International Trade Committee on Feb. 8th, 2007

[Navdeep Bains, Liberal, Mississauga—Brampton South, ON]

So where does Canada fit into this?

[Eduardo Klurfan]

Canada has been selective in terms of the countries that have trade or investment, according to where those flows have been identified and serviced.

[Navdeep Bains, Liberal, Mississauga—Brampton South, ON]

Has there been any lost opportunity? Do you think we should be strategically focusing on areas where we're currently not doing so?

[Eduardo Klurfan]

Definitely.

[Navdeep Bains, Liberal, Mississauga—Brampton South, ON]

What are the areas that you would identify?

[Eduardo Klurfan]

There are a lot of SMEs interested in taking advantage of new markets, of opening new markets. They find that they have services and products that could be successful in those markets, but they don't have the means or the opportunities.

[Navdeep Bains, Liberal, Mississauga—Brampton South, ON]

Which markets would you allude to, for example?

[The Chair, Conservative, Leon Benoit]

Go ahead, Mr. Frankel.

[Kenneth Frankel]

I would look at Colombia and I would look at Peru. I can't tell you exactly how Canada matches up with the sector-by-sector analysis in each one of those countries, but in terms of economies that are doing well and moving up, those would certainly be two of the economies I would look at.

[Navdeep Bains, Liberal, Mississauga—Brampton South, ON]

So you believe that probably the best approach is tackling Colombia and Peru rather than trying to deal holistically with a bunch of countries or these different organizations. We should have direct bilateral trade with, say, Colombia first and then Peru, and systematically start working at them. Would that be your approach?

[Kenneth Frankel]

Yes, and I confess.... There were negotiations opened up between Canada and the Andean Pact several years ago, but they have been moribund or maybe dead since then. I'm not sure exactly what the other Andean countries would feel or how they're organizing themselves with respect to Canada, but I would think that, at least on a bilateral basis, Canada would have a clear path with Colombia and Peru.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Bains.

Now we'll go to the Bloc, and Monsieur Cardin, for five minutes.

[Serge Cardin, Bloc, Sherbrooke, QC]

Thank you, Mr. Chairman.

You spoke earlier about finding a balance in the area of trade. We very well know that in order to benefit from trade and to make money, Canada must export. I however note that with regard to the Andean Community, our trade balance is negative.

Is it all of the duties or tariffs that are imposed that prevent us from reaching reasonable export levels? Compared to countries such as the United States, what is the position of these countries with regard to protectionism?

[Eduardo Klurfan]

Some of the countries in the Andean community have experienced significant changes and economic problems. Ecuador has had severe economic problems, Bolivia has had political changes, and many political events have taken place in Venezuela. So they may not have had the purchasing power to focus on Canadian exports or products.

They are relatively small economies, and when the resources are not available they tend to restrict the entry of products that will place a demand on their limited foreign reserves. So I would not take that as Canada not being competitive; it is a specific problem of the country more than one of trade relations.

Are they protectionist? Yes, they are, because they have limitations on their ability to import, and they've probably restricted use of their foreign currency to bare necessities.

Who are our competitors there? I could not say, but they are probably suppliers of those bare necessities: Asia, Europe, or the U.S.

[Serge Cardin, Bloc, Sherbrooke, QC]

In the context of globalization, we often hear it said, be it in Canada or even in Quebec, that the rules of the game are not fair. People say that emerging economies exploit their workers, that they are not respectful of social, wage and economic equity.

People also say that our environmental regulations are not the same and that there is a certain exploitation of human, natural and environmental resources such that this creates an imbalance and prevents us, to a certain degree, from being competitive. We might consider that as an excuse. Is that not what Canada itself does in the case of some of its investments?

For example, we are told that things are going quite well in the mining industry in Peru. People however tell us that there is some exploitation of workers wage-wise. Furthermore, it seems that Canadian businesses are being somewhat careless, lending themselves to virtually uncontrolled exploitation of the environment. In the context of this worldwide competition, are we not doing to these countries, which are having difficulty putting their economies back on their feet, what we criticize others for doing?

[Eduardo Klurfan]

We heard Mr. Frankel's comments initially.

Countries in Latin America have progressed enormously from where they were. The situation with protectionism, military governments, the lack of protection of civil rights, adopting neo-liberal economic policies to try to reverse all that, and re-negotiating debt to put themselves back on their feet has obviously put them very much behind in the proper distribution of wealth and adequate control of the environment. They're working significantly towards those targets. It takes a lot of time to undo what was done over so many years.

So yes, in many instances the playing field is not very level on the competition we encounter on products from those countries. But I think globalization and the open market economy have moved towards equalizing that. When you have a country that says no, we're not going to buy a product from that country if there is not proper protection or adequate environmental concerns, then it forces that country to comply. We see the pressure that many countries in Latin America have had on that front.

But it's a slow process. Economies that had been recovering from many years of living on borrowed budgets and corrupt governments without democracy still have a long way to go. The distribution of wealth is very uneven. But things are moving. These are things that do not happen overnight. These are evolutions more than revolutions.

[The Chair, Conservative, Leon Benoit]

Merci, Monsieur Cardin.

Mr. Alison, go ahead. Five minutes, please.

[Dean Allison, Conservative, Niagara West—Glanbrook, ON]

Thank you, Mr. Chair.

I'd also like to thank the witnesses for being here today.

I'll be sharing some of my time with Mr. Lemieux.

I know you suggested that the free trade agreements we should probably pursue are those with Colombia and Peru, because of what they've done with the U.S. Our briefing notes talk about trying to establish a political and economic bloc in South America. It could be a challenge to do that anywhere. Obviously there are issues of politics, as you've been discussing, etc.

A conference in 2005 talked about trying to get integrated and get started. My question to you is simply, have some of those steps taken place? Have they started to move in that direction? I know there was some talk about infrastructure projects that would make some sense. That would really be the first question. Has that infrastructure begun?

For my second question, obviously it's going to be a difficult, but how do you see this process unfolding?

[Eduardo Klurfan]

The first attempt, or more than an attempt, to integrate has been MERCOSUR. But MERCOSUR was more of a political alliance than an economic alliance. As such, when you have economies that start moving in different directions, MERCOSUR was put to a test that it could not pass.

I'm concerned about the viability of MERCOSUR, particularly now that there is a fifth member that is not a voting member and that has ultimate intentions vis-à-vis using the other members of MERCOSUR to fit into his lines. In that respect, we see even the failure of MERCOSUR in dealing with some of the imbalances in the trade flows between Brazil and Argentina, in being able to deal with regional disputes such as Uruguay and Argentina as well. We have seen Chile try to join MERCOSUR, but they found that they have a more liberal tariff policy than MERCOSUR. Actually, their tariffs were lower than MERCOSUR's, and they found that they would have to raise their tariffs and that was not what they wanted to do.

My view is, be it regional, be it bilateral, we need to get some action on having some trade agreements with Latin America. If it has to be reached there on a regional basis, let's do it; if it has to be on a bilateral basis, let's do it. But let's move on that one, because we are really missing the train on being able to offer Canadian exporters an opportunity to open new markets.

[Kenneth Frankel]

I've never been sold, as Eduardo said, that the concept of MERCOSUR is ever going to progress beyond some sort of reduction of internal trade barriers between them, internal tariffs. I do think it was born more as a political concept, really, than an economic concept.

There are plenty of commentators now who would say that MERCOSUR, to a certain extent, is in tatters. Everybody is fighting with everybody. We all know about the fight between Argentina and Uruguay right now on a paper mill; and Brazil and Argentina always have their issues. So I don't see that as some huge powerful bloc.

The reality of it is that if Brazil and the U.S. and Europe can work out their agricultural issues, Brazil is on board with other issues. So I just don't see that as a huge stumbling block.

[Dean Allison, Conservative, Niagara West—Glanbrook, ON]

Thank you, Mr. Chair.

[The Chair, Conservative, Leon Benoit]

Mr. Lemieux.

[Pierre Lemieux, Conservative, Glengarry—Prescott—Russell, ON]

I was looking at the type of trade we do right now in terms of what Canada exports to the Andean community and what we import from you. For example, I note that wheat is a huge export for us that we send to you, and that gold is a huge import.

I know market forces come into play here in terms of determining how that trade balance among sectors might shift, but there are also emerging markets. There are also niche markets, and there are places where a government likes to focus its efforts or the business community likes to focus its efforts.

So I want to have your opinion. If there is free trade, if this moves ahead into a free trade type of agreement, how do you see the trade sectors shifting, perhaps, in their balance? Where would you see Canada importing? What sort of strengths would you be putting forward for us to import? Where do you see Canadian exports growing or shifting to meet your requirements?

[Eduardo Klurfan]

The trade flows, obviously, that you see in the Andean community involve Canada's exporting proteins--foodstuffs--and in return, importing many of the extracted minerals that many Canadian companies have been exploiting.

Where would the trade flows be? Right now, I think when we talk about Latin America in general, we see the opportunities. Canada is exporting a significant amount of grain and fertilizers into Latin America. There has been major growth in the agriculture industry in particular, for instance. Looking at Brazil, there is major production of soya, which was in the past on an expansion basis but not on an intensity basis. They have learned that by using fertilizers they can do it more intensively and produce better quality and in larger amounts on a smaller amount of land.

I can see it being in the area of technology. For instance, Brazil had developed ethanol, which was extracted from sugar cane. Right now, most of the cars manufactured in Brazil--last year Brazil manufactured 2.6 million cars--run on either gasoline-ethanol or natural gas. That's the technology they have developed. We have a lot of know-how on the environment, on telecommunications, on medicine, that can be absorbed and be of interest to the region.

Why, then, would we have a free trade agreement for those aspects? I think it's very important that there be equal access to all these technologies and all these products. Right now, our grain competes with Argentine grain. So the wheat that goes to Brazil now is not from Brazil. Because of the MERCOSUR arrangement, it's cheaper to import it from Argentina.

So there is validity to the free trade concept. I think there are possibly many industries and many aspects to the interchange of merchandise among countries. However, all that being said, you still need many Canadian exporters to be supported and to be helped, because they are not of a size to be able to do it on their own.

[The Chair, Conservative, Leon Benoit]

Thank you, Monsieur Lemieux.

We'll now go to Mr. Julian for five minutes, if you want your time, Mr. Julian.