International Trade Committee on Nov. 3rd, 2010

[Martha Hall Findlay, Liberal, Willowdale, ON]

Thank you very much.

[The Chair, Conservative, Lee Richardson]

Next we go back to the Conservative Party. Mr. Holder.

[Ed Holder, Conservative, London West, ON]

Thank you very much, Mr. Chair.

I'd like to thank our guests for coming today, and certainly in the case of Mr. Plunkett for providing additional information and guiding us through the free trade agreement with Panama.

It's rather interesting. We talked a little earlier about U.S. elections and the impact on the U.S. trade deal with Panama. From my perspective, I tend to be more of a “homer”--frankly, I look at Canada's advantage more than anybody else's in the rest of the world as it relates to our deals with countries. If we get a strategic advantage by being ahead of other markets in a country like Panama, or for that matter any country, I say we should take advantage of that.

I was looking at some of the statistics, and something struck me as interesting; I think it's worth mentioning. Right now we have a balance of trade advantage that is almost two to one in terms of our exports versus imports in Panama. Secondly, I see, with great interest, that the largest exporter from Canadian provinces is Quebec--good for them--with Ontario being right behind. I think that's good for us.

I'm trying to get a sense, from your perspective, gentlemen--whoever is the most appropriate person to respond--what you would imagine could be the strategic advantage for Canada getting ahead of the United States in putting our free trade deal into place and getting it done. If we can get this done, to me, that's where the urgency on this may have some potential. We've certainly had this discussion in relation to other countries with which we've passed free trade agreements.

I think the United States is in a bit of flux right now by virtue of their circumstances. But it strikes me that if there is going to be a party that's probably more inclined towards free trade, it might well be the Republicans, with the Republicans now holding the balance of power in the House. What emphasis that gives at this stage, I don't know.

I'd like to get a feeling for what you might feel is the advantage, if any—if there isn't one, please say so—of us getting ahead of the Americans in putting a free trade agreement in place with Panama.

[David Plunkett]

I think each industry, each situation, is different.

Speaking fairly generally, we would argue there is certainly an advantage to getting ahead of a trading partner. Some products are very price-specific: you eliminate all the other issues, you don't get a lot of bells and whistles. There are some products that are determined pretty well on price alone. If you can get a quick price advantage ahead of your competitors, that may be the reason people will choose your product over another. That's in the trading goods.

As Jean-Benoit was saying earlier, in the area of services and investment you can get some advantages in being able to acquire or set up operations in a given market. You might have a slight advantage over your competitors. It might in effect neutralize any differences between the local competition, as well. It's not just with other third parties, but you are maybe levelling the playing field, in this case, with the Panamanians.

I've had a number of our ambassadors remind me that you can't just qualify this in terms of economic numbers. Issues like this get a lot of profile in countries; you raise the profile of the country. That reminds business people and others out there that we exist.

It's a very competitive market. The Canada brand is enhanced by this. There are both tangible and potentially intangible benefits that are both short term and potentially longer term.

I think you have something to say, Jean-Benoit.

[Jean-Benoit Leblanc]

To complement what David was saying, you have this advantage, let's say, on tariffs, which allows you to start selling your products at a better price. But if you look at the American deal, assuming that in a few years it will come into force, then maybe they will catch up on some tariffs. There is a great advantage to being there first.

From a very practical point of view, when you have built a relationship as a supplier or consumer, then you have built trust and you know you can rely on that supplier. If at some point in the future the prices are similar or close, the fact that you have established that trust relationship, that you have shown repeatedly that you are able to sell in time, with good quality, because you were there first, that relationship can help you.

[Ed Holder, Conservative, London West, ON]

And I think anyone who has worked in business would understand how important the issue of relationships is. I think, Mr. Leblanc, that's the point you're making. I think for us to have that advantage, by doing something that's fair, that's reasonable.... Look, it's clear that we do trade with Panama. And as we've said with every deal we've looked at, since we already do business with these various countries—Panama included—what's wrong with having a rules-based system that articulates a proper labour arrangement, that articulates a proper environmental arrangement, and that at the same time moves products duty-free, or tariff-free? I would suggest to you that when we look at the products Canada is now exporting to Panama, I think that's significant.

Do I have time for one quick question, Mr. Chair?

[The Chair, Conservative, Lee Richardson]

No, but go ahead.

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

You can use part of my time.

[Ed Holder, Conservative, London West, ON]

You indicated in your testimony, Mr. Plunkett, that Panama currently has already put this through their legislature. They have signed off on this deal. What is their urgency? I could imagine what Canada would see as our benefits, and I'm sure members of this committee around the table see the great benefits for Canada in all of this. My question to you then is why the urgency from Panama? Why have they moved as quickly as it appears to me? I hope we'll do the same, but could you explain that to us, please?

[David Plunkett]

I'm always leery about trying to explain the rationale of why other people or other countries do anything, but you know, not everybody has the domestic procedures that we do in terms of putting things into effect. In fact, in some areas an international treaty becomes part and parcel of the domestic law, whereas we, as you know, have to change our domestic laws to bring them into conformity with the international treaties we've undertaken.

So the Panamanians might say that there was no haste involved and this is just their normal pace for doing these things, because once the agreement, the negotiation, is concluded, as you know, the next phase is to go into the so-called “legal scrub” to get the English, French, and in this case Spanish all lined up, at which point the ministers will sign the agreement. At that point, it's up to the domestic procedures of the countries involved as to how fast it comes into effect. Some just go more quickly than others.

[Ed Holder, Conservative, London West, ON]

So hopefully we can thoughtfully expedite this agreement as well. Thank you.

Thank you, Chair.

[The Chair, Conservative, Lee Richardson]

Thank you, Mr. Holder.

Monsieur Laforest, pour cinq minutes.

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

Thank you, Mr. Chair.

Mr. Castonguay, you said earlier that there is currently no agreement, and that a letter from the minister was sent to explicitly state Canada's wish to conclude an information exchange agreement.

To your knowledge, has the department or the minister taken other steps to move towards reaching an agreement?

[Alain Castonguay]

I attended a meeting of the Global Forum, an entity whose member countries are committed to following international standards on information exchange and must undergo very strict peer reviews. That meeting gave me the opportunity to informally reiterate our interest in negotiating with Panama.

It should be noted that one of the conditions imposed by the peer review for a country to fulfill its obligations is that it must accept to negotiate and conclude agreements as requested by another member country. Based on this, I am very hopeful that this issue will be resolved, sooner rather than later, and that we will be able to begin negotiating with Panama.

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

In 2002, the OECD put Panama on its tax haven list. Things have not changed since. Have any tax information exchange agreements been concluded between Panama and other countries since 2002?

[Alain Castonguay]

If we're talking strictly about tax information exchange agreements, the answer is no. Panama has only negotiated international double taxation agreements that include standards on information exchange.

According to what we have been told, Panama is interested in concluding more comprehensive agreements rather than agreements that are limited to information exchange. We disagree over this issue.

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

Could you tell the committee what kind of repercussions we can expect from a double taxation agreement?

[Alain Castonguay]

A double taxation agreement contains provisions under which the country of residence must eliminate double taxation when the same income is being taxed by two countries. Usually, these kinds of agreements reduce withholding tax rates. Our withholding tax rate on dividends, interest and royalties, as set out in the Income Tax Act, is 25%. In our treaties, this rate is reduced bilaterally, based on payment, to 5%, 10% or 15%. There is also a provision for settling cases of double taxation that cannot be resolved through consultations between the two tax authorities. That's it in a nutshell.

Generally speaking, double taxation agreements reduce the taxes one country imposes on the other country's investors or taxpayers.

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

In your opinion, how many tax information exchange agreements between two countries are needed for the OECD to take Panama off its tax haven list?

[Alain Castonguay]

The answer is twofold. I think that the actual list from 2002 is frozen in time and will not change. More recently, in 2009, a black/grey list was created. The black list consists of completely uncooperative countries. At this time, Panama finds itself on the so-called grey list. To be taken off the grey list, 12 agreements are needed. Panama is currently at 10.

I would say that they are halfway there. It's not just a matter of going from the grey list to the white list. The country in question must show that it has not only the potential, but also the ability to exchange information under current agreements. That's something Panama should have to prove in due course when the Global Forum reviews its case more closely in a few years.

The country is obligated to conclude a certain number of agreements, but also to show that it's actually exchanging information according to the spirit and the letter of the negotiated agreements.

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

Does Canada already have agreements of this nature in place?

[Alain Castonguay]

We have signed 9 such agreements and 16 more are currently being negotiated. And there will also be additional negotiations.

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

Will the same model be used?

[Alain Castonguay]

We always use the same model, the OECD model, more or less.

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

So then, this model is recognized by the OECD?