International Trade Committee on April 15th, 2013

[Dr. Laura Macdonald]

In terms of the membership of Canada I see it as highly political. Vis-à-vis the member states, it's not purely political. There are economic advantages for the current member states, I think.

Vis-à-vis your broader point, I am raising concerns about the limited availability of resources. I'm certainly in favour of extending ties with all of these nations, and all types of cultural, educational, social, and other types of relationships. We do have free trade agreements with them and I think it's important to get to know them better. I'm just saying that there are other countries in the hemisphere we don't yet have strong economic ties with, particularly Brazil, which is the biggest economy in South America.

I don't know, and I'm just raising this as a concern, but if it's possible that we're going to alienate Brazil and some of the other big economies of the region by being seen as being interested only in those four states, then that's a risk, in my view. We might better spend our time thinking about how we can deepen relations and perhaps enter into some of the other regional groupings.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

If your comments are that we don't have a deep relationship, or a very strong one with Brazil, and you're afraid we're going to take away, I'm missing the point here. We already don't.... But if we were to join the Pacific Alliance and then to reach out not only to Latin America but to the Asian countries, it would seem that sometimes you get credit by leading, not by following.

I'm interested in that comment because it's a little confusing.

[Dr. Laura Macdonald]

My point is that we haven't had a very good relationship with Brazil. In the past I think we've underestimated the importance of Brazil, and we haven't taken opportunities to get closer to them, and there have been some short-sighted trade conflicts with Brazil and with some of the other states. I don't see the advantage of entering more deeply into a regional formation where it is going to be very difficult to reach an agreement and it would take a long time to get an agreement with them. We might be spinning our wheels for several years trying to do that, while maybe there are much more practical short-term things we could be doing to improve our trade and economic relationships with all of the countries of the region.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

Regarding the countries you talked about, which you referred to as the left, basically the protectionist countries, which include Brazil, and which would include Argentina and Venezuela also because they are protectionist now, should we just hold back as some countries have done? Some countries, through leadership, have changed their direction in terms of protectionism. Do you see that happening with Brazil, and then opening it up more?

[Dr. Laura Macdonald]

When I was describing these countries, my point was that to just slap the label of “protectionist” or “populist” on them is too simplistic. They're not purely protectionist. They are in favour of trade, they're in favour of investment, they're outward looking—less so, perhaps, than the countries we're talking about here—but I don't think it's either/or and that one is protectionist and one is not protectionist. I think there are all kinds of shades and we need to understand that better, and not just assume that we can't talk to them because we see them as being more on the left.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

Thank you.

[The Chair, Conservative, Rob Merrifield]

Thank you.

Mr. Easter, you have seven minutes.

[Wayne Easter, Liberal, Malpeque, PE]

Thank you very much, Mr. Chair.

Thank you to both witnesses for a fairly eye-opening presentation.

Did either of the witnesses hear of Canada's interests in the Pacific Alliance—what this hearing is based on—prior to the last month or so? It wasn't in the budget. It wasn't in the throne speech.

I'm a member of this committee, and I'm wondering what in heck we're holding this hearing for; I really am. I'm wondering if it's busywork to keep us busy instead of looking at some issues on trade that we should be looking at seriously. I say that quite openly because I do see this as busywork for this committee, when there are all kinds of serious trade issues that Canada is falling behind on that we're not dealing with.

To be quite honest with you, and Don asked some of these questions in the beginning, the Department of International Trade really didn't have any answers for us either, in terms of what's to be gained in a Pacific Alliance.

I'm asking both of you, who have considerable experience in South America and Latin America, what do you see as the benefits for Canadians on the ground and for Canadian business of this Pacific Alliance concept? I'm trying to figure out what they are.

[Pablo Heidrich]

I have a hard time answering that question.

What I can tell you is the way these four other Latin American countries see it is that if they integrate economically to the extent that they are planning to do, they will get, for example, more investments from oil and gas companies from Malaysia that would integrate all their operations with respect to Mexico, Colombia, Peru, and Chile. You would have a harmonization of education standards, for example; you would have engineers from Chile moving to Mexico, and so on. That would allow the companies perhaps to invest more than otherwise. If Canada were to join that group, that would also permit Canadian engineers to work without much paperwork in Colombia, Peru, or Mexico for the Malaysian oil and gas company. That is a little bit of what they are planning.

Would that be a significant percentage of gain for Canadians on the ground and for the aggregate Canadian economy? I am afraid not. Canada's economy is so much bigger than the economies of most of these other countries, except for Mexico, so when you are making an FTA or any kind of trade negotiation or liberalization, you have to come to an incredibly good agreement to actually gain something when you are an economy as big as Canada's.

When you are Chile, or Peru, you can actually get more substantial results with agreements that are less ambitious. What I was trying to say is that, now that tariffs are gone, and trade and investment have become integrated in ways they were not before, if we want to make changes to get more trade and investment with Asia, the changes that we need to make are much more internal. The choice to make is whether we are going to do it with the Pacific Alliance or with the TPP. Eventually those changes may have to be made.

[Wayne Easter, Liberal, Malpeque, PE]

A lot of those points that you raise.... One of the issues in terms of the CETA agreement with the European Union, for instance, which the government is talking about, although they are a little over a year behind in that negotiation too, is labour mobility, the recognition of professional standards and so on. That may be a good objective, but wouldn't it be better to try to renegotiate or enhance the trade agreements than this kind of nebulous concept?

I'm a member of this committee and for the life of me, I just don't understand this Pacific Alliance business. I don't think members opposite do either, to be honest with you.

You said, Ms. Macdonald, that we need to tread carefully because Canada could become more marginalized. You expanded on it somewhat on Bev's questions and Don's as well. That worries me because of our role in the world. We are an export nation; we trade with countries such as Brazil and others in the South American sphere. Can you expand on that further? What are the danger points that we have to be looking out for if we are going to go ahead with this concept?

[Dr. Laura Macdonald]

My point was that we're already seeing a trend in the hemisphere toward greater independence in the Latin American region. We saw this in the last OAS summit where there was a gaping divide between Canada and the U.S. on the one hand, and all of the other member states on the other.

I was very happy about the Americas strategy. It's a great initiative in general to try to increase our ties with the region. I'm just worried that this isn't going to be the best way to brand ourselves in the region as a progressive, forward-looking state that is interested in multilateralism, promoting multilateral trade initiatives and trying to bring states closer together rather than feeding into this tendency toward increased divisions.

At the same time, as I mentioned briefly, we all know that mining initiatives have tended to raise the issue of Canada's association with mining companies that have perhaps engaged in some questionable human rights or environmental practices. However that may vary across mining projects; there are different types of mining companies and so forth. That's a risk for Canada as well, as we enter into the hemisphere, so we have to be really careful. We can't just assume that because we're Canada everybody is going to love us and think we're the best country out there and that everybody is going to want to be friends with us.

We're not part of the region, so we can't come down to the region and lecture to those countries about how they should conduct themselves either. It's time to evaluate what's going on in the region and get a good sense of the complexities of the situation and not barge in with ill-thought-through initiatives.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

We'll now move to Mr. Holder. You have seven minutes.

[Ed Holder, Conservative, London West, ON]

Thank you, Chair.

Thank you to our guests for being here. It is interesting. Ambassadors from the various countries affected by this have come here to support Canada's participation in varying degrees, some by their current status and others that have actually endorsed Canada in a much more significant role.

I'd like to answer some of what I've heard so far, because it needs to get on the record. I don't see it articulated by some members and even some of our guests.

On benefits to Canada, I would suggest to you that what we get out of this agreement is an increase in broader regional influence. We build a stable foundation for Canada's engagement in the Americas. As you may know, we have made a commitment to put greater emphasis on South and Central America.

The Pacific Alliance makes members more competitive exporters and more attractive to foreign investment. One of the primary goals of the Pacific Alliance, that I've heard certainly, is to become a platform for some political linkages. I think you made some reference to that as well. There's also economic and trade integration, which gives us some extension to the world, with some emphasis on Asia Pacific. It serves as a counterweight to U.S. regional influences.

Those are just some of my quick thoughts on that.

As I look at this—I was going to ask some questions in different orders—I have to start with the issue of Canada's extractive industries. I've had the privilege to be in Peru, Chile, and Brazil on behalf of our government. Canada's reputation in the extraction industry is first class. We have met with governments in these various countries and we have heard from a number of witnesses. I have been there and have spoken to Canadian companies down there, and they are leaders in corporate social responsibility. When you talk about this being a marginalization for Canada, Ms. Macdonald, respectfully, I would suggest to you it is quite the opposite. I think Canada really does understand its role internationally, and there is a greater emphasis....

It's interesting. I heard members opposite when we talked about why we might integrate our country with the others, I don't think we are talking about the kind of integration that was implied, but it almost seemed that we should only trade with countries that have standards equal to or better than Canada's to somehow raise our standards, when in fact we have an opportunity, as we have shown with corporate social responsibility, to improve the lot of others.

Can you help me understand how you strongly believe—or do you really believe—that Canada's extractive industry somehow marginalizes Canada's role internationally?

[Dr. Laura Macdonald]

I'm just making the point that they're having demonstrations in various Latin American countries against Canadian mining companies. There are legal cases being brought. It's just very controversial. I don't think you can deny that. There are different points of view.

I'm just saying we should tread carefully here and recognize that there are some issues that we need to think about, and perhaps strengthen our CSR standards.

[Ed Holder, Conservative, London West, ON]

Well, how would you strengthen them? What would you do differently?

[Dr. Laura Macdonald]

I'm not an expert in CSR, and Pablo knows more about this than I do so I might pass it over to him, but basically I think we need to think about making them mandatory rather than voluntary.

[Ed Holder, Conservative, London West, ON]

That's interesting, because having seen the standards by which.... Canadian industry in these various countries is the model for the world. I say that with great pride about Canadian extractive responsibilities, not just in South America and Central America, by the way, but around the world.

I've been to Brazil. The sense I have from the Brazilian government, from Lula's government to the current government, is that they have a deep respect for our relationship with them. Canada is regarded very highly by Brazil. Here is my question.

For some of the reasons I outlined before, I believe there are Canadian advantages to solidifying this Pacific Alliance. What's interesting is that every time we've talked about any trade agreement in the world, Doha usually comes up, so I'll bring it up this time for fun. As I have said before, Doha is as dead as Elvis Presley, but people look at that kind of romantically, as if that's somehow the goal we should attain.

Here we have another trade pact, four countries which we do individual deals with, and we are trying to put it together in a package, as we do in a variety of packages around the world, to make us basically closer to that multilateralism, which you sound like you support, and I hear that as a word but I'm not sure that I'm hearing it in fact. Isn't this just another multilateral attempt, as we have with CETA, as we will be doing, we hope, with the TPP and other things?

Why does this agreement necessarily have to be what I would consider a zero sum game? That is to say, why do you have to do Brazil instead of? We already trade with Brazil significantly. We already trade with every country in the world in various capacities. Could there not be an argument that this in fact could assist us in some of our negotiations and dialogue with countries like Brazil which, as I think you've rightly pointed out, is the dominant player in South America?

May I have your thoughts, please?

[Dr. Laura Macdonald]

Well, I'm simply raising some questions here. I can't say necessarily that this would doom our relationship with Brazil, not at all. I'm not saying that, but it might harm our relationship somewhat with Brazil.

I think they are not hostile relationships, but they're competitive agreements within the hemisphere and it may be that we can't have our cake and eat it too. It may be that if we deepen one arrangement, then we can't move forward with other areas in which we don't currently have trade agreements, and we do have trade with these countries. If there's not any great economic advantage with moving forward toward deepened integration, harmonizing regulations, migration agreements, all kinds of really sensitive trade issues that you'd be stepping into here.... If we can't really say that there's a clear economic advantage, I don't see what the point is of risking our relationship with another powerhouse of the region.

[Ed Holder, Conservative, London West, ON]

It's rather interesting because in this kind of dialogue I remember when we did EFTA. You might be familiar with that, it's the European Free Trade Agreement. It involved four countries, not always the biggest ones. It involved Norway, Iceland, Switzerland, and Liechtenstein, not exactly an economic powerhouse respectively, but each of them had their various strengths. I heard from one person who asked if we were concerned that would have an impact on our dealings with the European Union, that is to say, the broader free trade. Frankly, it hasn't and it's my hope that we'll be able to put that together.

I'd like to suggest to you that you keep an open mind, please.

Thank you, Chair, and thank you to our guests. I appreciate that.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

We have very little time left, but we'll allow two last questioners and we'll split the time.

Go ahead, Madam Papillon.

[Annick Papillon, NDP, Québec, QC]

Thank you, Mr. Chair.

Well, unlike our Conservative colleagues, we, in the NDP, want a trade strategy that is open and respectful of the environment and human rights. We can't ignore the fact that mining companies in Latin America meet with tremendous opposition, both locally and internationally. Unlike our Conservative colleagues, we read newspapers on this side of the House. In fact, one example I could point to is the situation involving the Pascua-Lama mine. Barrick Gold has been the subject of protests. A court has suspended the project because of environmental implications, as well as indigenous claims in Columbia and Peru.

I would like to know this. Social movements of that nature are commonplace in Pacific Alliance member countries, especially in mining and indigenous regions where human rights and environmental protection are serious concerns when it comes to trade. We were just talking about corporate social responsibility, for that matter. In terms of Canada joining the alliance, do you know if those are concerns right now? Do you have any suggestions for us in that regard? I'd like to hear your thoughts on that.

Perhaps we could start with Mr. Heidrich, followed by Ms. Macdonald, please.

[Pablo Heidrich]

Thank you, and I offer my apologies for not being able to answer you in French.

In regard to your question and also the previous comments from a member of the committee, I've been researching Canadian mining investment, and particularly the economic impact of Canadian mining investment, so I would like to add that when we talk about CSR, corporate social responsibility, for 45 Canadian companies that operate 68 mines in 12 Latin American countries, CSR represents between 0.3% and 0.2% on average of their revenues per year. The most enlightened companies invest up to 1% of their revenues per year.

In comparison, they make between 30% and 40% profit from their revenues and they pay between 10% and 20% of their revenues in taxes. The rest goes to operating costs. When there are issues, protests and complaints in Latin America, yes, they have to do with human rights; yes, they have to do with environmental impacts—as you say, with the Pascua-Lama case, and there are other cases as well—but it's also a matter that people know how to count there, and here as well.

There are several issues that make Canadian investment in extractive industries very much a subject of discussion in Latin America. I think that's why Professor Macdonald and I very much agree on the fact that it's important for Canada to keep negotiating and keep talking with all countries, if Canada wants to ensure that the companies behave well and also are treated fairly in those countries. Negotiating with countries we are very close to and can agree with can sometimes be a bit redundant; it's important to also negotiate with countries that have very different points of view.

Ultimately, what can happen with mining investments, or with other investments that Canada has very strongly made in Latin America, such as in banking, is that the investments can be nationalized. You have to see that the margins of profitability in Canadian mining investments and banking investments in Latin America are totally dependent on regulation. Regulation is political; therefore, you need to speak with the political bosses of those countries.

Thank you.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Mr. Hiebert, you may take a couple of minutes.

[Russ Hiebert, Conservative, South Surrey—White Rock—Cloverdale, BC]

Thank you.

Just to clarify, my colleague asked whether there was any economic benefit or advantage to Canada. I heard the witnesses—I'm not sure which ones—clearly state that there were economic advantages, despite the potential for deep integration.

My question, however, has to do with a comment made by Mr. Heidrich.

You suggested that for further integration in our economic trade with Asia, the changes Canada would need to make are more internal. Could you unpack that statement for the members of the committee?

[Pablo Heidrich]

What I meant by internal is changes that in the literature on trade are referred to as behind the border, changes that have to do with.... First of all, Canada is a confederation, and therefore it's a somewhat difficult country for others to negotiate with. For example, you negotiate with Canada and you sign with the federal government an international free trade agreement, and then you figure out that what you signed doesn't really mean much, because the provinces will not allow you to provide services across their border. If you are trying to provide architecture or engineering services, which are very important, for example, for Asian investment in Alberta in the oil sands, you cannot do it unless the provinces in which those investments are allow that foreign provider to come through.

Those are changes that Canada would need to make if it were to receive more investments from abroad, which is, for example, the target that those countries in the Pacific Alliance have. They have the advantage over Canada that they are either unitary countries or are federal in name, as in the case of Mexico, but much less federal than Canada.