International Trade Committee on Feb. 8th, 2007

[The Chair, Conservative, Leon Benoit]

Okay, thank you.

Monsieur Cardin, go ahead, please, for seven minutes.

[Serge Cardin, Bloc, Sherbrooke, QC]

Thank you, Mr. Chairman.

Welcome, gentlemen.

I imagine that the Canadian Council for the Americas has existed for several years now and that it groups together business people and industries of all types that already have a foothold in South America. What services does your organization offer its members?

You talked of various services that Canada has abolished or does not provide to business people. Your role is certainly not to substitute yourselves for these programs, but rather to pressure and lobby the government, as you are doing today, in order for mechanisms to be put in place with a view to enhancing trade with South America.

I would like you to first tell us more about your organization, about what it does and about some of the activities that are carried out directly in the field, in South America.

[Eduardo Klurfan]

The Canadian Council for the Americas has been active for many years. The membership is represented by companies with interest in investing in Latin American companies in Latin America and, as of late, with membership of companies from Latin America investing in Canada. We've seen the movement of Brazilian companies investing in Canada in recent years.

Activities are in the public sector and are funded basically by the contributions of the members. We have on the membership the Department of Foreign Affairs and International Trade, as well as the Ontario export development agency, but they are just members. The funding proceeds exclusively from the membership and other activities. Our intention is to bring together businesses, to bring in leaders from both industry and government when they visit the country to communicate opportunities, and to be a lobbying group to represent the interests of our members to the government, as Mr. Frankel and I are doing here today. Our purpose is to enhance the business activities and relationships between Latin America and Canada.

We are limited in what we can do. We are not an extremely large and resourceful enterprise; we have very limited financial resources and we try to operate within that. Chambers of commerce and councils are usually not very liquid, and we try, with the support of our members, to do a lot of activities. We work together with government agencies to try to further communicate our purposes.

Among the government programs I was mentioning before, trade missions have not been very active between the region and Canada. That is not specific to any program; the general funding of our trade commissioners requires a bit more support in order for them to expand the many plans and programs they have in mind, particularly the dissemination of a database of exporters and importers that would enable them to be matched with Canadian businesses in the different countries.

[Kenneth Frankel]

I would second everything Eduardo said, but in terms of concrete things you may have been looking for in terms of the dissemination of information, we publish a newsletter on current events and economic issues going on in Latin America. A separate one focuses just on Brazil. That's one of the services we provide.

Historically what we've also done is host foreign trade delegations and dignitaries, including presidents of Latin American countries who have come up. That has been in coordination with the folks at DFAIT. Those activities, because of the limited budget Eduardo referred to, are generally on a pay-per-attendance basis. We try to disseminate the information that comes in and get it out to our members.

[Serge Cardin, Bloc, Sherbrooke, QC]

In fact, what I had prepared for today dealt mainly with the Andean Community. It nevertheless remains that in South America, countries such as Columbia, Peru, Ecuador and Bolivia, in other words the four member countries, are rather large potential markets. They are also large compared with the four Andean Community countries.

Based upon your knowledge of trade between Canada and South America, could you tell us who would be the big winners in the event that the duties or tariffs between the various countries or between the Andean Community and other countries were abolished?

[Eduardo Klurfan]

We'll look at what one of the countries in Latin America has done in the past. We'll look at a country like Chile, which put down its trade barriers very early.

What basically happened was that because Chile is a relatively small country, with a population of 16 million and a GDP of $180 billion a year, they cannot manufacture many products effectively with such a small economy. They focus very much more on their strength: it's been in agriculture, in fisheries, and in the extraction of minerals, particularly copper. They've been able to very effectively enhance those areas of production and compete worldwide by focusing on where their strengths were, and not protecting industries that were ineffective in their production.

When we look at the countries in Latin America, we have to think first that Brazil has 50% of the GDP of the region. So it's very polarized, with 185 million people, the eighth largest economy in the world. No doubt the first impression one would have is that Brazil would be a country that would have a lot of interest for us. Now, the trade flows between Brazil and Canada are not enormous, not what one would expect they should be, because they are not complementary. So if a country like Brazil were to lower all its tariffs, it would help some aspects of Canadian exports, particularly in agricultural areas like grain and fertilizers, but not really the industrial base, because Brazil has a very large and quite developed industrial base.

If you look at other countries, maybe another economy would be Argentina, second in line in size and the benefits it would have. It's a competing economy. Their major exports are the same as Canada's.

So the reduction of tariffs by those countries would have an effect, but not a tremendous effect, on the flow of trade between Canada and them.

I'm not sure if you agree with me on this point, but I think it would be very conducive to expand other areas that may not have developed. This could be looking more into areas of the small and medium-sized enterprises, where they have developed products and technologies and services that could be very much looked after in countries like Brazil or Argentina--the non-Asian countries, not the Indian pact countries.

[The Chair, Conservative, Leon Benoit]

Merci, Monsieur Cardin.

Mr. Menzies, from the government side, the parliamentary secretary to the trade minister. You have seven minutes.

[Ted Menzies, Conservative, Macleod, AB]

Thank you, Mr. Chair.

Thank you, gentlemen, for your presentation. We had a short discussion before your presentation, and we got deeply into the political aspects. We realize there are some political tensions that certainly we're hearing a lot about. I hope we can put some of those to rest. Maybe they're being overemphasized in the media. Let's hope they are.

I would like to dwell more on some of your comments, some of your recommendations. I was very interested in your potential trade pallet. Can you elaborate a bit on that concept of the benefits of this trade pallet, and exactly what you mean by that?

[Kenneth Frankel]

As I mentioned, it is in collaboration with the EDC. The genesis of that was that trade between Canada and Brazil--and Eduardo referred to this--is woefully lacking or very under-exploited. It is an attempt to figure out why that might be and to figure out what mechanisms might be in place to facilitate trade, particularly with Brazil. It covers not just what you would think of as the standard trade measures and economic streamlining endeavours that could be undertaken; it deals with the whole level of outreach, which I think I referred to--educational outreach, chamber outreach, and so on.

I may be off on this one, but I really think it's the first time there has been a real engagement by a government instrumentality, the EDC, with the chamber to do this kind of thing, recognizing that this is something Canada really needs to put more attention to and that we should try to collaborate and figure out how to do that.

[Ted Menzies, Conservative, Macleod, AB]

So EDC can play a much larger role than it does now.

[Kenneth Frankel]

EDC would like to promote Canadian exports and Canadian investment as well, so it is a win-win situation, in their view.

[Ted Menzies, Conservative, Macleod, AB]

How many EDC people would we have representing Canada?

[Eduardo Klurfan]

In Brazil?

[Ted Menzies, Conservative, Macleod, AB]

I'm thinking of Peru and the Andean countries we are speaking of right now.

[Eduardo Klurfan]

Right now, the EDC has offices in Mexico and Brazil. From Brazil they cover the Southern Cone. They cover Chile, Argentina, and Peru as well. Mexico is busy on its own. We know that EDC has been very tentative in the past in opening offices abroad, but they are becoming more aggressive. We know that they are open in China and in Russia as well. Obviously they have seen the benefits of having a representative locally.

The office in Brazil has been a very successful office, as they have been able to develop some new programs. So they have been working a lot on some lending in domestic currency in order to support Canadian transactions. That has always been an issue of importance, taking foreign debt in countries where currency has stiff variations and could expose them to foreign exchange rates that they are not very keen on. Being able to offer some domestic currency facilities for the importers would put EDC at the forefront of many other ECAs worldwide. The Brazil office has been very successful. But I think they had to focus more on the next level down, on medium and small exporters.

I had the opportunity about four years ago and three years ago to do some cross-country presentations, together with EDC and the Canadian and Brazilian ambassadors, to try to open eyes about Brazilian opportunities. We did five cities in eight days, and I was quite surprised by the amount of interest in Brazil among a lot of small companies, both in services and in products. And we discovered that some of those small companies already had relationships with Brazil that had gone right under the radar screen. Many of us were not aware that they were already trading with and dealing with Brazil, both in services and in products. There is probably more than meets the eye. I think these programs will help expand those relationships.

[Ted Menzies, Conservative, Macleod, AB]

Are we still concentrating too much on merchandise trade rather than on services trade, on foreign direct investment, both inward and outward?

[Eduardo Klurfan]

We have a lot of knowledge and services, particularly in safety, in the environment. Probably we have not thought about it enough, and we should do more.

[Ted Menzies, Conservative, Macleod, AB]

So there is more potential there.

[Eduardo Klurfan]

We have a lot of know-how to export, and that is the export everybody wants. The cost is intellectual.

[Ted Menzies, Conservative, Macleod, AB]

Do I have time to pass to one of my colleagues?

[The Chair, Conservative, Leon Benoit]

You do. You have about two minutes left.

Mr. Cannan, go ahead.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Thank you, Mr. Chair.

Thanks very much for your presentation.

My wife and I had the honour of spending some time in South America about nine years ago, working in a children's orphanage. We travelled around a little bit to Paraguay, Argentina, and Brazil. It's a beautiful country, with the Iguazú Falls and things like that. I couldn't believe the economy, just going across the bridge from Paraguay to Brazil. It's an incredible contrast.

While I was there, we met some Canadian businesses, telecommunications specifically. I was just wondering if you could share with us whether there are some additional opportunities. At that time, there was several years' waiting to get a land line, so everybody was out getting cell phones. Looking at other opportunities that you see, what are we missing as Canadian businesses, and we can extend and enhance our trade agreement?

[Eduardo Klurfan]

Around that time, about a year ago, I returned from spending eight and a half years in Brazil representing Scotiabank. At that time a large volume of the Canadian investment was in telecommunications. We saw companies like TRW and Bell Canada make investments in wireless services, and obviously Nortel had a major foothold on the technology that was used there, but since then it has reversed. There has been a consolidation of the telephone services worldwide, but particularly in Latin America very small companies were atomized. They have been consolidating into a few companies, and the Canadian investments left all of Latin America. We saw it there for a while and then we saw it go.

In other countries, except for some of the major mining countries like Chile and Peru, the mining industry is still underdeveloped. The mining sector was for a long time protected from foreign investment. It was considered that foreigners could not exploit the mining industry, and there are many opportunities there. We see a lot of Canadian companies going to that, particularly many of the junior Canadian companies. There are also all of the service companies that go together with an extractive industry--those providing catering services, safety equipment--that are taking up the opportunity. I believe that Brazil is one of the countries where the mining industry is still not open completely, or has not been taken advantage of by foreign investors. I see that as an opportunity.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Cannon.

Go ahead, Mr. Frankel.

[Kenneth Frankel]

Thank you.

Just to follow up, the telecom industry is actually something that is a little near and dear to my heart, because during the 1990s when I was working in Madrid it was for a large telecom company. That was, one might say, an opportunity that unfortunately Canada didn't take advantage of, because when the majority of telecommunications systems in Latin America were privatized during the 1990s, as Eduardo said, with one minor exception of TRW and Teleglobe, which doesn't exist anymore to my understanding, Canada did not take advantage of all that.

What happened is that was essentially when Telefonica of Spain and France Telecom and Stet Italy went in, and some of the U.S. companies went in. People may have their interpretations as to how things have worked out, but by and large one of the laments you hear from Latin America is how these foreign companies are making money hand over fist in Latin America on their telephone systems. When they talk about the re-conquest of Latin America by Spain, the building block of that was through entry into the telephone system.