International Trade Committee on Feb. 8th, 2007

[Peter Julian, NDP, Burnaby—New Westminster, BC]

That's very kind of you, Mr. Chair.

[The Chair, Conservative, Leon Benoit]

You do? Okay, go ahead.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

I'd like to move on to some other examples of what South American countries are doing that we could certainly learn from. Getting back to the issue that we've had in place since 1989, free trade policy, along with other economic policies together, has actually meant that most Canadian families are earning less in real terms than they were back in 1989. We're seeing a huge erosion of our manufacturing base as well. I met with manufacturers in the transportation industry this week. They were saying that they are trying to export, for example, to the United States, but because of the Buy American requirements, are basically forced to manufacture in the United States. It's a procurement policy that pushes and supports American manufacturing.

In many South American countries, Brazil in particular, they built up a manufacturing base by having procurement policies that favoured domestic manufacturing.

So my first question is, can we learn from South American countries in developing or redeveloping, in Canada's context, manufacturing capacity by having procurement policies that actually try to favour Canadian domestic manufacturers?

[Kenneth Frankel]

That's a very interesting question.

Under Brazil's import substitution model, which is what you're referring to and which was copied in other Latin American countries, there was sort of a state involvement in the economy. It was state directed, and it proved, in the end, not to work.

The proponent after Raúl Prebisch was Fernando Henrique Cardoso, who was, until a few years ago, the President of Brazil. Fernando Henrique Cardoso in the sixties and seventies was a big proponent of import substitution, high tariff walls--exactly what you're discussing. He had his—

[Peter Julian, NDP, Burnaby—New Westminster, BC]

It's not. It's procurement policies, which is different.

In the case of the United States and the Buy American Act, it's not a question of imposing tariffs. What it does is simply require that in transportation purchases, the products must be manufactured in the United States. That exists now. In the Buy American Act they've actually raised that level, and now 62% of the components have to be manufactured in the United States.

What we have is federal government funding to ensure that transportation authorities across the U.S. are actually purchasing American-made components when they buy transportation. We don't have a similar program in place in Canada, even though we're spending more because of NDP budget initiatives on public transit. I'm referring to programs similar to the Buy American program in South America.

[Kenneth Frankel]

Is the question whether Canada should adopt similar programs?

[Peter Julian, NDP, Burnaby—New Westminster, BC]

I'm asking if we can learn. That's my question.

[Kenneth Frankel]

First of all, I'm not that familiar with the Buy America program, although from what I understand, it's not as monolithic as people sometimes describe it to be, and there are plenty of people who still do business with the U.S. despite that. It sounds more draconian than it actually is.

Let's hold that in abeyance for a second. I think the feeling in Brazil--and Brazil actually still maintains a number of protectionist measures--is that maybe even that model is not serving Brazil particularly well. It's not unrelated to the whole import substitution model; it's basically ways of keeping out competition, and there's a lot of pressure in Brazil right now to do away with those kinds of things. When those measures can actually be useful for developing economies is, I think, a very deep question; it's a question of how you would compare a developing economy with the Canadian economy.

My bottom line is that I think a lot of Brazilians think they should be moving away from those kinds of programs.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

I have two easier questions for you.

First, in the context of South America, how do we favour Canadian value-added exports? In the case of the United States, we export our raw logs and we export our oil and gas. We're exporting our resources, but we're not actually adding value to those resources before they're exported, which is why most Canadian families are earning less now than in 1989, and that's a real bottom-line failure of the economic policies we've had over the last 18 years. In the context of South America, how do we stimulate the value-added exports?

If you have a chance, you could also comment on how to expand export facilitation in South America. You made reference to the offices we have right now; in an ideal world I certainly support the idea of having very energetic support for Canadian value-added exports. How in South America would you do that, if you could write the plan?

[Kenneth Frankel]

I'm sorry, do you mean write the plan for...?

[Peter Julian, NDP, Burnaby—New Westminster, BC]

I mean write the plan for supporting export facilitation--EDC offices, for example--and having more support through the Department of Foreign Affairs and International Trade for export facilitation.

[Eduardo Klurfan]

We have had some success on that. You can look at what Nortel has been able to do, what companies like Husky plastic injection molding and CAE have done in Brazil, and what Alcan has done in the past. Brascan has been there for over 65 years. They have been able to bring in added value not only with investment, but also with the trade that follows those investments. Canada has technology and know-how that we can export, not necessarily just the raw materials we extract from nature.

So there is the precedent. How has it been done? It's been done by filling the needs and coming in with a product that has distinction.

[Kenneth Frankel]

I think part of the answer to that is also competition. Using the example of CAE, why can they go in there? Well, I guess they must have the best flight simulators in the world. People want to have their flight simulators. That's certainly value-added and the kind of industry you're talking about, other than primary materials. The free trade agreements wouldn't necessarily.... At the end of the day it's how competitive you are and who your competitors are. That's one thing.

We're saying that Canada has a lot of capacity to exploit certain opportunities, as CAE and others found when they went to Brazil. It's the same with some of the engineering companies. Marshall Macklin Monahan is advising on reconstructing the airport in Quito, Ecuador. SNC-Lavalin and others are involved in the export of value-added services, which I think someone else referred to.

As for what an ideal trade facilitation program would look like, I confess that's beyond my expertise. But I have talked to a number of people in the provincial and federal export agencies, and they all seem to have fairly clear ideas; they're the professionals in this area. So the most I could offer at this point is a discussion with those people on how they would design their ideal trade facilitation program. A conversation with them would be very fruitful.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Julian.

Mr. Maloney.

[John Maloney, Liberal, Welland, ON]

Is the political stability of the Andean companies a factor that we should or should not be concerned about in exploring our trading relations?

[Kenneth Frankel]

This is a Chavez question and a Morales question.

There are a number of different ways of answering it. Are you asking if it's something we should be worried about in developing economic relationships, or are you asking generally about what some would call the trend that Chavez seems to be leading?

[John Maloney, Liberal, Welland, ON]

It's both, quite frankly.

[Kenneth Frankel]

Okay. There's no question that what Chavez is doing is somewhat problematic. There's an historical context for why Chavez is in power in Venezuela, unfortunately. But I think a lot of the hysteria in certain quarters about Chavez is a little bit overplayed, and I'd like to segregate his economic policies from his foreign policy rhetoric.

The fact he's consorting with the folks in Iran and North Korea and the like, is that problematic? Would we prefer that not to be? Yes. Very few Canadians would think that's a really great thing.

What does that really mean in the end? I'm not really sure. But what I do know is that his Latin American neighbours aren't terribly enthralled with him. They may use him; he may be useful sometimes as a little bit of a battering ram against the U.S., but the reality is that he's an embarrassment to a number of Latin American leaders. In fact, he represents what they are completely against. He represents the militarization of a government, and you have Latin American leftists now who fought against military governments, who were in prison because of military governments, and so very little love is lost there.

I think the general consensus is that he's in power because oil is as high as it is and because of the failure of the Venezuelan opposition. But the minute oil starts to come down, then we'll wait to see what happens. When what's going on with the level of corruption there starts to kick in, when Venezuelans start to realize he's spending more money abroad and their own infrastructure is still rotting away, that's going to create a disjunction between his rhetoric and what he's doing for his own people.

That's the long and the short of the Chavez thing. The reality of it is where he's stepped in in elections in the last year or so—and we've just come off a year of 12 or 13 elections in the span of 12 or 13 months—he hasn't fared very well. He threw his ring into Peru and tried to influence fairly heavily the outcome of the Peruvian election, and his candidate lost. And a number of people think he lost because of a particular antipathy Peruvians have to Venezuelans interfering, but also because of Chavez's intervention. So his involvement there was deleterious to his favourite candidate.

As for what happened in the Mexican election, and again that's a little bit complex, the reality of it is that the leftist--and we'll use the word “leftist”, for lack of a better term, and it shouldn't be seen as a monolithic thing, but we'll characterize leftist—was leading, and one of the reasons he ended up losing is that the opposition candidate ran a TV commercial in which his face morphed into Chavez's face, and there was other rhetoric going on, and that scared Mexicans. They didn't particularly want to see that happening. Chavez, to them, doesn't mean much.

That doesn't mean that Chavez doesn't have his sympathizers and supporters in other countries, but in terms of a massive wave going over to Chavez, no, that's not the case.

Now, people say there's a leftist wave. There've been leftists in power in Latin American, by and large, with a few exceptions, since the military stepped down. But what does that mean? We talked about Chile. Bachelet, whose father was in the military and was killed by Pinochet, is a “leftist”. What does that mean? She supports strong social development, she's a big free trader. In Uruguay, the president was a former Tupamaro guerrilla, who runs an economic program that Milton Friedman might be proud of. Lula is a leftist. Kirshner is a leftist of sorts, and a special case, to a certain extent.

So yes, there are leftist presidents, but do they share what Chavez's grand economic vision is? I would say absolutely not. And do they share what his political vision is? I would say absolutely not. Are there exceptions? Yes, there are exceptions: Morales in Bolivia. But Morales in Bolivia can also be linked to the fact that he was the first indigenous president elected, and you can't underestimate the value and the meaning of what that was all about. Where will he end up going? We'll wait and see.

I don't subscribe to the feeling that Latin America is turning the clock back, let's say, and going back to a complete nationalist economic policy. There is no indication of that. If anything, by and large, from the larger countries there's an indication that this is not the case.

We can even talk about Nicaragua, where I was observing the election with the Carter Center. That, again, is played as another piece in the leftist.... Have we got past the domino theory yet? I'm not sure. I would argue that that is not why Ortega won at all, and those aren't the factors at work.

I know I'm running on a little bit, but just to cover the whole thing, Ortega's first statements when he was elected president, which he repeated the next day and the day after, was: please come down, foreign investment; please come down and invest. Nicaragua is open for business; please come down. That doesn't sound like Chavez to me.

That's a really long-winded answer.

Do I think the fact that Chavez exists should be a mitigating factor or somehow force us to recede from trying to advance economically and export and invest in Latin America? No, I don't think it is at all. You may want to pick your countries. If you are asking me would I run to Venezuela at this very moment to invest in a mining operation, that might be a different discussion.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Maloney, your time is up.

Does anyone from the Bloc wish to comment?

Monsieur Cardin, go ahead.

[Serge Cardin, Bloc, Sherbrooke, QC]

Thank you, Mr. Chairman.

I was studying a few charts earlier on. It seems that, overall — and perhaps you will remember this —, in the years 1996, 1997 and 1998 Canada's trade balance had been very positive. Could you tell us, if you remember, what happened in order for the situation to be so positive? This was the case mainly in 1996 and in 1997, because things had already begun to drop off in 1998.

[Eduardo Klurfan]

I don't have the precise information, but I would guess it has to do with development that has been going on in the countries, the industrial development and self-sufficiency in some aspects that have substituted some Canadian imports. It is not that some regional agreement has substituted the Canadian imports with buying locally among the countries.

As I mentioned before, Canada used to export a lot of durum wheat to Brazil, and it was back in 1999, with the devaluation of the currency, that Canadian wheat became too expensive, and Argentine wheat had improved in quality so as to be able to replace it. Right there you had one area where Canada lost exports, and it was not due to reasons other than the market conditions and the inter-regional agreements.

Since the 1970s and 1980s, we have seen quite a significant change. We have seen globalization, we have seen new markets coming into new countries, and new markets coming on stream, and competition. And if we lost, we may have other markets. Yes, we lost against some of the countries in the region, and that's probably based on some of those issues.

I don't have specific information to work with, but it's been a very dynamic change in the region on the economies and also the relationship with other markets.

[Kenneth Frankel]

My understanding, and I'm not a complete expert on the export flows back and forth during the last number of years, is that there was still an increase of sorts until the late 1990s, when Latin America went through a very bad economic crisis. When you start to see the end of the 1990s, you will see a drop-off in the trade back and forth with Latin America, at least during those years.

[Serge Cardin, Bloc, Sherbrooke, QC]

I have one final question, which perhaps ties in with what I was saying with regard to the Canadian mining companies in Peru, mainly. We are being told that the environment is suffering from this. This also relates to what you were saying earlier: we could export a lot of environmental expertise. If, on the one hand, Canadian companies are destroying the environment in certain countries and if, at the same time, we are trying to sell them environmental expertise to improve the situation, then we will not come off too well with them. In the area of trade, it is important that our counterparts view us as likeable.

This leads me to the following question. How is Canada perceived, overall, in these countries?

[Eduardo Klurfan]

As I mentioned earlier, the mining industry was a very protected industry in the past and opened up to foreign companies—and actually, not even to foreign companies, but even to proper exploitation—in the last 20 years or less in many of the countries in Latin America. I'm not talking about the traditional mining countries like Chile. So the environmental regulations in those countries for the mining industry were probably not very advanced or focused, because the industry was not developed properly. The consciousness of the environment has been growing in Latin America, but not as fast as in other emerged economies.

I believe that Canadian companies should cohere with the standards that are applied back home and with those that are applied in countries where they operate.

The image of Canada generally is a very benign one throughout Latin America. There have been only a few situations where the Canadian image was tarnished, but it was very light and it was very quick and it had to do with an aerospace dispute with Brazil and with meat embargoes in Brazil, but it has disappeared.

But the image in general of Canada in Latin America is very good, and Canada has been seen as a country that is concerned about the environment. There are more and more Canadian companies involved with the environment that are providing services to industries in Latin America. I don't have the figures, so I cannot point this out exactly, but there's a general image of Canada as a friend of the environment.

[Kenneth Frankel]

Let me add that one of the things Canada has going in the hemisphere is that it's not the United States. For better or worse, the perception and image of the United States—although really not of the States necessarily per se.... At this point, a lot of it is a particular antipathy towards the current President of the United States.

Canada actually still has a positive image in Latin America, but I think the concern is—and I tried to underline this at the very end of my comments.... The common lament one hears in Latin America now, in business or in political circles, asks: Where is Canada? Where have you guys been? What's going on? You were engaged in the eighties in helping to resolve the Central American wars that were going on; you were involved in helping to develop the democracy promotion at the OAS in early nineties. Where have you been?

I hear that all the time. Maybe it's that Canada is not stick-handling, as they say, its reputation. I think a lot of it is that it just feels as if it's disengaged politically and in an active economic way.

I will say, and Eduardo referred to this, that the Brazilians were very upset by the way the Canadian government handled the dispute between Embraer and Bombardier and felt that the entire relationship was being held hostage to what they would term a parochial trade dispute.

There have been other instances. There was the ban on Brazilian beef, which was looked on in Brazil as a sort of petulant reaction by the Canadians to what was going on within the aerospace dispute. Then there have been a series of other miscues and faux pas in the relationship between Canada and Brazil. There is no excuse for the fact that Canada and Brazil don't have a good relationship—or haven't had historically; there are attempts to mend it. There is absolutely no excuse whatsoever.

In terms of the environmental thing, I don't think there's any connection between--you refer to Peru, and I don't know what exactly those allegations are—a site of an extractive industry and Canada in general being able to export environmental services and consulting. I can't imagine there is any equating of one with the other.

I will add one other thing with respect to environmental standards. I would say that by and large, the day and age when multinationals can go abroad and engage particularly in extractive industries that are in isolated areas, and exploit—to use that word—to the extent that it might have happened before.... I would argue that those days are dwindling a little more. I think that has a lot to do with globalization, with the visibility, with the interconnectedness of NGOs, and the reputational risks that are attendant to getting companies a very bad reputation for doing things like that.

That brings us into the whole area of corporate social responsibility and what's going on there. Whatever the allegation may be with respect to Peru, I don't think it has worn on Canada in general, or on Canadian industry in general in Latin America.