International Trade Committee on Nov. 17th, 2010

[The Chair, Conservative, Lee Richardson]

Thank you, Ms. Brown, and thank you, Mr. Blackburn.

Considering the hour, I think what we'll do here is try to get in a quick round, so if I could have just very short questions, maybe two-minute questions, beginning with Mr. Malhi....

[Gurbax Malhi, Liberal, Bramalea—Gore—Malton, ON]

Thank you, Mr. Chair.

My question is for Mr. Blackburn. You mentioned that you have already accomplished many projects in Panama. Have there been any problems on the ground or with the people or with the unions?

[Robert Blackburn]

As I was saying, the 18 projects that we've actually completed there since 1975 were relatively small consulting contracts. They weren't construction. The answer is no, not that I've ever heard of. We haven't encountered any problems on the ground because they weren't that kind of project.

[Gurbax Malhi, Liberal, Bramalea—Gore—Malton, ON]

Thank you.

[The Chair, Conservative, Lee Richardson]

Mr. Keddy, did you have any further questions on this side?

Mr. Holder.

[Ed Holder, Conservative, London West, ON]

Thank you very much. I'd like to thank our guests for being here today. Both of your sets of comments and responses were very insightful.

Mr. Blackburn, you talked about your local development focus, specifically in Panama, and I presume you take this approach when you deal in other countries as well, where you use local firms, local people, and you provide skills.

Certainly, from my perspective, it's important that whatever we do has to be good for Canada and it also has to be good for the other country we're involved with. Could you define a bit more clearly how that works? How would you provide such an undertaking to involve people in some form of mentoring, whether it be business, creation of industry? It wasn't really clear to me. Could you just elaborate a little bit, for my purpose?

[Robert Blackburn]

Okay. I'll tell you about the project that I saw in great detail on the ground in Mozambique.

First of all, we do this, in good part, to be competitive, because we couldn't possibly be competitive if we took thousands of workers from Canada to go and build an aluminum smelter in Mozambique. So we trained 9,000 workers. I visited the training site. We were training them to be welders, bricklayers, crane operators, and this was done under contract with our client in that case, which was BHP Billiton. We also set an objective in that case--this was phase two that I saw--of 25 good local supply contracts, and we divided the project into five sections,. The manager of each section had to find five good real contracts, and the deal was if they couldn't find a local supplier for one of them, they could go internationally, but then they had to find something else.

In the end, we had 28 specific local contracts. We taught people to do an internationally competitive bid, and we then mentored them through the delivery of what it was, whether it was concrete or whatever, and it was enormously successful. I visited that project the week they had poured first metal, six months ahead of schedule and tens of millions of dollars under budget. The World Bank used the project as an example of good resource development in the developing world, of what could be done. The BHP side of that project was going off to the World Bank the week after I was there, to explain how it had been done.

In Ambatovy, similarly, we have trained workforces. One of the pictures that sticks in my mind is a local company of women that was set up specifically to provide mats that they use for blasting and for putting on a muddy site in order to be able to work on it. A whole industry like that has grown up to supply us with those things, and also, in the area of agriculture, to provide food supplies to the site.

[Ed Holder, Conservative, London West, ON]

I understand that. I've heard that example before that you've used with Mozambique.

[Robert Blackburn]

Yes, sorry.

[Ed Holder, Conservative, London West, ON]

No, no. I think it's good enough. It bears repeating.

My question is with the $4 billion copper mine that you have in place now. With the additional billion dollars of spending, have you taken that same type of what I would call a progressive approach with local labour, local industry, in Panama?

[Robert Blackburn]

Well, the project is just at the beginning, and obviously we need our client to be aboard as well and to agree to proceed that way, which our client in that case has.

Sorry, I've just forgotten for a minute the name of the Canadian mining company whose mine that is, but yes, we've agreed to that approach, and really we put the initials around it after we had done it a few times, and it seemed like a good way to proceed.

[Ed Holder, Conservative, London West, ON]

I appreciate your comments, and I appreciate your corporate social responsibility. I'd like to make that as a broad comment.

Finally, I think to Mr. Casey, you made some very compelling comments that I thought, again, from this seat, bear repeating. We talk about the challenges we have with our U.S. neighbours as they relate to softwood lumber. The thing you said, though, was that as we increase our exports—and currently we have some $24 billion of forestry exports, most of it going to the United States. But to the extent that we broaden our base beyond the States, the impact of that is that the increase of lumber goes higher, and as a result of that, when the price of lumber goes higher, the disputes tend to go away. Did I understand that correctly?

[Andrew Casey]

Absolutely.

Of the $24 billion, as I say, 70% or so of that goes to the U.S., and I think we have to be realistic that for the foreseeable future, the lion's share of our product will continue to go to the U.S. It's an easy market to access; it makes sense. They build their houses out of wood, they need our wood, they don't have enough of their own wood, so it makes sense for us to access that market.

However, growing our markets in other places, such as China, where their market and their economy are booming, that makes huge sense if we can get a part of that. Right now, we're sort of supplying them with wood forms for the concrete, but if we can get them to build with wood, like we do here in North America, that will hugely reduce our dependence on markets like the U.S. It will send our product elsewhere, it'll sort of drop the supply in North America, and it will basically drive the price up. And there goes the dispute, gone.

[Ed Holder, Conservative, London West, ON]

So all the more reason to eliminate the tariff barriers that free trade agreements put in place and do—

[Andrew Casey]

The more we can knock down elsewhere, then it opens up markets for us. That's essentially the biggest obstacle in terms of opening up new markets, other than educating certain cultures that are not normally building with wood—but beyond that, knocking down tariffs, yes.

[Ed Holder, Conservative, London West, ON]

It's rather interesting. It seems we're creating a mosaic in South and Central America with, I think, Mr. Blackburn, you acknowledged the agreements that we've either signed and/or ratified. To be clear, our hope is that with the cooperation of all parties, they really do understand that it's in Canada's best interest and the workers' best interest to implement these free trade agreements. And what we can't do by multilateral we seem to be doing ultimately by bilateral, because that's the result of the challenges we see with Doha, and on we go.

That's a statement, not a question, and that will conclude my time, Mr. Chair.

I'd like to thank you both.

[The Chair, Conservative, Lee Richardson]

Thanks, Mr. Holder.

I think that will conclude it, then. We have kind of exceeded our 40 minutes.

Again, it's been a pleasure to have both of you here again, and we hope that's the last time on this particular bill. Thank you again for coming.

Committee, I'm just going to allow a two-minute break while we change the signs and welcome our next witnesses.

Thank you.

[The Chair, Conservative, Lee Richardson]

We shall resume.

Thank you, ladies and gentlemen.

We're continuing our consideration of 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.

To that end we are welcoming witnesses today from the Canada Revenue Agency. Brian McCauley is assistant commissioner, legislative policy and regulatory affairs branch. Richard Montroy is deputy assistant commissioner, compliance programs branch. François Ranger is acting director general, international and large business directorate, compliance programs branch.

From the Public Citizen's Global Trade Watch, we have Todd Tucker, research director.

I'm pleased that Canada Pork International is meeting in Ottawa today. We have the president, Edouard Asnong, with us, and speaking to us today is the assistant executive director, Martin Lavoie.

We'll begin with Monsieur Lavoie from Canada Pork International. We will hear brief opening comments from each of our witnesses and then proceed to questions.

Monsieur Lavoie.

[Martin Lavoie, Assistant Executive Director, Canada Pork International]

Thank you very much, Mr. Chairman and honourable members. Thank you for having our president here at the table today.

First, let me introduce Canada Pork International. We're the export promotion and development agency of the Canadian pork industry. We are an association of hog producers, packers, and trading companies.

The Canadian pork sector exports $2.5 billion every year to over 100 different countries.

We have been supportive of the FTA with Panama from the beginning. Generally speaking, Canada Pork International is in favour of all free trade agreements. This one was of particular interest because Panama has been a steady market for Canadian pork exports.

Exports are extremely important for the development of the Canadian pork industry. Our strategy is based on diversification, and any opportunity that we have to increase our access and our competitiveness in any given market is truly needed at this point in time. As you know, the Canadian pork industry has been facing difficult times, with currency exchange issues and oversupply in some producing markets. So any opportunity is extremely welcome.

In the case of Panama, it's a market that we are exporting around $5 million every year to. It's a top 15 market for us, and we can say that we've achieved our negotiating objectives. Basically, the bulk of the products that we're shipping right now to Panama consists of pigs' feet, tails, and by-product. So out of the $5 million, around $3.8 million of the current trade is going be duty-free upon implementation of the agreement. So I think we've achieved what we wanted out of this agreement.

I see some reaction to the types of products that could be sent to this market, in terms of feet and tails, but we're also shipping shoulders and hams to this market. We have to understand that to be successful, we cannot only have markets taking tenderloins, loins, and the noble cuts. These markets are extremely important for maximizing the value of a whole pig carcass. Outside of China, I would say that Panama has probably been the best market for pigs' feet and these products, which are actually value-added, because they are in-brine products that are not frozen. So they're fairly expensive products for this kind of export.

It's really important for us to move ahead with the FTA with Panama, because we have a window of opportunity to be there ahead of the U.S. They have signed an agreement with Panama, but as you know, it has not been implemented yet, so I think we're going to have a great window of opportunity to be more competitive in this market. Also, once the U.S. has their agreement, there are clauses in it that are going to improve our access. So in this situation, I think we are going to be advantaged by the FTA with Panama.

This is a very interesting market for us, as I mentioned. It's a top 15 market for Canadian pork exports. Whether this market is as critical as our other priorities, such as South Korea or Europe, I wouldn't say. This is a great break in a market that we need, but as for the other markets, like South Korea and Europe, obviously we're looking forward to the opportunity to come back before this group to discuss those free trade agreements, because we are extremely worried, especially in the case of South Korea, about the potential impact of not having a free trade agreement with Korea, when our competitors--Chile, the EU, and potentially the U.S., in upcoming months--will have an FTA. This is a $150 million market, and we are extremely concerned about this.

So we're really hoping.... I think I can say that for us Panama has been a smooth ride, and we have achieved our objectives. We've worked really closely with our chief negotiator in agriculture. I don't know if you have seen the details, but there's been a lot of work around the different cuts, and we really had a good working relationship on that. So we're really looking forward to this agreement moving ahead, for one thing so that we can take advantage of it ahead of the Americans, which is our biggest competition for this market. For another thing, we also want to move the priority and the resources to other FTAs that are extremely critical for the future success of our industry, such as, again, those with South Korea, the European Union, and Ukraine, which will also be very critical for the Canadian pork industry.

So on behalf of Canada Pork International and our chairman, I would really like to thank you for inviting us here today, for the support of the House of Commons and the various parties for listening to our issues, and for the dialogue and the various free trade agreements we've been involved with.

Thank you.

[The Chair, Conservative, Lee Richardson]

Thank you.

Mr. Tucker.

[Todd Tucker, Research Director, Public Citizen's Global Trade Watch]

Thank you to the committee for the invitation to testify on this important issue.

Canada has been a global leader in ensuring that greater trade in financial services does not undermine wise prudential regulations. But this admirable record is at risk with the current investment text of the Canada-Panama trade agreement.

I have two central points. First, Panama is one of the world's worst tax havens. It is home to an estimated 400,000 corporations, including offshore corporations and multinational subsidiaries. This is almost four times the number of corporations registered in Canada. So Panama is not just any developing country.

Second, the Canada-Panama trade agreement should not be thought of primarily in the traditional terms, or solely in the traditional terms, of cutting tariffs. Instead, it should be seen for what it is, which is hundreds of pages of text that commit Canada and Panama to follow certain domestic policies. The pact would give new rights to the Government of Panama, and to the hundreds of thousands of offshore corporations located there, to challenge Canadian anti-tax-haven initiatives outside of the Canadian judicial system.

Let me elaborate on the first point. What makes Panama a particularly attractive location for tax dodgers and offshore corporations? Well, for decades, the Panamanian government has pursued an intentional tax haven strategy. It offers foreign banks and firms a special offshore licence to conduct business there. Not only are these businesses not taxed, but they're subject to little to no reporting requirements or regulations.

According to the OECD, the Panamanian government has little to no legal authority to ascertain key information about these offshore corporations, such as their ownership. Panama's financial secrecy practices also make it a major site for money laundering from places throughout the world. According to the U.S. State Department, major Colombian and Mexican drug cartels, as well as Colombian illegal armed groups, use Panama for drug trafficking and money laundering purposes. The funds generated from illegal activity are susceptible to being laundered through Panamanian banks, real estate developments, and more.

Panama's domestic legal regime is supplemented by a steadfast refusal, thus far, to engage in far-reaching tax information exchange agreements with its key trading partners. Up until last year, Panama had no international tax treaties of any kind. Now it is on track to have up to a dozen or more double-taxation treaties signed this year.

As a technical matter, these actions ensure that the country will be removed from the OECD grey list. But the OECD has recently recognized the inadequacy of its own listing protocols, and, with the support of the G-20, has implemented a more comprehensive peer review process to see how tax transparency is actually working on the ground. Although the OECD has released several of its three-stage peer review reports over the last few months, Panama's latest treaties did not help it meet all of the OECD's requirements. And these treaties place many restrictive conditions on the exchange of information.

Panama was the only country in the western hemisphere the OECD did not allow to graduate from the first to the second stage, a dubious distinction not accorded to even the famous Cayman Islands tax haven.

This takes me to the second major point. The Canada-Panama trade deal would worsen the tax haven problem. As the OECD has noted, having a trade agreement without first tackling Panama's financial secrecy practices could incentivize even more offshore tax dodging. But there's a reason to believe that the trade deal will not only increase tax haven abuses but will also make fighting them that much harder.

Chapter 9 of the Panama agreement expands the investor-state system under NAFTA, under which Canada has paid out hundreds of millions of dollars in legal fees and compensation to U.S. investors. Canada's defensive interests are many in the case of the Panama pact, because there are hundreds of thousands of U.S., Chinese, Cayman, and even Canadian corporations that can attack Canadian regulations by using aggressive nationality planning through their Panamanian subsidiaries. I can explain that more in the question session if people are interested.

What threat would this pose in practice? Let me give one example, and we can pursue others if there's interest. Let's say that after the Canada-Panama trade deal is ratified, Panama continues to be a bad actor on the tax haven front and Parliament puts in place legislation to give Panama a deadline to clean up its act or face sanctions. Canadian banks could be restricted from transferring money to their Panamanian affiliates. These could include Panama-registered banks operating in Canada, which could easily include a U.S. or third-country bank that has structured its Canadian investment through a Panamanian subsidiary.

But article 9.10 of the Canada-Panama trade act says that “[e]ach Party shall permit transfers relating to a covered investment to be made freely and without delay, into and out of its territory”. Moreover, both chapters 9 and 12 of the FTA have non-discrimination clauses that protect Panama-registered investors. Article 12.06 states that Canada will always allow Canadians to purchase financial services from banks operating in Panama.

Under the trade pact, either the Government of Panama or an investor registered there could challenge the Canadian measure. These are not speculative threats. Panama has actually threatened WTO cases against other countries' anti-tax-haven measures. Incorporations are increasingly being advised by the international trade law bar to structure their parent-subsidiary relationships in a way that allows them to take advantage of investor-state arbitration.

In sum, getting the current text of the Panama-Canada trade deal without getting Panama to first clean up its financial secrecy practices could make Canada's fight to establish a cautious and prudential standard for global financial services regulation even more of an uphill climb.

Thank you.

[The Chair, Conservative, Lee Richardson]

Thank you, Mr. Tucker.

Now we will hear from Mr. Montroy from the Canada Revenue Agency.

[Richard Montroy, Deputy Assistant Commissioner, Compliance Programs Branch, Canada Revenue Agency]

Thank you for inviting the Canada Revenue Agency to appear before this committee on the subject of Bill C-46.

My name is Richard Montroy. I am the deputy assistant commissioner for the compliance programs branch in the Canada Revenue Agency. With me today are Mr. Brian McCauley, the assistant commissioner of the legislative policy and regulatory affairs branch, and Monsieur François Ranger, acting director general of the international tax directorate in my branch.

In the interest of time, I will keep my opening remarks very brief.

On the legislation that is before you for consideration, the role of the Canada Revenue Agency is to administer the policy and legal framework established by the Department of Finance. We do this by employing a balanced approach to compliance that includes service, outreach, and enforcement activities.

We undertake examinations, audits, and investigations at the domestic and international level. We also administer the provisions of international tax agreements. The CRA collaborates with other tax administrations to address areas of common interest.

We work with the Organisation for Economic Co-operation and Development and Canada's tax treaty partners to advance common understanding and approach to tax issues. The exchange of information through tax treaties or tax information exchange agreements is paramount in detecting and deterring international tax evasion and avoidance.

My colleagues and I will be pleased to answer any questions you have today.

Thank you.

[The Chair, Conservative, Lee Richardson]

Thank you.

We'll begin a round of questions. We'll go for about 25 minutes, so that should give us time for one full round at least.

Mr. Cannis.

[John Cannis, Liberal, Scarborough Centre, ON]

Thank you, Mr. Chairman.

Let me welcome all our witnesses today. We appreciate your comments, your views, your input, and your willingness to allow an open line of communication when we have many questions.

We've heard from witnesses. I think you were in the audience when we had previous witnesses, SNC-Lavalin, for example. You heard some of the comments they made on the importance of these free trade agreements. I was impressed with the comments. Mr. Casey was before us earlier. It was the first time I'd met Mr. Blackburn from SNC-Lavalin.

I read between the lines the positive impact it makes on the Canadian household when we go out and attempt to get our fair share of the pie in the right way, and I know corporate and social responsibility was brought into the exchange. Personally, I've never hidden my colours. I always believed we should go out to get our fair share of the pie. If we don't, we're going to miss the boat. And when we miss the boat, as elected representatives, we're also depriving each and every Canadian of trying to improve their lives.

At the same time--I've said it in the past and I'll say it again before I ask my question--if we don't go there, we won't be giving the opportunity to those people, wherever the country may be, to change. I used an example. I said the China of today is different from what it was 40 years ago. Had we not gone there, we would not have made the positive changes that I believe have been made.

People will say, “Why aren't you doing it now?” We are debating legislation in the House today to address pensions for people who are incarcerated. One might say, “Why didn't we do it five or ten years ago?” Well, maybe we just didn't think about it. But now this thought has come forward. I'm not trying to condemn the current Conservative government. They've been in government for four years. One might ask why they didn't think of it four years ago. Why didn't we think about it when we were in government? The fact remains, we are thinking about it now, and we're taking a positive step to address it.

You talked about tax treaties, Mr. Ranger. I appreciate that, because we just saw in June, before we rose, that we concluded tax treaties with Colombia, Turkey, and Greece, specifically to address tax evasion and tax avoidance. As Canadians, we're trying to address those concerns.

Do you agree that this is the right direction to take in addressing the problem? It is now is being discussed by various organizations, the Public Citizen's Global Trade Watch, for example, which is harping on this issue, the tax situation, the avoidance, etc. Are these tax treaties a parallel of addressing this issue? Is this the right way to go, so that we can promote economic trade, which Mr. Lavoie talked about, and what it's going to do to your industry, in a positive way specifically? Or do we just sit back and say we're not going to go there? We'll allow every other country to go, but we want to be Boy Scouts and we're going to stay home.

Can you add to that, if you will, on tax treaties?