International Trade Committee on Oct. 25th, 2011

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Mr. Ravignat.

[Mathieu Ravignat, NDP, Pontiac, QC]

Thank you for being here.

This is good timing because I just wanted to talk to you about infrastructures. I don't want to talk about SNC-Lavalin and big companies, but rather about other Canadian companies that would like to break into the Brazilian market.

I saw that last April, the Brazilian ambassador himself admitted with respect to the investment relationship between Brazil and other countries that Brazil still had a lot of problems to resolve and that it still needed international cooperation.

Based on the World Bank's comments in its report Doing Business 2012, Brazil is 126^th in the world when it comes to cross-border trade, behind countries such as Ethiopia, Nicaragua and Bangladesh. Brazil is also 120^th for awarding construction contracts and 118^th for carrying out those contracts.

In such a chaotic market, how can Canadian companies do business with Brazil?

[Neil Reeder]

The advice we give to companies, particularly Quebec companies, is to contact our trade office in Montreal—Canada's regional office in Quebec—to talk about their interests. We also recommend that they contact our embassy and our consulates in Brazil.

I don't want to give specific advice, but I often see that it is better to find a good local ally, a local partner, and not to try to penetrate this complex market, if a person doesn't already have a company there.

It's another thing for SNC-Lavalin, which has 200 or 300 people in Brazil. It's quite a large group in the country. But in the case of small and medium enterprises, it's better to work with us and work with our advisors in Quebec, São Paulo or Rio. That's what they are there for and they can put you in contact with local partners to bid together with Canadian content. Working in that market without support or a local partner is very difficult.

[Mathieu Ravignat, NDP, Pontiac, QC]

Do you think the Brazilian government is making efforts to resolve its internal problems? Does it have a strategy or plan?

[Neil Reeder]

During the Prime Minister's visit, it was clear that they had to review their investment policies and decrease the bureaucracy to facilitate foreign investment. Actually, it's still fairly complicated. They are aware of the work they need to do, especially in a context where they want to put more emphasis on infrastructures. Still, they need a more open, more positive dynamic to obtain foreign investments.

I think the government realizes this. During Mr. Lula's term, he made a lot of progress in certain sectors, but there is still a lot of work to be done, especially when it comes to the ease of foreign investing, for example.

[Mathieu Ravignat, NDP, Pontiac, QC]

Wouldn't part of the solution be to speak to regional governments and ensure that they are at the table? If ever there are negotiations, do you think these levels of government will be at the table?

[Neil Reeder]

We haven't really talked about the Brazilian States, but we have very strong ties with some of them. There are 40 million people in the state of São Paulo, so it has a larger population than Canada. It is important to have good ties with the states and to work with them to promote the possibilities at the regional level. We do not necessarily need to focus on the large cities. There is everything, there is room for everything, I think.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Go ahead, please, Mr. Shipley.

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

Thank you, Mr. Chair.

Thank you to our witnesses.

I'm interested in following up, because a year or so ago in Argentina—and, actually, part of the discussions that were held in Paraguay—there were issues with Mercosur and its complications and complexities, which I was learning about, and which came with this South American market opportunity.

One of the things I'm wondering about is this. When we were there, we had a number of discussions with a number of Canadian-invested companies there, particularly in agriculture, mining, and oil. We talk about the complexity and the difficulty in maybe getting a free trade agreement, but we've made these very important initial steps in engaging ourselves, particularly with Brazil right now. We've made significant investments in time and resources, with the Prime Minister and the trade minister going there. It takes time to develop trade agreements. Even if we can't reach an agreement, can you talk a little bit about the benefit of just having these types of discussions happening in South America? By just having us there, does that benefit our companies already there in terms of what they might be able to accomplish?

[Neil Reeder]

Let me just make a couple of remarks, then maybe Don may wish to add.

Beyond where we go with the Mercosur conversation, I think what we want to do is to really build this relationship as the anchor relationship in South America. For all the reasons we've mentioned, we have to be engaged in Brazil. In a way, Brazil is at a tipping point, like China in the 1990s, and just about to take off. That's where Brazil is going, it's clear, and we want to be part of that conversation. We want to have our companies there. But as we saw during the Prime Minister's visit, it's really a whole-of-government relationship and a much larger conversation than just trade and investment.

The wonderful thing about a country like Brazil--which is as big, as important, as a regional international player like Canada--is that there's tremendous scope to go in many directions as Brazil changes and Canada changes. I would point out that this was a country that received $150 million in CIDA assistance over the years, when it was not a middle-income country. Now we're working with Brazil to develop cooperation in third countries. Now we can share best practices on aid effectiveness, with Brazil as a donor. Brazil is a major donor in Africa. Brazil has more embassies in Africa than the United Kingdom does. They are all over Africa. So we can have a conversation with them now about shared interests there, on aid cooperation and trade, just as examples.

If you look at the nature of the agreements that we've signed with Brazil, it reflects a much larger, much more intensive relationship that will obviously lead itself to other gains as well in the trade and investment sector. And because we're establishing so many networks and links in that country bilaterally, these will, in turn, rebound well for us and give us opportunities on the trade and investment side.

The other important outcome of that visit was the personal relationship that was developed, because as you know, sir, personal relationships matter. The Prime Minister had very good meetings with the new President of Brazil. She's a very dynamic individual, and comes from an immigrant family that settled in Brazil. She has some very different views from President Lula, and we can already see a strong interest on her part in engaging with us. The personal dynamic is set: the foreign minister is coming here next year, and we expect the President of Brazil to come next year or the year after.

So it's a multiplier effect once you engage with a country like that. We're very encouraged by that.

We didn't mention the Governor General's visit as well. The Prime Minister announced that our Governor General will go to Rio in the spring with a group, which now looks to be 30 Canadian university presidents, as part of the Association of Universities and Community Colleges. He will go to Rio, possibly Brasilia, and elsewhere in the region. So this is really another high-level engagement that can only be of benefit in the longer term.

[The Chair, Conservative, Rob Merrifield]

We can put you back on if you like, Mr. Côté.

[Raymond Côté, NDP, Beauport—Limoilou, QC]

Thank you, Mr. Chair.

It's most unfortunate that my colleague, Ron, left. I'm also a fan of soccer, a big supporter of Italy, soForza Italia! I'll consult him to try to form a parliamentary delegation to go drown out fans in the soccer stadiums of Brazil. Mr. Chair, I'm used to living dangerously and I've attended a soccer final with Brazilian fans, but I survived.

Mr. McDougall, you made a very interesting observation about free trade that I really liked. You said that it was one of many tools, and not the only one to facilitate trade, if not relationships between countries. The principle of free trade is neither good nor bad; it's simply quite an honourable principle. I don't think it should be a single objective, but simply a way to establish ties.

Along the same lines as my colleague Mathieu, I would say that the disparities in the report Doing Business are fairly troubling, as are the ensuing complications. Thanks mainly to my colleague Maxime Bernier, the Minister of State, I was able to see that even though there is a North American free trade agreement, the situation is still very difficult for small businesses, simply because the facilities are not adapted and some red tape remains.

You noted that the offices of trade delegates could be very helpful, but don't you think it should be a priority to do some kind of harmonization, through rebate negotiation, obviously? We still need to provide national protection for our populations and the companies that will do business.

Do you think that some harmonization should be made a priority in an eventual free trade agreement with Brazil or Mercosur so that our businesses do not have to face a significant competitive deficit on the Brazilian market?

[Don McDougall]

Let's talk about small and medium enterprises and the competitive conditions in Brazil and the Mercosur countries. If one day we had a free trade agreement, we would really like to have certain conditions for the exchange of services and access to the market for all our companies. It wouldn't only be for small and medium enterprises. These conditions would make access more fair for all the companies.

It's difficult in this market because there are a number of conditions, minimum content requirements, for a lot of businesses there. So it's fairly difficult for our businesses. For the moment, it's a good idea, as Mr. Reeder said, for Canadian companies to find a local partner and use our offices in Brazil and in Canada to start to build relationships and find partners.

[Raymond Côté, NDP, Beauport—Limoilou, QC]

According to the data we have, since the late 1990s, our trade deficit has increased or stayed the same. We are talking mainly about the exchange of services and trade in services. Although we have a surplus of exports, it levels out, dollar-wise.

One thing concerns me. If the conditions of the domestic Brazilian market do not change, the free trade principle will increase this deficit. Do you get what I mean?

[Don McDougall]

I understand your concern. It's impossible to predict with certainty, now, what type of agreement will be made. But it is in Canada's interest to establish rules about the exchange of goods and services and also about the treatment of Canadian investments, and that these conditions be fair.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Mr. Shory.

[Devinder Shory, Conservative, Calgary Northeast, AB]

Thank you, Mr. Chair, and thanks to the witnesses also.

I have not been to Brazil yet, but hearing today's witnesses and the questions and answers, I gather that the local challenges there are similar to some of the local challenges in India. The difference I see is that I believe India can independently negotiate and sign any agreement, whereas here we have to deal with the Mercosur.

Considering the global recession and the definite continuing downturn in the U.S.A., it is very, very important for our government to diversify our markets. As you have seen with our ambitious trade agenda, we have been working very hard on this. Listening to all of my colleagues from all parties today, I again gather that we are all interested in expanding our business activities.

As Mr. Cannan mentioned, since 2004 we have shown an interest in, and have seen interest from, Brazil. But it seems that we are still in the process of figuring out whether free trade can be pursued between these two countries.

We all understand that there are all kinds of benefits from international trade, specifically because Canada is a trading nation. But the question on which I'm not yet clear is that with these six or seven years of negotiation that we have pursued, does the department have any hope that in the future we'll have some side agreements or a free trade agreement? Or are we facing the wall again and again?

[Don McDougall]

Just to clarify that question, were you were talking about Mercosur advancing...?

[Devinder Shory, Conservative, Calgary Northeast, AB]

With Mercosur or even Brazil.

[Don McDougall]

Or Brazil.

Yes, it's a little early to know at this point. But the purpose of our exploratory discussions is to make sure we have a very clear picture before entering into a full-fledged negotiation, because we don't want to commit all of our negotiating resources and time to a lengthy negotiation that's not going to go anywhere.

So we're having these exchanges with Mercosur now in order to know whether we should go into full-fledged negotiations.

[The Chair, Conservative, Rob Merrifield]

Mr. Reeder.

[Neil Reeder]

I want to make it clear that the conversation stopped in 2005 and picked up again this year. In fact, we didn't really have a dialogue in that intervening period. I guess our trade people went off in different directions on other priorities. But we weren't trying in those five years to get a deal. There was no conversation.

[Devinder Shory, Conservative, Calgary Northeast, AB]

I want to understand whether there is the possibility of side agreements with one of the countries, for example, Brazil? Or do we have to have a deal or negotiations with Mercosur?

[Don McDougall]

On trade specifically, it would have to be with all Mercosur countries. Because they're a customs union, they negotiate only as a block on free trade agreements. There are some aspects that they can negotiate bilaterally. We have a foreign investment protection and promotion agreement with Argentina and Uruguay. We've had some initial exploratory discussions on investment with Paraguay.

So for investment, for example, it's possible that we could do individual agreements. But for a comprehensive free trade agreement, it would have to be with the group as a whole, which poses some additional challenges because, as a group, they aren't really that clear yet on where they stand in terms of services, in terms of government procurement, and in terms of investment. They're currently having interim Mercosur negotiations on those questions, and so have a difficult time working with third countries to determine how they would treat those in a free trade agreement outside the block.

[Devinder Shory, Conservative, Calgary Northeast, AB]

Do I have some time?