International Trade Committee on Nov. 3rd, 2010

[The Chair, Conservative, Lee Richardson]

Welcome.

We will commence. This is meeting 33 of the Standing Committee on International Trade.

Today we are going to start, pursuant to the order of reference, with Bill C-46, an act to implement the free trade agreement between Canada and the Republic of Panama, the agreement on the environment between Canada and the Republic of Panama, and the agreement on labour cooperation between Canada and the Republic of Panama. This is the next bill we have to deal with on the order of business. It has been referred from the House to this committee.

We are going to start the review with a briefing from the department. We have a number of officials here who are prepared to respond to any questions members have.

We will have an opening statement from David Plunkett, chief trade negotiator, bilateral and regional, Department of Foreign Affairs and International Trade. Before you start, Mr. Plunkett, I would like to introduce those who are with you today.

From the Department of Foreign Affairs and International Trade we have Jean-Benoit Leblanc, director of trade negotiations, 2 division; and Robert Brookfield, deputy director of market access and trade remedies law division.

Pierre Bouchard is back with us again. He is with the Department of Human Resources and Skills Development. He likes to answer Mr. Julian's questions.

From the Department of Finance we have Alain Castonguay, senior chief, tax treaties, tax policy branch.

Mr. Plunkett, maybe you can provide us with an initial background and opening statement. From there we'll take questions from the members.

[David Plunkett, Chief Trade Negotiator, Bilateral and Regional, Department of Foreign Affairs and International Trade]

Thank you, Mr. Chair, for the opportunity to appear again before this committee to speak to Bill C-46, an act to implement the Canada-Panama free trade agreement and parallel agreements on labour and the environment.

You've introduced my colleagues at the table. If needed, I have other colleagues here with me to fill in some holes here and there.

Normally for these sorts of exercises we like to bring forward the actual chief negotiator of the agreement itself. In this case it was our colleague Cameron MacKay, but he was posted over the summer, so you'll have to put up with us. We'll try to address your questions as best we can.

Before I begin I'd like to report that we have received word from our embassy in Panama that the Panamanian government has just completed its approval process for the free trade agreement, thereby passing this agreement into law in that country. I think this is a positive development that has literally just occurred.

As this committee has seen, Canada is pursuing an ambitious trade agenda to open more doors for Canadian companies in the Americas and around the world. Panama is another country where, by deepening our commercial and social relationship, Canadians stand to gain.

Panama is a like-minded country with a strategic position in the global trading system due to its location, connectivity, and role as a global logistics hub.

According to Export Development Canada, as a link between the Atlantic and Pacific Oceans, Panama today processes approximately 5% of global trade. Panama has also had one of the fastest-growing economies in the Americas.

In 2008 its real gross domestic product growth was 10.7%. It posted positive growth in 2009, during the economic downturn, and Panama's real GDP is expected to grow further for 2010.

Canadian companies are aware of Panama's potential and some have already been active in this market. This activity reached the point where on September 23 of this year Export Development Canada decided to open a regional office in Panama to more effectively facilitate the growing levels of trade and investment between Canadian and Panamanian companies.

In 2009 two-way trade in merchandise trade between Canada and Panama totalled $132 million. This current figure may not be large compared to other partners, but that does not mean that it is not significant or that it cannot become more substantial in the future.

In the second quarter of 2009, Canada's merchandise exports to Panama were valued at approximately $22 million. In the same time period of this year, our exports to Panama were valued at approximately $60 million. So that's a threefold increase.

Key Canadian products driving our trade with Panama include machinery, motor vehicles and parts, pharmaceutical equipment, and pulse crops. Once the Panama agreement is in place, trade in these and other products will become easier for Canadian companies. For example, once implemented the agreement will eliminate current Panamanian tariffs on vehicles of up to 15%, industrial and construction machinery of up to 15%, pork products of up to 70%, wood products of up to 15%, and potato products of up to 81%.

In fact, this agreement will eliminate tariffs on 99.9% of recent non-agricultural imports from Canada and 94% of agricultural imports. Panama currently maintains tariffs averaging 13.4% on agricultural products, with tariffs reaching peaks as high as 260%.

Canadian investors will also see benefits from the implementation of a Panama agreement. It is already an established destination for Canadian direct investment abroad, particularly in areas such as banking and financial services, construction and mining. The stock of Canadian investment in Panama reached $93 million in 2008.

Some of the companies with existing presence in this market include CARIS, which is a geospatial software firm based out of Fredericton; McGill University; Scotiabank; Inmet Mining; SNC-Lavalin; and Hatch Ltd., an Ontario consulting company specializing in engineering and construction project management.

The current investment figure is also expected to grow in the years ahead, in part due to the many infrastructure projects planned by the Panamanian government and the private sector.

Once implemented, the Canada-Panama Free Trade Agreement will set up a stable legal framework, ensuring that Canadian businesses can invest with predictability in Panama. It will ensure the free transfer of investment capital, and protect against expropriation. It will give investors access to transparent, binding and impartial dispute settlement processes.

In short, this agreement provides Canadian investors in Panama a higher level of stability, predictability, and protection for their investments.

Canada's service sector also stands to benefit from a free trade agreement with Panama. Right now Canadian service exports are approximately $8 million a year, with room to grow. This figure is being propelled by Canadian financial engineering, mining and petroleum extractive services, construction capital projects, and environmental services. This agreement will provide service providers like these with a secure, transparent, and rules-based trading environment.

In addition, in keeping with Canada's approach to free trade agreements, the Canada-Panama Free Trade Agreement also covers environmental and labour aspects of economic integration through parallel agreements on labour cooperation and the environment. These are important agreements, and they contain strong obligations which clearly demonstrate that trade liberalization can go hand in hand with labour rights and the environment.

The members of this committee have no doubt already heard about Panama’s current canal expansion project. This $5.3 billion expansion project is expected to be completed by 2014, and it is estimated that the cargo flow will be boosted by roughly 35% through 2025.

With the Panamanian government investing in its country’s growth and strategic importance, procurement opportunities were another key driver for the negotiation of this agreement. I am pleased to say that the government procurement provisions in the agreement guarantee that Canadian suppliers have non-discriminatory access to a broad range of government procurement opportunities, including those under the responsibility of the Panama Canal Authority.

Along with the canal expansion, the Panamanian government has recently announced a five-year, $13.6 billion strategic investment plan. Under this plan, $9.6 billion will be allocated to infrastructure investments and other economic programs designed to stimulate further growth. Some of the projects the government is looking to undertake include airport construction, expansions, and upgrades; a new water treatment plant; power generation projects; agriculture irrigation systems; and a $1.5 billion metro system.

With metro systems and other projects similar to these, Canadian companies have proven to be world leaders in infrastructure.

These projects offer a number of opportunities for Canadian investors and service providers, and the Canada-Panama Free Trade Agreement is one way to ensure that Canadian companies can compete on a level playing field for these opportunities.

There is stiff competition in this dynamic market. The U.S. has recently concluded a trade agreement in Panama, and many strong interest groups in the U.S. and Panama are eager to see it implemented.

Panama’s active trade agreement also includes partners such as the European Union and Colombia. The Panamanian government is currently exploring trade deals with the European Free Trade Association countries of Iceland, Switzerland, Norway, Liechtenstein, Peru, the Caribbean, Korea, and others.

Companies that conduct business abroad rely on a number of things. A few of these are access, security, transparency, predictability, protection, rules-based environments, and the ability to establish strong relationships before their competitors do.

In the case of Panama, Canadian companies have indicated that they want to increase their activity in this market. With the free trade agreement, we are looking to provide the elements they need to operate more effectively and take greater advantage of these opportunities.

By implementing this agreement, we not only contribute to the growth of a strategically significant country in Central America, but we help Canadian companies thrive and stimulate Canada’s overall economy.

Thank you. My colleagues and I will be pleased to take any questions.

[The Chair, Conservative, Lee Richardson]

Thank you, Mr. Plunkett.

There are quite a few new members on the committee since our previous study of this trade agreement. For those who are new, the committee did look at this agreement in depth some time ago. The committee visited Panama about two years ago to discuss the trade agreement there.

As Mr. Plunkett has mentioned, it has now been agreed to and passed into law in Panama. We are a little behind here, but I hope we can find agreement to conclude it and pass it in the House.

We're ready for questions now. If that opening has stimulated some questions from our committee members, we'll start now. We'll start with the Liberals' trade critic, Ms. Hall Findlay.

[Martha Hall Findlay, Liberal, Willowdale, ON]

Thank you, Mr. Chair.

Thank you very much, everybody, for being here.

I have to admit that I am one of the new ones. A lot of work has been done ahead of time on Panama, so you'll have to bear with me a bit.

I have two sets of questions, and depending on the time, maybe I'll use the second round.

The first set has to do with a request for an elaboration on the financial services piece of this.

Can someone elaborate on the distinction between investment in financial services as opposed to provision of financial services, and how that will benefit Canada? If I could get a bit of elaboration on that and the distinction between the two, that would be great.

Also, I would like a bit of commentary on the concerns that have been raised by a number of people about the tax haven question. That has come up a few times.

Then at some point, if there's enough time, I'd like to have some thought on the fact that we're engaging in these bilateral agreements. There's much more of a concern about relative competitiveness between the participants and the parties to the bilaterals.

Given that there's a Panama-U.S. free trade agreement, is there any commentary you can provide on the differences between that one and what we're signing and where we may still have some competitive disadvantages or advantages vis-à-vis the United States?

Those are a lot of big questions, but if you could focus on the financial services one first, that would be terrific.

[Jean-Benoit Leblanc, Director, Trade Negotiations 2 Division, Department of Foreign Affairs and International Trade]

Thank you.

With respect to services, I'll give an answer that focuses on services in general, because it's applicable also to financial services. The provisions are generally very similar.

The first thing we should mention is that Panama is, as you mentioned, a services-oriented economy that offered opportunities for Canadian service providers in financial services, engineering, and a few others.

What the agreement does is ensure secure, predictable, and equitable treatment of service providers from both countries, including for financial services. It includes a basic obligation on national treatment, and most favoured nation, to ensure what I would call non-discrimination treatment for service providers. Again, that includes financial services. That also means that they will get the same treatment as third-party countries. That is, again, the issue of having similar treatment, a level playing field, for financial services providers.

In terms of market access, from a general point of view, we have obtained, including for financial services, access beyond what we had with Panama through the World Trade Organization General Agreement on Trade in Services. That also covers financial services.

So in general, we have more than we had previously through that agreement. So we have improved our situation.

One thing that exists is a working group, which obviously has not met, that will be established to look at further issues in the future, including financial services, if both parties feel that this is needed.

[Martha Hall Findlay, Liberal, Willowdale, ON]

In terms of the distinction between investment in financial services and the provision of financial services, is there a view that in opening it up to the provision of financial services, for example, there would be less inclination to then invest in financial services? I'm trying to get a handle on the benefit for us, given the distinction between those two approaches.

[Jean-Benoit Leblanc]

The investment rules also apply to financial services. So in a sense, whatever type of investment is done for Canada is protected. It has the same protection most sectors will have, generally speaking. So it will provide for better transparency and a more secure environment in terms of predictability and the legal framework. In that sense, we would think that it would be beneficial and useful for Canadian companies. Scotiabank, for example, is already there.

[Martha Hall Findlay, Liberal, Willowdale, ON]

Are there any other examples of companies? Not to disclose anything that might be confidential, but are there any other examples of enterprises that have been waiting for this to happen and are now going to be able to do more than they would have?

[Jean-Benoit Leblanc]

There are none I'm aware of that I could mention publicly.

[Martha Hall Findlay, Liberal, Willowdale, ON]

How are we for time, Chair?

[The Chair, Conservative, Lee Richardson]

You have two minutes.

[Martha Hall Findlay, Liberal, Willowdale, ON]

Could somebody speak a little bit to the tax haven issue that has come up a number of times?

[Alain Castonguay, Senior Chief, Tax Treaties, Tax Policy Branch, Department of Finance]

Good afternoon.

To make it short, Panama was singled out as a tax haven by the OECD in 2001. In 2002 it made a commitment to the OECD that it would put in place an arrangement to exchange tax information with anyone who wants to get an agreement.

In the last two years, Panama has been very active negotiating comprehensive double taxation agreements that include the OECD standard for the exchange of information. To my knowledge, they have signed ten up to now.

Panama has not been willing to negotiate tax information exchange agreements, which, unlike double taxation agreements, focus only on the issue of exchange of information. Panama has expressed to us their willingness to negotiate a comprehensive double taxation agreement. Our response to Panama has been that at this point in time, we are interested only in negotiating a tax information exchange agreement, an agreement that deals only with the exchange of information. This is where we stand as of today.

[Martha Hall Findlay, Liberal, Willowdale, ON]

Could somebody speak briefly on the last question I had about any comparative advantages we may or may not have, or may now have, given the American deal?

[David Plunkett]

It's an interesting question, because we went through this in the development of some of the recommendations for the global commerce strategy, where we looked globally to try to figure out where our efforts should be placed in terms of this bilateral and regional activity. There was a whole range of factors that were in play. Sometimes it was—as in the case of Peru and Colombia, for example—the business stakeholders saying the playing field needs to be levelled with, in this case, the United States. Frankly, the United States is often the benchmark that's used for many of our agreements.

So in terms of this agreement compared to the American agreement, we are quite comfortable saying that this agreement is equal to or even better in many instances than what the Americans were able to achieve in their agreement. We think that the percentages are in the high nineties, and even in those areas where there was less ambitious market access in a couple of areas they were offset in the global picture by some superior outcomes in other areas of commercial interest to us.

The American deal reflects U.S. interests and our deal has to reflect Canadian interests. So there is never going to be a one-to-one alignment, but we are quite comfortable that the deal we got can stand up to inspection against the deals that are usually used as benchmarks by our business stakeholders.

[Martha Hall Findlay, Liberal, Willowdale, ON]

Perfect. Thank you to all of you.

[The Chair, Conservative, Lee Richardson]

Thank you, Ms. Hall Findlay.

We'll go now to the Bloc and welcome Monsieur Plamondon to our committee today. It's nice to have you sitting in as an expert witness on Panama.

[Louis Plamondon, Bloc, Bas-Richelieu—Nicolet—Bécancour, QC]

Thank you, Mr. Chair.

[The Chair, Conservative, Lee Richardson]

But the first question I think is going to come from Monsieur Laforest.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

Thank you, Mr. Chair.

Good afternoon. At the beginning of the last parliamentary session, we requested a meeting with public officials. Mr. Leblanc, among others, came to my office. He was asked a few questions regarding topics like Panama being a tax haven. You told us at that time an agreement would eventually be concluded—I'm not sure whether this is what you were referring to, Mr. Castonguay—that would cover the exchange of tax-related information between the two countries.

The minister was asked a question in the House. The Parliamentary Secretary, Mr. Keddy, answered that a letter had been sent by the minister to his Panamanian counterpart. However, to our knowledge, no response to that letter has been received.

Has the agreement you talked about been signed? Will it be signed before we vote on this bill? Does the minister really intend to implement the agreement? We have consulted various websites and found no information about this, despite all the statements made regarding the agreement.

[Alain Castonguay]

The minister did write to his Panamanian counterpart. We have still not received a response. We are not in disagreement over concluding an information exchange agreement, but over what mechanism we should use. We would prefer to have an information exchange agreement similar to those negotiated with a number of other countries over the last year and a half. Panamanians would prefer to have a more comprehensive double taxation agreement. We don't believe that this is the opportune moment for such an agreement. So, we disagree over the means to achieve our stated purpose. Panama has “committed in principle." Unfortunately, our attempts to bring Panamanian representatives to the negotiating table have so far been unsuccessful.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

Panama is “committed in principle," but as you say, nothing has actually been negotiated so far. We are still a long way from having an actual agreement. Since the minister intends to conclude this agreement, does he also intend to stall the bill until the agreement is signed? After all, the agreement is a rather important one. Since it was important to conclude other trade agreements, I assume that it is even more important to do so in Panama's case, since that country is recognized as a tax haven.

[Alain Castonguay]

Your question is a good one, but I don't think I can answer it.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

I understand. I still want to remain on the subject of what the chair said earlier about the legislation having been passed in Panama. It's as if, to them, concluding the agreement is not nearly as important as it is to us. This turn of events creates even more doubts about the issue. It's as if the government were saying that it was going to conclude this agreement, it was going to go ahead with it, that it has passed the legislation and that, even though the agreement is not...

For me, this development sheds some light on the positions that are currently being defended by our government. I understand that you can't answer my question, but we will ask other people questions, including this one.

I do have another question. A rather controversial bill was passed in Panama in June 2010. As a result, several fairly violent protests erupted. The passing of this bill even resulted in some deaths. It's something of an omnibus bill. There were protests because certain provisions of the bill were, among other things, restricting union freedom and posing an environmental threat.

The Government of Panama has announced that it would revise the bill in question. Do you intend to follow these developments closely? Is a process being followed, or has the department inquired about this situation?

[Pierre P. Bouchard, Director, Bilateral and Regional Labour Affairs, Department of Human Resources and Skills Development]

Thank you for your question.

In this case, a process was followed. The Panamanian President even publicly admitted that the government had made a mistake, that it should have done things differently and held proper consultations before passing the legislation. Tripartite consultations were held over a 90-day period.

As you said, we're talking about a wide-ranging bill. I'll stick to the amendments made to the legislation on labour, which were the most controversial elements. Very intense negotiations took place, and an agreement was concluded around October 10 of this year. The agreement was a tripartite one among the unions, the employers and the government. Following these lengthy negotiations,a consensus was reached and the legislation was subsequently amended in compliance with the tripartite agreement. So, the issue has finally been resolved.