International Trade Committee on Oct. 2nd, 2012

[The Chair, Conservative, Rob Merrifield]

I call the meeting to order.

We want to thank the department for being here again for a second hour. We look forward to your testimony.

I know you have some brief opening remarks, Mr. MacKay, so I will yield you the floor.

We are dealing with Bill C-24, concerning the free trade agreement between Canada and the Republic of Panama. We look forward to clause-by-clause on Thursday, so we look forward to your informing the committee concerning whatever questions we might have. I'm sure there will be a few.

The floor is yours, sir.

[Cameron MacKay, Director General, China Trade Policy Bureau, Department of Foreign Affairs and International Trade]

Thank you, Mr. Chair.

I am pleased to be here today to answer any additional questions you may have on the Canada-Panama Free Trade Agreement.

You will recall, Mr. Chair, that the last time we appeared before this committee we committed to providing exact figures in response to two questions. Members of the committee inquired about the unionization rate in Panama and the percentage of Canada's global trade that Panama accounts for.

I would like to begin today's session by responding briefly to those two questions.

With respect to the unionization rate in Panama, according to the 2010 Country Report on Human Rights Practices, which was published in April 2011 by the U.S. Department of State, approximately 17% of the workforce in Panama was unionized.

To put this into perspective, in 2011, the unionization rate across Canada varied from 23% to 39%, depending on the region. That same year, the U.S. Bureau of Labor Statistics reported that the unionization rate in the United States was 12%.

With respect to the second question, in 2011 Canada's bilateral trade with Panama represented 0.03% of our overall global trade. In considering this figure, it is important to recall that although Panama is a small trade partner, it is a dynamic and fast-growing market for Canadian exports.

Over the past five years, bilateral merchandise trade between Canada and Panama has increased by 105%, while Canadian merchandise trade with the United States, our largest trading partner, has decreased over the same period by 4.5%. It is in that light that, with the support of Canadian exporters and investors, the government agreed to launch FTA negotiations with Panama.

Finally, Panama currently represents our second most important export destination in Central America, only behind Costa Rica, with whom we already have an FTA.

Thank you, Mr. Chair. With that, my team and I would be pleased to answer your questions on this initiative.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

That is good information arising from questions at the last meeting that you are able to answer.

We now move to questions and answers.

Mr. Davies, you can start us off for seven minutes.

[Don Davies, NDP, Vancouver Kingsway, BC]

Thank you, Mr. Chair, and thank you to all of the officials for being back with us.

Our bilateral trade with Panama represents 300ths of 1%. Is that correct?

[Cameron MacKay]

Yes.

[Don Davies, NDP, Vancouver Kingsway, BC]

Where does that put Panama in the ranking of countries who are our trading partners?

[Cameron MacKay]

I believe it ranks 84th.

[Don Davies, NDP, Vancouver Kingsway, BC]

Mr. Castonguay, I understand you testified before this committee in previous sessions.

In previous parliamentary hearings and debates, serious concerns were raised by a number of sources about Panama being a known tax haven. The practice of people sheltering money in offshore accounts with little or no disclosure requirements is estimated to cost countries around the world, including Canada, billions of dollars in lost tax revenue, and the taxpayers of this country as well.

What can you tell us about the state of tax secrecy or sheltering laws in Panama today?

[Alain Castonguay, Senior Chief, Tax Treaties, Tax Policy Branch, Department of Finance]

I can tell you that Panama in 2001 made a commitment to adhere to the international standard on exchange of information and as of a few years ago has started to negotiate tax treaties that contain that standard for exchange of information and tax information exchange agreements.

To the extent that there are secrecy laws in a country, a tax treaty or a tax information exchange agreement helps to overcome that secrecy, because the agreements provide that, notwithstanding incidents of bank secrecy, you have to provide information that is relevant for the administration of your own tax laws. I think a treaty helps to shed light, in fact, on people who might think that investing in those countries can subtract from their obligations in Canada to report their income.

[Don Davies, NDP, Vancouver Kingsway, BC]

If I asked you if Panama is a tax haven today, what would be your answer?

[Alain Castonguay]

We tend to avoid labelling countries. All I know is we're negotiating a tax information exchange agreement with Panama that is in accordance with the standards, and once it is in force it will help Canada enforce its own tax laws.

[Don Davies, NDP, Vancouver Kingsway, BC]

I know, or at least I'm advised, that countries like the United States and the U.S. Congress required there to be a tax information sharing agreement in place before they gave it preferential trade status, or signed a trade agreement and started letting investment moneys flow between the countries. It's the case, isn't it here, that Canada is doing the opposite, that before us in Parliament we're proposing to pass a free trade agreement with Panama before we have in place a tax information sharing agreement?

[Alain Castonguay]

I think the negotiation of those two things have been independent, yes.

[Don Davies, NDP, Vancouver Kingsway, BC]

My understanding is that Canada has not yet signed, including a tax information—

[Alain Castonguay]

No, we haven't signed yet.

[Don Davies, NDP, Vancouver Kingsway, BC]

Okay, but here we are today fast-tracking this. On Thursday the government wants us to move out of committee the Panama agreement. I think it's fair to say they have signalled that they want the Panama-Canada free trade agreement to be passed as soon as possible.

Would you say that it would be a prudent step for us to make sure we have a tax information exchange agreement signed and in place before we conclude a free trade agreement with Panama?

[Cameron MacKay]

Mr. Chair, I think the officials from the various departments really are here to answer technical questions with respect to the free trade agreement itself and the TIEA, of course, but these broader matters of government policy I think are questions more appropriately raised with others.

[The Chair, Conservative, Rob Merrifield]

It's very wise to leave the politics to politicians.

[Don Davies, NDP, Vancouver Kingsway, BC]

Fair enough.

Do any of you have any information on the degree to which illegal transactions, say from drug cartel money, are making their way into the Panamanian banks? Did any of you study that, or get any figures on that as you were negotiating this agreement or giving advice?

[Cameron MacKay]

Maybe to provide a more general response, we don't have figures in that regard, and to my knowledge the Canadian government hasn't done particular studies. But we are well aware, of course, that Central America is a region now that's suffering very seriously from the narco-trafficking trade. It's a serious issue across the region, including in Panama. The Canadian government is working with other governments in that region to help deal with these issues. Frankly, I think it's widely known that where there are banks in the region, and there are certainly quite a few banks in Panama, there can be some money laundering going on as a result of that trade.

[Don Davies, NDP, Vancouver Kingsway, BC]

We know that a free trade agreement will increase and liberalize the flow of business and investment and money between the two countries. Is that a fair statement?

[Cameron MacKay]

Certainly, the idea behind it is that we will increase the flow of legitimate trade in goods and services, yes.

[Don Davies, NDP, Vancouver Kingsway, BC]

That's the goal. Now, is it possible that if we sign a free trade agreement with Panama, but Panama is still being used as a money laundering centre or a tax haven for illicit money, that some of that money could find its way to Canada? Is that possible?

[Cameron MacKay]

I don't see a connection between the free trade agreement and that issue.

[Don Davies, NDP, Vancouver Kingsway, BC]

Don't free trade agreements facilitate the flow of capital between the signing jurisdictions?