts to secure market access. It is very 

hard to forecast just where these new industries will find a home and whether geography, 

such as our proximity to the US, will be much of a factor at all. 

Overall, the issue is not really between choosing greater integration with the US or with 

Asia. Rather, it is how to structure policies so that we do not preclude closer ties with 

Asia in the context of our existing relationship with the US. The access to the US we 

already have is the envy of all other countries. Yet these advantages can be better leveraged 

to the mutual benefit of Canada and its Asian partners. For example, Canada should 

benefit from NAFTA through increased attraction to foreign investors as a base for 

manufacturing to serve the entire North American market. However, in the case of Asia, 

the capital inflow has not been spectacular. High-profile failures like the Hyundai car 

plant in Bromont, Quebec have not helped. Since NAFTA came into effect, FDI into 

Canada from Asia has increased by only about 8.7% a year on average — hardly a flood. In 

fact there is considerable untapped potential for Asian investment in Canada as a platform 

for North American operations. The lack of response so far may reflect a lack of promotion 

overseas of Canada as a gateway to the US market. Of course there are other factors, 

like labour productivity, tax rates and government incentives, that investors consider in 

selecting the site for a new plant. There is a great deal of ignorance or misinformation 

in Asia about the competitiveness of the Canadian economy — hardly surprising as the 

same misinformation is widely accepted in Canada itself and turns up often in the debate 

on tax rates, brain drain and productivity. 8 Similar access at much lower wage rates offered 

by Mexico may also be a factor working against Canada. A greater level of integration, 

especially a full currency union, would make Canada more attractive by reducing or 

removing all exchange fluctuations for foreign investors looking to the US market and 

would rapidly bring about an equalization of tax and wage rates. But it is a solution that 

looks at Canada’s role in North America in isolation from its relationship with the rest 

of the world. 

Another way to build on our NAFTA ties may be to develop a re-export trade with Asia via 

the US. Globalization is not simply the manufacture of products in low-cost countries 

for export to North America and Europe. It involves locating facilities in the production 

chain at the most suitable location for the process involved. Canada is well placed to provide 

knowledge-based input. Already an unquantified volume of Canadian components are

part of US-assembled goods bound for Asia. This includes considerable “soft” input like 

design or research and development. A first step in developing a re-export strategy would 

be to undertake a study of the level of business already going on in order to gain a better 

understanding of how policies could facilitate re-export trade. 

ACT OR BE LEFT OUT 

The countries of Asia are facing an increasingly regionalized world, and there are mounting 

signs that they are moving toward a defensive response. Japan has begun negotiations 

with Singapore and South Korea aimed at developing a network of bilateral trade pacts 

with its Asian neighbours: a possible prelude to forming a free-trade zone in East Asia. 9 

In part, this is a response to Tokyo’s perception of the future of WTO negotiations. 

Separately, at a Seoul meeting of ASEAN nations, South Korea, China and Japan last 

October, South Korea’s reformist President Kim Dae-jung called for the formation of a 

new East Asian regional grouping to confront NAFTA and the EU. 10 Chinese economists 

have also spoken of a Northeast Asian economic zone. Clearly momentum is building toward 

creating an economic bloc in Asia — something which would likely supercede the much 

broader APEC process. Ottawa should move quickly to strengthen its formal relationship 

with Japan or South Korea or risk being shut out of the benefits of closer ties with Asia. 

Our NAFTA access is one of the assets we can bring to the bargaining table in negotiating 

any such agreements. 

51 

Emphasizing the wisdom of a trade deal with Asia are signs that the US commitment to 

more liberalized trade and investment flows, including greater North American integration, 

is waning in the face of a domestic political backlash. Despite NAFTA, a number of 

Canadian industries have found local protectionism can override market-opening 

commitments made at a national level. Cross-border flows of money and people face growing 

impediments as Canada is caught up in the US preoccupation with fighting the drug 

trade and, more recently, terrorism. Washington politicians, always responsive to their 

domestic constituencies, were surprised by the strong opposition to liberalized trade 

expressed on the streets of Seattle in December. The refusal of the US Congress to extend 

President Clinton’s power to negotiate international trade deals has always been interpreted 

as a partisan move by the Republican-dominated Congress against a Democrat president, 

rather than a sentiment against liberalization. However, Congress is likely to be less 

enthusiastic about further liberalization after the WTO debacle, no matter who is president. 

These domestic pressures can be expected to grow once the long-running US economic 

boom of the 1990s comes to its inevitable end. While these may be relatively short-term 

reversals of the underlying US support for economic liberalization, they also suggest that 

now may be the best time for Ottawa to pursue greater integration with Asia. 

South Korea and Mexico have recently begun bilateral discussions about concluding an 

investment agreement. This is especially disappointing to Canada as South Korea is the 

Asian country with which Ottawa has moved furthest in seeking a closer relationship. A 

multilateral approach to liberalization and integration is the best policy option. However, 

balanced regionalism may be the most practical. We have achieved a high level of integration 

in our own North American region. The time is opportune to develop more formal links 

with Asia, probably through Japan.

The “hidden advantage” image is rebounding 

as a disadvantage for at least some Asian 

Canadians under the age of 40...and it is 

creating an unexpected career hurdle for non- 

Asian Canadian management graduates.

ASIAN EXPERTISE 

5 

hidden advantage 

or lost opportunity? 

53 

Globalization is more than the liberalized flow of goods and capital across borders, or the 

dispersal of various parts of a production chain across different countries. Globalization 

has opened the doors to the freer movement from country to country of workers of all 

descriptions, from labourers and domestic staff to skilled professionals and technicians. 

Canadians, as much as most people, are aware of this because of the public debate about 

the so-called “brain drain” of our own doctors, engineers and computer experts to the 

United States. Canadian business is hard pressed to find ways to attract and hold the 

staff it needs in the face of stiff competition from US firms able to bid for many types of 

skilled Canadian workers under the terms of the North American Free Trade Agreement. 

Globalization opens the door out as well as the door in. 

The situation facing staff with expertise in Asian trade and investment is quite different. 

Rather than finding Canadian employers eagerly bidding to keep their services, they 

must often look to foreign companies for jobs. Canadian business, it seems, is losing 

Canadian-developed expertise in Asian business practices by default. In Asia, this is 

because there are so few Canadian companies to employ them. In Canada, it is because 

of a widespread lack of appreciation of the need for specialized cultural and business skills 

in approaching Asian markets, or simply an unwillingness to see international experience 

as a job asset. Some companies that do understand the unique business hurdles in Asia are 

now looking for the expertise in the wrong place, by turning to young Asian Canadians 

who often have no Asian expertise other than a language skill. This has the double 

impact of ignoring trained Asian expertise while pigeonholing some Asian-Canadian 

graduates into positions for which they feel unqualified. 

Over the past decade, a number of Canadian universities and colleges have developed 

business programs aimed at producing graduates with specific knowledge of Asia-Pacific 

markets and business practices. McGill University in Quebec, York University and Humber 

College in Ontario, Capilano College in British Columbia and Grant McEwan Community 

College in Alberta all have programs with an Asia-Pacific focus, and together they turn 

out more than 100 graduates a year. In many cases, the graduates also acquire competence 

in one of the major Asian languages. Some of the programs offer students the opportunity 

of working in an Asian country. Other graduates spend time in Asia under the federal

government’s Youth International Internship Program. This experience provides a key 

ingredient needed in developing business in Asia — an understanding of local practices. 

54 

In all Asian countries, business is done differently than in Canada, whether in jurisdictions 

like Hong Kong, Singapore, Malaysia or India that have legal systems like our own, based 

on British common law, or in China or Vietnam, where business relationships are still 

largely governed by political influence. It is essential for companies trading in any of 

these economies to have an insight into both the society and the business culture. While 

companies operating in Asia recognize that markets are different from those in Canada, 

and always value local market expertise, there has often been a failure to accept the 

need for an understanding of the broader environment in which business is carried on. 

Few Canadian businesses operate beyond our own borders, and most that do never 

venture beyond the US. Of the estimated 2.5 million businesses in Canada, 1 about 99% 

have fewer than 100 employees. Of these small companies, less than 7% trade or 

manufacture outside North America. 2 In the past, if business owners themselves did not 

have experience outside North America, they seemed to have a limited recognition of 

the need for Asian expertise, other than possibly the usefulness of local language skills. 

With the great influx of Asian immigrants in the past decade, a better understanding of 

the cultural dimensions of doing business has emerged, at least in the major immigrant 

centres of Toronto, Vancouver and Montreal. Managers have begun to turn to Asian 

Canadians for the extra business expertise they feel they need. However, there seems to 

be a widespread misconception about the business skills and connections of young Asian 

Canadians who have spent most of their lives in Canada. As a result, there is a feeling 

among at least some locally educated Asian Canadians that they are being pushed into 

“Asian expert” roles for which they are not always qualified. Meanwhile, those graduates 

who have purposely acquired Asian skills find themselves overlooked by Canadian employers, 

both at home and abroad. In a series of focus groups organized across Canada last year, 

the Asia Pacific Foundation found a surprising number of Asian Canadians under the age 

of 40 who felt they were valued by employers mostly as links to Asian business networks 

rather than for the skills they had acquired through years of study. 3 They believed this 

limited their career opportunities. 

HIDDEN ADVANTAGE REVISITED 

Six years ago, in a report titled Canada’s Hidden Advantage, the Asia Pacific Foundation 

pointed to the failure by many Canadian firms to take advantage of the business skills 

and connections of newly arrived Asian immigrants. 4 The lack of Canadian background 

and experience of these new entrants into our work force was seen by employers as a 

barrier to their recruitment to responsible positions, even if they had proven their 

business skills overseas. As a result, businesses were missing out on the chance to build 

on these connections to develop new markets. 

In the years since that report was published, there are signs that business is more widely 

recognizing the value of Asian immigrants as a bridge into Asian markets, both foreign 

and domestic. Many Asian business immigrants have established themselves as consultants, 

selling their expertise or connections in various Asian economies. However, the report

cautioned that “not every Asian Canadian has the necessary business skills, knowledge 

and contacts to expand a company’s trade with the Asia-Pacific region.” The recent focus 

groups organized by the Foundation suggest that businesses are becoming interested in 

using Asian Canadians to develop Asian market contacts. However, some younger Asian 

Canadians, who generally have no more business connections than their non-Asian peers, 

worry that this quest for “Asian experts” may now be sidetracking their careers. The “hidden 

advantage” image is rebounding as a disadvantage for at least some Asian Canadians under 

the age of 40. At the same time, it is creating an unexpected career hurdle for non-Asian 

Canadian management graduates. 

Many Asians who emigrated to Canada after 1986, especially business visa holders from 

Hong Kong and Taiwan, brought with them skills from which they — and established 

Canadian businesses — have profited. Some of these immigrants had business and social 

connections which they maintained after emigrating by travelling frequently between 

Canada and Asia. However, as time has passed, sources of immigration have changed and 

the proportion of business visa immigrants in the total has declined sharply. 5 Most 

importantly, a generation of Asian Canadians has grown up with little or no first-hand 

experience of Asia. These are the tens of thousands of high school, college and university 

graduates who may speak (but frequently not read) the Asian language of their parents, 

but otherwise have had the same experiences as their non-Asian classmates. Canadian 

society generally has not yet differentiated its second-generation Asian Canadians from 

their parents. One result is that mainstream Canadian business often assumes these young 

people have the same “hidden advantage” — the connections — as first-generation 

business immigrants. 

55 

Young Asian Canadians have had different experiences and hold a different outlook from 

first-generation immigrants. Most young Asian Canadians were either born or grew up in 

Canada. By birth or ethnicity they may be Asian, but by citizenship and social connections 

they are Canadian. They see themselves as embodying two cultures without conflict though, 

depending on the context, they will sometimes identify with one more than the other. 

They can communicate with both mainstream and Asian cultures and see themselves as 

a bridge between the two — but a cultural, rather than a business, bridge. In contrast, 

first-generation Asian Canadians tend to cling to their Asian heritage and the way of life 

of their country of birth, even though it may have changed considerably since they left. 

They preserve their Asian heritage much more than the second generation because often 

they do not see themselves as bicultural. They do not feel fully integrated, nor see the 

need to be. Like many of the recent business migrants, they separate their ethnic from 

their civic identity. Most of them have grown up in an Asian business environment. 

Locally educated Asian Canadians appear to choose professions outside the areas 

traditionally favoured in Asia — arts, literature, political science and law rather than 

science, medicine or accounting. In contrast to the generations before them or to recent 

business migrants, second-generation immigrants tend to have technical or professional 

skills rather than the talents of the entrepreneur (perhaps a reflection of Canadian society 

generally). Many totally lack the “hidden advantage” of business connections. Their 

social connections may be largely within the Asian-Canadian community, but these friends

and colleagues were educated in Canada. Although they are proud and confident of their 

Asian heritage, they do not want to be pegged as “Asian experts” who are only needed when 

there is an Asian business issue to be handled. This stereotyping, which on the surface may 

seem positive, can be a career obstacle, psychologically if not materially. 

56 

It is ironic that non-Asian Canadians who have consciously set out to develop Asian expertise 

by studying a language and attending one of the Asian business studies courses available 

in Canada believe they are often overlooked by Canadian business. Anecdotal evidence 

suggests managers will often turn instead to Asian Canadians whose claim to Asian 

expertise is only a language skill. A group of graduates of the Asia Pacific Co-operative 

Management Program at Vancouver’s Capilano College, who spent time working in Asia, 

reported that while employers in Canada appeared to value their functional skills, they 

saw no real business benefit in their experience of Asia. 6 It was seen by employers as 

mostly a “character builder.” On the other hand, non-Canadian companies in Asia were 

quick to pick up their services and were prepared to pay a premium for their international 

expertise. Some Canadian managers seem to feel that postings in Asia or those requiring 

frequent travel to Asia are choice positions that should go to senior employees whose 

skill is in knowing their own companies and products, rather than in having a high level 

of competency in Asian business practices. Alternately, when they think language is a 

factor, they hire English-speaking local staff to operate their overseas offices for them. 

A survey in 1997 of Canadian companies with offices in Japan, our largest Asian market, 

found that only about 15 of the 70 Canadian companies responding had Canadians in 

the most senior position. (By contrast, 356 out of 450 Japanese companies operating 

in Canada had Japanese CEOs.) 7 The survey found that “only a small percentage of the 

companies surveyed appeared at all interested in hiring graduates produced by [Canada’s 

Asian business] programs.” 8 This trend seems to be continuing in Canada, with employers 

looking to Asian Canadians as the equivalent of “local hires.” 

BRAIN DRAIN IN THE MAKING 

The risk for Canada and the challenge for policymakers is that, as globalization gives 

even greater mobility to highly qualified staff, Asian business graduates or Asian Canadian 

professionals will feel frustrated at home and will seek greater acceptance elsewhere. 

(Of course, this concern is not exclusive to professionals with Asian backgrounds.) There 

is already anecdotal evidence of some Canadian-educated children of Asian immigrants 

returning to their parents’ former homelands because of a perceived or real lack of career 

opportunities in Canada. If young Asian Canadians do not feel they are reaching their full 

potential in their careers, or Asian business graduates feel their qualifications are overlooked 

at home, they may leave Canada, exacerbating the brain drain. 

Canada has gained from its ability to attract business immigrants with connections to 

Hong Kong, Taiwan, China or India. But we cannot forever be confident of our attraction 

as a future home for these skilled and affluent immigrants. A time will come when we 

will have to compete more keenly with other countries for educated individuals with 

international business know-how. Instead of looking overseas, Canada should start to 

look inward to the talented human resource pool already in the country. Among this 

group are young bicultural Asian Canadians who are in a unique position to be trained in

usiness skills to enhance Canada-Asia ties. This is not a restatement of the hidden 

advantage model. It involves business and government recognizing the unique crosscultural 

skills of many of the locally educated Asian Canadians, then encouraging them 

to acquire the tools they lack to fulfill their role as valuable members of the Canadian 

business community. They would then join the non-Asian Canadians who are following 

the same path. Some Asian Canadians have already set out to do this without any special 

government encouragement. For instance, of the 342 graduates of Capilano College’s postgraduate 

Asian business program over the past 12 years, some 17% were of Asian background. 

Through their business immigration programs, the Canadian and provincial governments 

already recognize the benefits to Canada of people with international business skills. We 

now have a great opportunity to develop these skills locally, through the promotion of 

more courses in Asian business studies. These are not just for Asian-Canadian students 

— any students with an Asian language background should find these courses especially 

attractive. However, this will be a wasted effort if Canadian companies fail to recognize 

the need for, and make use of, these skills in developing Asian business. The attitude 

encountered by some Asian business graduates that they should “forget about Asia until 

the economy picks up” is fortunately not universal as increasing Canadian investment in 

Asia shows. However, it does reflect the reality that far too many Canadian businesses do 

not yet know that they don’t know Asia. 

57

Many Canadian government departments 

are already engaged in international 

cooperation activities...however, this 

change has come about by accident 

rather than by design, with little thought 

given to the coherence of these... 

activities with overall foreign policy or 

ODA objectives.

6 

DEVELOPMENT ASSISTANCE 

ODA for a 

borderless world 

59 

Canadians are a generous people, both in our self-image and in the real world. We believe 

in helping those less well off than ourselves. As a middle-sized economic power, and a 

strong advocate of cooperative welfare programs, Canada has always sought to use some 

of its national wealth to help the people of less developed countries through official 

development assistance (ODA). Unfortunately, at a time of budget restraint, we have 

been forced to curb our ambitions to match the resources available to meet them. This 

has been a frustrating task. One result is that Canada’s ODA as a share of GNP has declined 

sharply. From a high of 0.49% in 1991-92, the share fell to about 0.29% in 1998-99, the 

lowest in almost 30 years. In that time, Canadian ODA to Asia fell more than 40%. It is 

unlikely that the government will reach its commitment of allocating 0.7% of GNP to 

ODA any time soon, even though it has pledged more resources to international assistance 

in the 2000 budget. At the same time, there is a new challenge emerging for our 

international assistance program which affects not only how much we spend on ODA, but 

what it is we spend it on and how we deliver the aid. In the globalized economy, there 

are new needs to meet and alternate ways of addressing them. This has seen a variety of 

government departments and agencies become newly involved in international assistance 

programs. It has reached a point where we must develop a partnership approach to the 

delivery of aid so that different arms of the Canadian government do not overlap or compete 

in the planning and delivery of projects. 

Today, borders mean less than ever to the flow of goods and money. This applies to ODA 

as much as it does to commerce. It means that Canada is sometimes helping developing 

economies as a group or across a region rather than as individual countries, which are the 

traditional focus of ODA. Cross-border needs that hardly existed a decade ago are now 

attracting attention. To meet these new needs, Canada’s aid delivery has become more 

diffuse, with many government departments and agencies increasingly involved in 

international projects. Asia is at the centre of this evolution. The emergence of the 

cooperative, if unfocused, approach of APEC to regional development has been the catalyst 

for much of this change. Government departments which until a few years ago had a 

purely domestic mandate are becoming involved in overseas cooperation projects, driven 

by their participation in APEC working groups or reacting to international regulatory 

requirements set out in agreements like the Kyoto Convention. One result is a growing 

concern about overlapping commitments by different arms of government.

60 

Responsibility for Canada’s international relations rests primarily with the Department of 

Foreign Affairs and International Trade (DFAIT). The Canadian International Development 

Agency (CIDA) is responsible for the administration of ODA. CIDA focuses Canada’s 

ODA on the alleviation of poverty and the promotion of sustainable development, 

following a number of priorities: the provision of basic human needs (like primary health 

care, education, water, sanitation and shelter); full participation of women in society; 

development of democracy and good governance; promotion of a healthy private business 

sector; provision of sustainable infrastructure services; and protection of the environment. 

Canada seeks little direct return for its participation. “Benefit to Canada,” though 

nominally a factor in designing ODA projects, has been pursued less than vigorously and 

often with some embarrassment by CIDA officials. Other government departments have 

not shown such inhibition. In the past decade, these agencies have become involved in 

international cooperation areas that call for solutions more complex than the traditional 

donor-recipient model, usually with a spin-off benefit to Canada. There is a need to 

recognize and coordinate this type of assistance with Canada’s overall ODA effort. 

THE “NEW” ODA 

The need for traditional ODA to provide for the basic human needs of the 900 million 

people in Asia who live in poverty 1 is perhaps greater now than it was at the start of the 

decade. The Asian economic crisis in Indonesia and Thailand, plus population growth 

in the Philippines, India, Pakistan and Bangladesh, have only exacerbated an already 

unacceptable situation. In recognition of this, CIDA, along with such organizations as 

the Asian Development Bank and the World Bank, has adopted poverty reduction as its 

overarching objective. But the need for “new” ODA is bound to grow too as globalization 

advances. In Asia Pacific, economic integration has created the biggest demand for 

regional public goods, a demand that traditional ODA cannot, and was not designed to, 

meet. The range of projects is extremely diverse. It includes such areas as control of crossborder 

pollution, common product quality standards, financial market regulation and 

stabilization, and law enforcement. One of the lesser known aspects of APEC is its work 

addressing some of these needs through its trade facilitation and its economic and 

technical cooperation activities — albeit in a haphazard and as yet half-hearted manner. 

Canada is active in APEC working groups and committees involved in projects aimed 

at harmonization of customs procedures, financial market regulation, development of 

fish inspection systems, and aviation and maritime safety. We regularly send experts 

from the relevant government departments (as well as from the private sector) to these 

working groups and committees, at the expense of Canadian taxpayers. 

It may be hard to identify how a specific developing country benefits from Canada’s 

participation in a certain working group. However, all participating developing countries 

stand to benefit from the successful provision of a regional public good such as common 

product standards or cooperation in financial market monitoring. 2 Not only developing 

countries but all participants in a regional exercise can benefit, which is of course their 

reason for participating in the first place. That is a problem for traditionalists who are 

unable to identify the donor or the recipient in these types of projects. In fact, there is 

no real distinction. Among Asian developing economies there is resistance to the use of

the term “development assistance” for this very reason. As a result, APEC has created an 

alternative way of describing this sort of activity, by coining the term “economic and 

technical cooperation” or “Ecotech” in APECspeak. Ecotech is supposed to embody the 

new characteristics of regional cooperation, namely common interests, pooling of resources 

and mutual respect. It implies a relationship of equal partners, the opposite of the donorrecipient 

relationship. There is considerable wishful thinking embodied in the notion of 

Ecotech, but it nevertheless points to the new and real complexity of international 

cooperation in an age of highly integrated and interdependent economies. 

Ottawa’s challenge is to manage this multifaceted approach rationally. First, there must 

be a better understanding of which government departments are involved in international 

cooperation activities, why they are doing so, and what relation these activities have to 

Canada’s overall development assistance effort. Departments apart from CIDA and DFAIT 

have become involved in overseas activities generally for one of three reasons: obligations 

growing out of Canada’s membership in an international organization; the direct or 

indirect promotion of Canadian commercial interests; or a desire to sell public sector 

expertise in international markets. 

61 

Canada’s role in APEC has drawn domestic departments like Human Resources 

Development, Revenue or Transport into international cooperation ventures. Some 

of these activities are funded through CIDA, while some are not. Projects on behalf of 

CIDA are, by definition, included as part of Canada’s ODA, but similar projects carried 

out independently by other departments are not counted. As an example, CIDA has 

funded a project designed to improve fish inspection and quality control in developing 

Southeast Asian economies. Inspectors from the Department of Fisheries and Oceans 

(who have since been transferred to the newly formed Food Inspection Agency) have 

been principal participants. As part of their regular duties, however, these officials are 

also involved in consultations and technical assistance activities with the same Southeast 

Asian countries. The former is counted as ODA, the latter is not, even though the 

activities are very similar in scope. 

National commercial interest is another reason for departments to turn their attention 

offshore. This is hardly a new driver, as it has been an implicit, if downplayed, factor in 

many CIDA projects for years. However, new players like the National Research Council 

and Environment Canada have moved into the field, promoting demonstration projects 

involving Canadian technology. Today, Canadian technology is often transferred 

abroad through SMEs and joint ventures involved in the quasi-assistance projects. The 

emphasis is on partnerships related to innovation and capacity building, as well as the 

mutual benefits to overseas partners and Canadian companies, opening the door to followup 

commercial ties. 

The drive to sell public sector expertise is, in part, a reaction to Ottawa’s funding cutbacks, 

and, in part, a recognition by other countries of Canadian expertise. Canada is regarded 

as a well-regulated, and sometimes over-regulated, country. In areas ranging from broadcast 

standards to town planning or public health we are acknowledged for our administrative 

expertise. Growing international standardization in a range of products and services, an 

outgrowth of globalization, is leading to more opportunities for the Canadian government

— often working with a private sector partner — to market this expertise abroad. This 

provides a public good in the recipient country and a financial return to the department 

or agency concerned. 

62 

There are also internal pressures at work. The quest for excellence by Canadian 

policymakers prompts them to look for best practices elsewhere and incorporate them 

into Canadian policies. To achieve domestic mandates, departments often must operate 

internationally to keep abreast of rapid changes in conditions and technologies. For 

instance, Canadians have a strong self-interest in maintaining a clean environment. Yet, our 

own environment is affected by the policies and actions of governments in other parts of 

the world. Toxic pesticides, carried by the Jet Stream from China, have been found in 

pristine mountain lakes in British Columbia and in the Great Lakes. The easiest way to 

remove these from our own environment is to help Chinese farmers find alternative 

chemicals to use in their fields. 

BUT IS IT ODA? 

Is it really “aid” when Canadians gain some benefit from the development assistance they 

provide and, if it is, should that form of cooperation be classified as ODA? There are 

obviously different motivations at work — at least in the Canadian partners — between 

training Chinese officials in industrial relations concepts and helping to upgrade maritime 

safety in Vietnamese ports. In fact, the first (from which Canada is unlikely to draw any 

commercial benefit) is funded directly by Human Resources Development Canada, while 

the Vietnamese project (which will at least indirectly benefit Canadian shippers) is being 

carried out by Transport Canada and funded by CIDA as regular ODA. However, from 

the recipient country’s perspective, there will be no difference. In each case Canada is 

providing, at no cost to the recipient, a public good. 

This suggests a new dimension to the long-running debate about foreign aid. Critics 

of ODA suggest it is wasteful and ineffective, whether for reasons of design or 

implementation. Defenders of official assistance programs, on the other hand, say the 

need is for better targeted programs as well as more aid in total. Without dismissing the 

importance of the issues raised by both sides, there is clearly a need for Canada’s overall 

aid strategy to take into account the new demands for regional public goods that have 

been fostered by globalization. In practice, this means a much wider definition of what 

constitutes development assistance and greater recognition of the role of domestic 

government departments in international cooperation activities. This is not an issue 

peculiar to Canada alone: other traditional aid donor countries are facing the same debate. 

The beginnings of a new understanding can be seen in a recent United Nations 

Development Program publication, Global Public Goods: International Cooperation in the 21 st Century. 3 

Drawing on the findings of more than 20 distinguished scholars, the editors point out 

that “today’s system offers only two roles: donor or recipient of ODA. The criterion for 

being a recipient is primarily a country’s income with other factors that may cause special 

vulnerability, such as being land-locked or drought-prone. But...a public goods strategy 

needs more differentiated roles...the current system of development cooperation needs 

an expanded typology of actors if it is to accommodate global public good strategies.” 4

The report emphasizes the need to “transform international cooperation from its 

traditional place as ‘external affairs’ into policy-making applicable to most, if not all, 

domestic issue areas.” 5 

As noted, many Canadian government departments are already engaged in international 

cooperation activities through APEC, CIDA or other organizations, so the transformation 

in Canada is already underway. However, this change has come about by accident rather 

than by design, with little thought given to the coherence of these international cooperation 

activities with overall foreign policy or ODA objectives. In some departments, the 

mandate for such activities may not even be clear, with no assurance of an adequate 

budget or policies covering retention of revenue. In other cases, the lack of a clear mandate 

may be holding back departments that could usefully assume some international role. 

In the absence of clarity about the purpose and limits of a department’s role in international 

cooperation, it is only a matter of time before problems arise, for example working at crosspurposes 

with other departments or an inability to follow through on promises. 

63 

Canada’s overall international engagement cannot be compartmentalized among 

departments. For example, attempts to restructure the international financial system 

will impact upon poverty reduction efforts. The challenge is to mould partnerships 

between CIDA and other departments and agencies within a strategic framework. CIDA 

can show leadership in this effort. The minister responsible for CIDA is the minister for 

international cooperation, which implies a broader range of responsibilities than traditional 

ODA. Departments have their sectoral expertise, but not necessarily the ability to 

manage international projects or cross-cultural training. These skills are among CIDA’s 

strengths. It is important that other countries see Canada offering a coherent and 

consistent strategy in its ODA. With our influence in the world already far from dominant, 

we must have a more strategic approach to international cooperation. We are already guilty 

of sometimes confusing our foreign partners by the multiplicity of faces — national, 

provincial, regional and even municipal — with which we confront them. 

The first step must be to develop a strategic framework that recognizes the diversity of 

players and takes into account the public goods approach to assistance. This would 

define more clearly the international role of departments and help forge networks 

between them. There is a need for a “knowledge broker” to better organize Canada’s 

expertise, coordinating the supply of, and demand for, services offered by departments 

and agencies; maintaining a corporate memory by tracking lessons learned from various 

collaboration experiences; and keeping key departments and offices (such as Canadian 

overseas posts) informed of projects affecting their areas of responsibility. Interdepartmental 

working groups can be established to identify best practices in departments working 

overseas, taking into account mandates, budgets and revenue. These best practices could 

form the basis for the development of public sector-wide policies that are consistent 

with the needs of international cooperation in a globalized world. Research will be needed 

into the scope and impact of the “new” cooperation to determine how best to organize 

these activities. And an audit should soon be undertaken to determine the total level of 

Canada’s international cooperation spending to help put the ODA target into perspective.

The financial crisis of 1997 has taken its 

toll, not only of Asian economies, but 

of the confidence of many business and 

policymakers that Asia will set the pace 

in the early 21 st century.

ASIA PACIFIC FOUNDATION OF CANADA 

7 

thinking about asia 

65 

Sixteen years ago, when the Canadian Parliament established the Asia Pacific Foundation 

of Canada, it appeared self-evident that Canada should deepen its involvement across 

the Pacific. Nine of the world’s 20 fastest-growing economies in the previous 15 years 

were in East Asia. In 1984, China’s GDP grew an amazing 14.6%. Taiwan recorded 10.6% 

growth; Hong Kong 9.8%; Singapore 8.3%; South Korea 10.1%; and Indonesia 7.0%. Even 

the huge Japanese economy expanded by 4.3%. A new engine of the world economy, it 

seemed, was emerging across the Pacific. The challenge was to ensure Canadians were well 

informed about, and could take advantage of, the new Asian dynamism. 

Today, the certainty of that dynamism has weakened. The financial crisis of 1997 has taken 

its toll, not only of Asian economies, but of the confidence of many business and 

policymakers that Asia will set the pace in the early 21 st century. At the same time, 

globalization and the growing integration of the North American economy have diverted 

attention away from Asia. To meet this challenge, the Asia Pacific Foundation has adopted 

new strategies to achieve its mandate of providing Canadians with the information and 

insights necessary to deal effectively with Asia. There is a need for more sophisticated 

analysis and policy advice today than was available in the past, when the question “Why 

Asia?” was hardly ever raised. The goal the APFC has adopted is to be the “think-tank” 

on Canada’s relationship with Asia. 

To help Canadians understand the more complex world of the 21 st century, and to keep 

them abreast of the rapidly changing Asian environment, the APFC now concentrates 

on the development and distribution of timely information and focused analysis for 

businesspeople and policymakers. This material is being made as widely accessible as possible, 

as quickly as possible. Most of APFC’s information resources are available through its new 

Internet website . 

In this way the Foundation has created a dynamic “knowledge base” on Canada-Asia 

relations. From a wide range of up-to-date statistics to forums for discussion of current 

issues, provides interested Canadians with one-stop access to 

information and ideas on our Asian relationship. Subscribers can access a digest of major 

news from Asia affecting Canada, available daily by e-mail. An electronic newsletter, 

Canada Asia Commentary, provides in-depth analysis of developing issues for Canada,

delivered by Internet and fax. The latest data, from a variety of sources, is made available 

as soon as it is released, along with a brief commentary on its importance. Canada Asia 

Trendwatch looks ahead, identifying the trends and issues that will affect the Canada-Asia 

relationship in the future. The Foundation’s flagship annual publication, Canada Asia Review, 

explores events of the past year and some of the longer-term issues for Canada in Asia. While 

Canada Asia Review is available in hard copy, it is also mounted on the website. 

66 

Beyond providing information and research, APFC organizes roundtables and small group 

meetings for stakeholders in various Asia-related areas to help policymakers better 

understand the issues involved. This will reach a pinnacle in October 2000 when the 

Foundation hosts the first Asia Pacific Summit, a conference drawing together the top 

thinkers from government, business and academia on Canada’s relationship with Asia. 

Finally, the Foundation has continued with the important task of building and maintaining 

the people-to-people networks that are key to involvement in Asia. Our subsidiaries, the 

GLOBE Foundation of Canada and the Canadian Education Centre (CEC) Network, 

provide their specialized services in promoting the business of the environment and in 

education marketing, with a primary focus on Asia but addressing broader global markets. 

Overall, the Foundation continues to deliver to Canadians the information, analysis and 

networks needed to function effectively in the Asia Pacific in the new millennium. In more 

detail, APFC’s main areas of activity are: 

APFC RESEARCH AND ANALYSIS CENTRE / APEC STUDY CENTRE IN CANADA 

The research and analysis activities of APFC focus on strategic research on Canada’s 

economic, political and social relations with Asia Pacific. The goal is to provide succinct 

and timely guidance on Asia-Pacific topics for business and governments, and to enhance 

links among policy, business and research communities in areas relating to Canada’s Asia- 

Pacific ties. A key aspect of this work is the Foundation’s role as the Asia Pacific Economic 

Cooperation (APEC) Study Centre in Canada. The Study Centre promotes collaborative 

research and disseminates information and analysis on APEC and on priority issues for 

Canada in this regional forum. 

Our research and analysis group is the hub of a national network — the Canada-Asia 

Pacific Research Network (CAPRN) — built around a database of about 500 academic 

experts and other regional specialists from across Canada who are involved in Asia-Pacific 

strategic and policy research. Through this informal network, the Foundation initiates 

research on priority issues for Canada in Asia Pacific, carried out by leading scholars. The 

Foundation organizes seminars and roundtables to bring together businesspeople, 

NGO representatives, academics and policymakers to examine and exchange ideas on our 

relationship with Asia. 

The Foundation is also raising Canadian awareness and understanding of current 

developments in Asia by building a network of Asia-literate journalists in Canada. APFC 

offers Assignment programs for Canadian journalists, selected through national competitions, 

to undertake two-week working visits to Japan and Southeast Asia to produce stories on 

topics of their choice for publication in Canada.

CANADIAN EDUCATION CENTRE NETWORK 

The CEC Network is a wholly-owned subsidiary of the Foundation, run with the support 

of the Government of Canada to promote and market Canada as a study destination, and 

as a source for corporate and group training and distance education opportunities. 

Network clients include some 250 educational institutions across Canada — universities, 

colleges, secondary schools and language schools. The fee-for-service Network operates 

CECs in Seoul, Taipei, Kuala Lumpur, Jakarta, Bangkok, Singapore, Hong Kong, New 

Delhi, Beijing, Canberra, Mexico City, Buenos Aires, São Paulo, Santiago and Bogota. 

These CECs provide support and a local presence for the growing number of Canadian 

educational institutions interested in forging or strengthening global education links. 

They also provide promotional material and counseling services, seek educational and 

training contracts and support the delivery of courses by Canadian institutions offshore. 

CECs hold annual education fairs, which attract tens of thousands of students. 

67 

The Network was established in April 1995, linking pilot operations in Seoul, Taipei and 

Kuala Lumpur. The success of these first three centres led to a rapid increase in the 

number of subscribers to the Network. Though its focus was initially on Asia, through its 

websites and the CEC Network also 

promotes Canadian education in markets worldwide. The Network explores markets in 

non-CEC countries by holding its own fairs, or participating in international student 

fairs. Last year, the Network took part in fairs in Russia and Germany and organized fairs 

in Turkey, Vietnam and Japan. The CEC Network is also exploring the US market, 

conducting events in Washington DC, New York, Chicago, Dallas, San Francisco and Miami, 

and participating in conferences in Denver and Columbus, Ohio. 

By promoting and marketing Canada as a destination for international students and as a 

source for international corporate and group training, the CEC Network is working to 

position Canada as a leader in the multi-billion-dollar business of international education. 

Just as important, the CEC initiative recognizes the great social and commercial benefits, 

both to Canada and globally, of helping to educate the world’s next generation of leaders. 

GLOBE FOUNDATION OF CANADA 

The wholly-owned subsidiary of APFC manages the GLOBE series of conferences and 

expositions on business and the environment. These events are held every two years in 

Vancouver and attract the participation of more than 10,000 international experts, 

corporate leaders and environmental technology providers from 75 countries. 

The GLOBE Foundation also offers programs designed to engage industry, government 

agencies, the corporate sector and the financial community in environment and energy 

business opportunities around the world. These programs supply research and analysis 

on international environmental markets; coordinate environmental trade missions; and 

bring together buyers and sellers of environmental technology. Through such initiatives 

as the EXCEL Partnership (Excellence Through Environmental Leadership) the 

Foundation is working with senior executives to create a new class of corporate 

environmental leaders in Canada. GLOBE is also involved internationally in projects

in energy and environmental business, such as the restructuring of national power sectors 

in anticipation of privatization. For more information on the GLOBE Foundation, e-mail 

or visit the GLOBE website at . 

PBEC, PECC AND ABAC SECRETARIATS 

68 

In line with its goal of building transpacific business networks, the Foundation is the 

Canadian secretariat for three Pacific Rim economic groupings: the Pacific Economic 

Cooperation Council (PECC), the Pacific Basin Economic Council (PBEC) and the APEC 

Business Advisory Council (ABAC). PECC brings together academic, business and 

government officials, in a non-official capacity, from 23 Pacific-Rim economies to promote 

regional economic cooperation and policy coordination. PBEC is a private-sector association 

of more than 1,100 business leaders from 20 Pacific-Basin economies that supports the 

expansion of trade and investment through open markets. ABAC is a group of senior 

regional business executives who advise APEC Leaders on the Pacific business community’s 

priority concerns in the areas of trade and investment liberalization and business facilitation. 

As an official observer of APEC, PECC provides expert analysis and policy advice for 

governments on a variety of issues affecting trade and investment. PECC also coordinates 

industry-government dialogues in partnership with APEC. PBEC’s Canadian Committee 

hosts a number of business events throughout the year, and participates in the annual 

meeting of representatives of bilateral trade associations. The ABAC secretariat provides 

research and analytical support to ABAC’s work program, and facilitates consultations with 

the Canadian business community on behalf of Canada’s three ABAC members. 

STRUCTURE 

The Foundation is guided by a board of directors of up to 15 volunteer members from 

across the country who represent government, academia and the private sector. Michael 

E. J. Phelps, Chairman and Chief Executive Officer of Westcoast Energy Inc. of Vancouver 

is Chairman of the Board. Dr. John D. Wiebe is President and Chief Executive Officer. 

APFC receives financial support from the federal government through the Department of 

Foreign Affairs and International Trade and the Canadian International Development 

Agency; the provinces of British Columbia, Manitoba and Quebec; and a number of private 

companies. A significant portion of its revenues come from fees paid for Foundation, 

GLOBE and CEC Network programs and services. Consolidated revenue of APFC 

and its subsidiaries, the GLOBE Foundation and the CEC Network, is around $11.5 

million in the year to March 30, 2000. Together APFC, GLOBE and the CEC Network 

employ about 80 people. The Foundation’s headquarters are in Vancouver, with 

additional offices in Manitoba and Quebec, as well as the 16 CEC offices in Canada, 

Asia and Latin America.

NOTES 

CHAPTER 1 

1. Based on marketshare in Canada’s ten largest markets in Asia — China, Hong Kong (SAR), India, Indonesia, 

Japan, Malaysia, Singapore, South Korea, Taiwan and Thailand. 

2. UNCTAD provides a measure of integration into the global economy with a transnationality index, which is an 

average of four ratios: FDI flows to gross fixed capital formation over the past three years; inward FDI stock to 

GDP; foreign affiliate value added to GDP; and foreign affiliate employment to total employment. Canada ranks 

ninth, just behind Sweden and just ahead of Spain, among the developed countries. The value of the index for 

Canada is about 14%, more than twice that of the US. The highest ranking among developed countries is New 

Zealand at 32%. United Nations Conference on Trade and Development, World Investment Report 1999: Foreign Direct 

Investment and the Challenge of Development (Geneva: United Nations, 1999), p. 17. 

3. The amount of tax-deferred savings held in the Canada and Quebec Pension Plans, Registered Retirement Savings 

Plans, registered pension plans and other pension schemes at the end of 1999 is estimated at $1.252 trillion by 

Joel Fried and Ron Wirick, Assessing the Foreign Property Rule: Regulation without Reason. 20 January 2000. 

 

4. Asian Development Bank, Emerging Asia: Changes and Challenges (Manila: Asian Development Bank, 1997), p. 42. 

69 

5. Fried and Wirick, Assessing the Foreign Property Rule. 20 January 2000. 

 

6. KPMG, Canada Ranks First in Comparison of G-7 Business Costs — KPMG Study. 20 January 2000. 

 

CHAPTER 1(SIDEBAR) 

1. The Lisbon Group, Limits to Competition (Boston: MIT Press, 1996), pp. 77-78, as quoted in Canada Economic 

Development (for Quebec Regions), The Challenge of Globalization: Developing Export Markets, March 1996. 

24 January 2000. 


3. Joel Fried and Ron Wirick, Assessing the Foreign Property Rule: Regulation without Reason. 20 January 2000. 

 

4. Bank for International Settlements, Central Bank Survey of Foreign Exchange and Derivatives Market Activity 1998. 

21 January 2000. 

5. Martin Wolf, “Editorial,” Financial Times, 15 December 1999. 

CHAPTER 2 

1. Figures used in this section are largely drawn from Stijn Claessens, Simeon Djankov and Daniela Klingebiel, 

Financial Restructuring in East Asia: Halfway There? Financial Sector Discussion Paper No. 3. 25 January 2000. 

 

2. Figure from Thomson Financial Securities Data as quoted in Vasantha Ganesan, “1999 M&A deals in Asia 

exceed US $92bn,” Business Times (Malaysia). 15 January 2000. 

CHAPTER 3 

1. Ashfaq Ahmad, Someshwar Rao and Colleen Barnes, Foreign Direct Investment and APEC Economic Integration, 

Working Paper Number 8 (Ottawa: Industry Canada, 1996), p. 31. The United Nations Conference on Trade and 

Development estimated that in 1996, intra-firm trade was fully one-third of total global trade. United Nations 

Conference on Trade and Development, World Investment Report 1999 (Geneva: United Nations, 1999), p. 233. 

2. Someshwar Rao, Marc Legault and Ashfaq Ahmad, “Canadian-Based Multinationals: An Analysis of Activities 

and Performance,” Canadian-Based Multinationals, Steven Globerman ed. (Calgary: University of Calgary Press, 

Industry Canada Research Series, Vol. 4, 1994), p. 96. 

3. Ahmad, Rao and Barnes, Foreign Direct Investment and APEC Economic Integration, p. iii. 

4. Ahmad, Rao and Barnes, Foreign Direct Investment and APEC Economic Integration, p. 31. 

5. Ahmad, Rao and Barnes, Foreign Direct Investment and APEC Economic Integration, p. 31. 

6. Brunei Darussalam, China, Hong Kong (SAR), Indonesia, Japan, Malaysia, Papua New Guinea, Philippines, 

Singapore, South Korea, Taiwan, Thailand and Vietnam.

NOTES 

7. The picture is distorted by the past policies of Japan. Because of formal and informal barriers to FDI until 

recent years, Japan’s role as an export market for all countries has been far greater than as a destination for FDI. 

The balance between Asian investment and exports comes into line if Japan is excluded from the calculations. 

8. An exact comparison is not possible as Canadian investment statistics for the region include Macau, North Korea 

and the tiny island states of Micronesia and Melanesia. However, Canadian investment in these states is economically 

insignificant. 

9. The International Monetary Fund has set standards, which are followed by Statistics Canada. However, the 

investment data of many other countries follow different sets of rules. 

10. In 1985 only 1,149 Canadian-controlled companies held offshore direct investments. By 1991, this total had 

declined to 1,008. Franklin Chow, “Recent Trends in Canadian Direct Investment Abroad: The Rise of Canadian 

Multinationals,” Canadian-Based Multinationals, Steven Globerman ed. (Calgary: University of Calgary Press, 

Industry Canada Research Series, Vol. 4, 1994), p. 42. 

70 

11. Statistics Canada, Canada’s International Investment Position, 1998 (Catalogue No. 67-202) (Ottawa: Minister of 

Industry, 1999), p. 25. 

12. Thomson Financial Securities Database and published sources. 

13. Based on calculations by Rao, Legault and Ahmad, a 10% increase in Canadian foreign investment in primary 

metals between 1981-89 suggested an increase in exports of 4.8%. A similar investment in foreign manufacturing 

projects appeared to boost exports by 6.7%. Rao, Legault and Ahmad, Canadian-Based Multinationals, p. 95. 

14. In the second week of November, 1999, the Asia Pacific Foundation of Canada contacted 404 companies in 

the Asia Pacific Corporations Database of Canadian companies with a physical presence in Asia. The response 

rate was 17%. 

15. Department of Foreign Affairs and International Trade, International Investment: Consultation Paper on WTO/ 

FTAA Investment. 24 November 1999. 

16. Rao, Legault and Ahmad, Canadian-Based Multinationals, p. 100. 

17. This inflow was more than offset by an outflow of $13.4 billion in dividends and profits to investors holding 

FDI in Canada. Statistics Canada, Canada’s Balance of International Payments, Second Quarter 1999 (Catalogue No. 

67-001) (Ottawa: Minister of Industry, 1999), p. 60. 

18. Strategis. Industry Canada. 29 November 1999. 

19. Gowling, Strathy & Henderson, Report on the Review of the Export Development Act for Department of Foreign 

Affairs and International Trade (N.p: 1999), pp. 38, 131. 

20. A case study of the international expansion of Northern Telecom, one of Canada’s leading transnational 

corporations, shows how this happens. See Fernand Amesse, Louis Séguin-Dulude and Guy Stanley, “Northern 

Telecom: A Case Study in the Management of Technology,” Canadian-Based Multinationals, Steven Globerman ed. 

(Calgary: University of Calgary Press, Industry Canada Research Series, Vol. 4, 1994). 

CHAPTER 3 (SIDEBAR) 

1. No detailed information was released on deals concluded during the first Team Canada mission to China. 

CHAPTER 4 

1. Thomas J. Courchene and Richard G. Harris, From Fixing to Monetary Union: Options for North American Currency 

Integration. 20 January 2000. 

2. Lorraine Eden, Multinationals as Agents of Change: Setting a New Canadian Policy on Foreign Direct Investment, 

Discussion Paper No. 1 (Ottawa: Industry Canada, 1994), as quoted in Ashfaq Ahmad, Someshwar Rao and Colleen 

Barnes, Foreign Direct Investment and APEC Economic Integration, Working Paper Number 8 (Ottawa: Industry 

Canada, 1996), p. 31. 

3. Courchene and Harris, From Fixing to Monetary Union. 20 January 2000. 

A more limited comparison might be with France and Germany. 

In their case, 12.8% of combined exports in 1998 were with each other, representing 2.9% of their combined GDPs. 

4. Jeffrey A. Frankel and Andrew K. Rose, The Endogeneity of the Optimum Currency Area Criteria, Working Paper No. 

W5700 (Cambridge: National Bureau of Economic Research, Inc., 1996).

NOTES 

5. Research by Tamim Bayoumi and Barry Eichengreen has shown that business cycles tend to coincide between 

Eastern Canada and Eastern US and between Western Canada and Western and Southwestern US, rather than 

between each country as a whole. Tamim Bayoumi and Barry Eichengreen, “Monetary and Exchange Rate 

Arrangements for NAFTA,” Journal of Development Economics No. 43 (N.p: 1994), pp. 125-165, as quoted in Courchene 

and Harris, From Fixing to Monetary Union. 20 January 2000. 

However, their research was carried out on the period 1966-1986, before NAFTA promoted a considerable 

increase in integration. While the general principle probably still remains true — that economic links tend to be 

especially strong between similar regions of Canada and the US — there is likely a greater correlation between 

nationwide economic trends now than in 1986. 


7. Asian Development Bank, Emerging Asia, p. 122. 

8. A comparative study by accounting firm KPMG last year found that Canada offered the lowest average 

business cost for new investment in manufacturing and service industries among G-7 countries. KPMG, The 

Competitive Alternatives: A Comparison of Business Costs in North America, Europe and Japan. 20 January 2000. 

 

71 

9. “Japan to Push Bilateral Free Trade Scheme in Asia,” Dow Jones International News. 8 January 2000. 

10. “Kim Calls for Merger of East Asia, ASEAN: President Stresses Regional Peace, Development,” The Korea 

Herald. 4 February 2000. 

CHAPTER 5 

1. John Manley, Speaking Notes for the Honourable John Manley, Minister of Industry, to the Annual Business Awards Dinner, 

October 28, 1999. 6 December 1999. 

2. Statistics Canada, Strategies for Success: A Profile of Growing Small and Medium-Sized Enterprises (GSMEs) in Canada 

(Catalogue No. 61-523E) (Ottawa: Minister of Industry, Science and Technology, 1994), p. 39. 

3. The Asia Pacific Foundation organized six focus groups of 12 to 17 participants in Vancouver, Winnipeg, 

Toronto and Montreal. Participants were Canadian citizens of Asian heritage, aged under 40, and with a 

demonstrated interest or involvement in the Asian Canadian community. 

4. Asia Pacific Foundation of Canada, Canada’s “Hidden Advantage:” Asian Canadians (Vancouver: Asia Pacific 

Foundation of Canada, 1994). 

5. In 1993, business visa holders made up 20.5% of total immigrants from the top nine Asian countries of origin. 

By 1998, the proportion of business visa holders from the same sources had dropped to 3.2%. Citizenship and 

Immigration Canada. 

6. Based on conversations and e-mail communication with former students. 

7. Carin Holroyd, Canadian Business Opportunities in Japan: Current Realities and Future Prospects (Ottawa: The 

Canada-Japan Trade Council, 1999), p. 37. 

8. Holroyd, Canadian Business Opportunities in Japan, p. 38. 

CHAPTER 6 

1. Asian Development Bank, ADB Poverty Reduction Strategy Aims to Rid Region of Extreme Poverty. 21 December 1999. 

 

2. It is estimated that the adoption of a common test for conformity of telecommunications equipment within 

APEC has saved the member economies a combined US $50 billion a year. Asia Pacific Economic Cooperation, 

Eleventh APEC Ministerial Meeting Joint Statement, Auckland, New Zealand, 9-10 September 1999. 17 December 1999. 

 

3. Inge Kaul, Isabelle Grunberg and Marc A. Stern ed., Global Public Goods: International Cooperation in the 21 st 

Century (New York: Oxford University Press, 1999). 

4. Inge Kaul, Isabelle Grunberg and Marc A. Stern, “Global Public Goods: Concepts, Policies and Strategies,” 

Global Public Goods, Kaul, Grunberg, and Stern ed., pp. 494-495. 

5. Inge Kaul, Isabelle Grunberg and Marc A. Stern ed., Global Public Goods, Executive Summary. 21 December 1999. 

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Asia Pacific Foundation of Canada. Canada’s “Hidden Advantage:” Asian Canadians. Vancouver: Asia Pacific 

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Asian Development Bank. ADB Poverty Reduction Strategy Aims to Rid Region of Extreme Poverty. 21 December 1999. 

 

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72 

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Canada. Canadian International Development Agency. Historical Official Development Assistance System Database. 

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—. Citizenship and Immigration Canada. Special tabulations prepared by Citizenship and Immigration Canada 

for the Asia Pacific Foundation of Canada, August, 1999. Ottawa: Minister of Public Works and Government 

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Canada. Department of Foreign Affairs and International Trade. Asia Pacific Investment Strategy – Ni-Ka Online. 

4 February 2000. 

—. Department of Foreign Affairs and International Trade. Canadian Business Initiatives in…Mexico, Philippines, 

Thailand, Chile, Argentina, Indonesia, Japan, Brazil, Korea, India, Pakistan, Malaysia. 18 November 1999. 

 

—. Department of Foreign Affairs and International Trade. International Investment: Consultation Paper on WTO/ 

FTAA Investment – March 15, 1999. 24 November 1999. 

—. Department of Foreign Affairs and International Trade. Team Canada Japan Results in $409 Million in Deals For 

Canadian Firms. Press Release. September 16, 1999. 

—. Department of Foreign Affairs and International Trade. Team Canada Trade Missions: Previous Missions. 27 January 2000. 

 

—. Department of Foreign Affairs and International Trade. Trade Negotiations and Agreements – Regional and Bilateral 

Agreements. 24 October 1999. 

Canada. Finance Canada. Status of International Tax Treaty Negotiations. October 4, 1999. 4 February 2000. 

 

Canada. Statistics Canada. Canada’s Balance of International Payments, Second Quarter 1999. (Catalogue No. 67-001- 

XPB). Ottawa: Minister of Industry, 1999. 

—. Statistics Canada. Canada’s International Investment Position 1998. (Catalogue No. 67-202). 

Ottawa: Minister of Industry, 1999.

REFERENCES 

—. Statistics Canada. Exports by Country, January-December 1989 and 1990. (Catalogue No. 65-003). 

Ottawa: Minister of Supply and Services Canada, 1990, 1991. 

—. Statistics Canada. Exports by Country, January-December 1991-1994. (Catalogue No. 65-003). 

Ottawa: Minister of Industry, Science and Technology, 1992-1995. 

—. Statistics Canada. Exports by Country, January-September 1995. (Catalogue No. 65-003). 

Ottawa: Minister of Industry, 1995. 

—. Statistics Canada. Exports by Country, January-December 1995-1998. (Catalogue No. 65-003). 

Ottawa: Minister of Industry, 1996-1999. 

—. Statistics Canada. Exports by Country, January-September 1999. (Catalogue No. 65-003). 


—. Statistics Canada. Exports of Goods 1980-1998. (Matrix 6540 1.1.1, Databank Identifier D15472). CANSIM. 


—. Statistics Canada. Imports by Country, January-December 1989 and 1990. (Catalogue No. 65-006). 

Ottawa: Minister of Supply and Services Canada, 1990, 1991. 

73 

—. Statistics Canada. Imports by Country, January-December 1991 - 1994. (Catalogue No. 65-006). 

Ottawa: Minister of Industry, Science and Technology, 1992-1995. 

—. Statistics Canada. Imports by Country, January-December 1995 - 1998. (Catalogue No. 65-006). 

Ottawa: Minister of Industry, 1996-1999. 

—. Statistics Canada. Imports by Country, January-September 1995. (Catalogue No. 65-006). 


—. Statistics Canada. Imports by Country, January-September 1999. (Catalogue No. 65-006). 


—. Statistics Canada. Imports of Goods 1980-1998. (Matrix 6540 1.2.1, Databank Identifier D15489). CANSIM. 


—. Statistics Canada. International Travel Survey, 1993-1998 (Cat. No. 63C0002). Quoted by the Canadian 

Tourism Commission — special request. Ottawa: Canadian Tourism Commission, 1999. 

—. Statistics Canada. Merchandise Imports from Individual Countries and Areas of Origin; United States 1980-1998. 

(Matrix 3887 1.9.3, Databank Identifier D451426). CANSIM. Ottawa: Minister of Industry, 1999. 

—. Statistics Canada. Nation Series Package No. 4: Mother Tongue, Home Language and Official/Non-official Languages. 

(Cat No. 93F0024XDB9600). Ottawa: Ministry of Industry, 1997 

—. Statistics Canada. Strategies for Success: A Profile of Growing Small and Medium-Sized Enterprises (GSMEs) in 

Canada. (Catalogue No. 61-523E). Ottawa: Minister of Industry, Science and Technology, 1994. 

—. Statistics Canada. Total Exports to Individual Countries; United States 1980 – 1998. (Matrix 3686 1.9.3, Databank 

Identifier D400000). CANSIM. Ottawa: Minister of Industry, 1999. 

Claessens, Stijn, et al. Financial Restructuring in East Asia: Halfway There? The World Bank. Financial Sector 

Discussion Paper No.3. 25 January 2000. 

Courchene, Thomas J. and Richard G. Harris. From Fixing to Monetary Union: Options for North American Currency 

Integration. 20 January 2000. 

Diamond, Walter H. and Dorothy B. Diamond. Tax-Free Trade Zones of the World. New York: Matthew Bender, 1978. 

Dow Jones International News. Japan to Push Bilateral Free Trade Scheme in Asia. January 8, 2000. 

The Economist. December 1, 1998-November 30, 1999 

Far Eastern Economic Review. Asia Yearbook 1999. Hong Kong: Review Publishing Company Ltd., 1999. 

Far Eastern Economic Review. December 1, 1998-November 30, 1999. 

Financial Times: Internet Edition. December 1, 1998-November 30, 1999. 

Frankel, Jeffrey A. and Andrew K. Rose. The Endogeneity of the Optimum Currency Area Criteria, Working Paper No. 

W5700. Cambridge: National Bureau of Economic Research Inc., 1996.

REFERENCES 

Fried, Joel and Ron Wirick. Assessing the Foreign Property Rule: Regulation Without Reason. C.D. Howe Institute. 20 

January 2000. 

Ganesan, Vasantha. “1999 M&A Deals in Asia Exceed US $92bn.” Business Times (Malaysia). January 15, 2000. 

The Globe and Mail. Selected articles on Asia from October 1 to October 31, 1999. 

Globerman, Steven, ed. Canadian-Based Multinationals. Industry Canada Research Series Vol. 4. 

Calgary: University of Calgary Press, 1994. 

Globerman, Steven and Daniel Shapiro. Canadian Government Policies Toward Inward Foreign Direct Investment. 

September 1998. Industry Canada – Strategis. 

Gowling, Strathy & Henderson. Report on the Review of the Export Development Act prepared for the Department of 

Foreign Affairs and International Trade. [N.p: n.p.],1999. 

74 

Hirshhorn, Ronald. Foreign Direct Investment and Market Framework Policies: Reducing Frictions in APEC Policies on 

Competition and Intellectual Property. October 1996. Industry Canada – Strategis. 14 November 1999. 

 

—. Industry Canada’s Foreign Investment Research: Messages and Policy Implications. Discussion Paper No. 5. 

Ottawa: Industry Canada, 1997. 

Holroyd, Carin. Canadian Business Opportunities in Japan: Current Realities and Future Prospects. Ottawa: The Canada- 

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International Monetary Fund. World Economic Outlook, May 1997. Washington, DC: International Monetary Fund, 1997. 

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—. World Economic Outlook, May 1999. Washington, DC: International Monetary Fund, 1999. 

Kaul, Inge, et al. ed. Global Public Goods, Executive Summary. 21 December 1999. 

 

Kaul, Inge, et al. ed., Global Public Goods: International Cooperation in the 21 st Century. New York: Oxford University 

Press, 1999. 

Kondo, Seiichi. “Advancing Globalization.” Far Eastern Economic Review. November 4, 1999. 

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Thomson Financial Securities Data. Special tabulations prepared by Thomson Financial Securities for the Asia 

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—. World Investment Report 1999; Foreign Direct Investment and the Challenge of Development. Geneva: United Nations, 1999. 

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Waverman, Leonard, ed. Corporate Globalization Through Mergers and Acquisitions. 

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World Bank. The East Asian Miracle. New York: Oxford University Press, 1993. 

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—. Roots: From Havana to Marrakesh. 4 February 2000. 

75

STATISTICAL APPENDIX 

ASIAN TOURISTS VISITING CANADA (IN 000s) 

Origin 

1993 

1994 

1995 

1996 

1997 

1998 

76 

China 

35 42 52 64 80 56 


123 136 183 209 153 157 

Japan 

506 563 668 729 625 525 

South Korea 

49 101 142 191 176 72 

Taiwan 

48 71 110 146 151 129 

Other 

143 160 190 220 228 156 

All Asia 

904 1,073 1,345 1,559 1,413 1,095 

Source: Adapted from Statistics Canada, International Travel Survey, 1993-1998 (Cat. No. 63C0002). 

CANADA’S TOP ASIAN IMMIGRATION SOURCES 

Origin 

1996 1997 

1998 

1999 

Total 

% Business Class 

Immigrants 

China 

India 


Taiwan 

Pakistan 

Philippines 

South Korea 

Sri Lanka 

Vietnam 

Total 

14,468 

19,898 

29,787 

13,177 

7,052 

9,502 

3,142 

2,401 

2,435 

101,862 

16,702 

18,422 

22,113 

13,263 

10,292 

8,797 

3,989 

2,318 

1,737 

97,633 

18,297 

14,180 

8,015 

7,166 

7,159 

5,875 

4,900 

1,070 

1,587 

68,249 

28,309 

16,642 

3,630 

5,450 

8,028 

6,253 

7,195 

2,064 

1,364 

78,935 

77,776 

69,142 

63,545 

39,056 

32,531 

30,427 

19,226 

7,853 

7,123 

346,679 

5.7 

1.3 

28.8 

32.2 

6.8 

0.7 

41.1 

0.4 

0.0 

13.4 

Source: Data from Citizenship and Immigration Canada. 

Note: The figures represent immigrants arriving in Canada. 

ASIAN STUDENTS TO CANADA 

STUDENT VISAS ISSUED 

Origin 

1997 

1998 

Jan - Sept 

1999 

% Change 

Jan-Sept ‘98/’99 

Japan 

South Korea 

Taiwan 


China 

India 

Thailand 

Singapore 

Malaysia 

Indonesia 

Total 

n/a 

8,354 

2,423 

2,367 

689 

378 

541 

368 

449 

347 

15,916 

3,875 

3,636 

2,354 

2,101 

1,733 

477 

300 

251 

227 

185 

15,139 

5,149 

4,647 

1,800 

1,947 

2,958 

554 

316 

297 

226 

256 

18,150 

32.9 

82.4 

-6.3 

6.5 

205.6 

31.9 

34.5 

20.2 

29.9 

55.2 

46.6 

Sources: CEC Network and The Canadian Embassy, Tokyo.


ASIAN MOTHER TONGUES OF MAJOR CANADIAN CITIES (% of population) 

Mother Tongue 

Vancouver 

Calgary 

Toronto 

Montreal 

Halifax 

Chinese 

Korean 

Japanese 

Tagalog (Pilipino) 

Vietnamese 

Other Southeast Asian 

Punjabi 

Gujarati 

Hindi 

Tamil 

Other Indian Languages 

Other Asian Languages 

Total Asian Languages 

Total Population 

13.2 

0.8 

0.8 

1.3 

0.8 

0.4 

3.8 

0.3 

0.8 

0.1 

0.3 

0.1 

22.5 

1,813,935 

4.5 

0.2 

0.2 

0.8 

0.9 

0.3 

1.0 

0.4 

0.2 

0.0 

0.4 

0.1 

9.0 

815,985 

6.8 

0.6 

0.2 

1.4 

0.8 

0.3 

1.5 

0.6 

0.3 

1.3 

1.0 

0.1 

14.7 

4,232,905 

1.2 

0.1 

0.0 

0.2 

0.6 

0.3 

0.2 

0.1 

0.1 

0.2 

0.3 

0.0 

3.5 

3,287,645 

0.5 

0.1 

0.0 

0.1 

0.1 

0.0 

0.1 

0.0 

0.1 

0.0 

0.2 

0.0 

1.2 

329,750 

77 

Source: Adapted from Statistics Canada, Nation Series Package No. 4: Mother Tongue, Home 

Language and Official/Non-Official Languages (Cat. No. 93F0024XDB9600). 

Note: Mother Tongue is the first language learned by a child. 

PER CAPITA INCOME MOVEMENTS 

Countries 

GNP PER CAPITA 

(IN CURRENT US $) 

GNP PER CAPITA, ADJUSTED FOR 

PURCHASING POWER PARITY 

1996 1998 1996 1998 

China 


India 

Indonesia 

Japan 

Malaysia 

Philippines 

Singapore 

South Korea 

Thailand 

Canada 

620 

24,080 

420 

1,100 

40,910 

4,330 

1,160 

30,580 

10,590 

2,930 

19,330 

750 

23,670 

430 

680 

32,380 

3,600 

1,050 

30,060 

7,970 

2,200 

20,020 

2,870 

23,830 

1,610 

3,310 

24,030 

7,420 

3,580 

27,490 

12,970 

6,650 

21,220 

3,220 

22,000 

1,700 

2,790 

23,180 

6,990 

3,540 

28,620 

12,270 

5,840 

24,050 

Sources: World Bank, World Development Report 1999/2000 and World Bank, special request. 

Notes: PPP estimates of GNP per capita are calculated by converting GNP to US dollars using the 

purchasing power parity (PPP) exchange rate instead of the market exchange rate. The resulting 

estimates are expressed in international dollars, a unit of account that has the same purchasing power 

in each economy as the US dollar has in the US economy. World Development Report 1999/2000.


CANADA’S BILATERAL OFFICIAL DEVELOPMENT ASSISTANCE TO ASIA, 1993-1998 ($000s) 

Country 

1993/94 1994/95 1995/96 1996/97 1997/98 

78 

Asia Regional 

ASEAN 

Bangladesh 

Cambodia 

China 

India 

Indonesia 

Laos 

Malaysia 

Nepal 

Pakistan 

Philippines 

Singapore 

South Korea 

Sri Lanka 

Thailand 

Vietnam 

Other Asia 

Total ODA to Asia 

% of Cdn. ODA to Asia 

43,576 

10,168 

68,355 

6,107 

71,291 

58,516 

38,450 

807 

7,049 

8,523 

1,552 

38,315 

733 

89 

6,392 

18,368 

11,437 

1,037 

390,765 

19.3% 

37,226 

8,534 

56,062 

5,244 

92,697 

29,260 

29,848 

785 

7,804 

6,007 

11,314 

30,582 

363 

27 

6,244 

19,589 

9,625 

935 

352,146 

16.6% 

29,721 

8,359 

74,221 

3,522 

70,863 

51,744 

21,910 

1,335 

4,119 

6,092 

-63 

22,446 

459 

1,036 

7,743 

16,035 

12,386 

624 

332,552 

18.6% 

25,222 

5,070 

67,935 

4,562 

52,686 

15,965 

25,165 

1,210 

5,052 

10,137 

13,150 

23,827 

0 

1,207 

5,838 

14,496 

17,680 

909 

290,111 

16.0% 

26,118 

2,952 

65,766 

4,690 

49,063 

22,438 

25,137 

855 

5,159 

7,855 

12,080 

21,325 

0 

750 

2,213 

12,072 

18,055 

6,606 

283,134 

17.5% 

Source: Historical ODA System Database, Canadian International Development Agency, 1999. 

GROWTH IN SELECTED COUNTRIES (REAL GDP, % PER YEAR) 

1989 1990 1991 1992 1993 1994 1995 

1996 

1997 

1998 

Average 

1999 Growth 

China 

India 

Indonesia 

Japan 

Malaysia 

Singapore 

South Korea 

Taiwan 

Thailand 

USA 

Canada 

4.3 

6.9 

7.5 

4.8 

9.2 

9.2 

6.4 

8.2 

12.2 

3.4 

2.5 

3.9 

5.4 

7.2 

5.1 

9.7 

8.8 

9.5 

5.4 

11.6 

1.2 

0.3 

8.0 

0.9 

7.0 

3.8 

8.7 

6.7 

9.1 

7.6 

8.4 

-0.9 

-1.9 

13.2 

4.3 

6.5 

1.0 

7.8 

6.0 

5.1 

6.7 

7.9 

2.7 

0.9 

13.6 

6.0 

7.3 

0.3 

8.3 

10.4 

5.8 

6.3 

8.4 

2.3 

2.3 

12.7 

7.8 

7.5 

0.6 

9.2 

10.5 

8.6 

6.5 

8.9 

3.5 

4.7 

10.5 

7.6 

8.2 

1.5 

9.4 

8.8 

8.9 

6.0 

8.8 

2.3 

2.8 

9.6 

7.8 

7.8 

5.0 

8.6 

6.9 

7.1 

5.7 

5.5 

3.4 

1.7 

8.8 

5.0 

4.9 

1.4 

7.7 

7.8 

5.5 

6.8 

-0.4 

3.9 

4.0 

7.8 

5.8 

-13.7 

-2.8 

-6.2 

1.5 

-5.5 

4.6 

-8.0 

3.9 

3.1 

7.1 

5.8 

-0.4 

0.3 

5.2 

5.0 

9.8 

5.5 

3.7 

3.9 

3.8 

9.0 

5.8 

4.5 

1.9 

7.1 

7.4 

6.4 

6.3 

6.1 

2.7 

2.2 

Sources: Asian Development Bank, IMF, Bank of Canada, Far Eastern Economic Review, The Economist. 

Notes: Asian data (except Japan) 1989 – 1998 was taken from the ADB, Asian Development Outlook 1995/ 

1996 and 1999. Figures for Japan and USA 1989 – 1998 were taken from the IMF, World Economic Outlook, 

May 1997 – 1999. Canadian data 1989 – 1998 was taken from the Bank of Canada, Banking and Financial 

Statistics, September 1999. 1999 forecasted figures for the USA and Canada were taken from The Economist, 

January 8, 2000. Forecasted figures for all Asian countries (except China and Taiwan) were taken from the Far 

Eastern Economic Review, January 13, 2000. 1999 figures for China and Taiwan were taken from domestic 

news sources January, 2000.


CANADA’S TRADE WITH THE WORLD (1998) 

CANADIAN IMPORTS FROM THE WORLD 

CANADIAN EXPORTS TO THE WORLD 

Commodity Classification 

% 


% 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

Motor vehicles, 1500-3000 cc 

Motor vehicles, larger than 3000 cc 

Motor vehicles, body parts 

Crude petroleum oils 

Motor vehicles, other parts 

Digital circuits, MOS technology 


Motor vehicles, gear boxes 

Trucks, 5 ton or less 

Parts and accessories for computers 

3.0 

2.6 

2.6 

2.1 

2.1 

2.0 

1.7 

1.3 

1.2 

1.1 


Lumber 

Natural gas 


Crude petroleum oils 

Trucks, 5 ton or less 

Newsprint 

Special trade transactions 

Chemical wood pulp, coniferous 

Motor vehicles, other parts 

10.9 

3.7 

3.0 

2.9 

2.9 

2.7 

2.3 

1.7 

1.5 

1.5 

79 

Top 10 as % of Total from World 

19.7 

Top 10 as % of Total to World 

33.1 

Source: Trade Data Online. Industry Canada. 21 October 1999. 

Reproduced with the permission of the Minister of Public Works and Government Services Canada, 1999. 

CANADA’S TRADE WITH ASIA (1998) 

CANADIAN IMPORTS FROM ASIA 

CANADIAN EXPORTS TO ASIA 


% 


% 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 


Digital circuits, MOS technology 

Parts and accessories for computers 

Storage units for computers 

Input/output units for computers 

Portable computers (10 kg or less) 

Other circuits (non-digital) 


Motor vehicles, 1000 – 1500 cc 

Video games for use with a television 

4.9 

4.7 

3.3 

3.1 

2.9 

1.9 

1.9 

1.3 

1.3 

1.0 

Coal (not agglomerated) 

Lumber 

Rape (canola) or mustard seeds 

Chemical woodpulp, coniferous 

Wheat 

Fertiliser (potassium chloride) 

Newsprint 

Copper ores and concentrates 

Special trade transactions 

Semi-chemical woodpulp 

9.7 

8.3 

7.0 

5.8 

5.5 

3.1 

2.4 

1.8 

1.8 

1.7 

Top 10 as % of Total from Asia 

Asian Imports as % of Cdn. Total 

26.3 

12.8 

Top 10 as % of Total to Asia 

Asian Exports as % of Cdn. Total 

47.1 

6.0 

Source: Trade Data Online. Industry Canada. 21 October 1999. 

Reproduced with the permission of the Minister of Public Works and Government Services Canada, 1999.

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