International Trade Committee on May 5th, 2009

[Carol Nelder-Corvari]

Thank you for this question.

I tried to deal somewhat with that. And I understand your question.

When you look at a free trade arrangement, and when you look at the integrated trade model we all have to operate within on a global basis, you can't say you're in a negative position because you have more imports than exports. My point was that a lot of those imports are coming in for further processing in Canada, including in Quebec. Some Quebec companies contacted us during this negotiation and have an interest in this agreement.

A mercantilist approach to these agreements won't give you a good cost-benefit. You have to look at the investments, the imports, and the exports. The opportunities are encased in that whole analysis.

There is a strong interest in expanding.... We always talk about emerging markets: Brazil, China, and India. We're a big player in Peru. We're a big player in Colombia. These are small-sized emerging markets. They're emerging at a very fast pace. The opportunities are there for us. And you can't look at it in a static way; you have to look at the future opportunities as well. We have a very strong platform in Peru. If we didn't have this free trade agreement, that platform would be eroded with all these other FTAs.

[Claude Guimond, Bloc, Rimouski-Neigette—Témiscouata—Les Basques, QC]

I will continue with the same line of questions. In Peru, the gap between the rich and the poor is significant and there is massive poverty. Again, I would like you to tell me how a Canada-Peru free trade agreement will improve the quality of life of the people, especially the poor.

[Carol Nelder-Corvari]

The current government in Peru was elected on a certain economic platform that includes opening markets. And that's what they're pursuing. They feel that is the best model to promote economic growth and to increase social equity and prosperity in their country. Evidence is showing that their poverty rates are declining, their infant mortality rates are declining, and their education rates are up. As I said, in terms of participation of women in the workforce and in political life, women now hold 30% of the seats in Congress. There has been a lot of progress.

It's a developing country. It's a very poor country. It is trying to reach out to the rest of the world to help reinforce its economic objectives. And this agreement is seen as important in that regard.

[Claude Guimond, Bloc, Rimouski-Neigette—Témiscouata—Les Basques, QC]

You talked a lot about the mining and financial industries, among others, but what are the benefits for Canada in terms of agriculture?

[Dean Beyea, Senior Chief, International Trade Policy Division, Department of Finance]

Thanks. I had flipped to my trade data for Quebec, so if you would give me a moment, I'll go back to agriculture.

Largely the market openings, particularly the defensive market openings for wheat, lentils, and pulses, are primary markets. We also open up with a duty-free TRQ for pork and beef. Both of those have different elements to them, but it opens up the market significantly for pork and for certain cuts of beef, to a large extent immediately.

Those are the primary defensive interests in agriculture. They have high tariff levels in a number of those products. That's where Canada is shipping a number of goods already and would lose significant market share, as Carol said, vis-à-vis the U.S. free trade agreement, where we compete directly with agriculture producers in the United States for access into those markets.

[Claude Guimond, Bloc, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Do I still have some time?

[Dean Beyea]

If you wanted me to, I could certainly go through your first question specifically with respect to how Quebec is faring in this agreement.

You're quite right that if you look at the trade balance for Quebec it is negative with respect to the fact that we import more than we export. But I think, as Carol noted, it's worth digging down into those numbers and looking at what the trade is. For example, we're exporting industrial machinery focused in the extractive sector, pulp and paper, plastics, construction equipment, and electronics. The primary imports we have are mineral products for further processing and precious metals. Those make up about $180 million. We're importing some apparel products and some seasonal vegetables.

So I think, as Carol said, that overall the trade pattern with Canada is complementary, and in fact, with Quebec it's extremely complementary.

[The Chair, Conservative, Lee Richardson]

Merci.

Thank you, Mr. Guimond.

Mr. Julian.

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

Thank you, Mr. Chair.

Thanks to all our witnesses who have come forward today.

I would like to start with a request. I don't expect you to have these figures here today, but as a committee, we certainly would find them useful. We've had provisions in the past from DFAIT for increases in exports. In fact, in the case of a number of bilaterals, our exports actually went down after signing an agreement, so it would be helpful to have the provisions that DFAIT put forward for an export rise within two years of the signing of bilaterals, and what the actual export figures were for all of the bilaterals we've signed.

If you could provide that for the committee, I think it would be very helpful and very illustrative of the difference between what sometimes is the spin or hype around a bilateral and what actually transpires subsequently. Thank you for that.

I'd like to go on to the chapter 8 provisions, which are based on the chapter 11 investor-state. Could you confirm that the chapter 8 provisions actually include the concept of indirect expropriation? In other words, the loss of profits for a company could trigger a chapter 8 initiative or lawsuit.

[Vernon MacKay, Director, Investment Trade Policy Division, Department of Foreign Affairs and International Trade]

Thank you, Mr. Julian.

Good morning to all committee members.

Yes, chapter 8 of the Canada-Peru FTA includes a provision on expropriation, so in the event of an expropriation, including an indirect expropriation, there must be prompt, adequate compensation. It's clearly set out in the article on expropriation. It's accompanied by an annex that gives guidance to tribunals on how indirect expropriation would be interpreted. It's very clear on that.

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

Thank you. I appreciate that, because as a committee we're now dealing with some of the chapter 11 lawsuits that have been brought forward. The Province of Quebec basically put legislation in place to ban a very toxic product, and as a result, the company is now suing for compensation. So it's important to note that the concept of indirect expropriation is actually in the agreement.

There's the very controversial case of the privatization of social security in Peru. If the Peruvian government moved to follow the will of their population and rendered public the privatization of social security, under the chapter 8 provisions, with the concept of indirect expropriation, a company could choose to sue the government for having taken a decision in the best interest of its population, hypothetically.

Perhaps that's something you could comment on for the committee later on. I only have seven minutes, and the chair is pretty severe and strict in imposing those limits. Thank you.

I'd like to move on to the labour cooperation side agreement. I'm looking at article 20 in the agreement. Mr. Bouchard and I have had a number of exchanges on the issue of Colombia. I'm not suggesting that Peru is as egregiously bad as Colombia, with the absolutely appalling murder of trade unionists there. But within the labour cooperation agreement, can you confirm that there's the same mechanism, where the Peruvian government would pay a fine to itself in the event there were systematic violations of labour standards?

[Pierre Bouchard, Acting Director General, International and Intergovernmental Labour Affairs, Department of Human Resources and Skills Development]

That is actually incorrect. The Peruvian government would not pay a fine to itself; it would pay a fine into an account. We've set up this account under the legislation. It can be an account here in Canada, but its location is not as important as how the money is controlled. Both parties must agree before any money is released from that account.

That means Canada would have a veto on how to use the money in a complaint against Peru. Penalties of up to $15 million a year would go into an account. It would be frozen, and Peru would have to keep paying year after year, unless there was an agreement with Canada. These are large amounts for a country like Peru and surpass the entire budget of the labour ministry. So it's quite a deterrent, the way it is set up.

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

Thank you, Mr. Bouchard.

It says “ for...labour initiatives in the territory of the Party that was the object of the review.” The council members are named by both governments, and in a very real sense politically, you could understand that the incentive for the Canadian government not to be embarrassed about this agreement would make it highly unlikely that they would do anything in opposition to the Peruvian government's direction. So that money is taken out and put in an interest-bearing fund, but in a very real sense, the Peruvian government is paying itself funds that will be expended later.

Thank you for that.

In your presentation the words “social responsibility” were stressed. Article 6 says that “the Parties shall encourage voluntary best practices of corporate social responsibility”. So it's completely voluntary. It's the equivalent of the Conservative government telling folks they can pay taxes voluntarily, but if they decide not to, there are no sanctions. I don't think there's a single Conservative who would recommend voluntary compliance on income tax. We have voluntary best practices of corporate social responsibility. So in a sense it's pretty meaningless.

I would like to come back to the environmental agreement. It states that “each Party shall effectively enforce, through government action, its environmental laws”. Can you please explain what happens if the Peruvian government doesn't enforce its environmental laws? We've already seen that with chapter 8 there is a disincentive for the government to go any further on environmental laws or labour laws, because they can be sued. I'd like to see what happens in the event that they don't even enforce their existing environmental laws, as poor as they may be. What is the process?

[Dean Knudson, Director General, Americas, Department of the Environment]

Thank you for the question.

What happens under this trade agreement is that if a citizen has a concern over the perceived lack of enforcement of a law within that country, then they can go through a dispute resolution process that is laid out in the agreement. It does go up to the ministerial level. It does require for a discussion between officials, then proceeding to the ministerial level for an attempt to address that concern.

That information is made public once the decision has come out.

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

How long can that process take? Perhaps you could take us through it.

[Dean Knudson]

For the process itself, quite frankly, there are no timelines laid out in the agreement. But generally this sort of process is meant to be--and in discussions with the Peruvians, it was well understood to be--a fairly timely responsive process.

One of the things we also pushed for was political accountability. That's why it's at the ministerial level as opposed to a bureaucratic level. There is that visibility and accountability laid in it.

In terms of the specifics, we have a similar, slightly more onerous process, shall we say, under the Canada-Chile Free Trade Agreement. Our first dispute resolution has been tabled against the Chileans. That was put forward in September of last year. Subsequently, the two parties have reviewed the submission. They've determined that the submission is indeed appropriate for consideration. That requires that it go to what is basically legal counsel for both parties, who then review the process to look at it in a more in-depth fashion.

That process is under way currently. We expect that we'll have, within the next couple of months, a recommendation to the ministerial level within the Canada-Chile Free Trade Agreement. At the end of the day, that whole process will be wound up well within one year.

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

And what are the sanctions? In the Canada-Peru agreement, what are the sanctions?

[Dean Knudson]

In terms of sanctions, effectively this is a political agreement between two parties, and therefore it's up to those individuals, in terms of that level of accountability, to come forward with an appropriate response. If it's seen as being insufficient, etc., then we have the political mechanisms in both our countries to hold the individual parties to account.

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

Thank you for answering that. So there are no sanctions for violation of existing environmental laws. That's very important.

You've been very generous, Mr. Chair.

[The Chair, Conservative, Lee Richardson]

Mr. Julian, you've exceeded ten minutes, but I wanted to let Mr. MacKay respond as well to your last question.

[Vernon MacKay]

Thank you, Mr. Chair.

Mr. Julian referred to the ability of governments to set laws to protect the environment. I want it to be very clear that there is nothing in chapter 8 that prevents a government from doing that. Chapter 8 says that when governments set their laws, they should be non-discriminatory. So when environmental laws are developed, that's the guideline, that's the commitment, that we do it in a non-discriminatory way.

Mr. Chair, perhaps we could have just one quick moment to respond to Mr. Julian's question about loss of profit. I would hand that over to my legal counsel.

[The Chair, Conservative, Lee Richardson]

Mr. Kronby.

[Matthew Kronby, Director General, Trade Law Bureau, Department of Foreign Affairs and International Trade]

Thank you, Mr. Chair.

I just want to clarify something on Mr. Julian's first question that sort of equated indirect expropriation with a loss of profit. Frankly, there's not really a basis for that equation. Loss of profit does not amount to indirect expropriation. There is an annex in the agreement that does elaborate on what indirect expropriation is, and that annex is there precisely to ensure that tribunals considering the issue of indirect expropriation look at the full range of circumstances that would constitute indirect expropriation under international law.

I would also like to point out that there is a paragraph in that annex--this is building on what Mr. MacKay just said--that says the following: “...non-discriminatory measures of a Party that are designed and applied to protect legitimate public welfare objectives, such as health, safety and the environment, do not constitute indirect expropriation.”

Also, perhaps you would indulge me and repeat the question you had about social security. I'd like to make sure we have it right when we provide a response to the committee.

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

It was on the privatization of social security in Peru.

[Matthew Kronby]

Yes.