International Trade Committee on April 10th, 2014

[Randy Hoback, Conservative, Prince Albert, SK]

I don't necessarily disagree with you. I think Gildan themselves would prefer to say that they don't want to have this facility and it's at their plant. I think a lot of companies would say that.

[Karen Spring]

They actually do. They're pushing to only have clinics—

[Randy Hoback, Conservative, Prince Albert, SK]

Again, the reality is the situation that they're faced with on the ground in Honduras. If there was a good public place to get treatment for their employees, that would probably be their preference. If they could pay for that facility through the government, to see that facility placed on the ground, they'd probably prefer that too. But the reality is, that isn't an option.

So what is the best option for the employees that you have working for you? You can ignore it because a lot of companies would just ignore it. They'd say it's not their problem, we'll just find somebody else, but they're not. They're actually putting in the facilities to take care of these people.

You will always have people who have problems. That's just the nature. You have 24,000 employees. If you looked at any company with that number of employees, you'll have all sorts. It's just the nature of the volume of the people you have in your business. I guess what I'm trying to say, is this out of the realm of normality in that size of an operation? I don't know the answer to that. I'm not sure if you do. That's the question I would answer.

I want to kind of go through the media here a little bit. Can you give us a picture of the media in Honduras? How many papers are there? How many journalists are there? Are they political papers? Are they papers like here where they're relatively neutral? They have their columnists who give their opinions, but do they actually have reporters who just report? What does it look like in Honduras, the papers and the publications and that?

[Carmen Cheung]

There is quite a wide variety. As in Canada, you have your major mainstream media, and some television stations are more mainstream than others. There are radio stations. There are newspapers. There is community radio, and there are other types of social communicators, so it's quite broad.

[Randy Hoback, Conservative, Prince Albert, SK]

I guess it doesn't matter, though, when you think about it. When you kill a reporter, that's not acceptable. When you kill somebody, it's not acceptable. I don't care if it's a narco-trafficker doing it or anybody else doing it, that is not acceptable. If you do a report on the drug scene in Honduras and you get killed, that is not acceptable. It's unfortunate. It's unacceptable.

I guess I look at Honduras and I say, “Okay, now, for me, as a parliamentarian here in Canada, how can I help them? What are the tools that I have? What is the leverage I have to help them out?” The easiest thing I can do is give them a better standard of living, give them a choice between two jobs—and I said this yesterday—a job in narco-trafficking, which brings all the cancers that come with that, or a job at Gildan. It may not be 100% perfect, but with a job at Gildan the guy goes home to his family. He raises a family. He's usually involved with his church. He's involved in the community, so you have two options here for these 24,000 people because if Gildan, for example—I'm using it as an example—isn't there, where do these 24,000 people work? What do they do?

That's the question I have. How do I take leverage here and try to influence to make the life of that child who is born in Honduras today better 10 years from now? I look at Colombia and I look at countries that had similar situations. I look at Medellin today versus Medellin during 1985. Look at Bogota today versus 1985. What changed that? What made that improve? Today I can walk in downtown Medellin and not worry about it, or Bogota, and I have done that. You can't do that in Honduras.

We look to trade and economic activity as tools that allowed that to happen. Is that not fair to say?

[Tasleem Thawar]

First, people have jobs deciding what the best method is for development and whether it's economic trade or whether development is best achieved by other means, and we're not here really to discuss that. For us, for me, and for PEN, and for IHRP—

[Randy Hoback, Conservative, Prince Albert, SK]

You want to make it better, and I can see that.

[The Chair, Conservative, Rob Merrifield]

The questioning is done. I'll allow a very short answer.

[Tasleem Thawar]

Of course we want to make it better.

Really this is why we have the recommendations that we have, because if Canada chooses, if Canada believes that trade with Honduras is the best way to make things better for the Honduran people, there are a few things that we can do at this point to ensure that, in fact, things do get better.

There are two things that we can do. First, commission independent human rights assessments, and again, this does not require an amendment to the treaty. Canada can commission this whenever it wants. It's a relatively simple thing to do. The second thing is to ensure that our existing human rights obligations—not to create new obligations for Honduras or for Canada—are enforceable through this treaty to use our unique opportunity at this moment to press Honduras to meet these obligations.

[The Chair, Conservative, Rob Merrifield]

Okay, thank you very much.

I want to thank all three of you for the testimony and for your answers. They've been very interesting and informative.

With that, we'll suspend as we set up the next panel.

[The Chair, Conservative, Rob Merrifield]

We will call the meeting to order.

We want to thank our next panellists for being with us.

We have, from the North-South Institute, Pablo Heidrich, senior researcher, governance of natural resources program. Thank you for being here.

From MiningWatch Canada we have Jennifer Moore, Latin America program coordinator. Thank you for being here.

We'll start with you, Jennifer. The floor is yours.

[Jennifer Moore, Latin America Program Coordinator, MiningWatch Canada]

Thanks very much.

Just to jump right in, I wanted to just ponder for a moment: what's the attraction of a bilateral agreement for a Canadian mining company considering investment or further investment in Honduras? Generally, this is to reduce risk for a company by locking in the current operating environment, giving them a sense of stability concerning the regulatory and taxation terms that are in effect when they invest. It also is to give them access to possibly the most powerful binding arbitration tool in the world today that allows corporations to launch costly lawsuits against governments when they, their people, or even their courts, make decisions that companies don't like. Even if a corporation loses, the initial stages in such a process can cost both parties millions of dollars that would be much better spent.

I want to talk first about this. What is the operating environment today in Honduras? In other words, what would this agreement lock in?

While the last few years, and especially the last few months of the outgoing government of former President Lobo have been marked by the ramming through of literally hundreds of legislative reforms, l'm going to focus on just one piece of legislation that is highly relevant to the mining sector: the new Canadian-backed mining law that was passed in January 2013. This law was developed and passed with strong diplomatic support from the Canadian embassy, and with contributions from the Department of Foreign Affairs and the former Canadian International Development Agency.

The Canadian government and mining industry, along with the industrial mining association in Honduras, pushed for this law principally in order to lift a moratorium that had been in place in Honduras on new mining concessions and projects since 2006. This moratorium was put in place by ousted President Mel Zelaya, under pressure from the Honduran civil society, who had been fighting for legislative reforms for years as a result of the weaknesses in the legal framework to respond to the impacts on their water and health that communities in the Siria Valley, around Goldcorp's San Martin mine, started experiencing very shortly after this mine went into operation.

We can also safely assume, I believe, that the Canadian government and industry undertook the process to try to get this new law in the context of the highly repressive and violent post-coup environment from 2010 to 2013, in order to ensure that the mining law wouldn't end up looking like the proposed mining bill that had been waiting in the wings and that was ready for debate prior to the military-backed coup of June 2009. The 2009 bill, which was supposed to be debated in August 2009, included key civil society proposals, including a ban on open-pit mining, a ban on the use of cyanide and mercury in mineral processing, and a requirement for community approval prior to the granting of mining concessions.

So what's in the new law? There are just a few points. It leaves the door open to open-pit mining. Water sources, except for those that have been declared and registered, which are in a minority, are not protected. Mining is not prohibited in populated areas, meaning that forced expropriation and displacement of entire communities can continue to take place. Community consultation is to take place, but only after exploration has occurred and there's a contract established with mining companies. This is a very late stage in the mining process to undertake consultation, and it means that while a community could presumably state its position on mining at this stage, were there local opposition and the state of Honduras took this seriously, the government would face a high probability of being sued under such a free trade agreement as that which we’re discussing today. This law also divvies up a new 6% royalty on mineral sales from metal mining projects into several pots, in particular a 2% tax for security forces.

Even without looking at what's going on on the ground right now, we can foresee that the conditions are very ripe for conflict, first, with communities who are strongly opposed to open-pit mining. In 2011, a public opinion survey carried out by the research centre for democracy found that some 90% of Hondurans are opposed to open-pit mining.

Second, we have the communities that are fighting to protect key water sources or to stay on their land. This law enables and favours companies that might monopolize local water supplies for industrial mining operations. It could lead to the displacement of entire communities that might be in the way of new projects, putting at grave risk the survival and economic sustenance of peasant farmer communities.

This is a continuation of weaknesses under the earlier mining law regime that put communities such as those in the Siria Valley, around Goldcorp's San Martin mine, at a tremendous disadvantage. It has led to the loss of local water supplies, the displacement of an entire community, and long-term risk from the environment and public health risks of acid mine drainage, which was observed by a leading expert from Newcastle University, in 2008.

Third, I fear that the new security tax on mining production provides a direct incentive to corrupt security forces to protect mining installations instead of people's safety, which should be their first and foremost concern. I think the earlier speakers have already gone into the terrible track record of the Honduran state forces.

What have we been hearing about mining in Honduras since the new mining law was passed? I’m going to give a couple of examples.

First, in northern Honduras, in the mountains just inland from the Caribbean coast, in the agricultural community of Nueva Esperanza in the municipality of Tela, there's been an ongoing fight over a new iron ore mining project that’s owned by the son-in-law of one of the country's richest men. The community has complained that they were not consulted, and in mid-2013, they were already reporting heavy sedimentation contaminating a local river.

In June of last year, the Honduras accompaniment project reported that armed men entered the community under police escort to provide security for the mine. Both police and armed men in this case have been reportedly been involved in threatening and intimidating acts against the community. In particular, armed men have targeted community members who refuse to sell their land. Community members have reported death threats, and nightly curfews during the summer months. In July 25, 2013, armed men also held captive two human rights accompaniers from France and Switzerland, from the Honduras accompaniment project, under threat for several hours. A number of local residents were forced to flee in August 2013.

There are further examples that we could go into, but just to note, in the Siria Valley, where Goldcorp has their San Martin project, well-known environmental activist, community reporter, and teacher, Carlos Amador, has publicly denounced being watched and followed by unknown individuals using vehicles with tinted windows and without licence plates over the last few months; his life is believed to be under serious threat. And local communities in this area are concerned about the approval of new mining concessions that they have insufficient information about.

Right now we can say that there's a state of fear and violence for campesinos and activists fighting to protect their water, their lands, and their right to speak out about the damages of mining, without protection from the state or their own justice system.

If we could imagine that it wasn’t this way, what if the tide shifted and the Honduran government actually made significant efforts to respect the will of communities and to better protect their water supplies, their living environment, and their right to decide what development is good for them? What would happen? The situation in El Salvador provides a poignant example.

Right now, Vancouver-based Pacific Rim Mining, currently owned by OceanaGold, an Australian-Canadian firm, is suing El Salvador for more than $301 million after failing to obtain the social and environmental licence needed to develop a gold mine in the department of Cabañas, and after encountering nation-wide opposition to metal mining in the country.

Notably, Pacific Rim did not meet regulatory regulation requirements necessary to obtain a mining permit in El Salvador; it relied instead on political lobbying. Nor did Pacific Rim undertake adequate studies to understand, much less mitigate, potential adverse effects from the El Dorado project, especially on water supplies. Whether or not the company ultimately wins or loses the arbitration case, which is ongoing, El Salvador has already spent $5 million fighting the suit, which is enough to provide one year of adult literacy classes for 140,000 people. Meanwhile, several environmental activists have been killed, others repeatedly threatened, and the policy development area in the mining sector has stagnated.

So, were a future government in Honduras to come along that would stand up for what Honduran communities have been calling for in terms of respect for their right to decide and to adequately protect water supplies and the environment, they would likely be slapped with another suit of this sort under the current free trade agreement such as the one being debated today.

Just to sum up, what would a free trade agreement between Canada and Honduras do in the mining sector? It would lock in an unjust arrangement for communities that did not provide guarantee of protection for adequate consultation, protection of land and water supplies, or sufficient recourse when things go wrong. It is also taking place in an environment where they are facing targeted threats on a regular basis. At the same time it shores up very powerful protections for companies that will be able to resort to an arbitration mechanism that goes above and beyond the Honduran justice system into which communities have no reach.

Thank you very much.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Mr. Heidrich, the floor is yours.

[Pablo Heidrich, Senior Researcher, Governance of Natural Resources program, North-South Institute]

Good afternoon. Thank you for inviting me and for the opportunity to speak with you today regarding Bill C-20.

My area of research at the North-South Institute is on international trade and investment. I will be providing my testimony from that point of view. I have been working and doing research on trade between Canada and Latin America for the last six years here. I have been researching also the investment relations of Canada with different countries in Latin America, particularly those that have signed FTAs, or free trade agreements, with Canada.

My presentation is going to focus then on the possible benefits that these FTAs might bring to Canada and also to Honduras. I will cover first a little bit of theoretical but also empirical research that has been done in Canada and abroad that tells us under what conditions those agreements can bring economic growth and economic development to both countries. I will later talk about the Honduras economic and governance conditions from an economic point of view. Finally, I will suggest some policies or instruments Canada can use in order to build a more successful relationship with Honduras.

Let's begin with the free trade agreements. There are currently about 400 free trade agreements functioning in the world. Most countries have signed at least one. It is actually a practice that is more common among developing countries than among industrialized countries. There are quite a lot of studies already on under what conditions those agreements are actually successful for the purpose that they are intended. Most FTAs are actually signed among developing countries and only a very small percentage are signed between developing countries and developed countries and there are good reasons for that. In that regard, most developing countries sign FTAs with other developing countries because they are trying to emulate the historical experience of the European Union and to some extent the experience of NAFTA as well, trying to bring it to their own situation and their own geography.

The literature tells us there is a very highly variable degree of success. Developing country businesses in general tend to be too small and not technologically advanced to make use of the opportunities in enhanced market access that these FTAs give. For the most part, exporters from developed countries find the enhanced access to the market of developing countries, particularly when those countries are small, quite underwhelming.

What I would say is that the practice of north-south FTAs is actually more difficult than the one between developing countries. One of the main problems in general tends to be the average levels of governance and effective rule of law in the developing country party. Even when those conditions are met, the developing country gains are not going to be significant, they usually are around 0.1% to maybe 0.2% of GDP per year for the first 10 years after signing and then they decrease.

Other indicators such as improving the legal system, improving governance, public education, and public health, bring anything between 10 to 20 times more gains per year than executing an FTA. In other words, the policy measures that affect trade for an economist, particularly those related to development, are of secondary importance when we are trying to support the economic growth of a developing country. What is of primary importance is governance and access to public education and public health.

Now I'm going to direct my attention to the specific FTA that Canada and Honduras have signed. I read the text and what I can say in summary is that these agreements are very similar to the ones that Canada has already signed with other nations in Latin America such as Panama, Colombia, and Peru. The substantial preferential access that is given to Honduras in textiles and clothing, fresh fruits and vegetables, and some processed foods, these advantages that are given to Honduras align fairly well with the comparative advantage that Honduras has already demonstrated in the last decade.

However, UNCTAD, which is the United Nations commission for trade and investment, has an ongoing ranking for countries on what market access they have to their main partners; and Honduras is one of the countries that is highest ranked in the world. In other words, Honduras does not need enhanced market access in order to increase its exports to the rest of the world, in comparison with most other developing countries.

On the other side, Canada gains from the FTA increased access to agricultural goods, cereals, and also meats, and some technology-based manufacturing. More relevant for Canada is the enhanced general investment protection that Jennifer has already mentioned, and in particular, I would say, this is an argument that comes more from economists, because Honduras is a country that is ranked by the World Bank as having one of the worst levels of governance and that affects all kinds of investment, not only domestic but also international. That is a big handicap for Honduras to receive any further investment.

However, it is very concerning to me that in this agreement, the Honduran side has already carved out some very strong exceptions to the application of this agreement, such as, for example, investment in construction, oil refining, fuel distribution, casinos, and the possibility also of excluding any Canadian firms from any future privatizations that the Honduran government would do. I can later explain in the question and answer period why the Honduran government would go for that.

My simple calculation is that bilateral trade between Canada and Honduras, if this agreement were ratified, would increase; however, the increases would be minimal for Canada and they would even be fairly small for Honduras, and that would only be in the case that Honduras would perform as well as the other Latin American partners that already have an FTA with Canada. I'm talking about Chile, Colombia, Peru, Panama, and Costa Rica. I have to say, even very early on, that Honduras is a totally different country from those five. The exception and one of the best gains, I think, for increased trade is that there would be more access for clothing and for textiles. Most other Honduran goods already arrive in the Canadian market with very minimal taxes, very minimal or zero tariffs.

On the other side, the Canadian exports would gain market access, but again, those gains would be fairly small because the average applied tariffs of Honduras are already very low. They are among the lowest in the world and the lowest in the region. They are around 5% to 6%. It's already very much a free-trading nation. Besides, it's an economy that is very small. To compare it to Canada, the economy of Honduras is smaller than the Ottawa-Gatineau metropolitan area. And that is only at the aggregate level. Once you input the fact that Honduras is the most unequal country, by distribution of income, in the most unequal region in the world, Latin America, then that market is really much smaller than Ottawa-Gatineau.

So if we are expecting to have big increases in Canadian exports to that market, we should know that that market is structurally handicapped from providing those gains, because there is nobody to buy those goods. Canada is not a country that is specializing in luxury goods to sell to a very wealthy elite. Canada sells grains, auto parts, and goods that tend to be consumed by businesses or individuals from the middle class, or from the poorer working class.

Again, comparing Honduras with other Latin American countries that have signed these FTAs with Canada, Honduras is anything between 2 and 20 times smaller as a market, and that is without considering income distribution. The population of Honduras is 8 million, and two-thirds live in poverty and one-third in extreme poverty. That is according to the Honduran government. The UN says quite worse things.

So I also have to say that towards the future—

[The Chair, Conservative, Rob Merrifield]

I'm just looking at your text, and I'm looking at the time.

[Pablo Heidrich]

Okay. I will try to summarize.

Looking towards the future, the Honduran economy has been underperforming in the Latin American economy for the last decade and in all likelihood it will continue to underperform. There is no economic forecast from anywhere—I've checked Bloomberg, Reuters, and everywhere else—that says that Honduras will grow fast. It will not. It just will not. It's not an emerging country.

According to the World Bank, Honduras is also one of the most expensive countries in which to run a business given its convoluted and politically rigged regulatory systems, a non-functioning court system, and massive corruption. It is ranked 141 out of 183 nations by the World Bank. Only Haiti is ranked lower in the western hemisphere.

Another problem—I would like to mention it later on, perhaps, in the question and answer period—is that Honduras, as you know, has an enormous security problem. There were 7,200 murders in 2012. That is 20 murders per day, as compared with two murders per day in Canada, which has four times more population. The levels of violence are actually increasing in Honduras, unlike in the other Central American countries.

That is a striking disincentive for any entrepreneur to start a business in Honduras in terms of export or the local market. Capital accumulation is close to impossible, as we know for any economies that work on issues related to security, given the extortion that Maras and other gangs demanded from approximately 90% of all firms there in 2012, with kidnapping—

[The Chair, Conservative, Rob Merrifield]

I'm going to stop you there. If you have any closing remarks, I'll allow that, but your text will actually be translated and given to the committee.

[Pablo Heidrich]

Okay. Thank you.

My recommendation is that the Canadian government should support a strategy of security, democracy, and prosperity in Honduras by increasing its international aid, particularly aid that supports better economic regulation, administration of the court system, and control of corruption and that supports an improvement in basic social services.

Thank you.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Mr. Morin, the floor is yours.

[Marc-André Morin, NDP, Laurentides—Labelle, QC]

Mr. Heidrich, we have heard that the government of Honduras might privatize education.

Given the considerable social inequalities and poverty in the country, does the possibility of that privatization concern you?

[Pablo Heidrich]

In principle it's a very troubling idea. The international practice with regard to these measures in other developing countries does provide a very bad result. We know that it has already been done in some sub-Saharan African countries, and in some Latin American countries to some extent, and it hasn't really worked.

It's also very expensive for the public purse, because you end up either subsidizing the firms that own the schools and run them for profit or subsidizing the people who need to go to school. Illiteracy is very, very high in Honduras, the second-highest in the Americas.

[Marc-André Morin, NDP, Laurentides—Labelle, QC]

According to our government colleagues, we must either get involved and commit to Honduras, or stay out of the situation completely.

Do you think there might be other solutions we could choose, another attitude or another way of intervening? In the areas of education and justice, for instance, perhaps we could develop some other type of relationship, or spend the funds we allocate in some more constructive way.

[Pablo Heidrich]

Yes, I think Canada ought to engage with Honduras. It's just that I don't find signing an FTA at this point to be an effective way of engaging with Honduras if the purpose is to bring development and security and stability to Honduras. It also won't be effective for Canadian businesses.

But yes, increased levels of aid would certainly be very, very successful, especially if the Canadian aid was better coordinated with the aid provided by other countries, particularly the U.S. and the EU. The EU has a fairly interesting model of cooperation with Honduras, where it provides much more substantial aid and at the same time provides unilateral increased market access without demanding the same from Honduras, for example.

[Marc-André Morin, NDP, Laurentides—Labelle, QC]

Do you think our intervention in the economy of that country could have some negative effects? For instance, if there is an influx of capital into Honduras and if that is used to purchase police vans and bullet-proof vests for the purpose of exercising repression, could our reputation then not suffer over the long term?

[Pablo Heidrich]

Yes, the reputation of Canada would suffer, particularly because Canada has a comparative advantage as an investor in natural resources for the most part, and that would perhaps produce an increase in the investment in the mining industry in Honduras. As we know from experience of the mining industry of Canada in the rest of Latin America, when you invest in jurisdictions that have very high levels of violence, you get in general low economic results and lots of problems, lots of political problems, and lots of damage to your reputation, also to the reputation of the country.