International Trade Committee on Nov. 29th, 2010

[The Chair, Conservative, Lee Richardson]

Perfect. Good timing.

Monsieur Laforest.

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

Thank you, Mr. Chairman.

I'm going to comment directly on what Mr. Cannis just said. If people sometimes oppose free trade treaties, it's not because they're necessarily opposed to trade, but because they're considering something other than just trade liberalization. There's the entire aspect of respect for human and workers' rights. With respect to Panama, there's also the matter of the tax treaty, money laundering and tax evasion in particular.

First, I have a question to ask you, Ms. Nott. In your introduction, you referred to a special economic area in Panama. Are you referring to a tax system that is advantageous for Canadian businesses?

[Joy Nott]

I guess I should first preface my answer by saying that I am in no way, shape, or form a tax expert. I need to say that up front.

The free trade zone I made reference to, as far as my understanding goes, is a free trade zone from a manufacturing standpoint. I am not personally in a position to comment on any trade policy connected with it. It's a free trade zone in the same way the United States, as an example, has free trade zones, where manufacturing can take place in a duty-free type of zone.

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

Then you referred to a tax agreement or a tax information exchange agreement that would be signed between Canada and Panama as part of this free trade agreement. However, we questioned the minister about this and he said that he had written to his counterpart in Panama. The officials who appeared before this committee said they had received no reply.

Thus far, Panamanians and Canadians have perceived international trade in very different ways. In Canada, we want to agree on a tax information exchange agreement, and in Panama they're talking about a dual taxation system that would reduce the revenues of the Canada Revenue Agency to zero in certain situations. We're not yet at that stage.

Is this really an important question for the Canadian Association of Importers and Exporters? Are you still going to reach an agreement, even if there is no tax information exchange agreement? Ultimately, if the Canada Revenue Agency loses revenue, all Canadian citizens will have to pay for that, rather than the people who are exempted.

Is your support unconditional?

[Joy Nott]

Let me start off by saying that I, personally, am not an income tax expert. As an association, we advocate on behalf of our members with respect to international trade topics that are more in line with the actual trading of commodities and services as opposed to income tax.

I don't know. I haven't read all the minutes from previous witnesses. But I'm sure there could be other associations that could more appropriately answer the specific tax question.

On the trading of commodities and services question, and putting the tax question aside, the tax information exchange agreement I was talking about is currently being discussed between the United States and Panama, not Canada and Panama, that I'm aware of.

Again, at this conference I was at, Secretary Locke seemed to feel it was an important step forward. He publicly stated that they were interested in looking at a free trade agreement. That is the context in which I put forward those comments, as opposed to any income tax.

Relative to the position our association takes on behalf of our members, we don't look at income tax issues. Based on the free trade of commodities and services, and strictly within that forum, we do support Bill C-46.

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

Mr. Dade, I'm going to continue with you. I had time to glance at the brief. On page 4, you discussed the benefits of this free trade agreement, saying, "Panama is an attractive investment destination due to... a stable and sophisticated banking sector."

By that, do you mean that this agreement is advantageous because businesses that invest in Panama can enjoy better tax deductions? So there's a form of tax evasion that can be advantageous. What are you referring to?

[Carlo Dade]

No. There are a lot of reasons to invest and establish a financial business in Panama. There is infrastructure, officials and employees who are well educated and well trained in all aspects of a global financial business. That's the first thing. In addition, Panama is a good transport nexus. It's easier to travel there and the communications infrastructure there is superior.

There are a lot of reasons to set up an investment company in Panama. A country would definitely want to enhance these competitive advantages by legislation.

Countries have different tax regimes--we've seen this globally--including countries with which Canada has already signed tax free trade agreements and where these questions did not emerge.

Allow me to answer your question on

the tax evasion issue. It's interesting. We've looked at current Canadian revenue operations. And we have found that CRA has how many operations in effect against Panama?

[Marina Connors, Researcher, Canadian Foundation for the Americas (FOCAL)]

There are none. We actually could not find any ongoing investigations on Panama, to the best of our knowledge. Obviously, there might be some that are confidential. It might be better to ask the CRA about this. But we all know what happened in Switzerland last year and what happened in Liechtenstein. Those have definitely come up. We do have free trade agreements with both of those countries. It was just something we found a little curious.

[Carlo Dade]

That was not discussed. The operations by CRA were under way when this committee discussed the treaty with Liechtenstein.

These two countries have populations that are familiar to CRA,

but it's only with Panama, interestingly, where we have no operations, where we do not have 2,000 Canadians under investigation, that this issue has come up. It's very curious that it would come up at this point in time and that people would mention Panama and drug running and money laundering but would not raise those issues with Liechtenstein and Switzerland, despite the fact that we had negotiations on the go. If you look at the committee testimony, there is nothing in the committee testimony about that.

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

I would almost say that's not good news. In any case, you know that Panama is still on the OECD grey list of countries that promote tax evasion. So although there isn't an investigation, I believe that what you're saying isn't necessarily good news.

[The Chair, Conservative, Lee Richardson]

I'm sorry, we have gone over.

[Carlo Dade]

Panama is moving off the list. It takes time. Liechtenstein is also moving off the list.

[The Chair, Conservative, Lee Richardson]

Excuse me, Mr. Dade.

I'm sorry, we went over time there and used up Mr. Julian's time, too.

I'm just kidding. Go ahead, Mr. Julian.

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

Thank you, Mr. Chair.

I just want to say at the outset that it is the fourth time they've announced the tax information exchange agreement negotiations with the United States, as you well know, and it has now been eight years. Every time there is a little bit of pressure to get it through the U.S. Congress, the Panamanian government announces that they're negotiating another tax information exchange agreement. But for eight years, nothing—nothing—has resulted from those negotiations. So I think we should take that off the table as any sort of credible point made about negotiations on tax information.

I want to start with Ms. Nott and Ms. Osmond. I've been on the trade committee now, along with Mr. Cannis, for six years, and we often have people come forward, well-intentioned people, saying that signing these FTAs will lead to an increase in exports.

The problem is that when you actually look at the constant dollar value of our exports to those markets after we sign these FTAs, they actually decline, and they have in every single case.

In just one example, Costa Rica, there were $77 million in Canadian exports to the Costa Rican market before we signed the FTA. Last year, it was $73 million. So we went from $77 million to $73 million, in constant dollars, which is why the Minister of International Trade often will use current dollars to try to hide the fact that in real terms what's happened is a decrease in exports to those markets.

I'm wondering if either of you have any comments, because we have a pretty dysfunctional trade policy in that regard. What would you like to see our government doing to actually enhance the resources put in place to support our exporters.

I'll just give you another example. I was meeting with the trade commissioner in South America, who told me that they didn't even get the budget to buy a cup of coffee for potential clients. There's just no money available from this government. We spend about $13 million worldwide in Canadian product and service promotion. Australia spends half a billion. So there's a huge problem here. Would you like to see the Canadian government actually put its money where its mouth is and provide more support on the ground for Canadian exporters?

[Joy Nott]

I personally sit on the DFAIT SME advisory panel. We meet twice a year as a group of companies. I.E.Canada is a participant observer on that particular panel. In the room are SMEs that discuss exactly that amongst themselves, and on the second day--it's a two-day meeting--the Minister of International Trade comes in, and the group, as a whole, makes recommendations to them.

I think at this point there is discussion amongst Canadian traders about the fact that, quite frankly, we've had it very easy for the past couple of hundred years of living next door to the United States. Exporting hasn't really needed to be all that front of mind. We've tossed it over the fence. With the new real economy that's out there, Canadian companies are sort of now looking and not necessarily wanting to put all their eggs in one basket. There have been active discussions with the trade commissioner of services on--I'm going to say--improving and changing specific services. And I have to say that we're seeing the right signs that we want to see DFAIT engaging, and they are offering whatever help exporters need, given the fact that--we will agree, and we do agree--in the past between the types of services that were offered and maybe the types of services that were needed, there was a gap.

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

So you believe there should be substantial increases in the supports that are given, which we see with our major competitors. The U.S., European Union, and Australia invest far more--hundreds of millions of dollars--in export product and service promotion and support.

[Joy Nott]

The kinds of services that we're talking about are a little more tangible than maybe actual financial support. I'm not going to comment one way or another on whether the financial support is what's needed. The SMEs that are in that room are looking not so much at the financial support as at the tangible support they receive on the ground. At this point in time, with DFAIT, we've been looking at the actual services the trade commissioner of services offers. At the last meeting, for example, there was a lot of discussion about market intelligence as opposed to market information. Market information includes statistics that can be pulled off various websites and whatever else; we can all rattle off percentages. What Canadian SMEs and Canadian companies are looking for is market intelligence as to where specific opportunities lie and who those connections are. I have to say that DFAIT seems to be actively willing to engage to help at this point. I will say that's relatively new, because it's as a direct result of the economic crisis in the United States that they're listening.

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

Thank you. I'm sorry to cut you off, but I have only two minutes left.

I want to go to this other issue, concerning what the U.S. State Department has called Panama, which is:

a major logistics control and trans-shipments country for illegal drugs.... 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 projects and [more].

We've had, most recently, OECD criticisms of Panama, stating that it is even worse than the infamous Cayman Islands tax haven. There has also been testimony around the actual Panama trade pact, article 9.10 of which says:

Each party shall permit transfers relating to a covered investment to be made freely and without delay, into and out of its territory.

That would mean that the Government of Panama or any investor registered there could challenge Canadian anti–tax haven measures as a violation of those transfer guarantees under the trade deal.

I'm wondering--and this is for both organizations--are you saying to us today, “Full-speed ahead”, regardless of what the problems are with this deal and the fact that Panama hasn't met its obligations internationally? Or are you saying, “Hold on, there needs to be a tax information exchange agreement”? That is very important. That's certainly where most Canadians are, where Canadians' values are. They want to see companies and individuals paying their fair share of taxes. I think the vast majority of Canadians believe that. So are you saying to go full-speed ahead, or are you saying to hold on, that due diligence has to be done first, and let's have that tax information exchange agreement that's been promised, certainly for eight years in the United States, and that has been promised for some time in Canada?

[Carlo Dade]

On the tax exchange information, I would just note that Switzerland has just signed an agreement. That's something that's been in the works probably for as long as the one with Panama, so I think globally we're starting to see movement on this issue. Countries that were intransigent in the past are beginning to change.

There is movement because of problems, especially in this hemisphere. You mentioned drugs. It's a hemispheric problem. You can start at Tierra del Fuego and work your way up. Canada is becoming a site for precursory drugs and for increased production in methamphetamines and synthetic drugs.

The drug issue and the issue of money that goes with it is hemispheric. It touches pretty much every country in this hemisphere, certainly the United States, Mexico, the Caribbean, Central America, and South America. I would not single out Panama in this regard.

Second, in terms of trade and how we do in trade—I'll get back to that question—it's very interesting. If you look at where we signed free trade agreements, you're looking only at trade in goods. If you look at services and foreign direct investment, the numbers for FDI stock, Canada does quite well. While we may lose some on the goods side, we tend to make it up on the services side and certainly with investments. These are harder to quantify and these are harder to track, but certainly the evidence from FDI stock indicates that we are doing well and making it up on the investment side.

I would urge you to bring in Professor Paul Haslam from the University of Ottawa and some others who have looked at this issue and can talk more about it.

We also do a good job in terms of promoting exports from these countries. Trade Facilitation Office Canada...this is something the Americans would never do: encourage small, medium, and non-traditional exporters, women's cooperatives, others, to take advantage of the agreements and export to Canada.

If you really believe in free trade, you believe in the Ricardian equivalence, about efficiencies being generated and efficiencies being good for both countries. We take that a step further in Canada and we do things to actually promote trade instead of aid. Trade is a supplement to aid.

I think we should really be proud of this. The question is, either you believe in trade or you don't. I think we've done a really good job of making it work.

[The Chair, Conservative, Lee Richardson]

We're going to have to move along here.

Mr. Trost, you may have to wrap it up.

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

Thank you, Mr. Chair. If I don't use up my time, Mr. Holder will be sharing it with me.

The fundamental criticism I hear of these trade agreements, to me basically boils down to the fact that these countries are not competent enough to protect their own environment, their own labour standards, etc. I've heard that with Colombia. While I may find it somewhat condescending, unfortunately, I have to ask this question: Is the government of Panama, are the people of Panama, competent to defend their own labour standards, to look after their own environmental standards, and their own financial standards? Effectively, can they look after their own rule of law enough, so that big evil Canadian companies won't come and take advantage of them in the mining sector or anywhere else? What is the state of civil society in Panama? Can they effectively protect their own interests?

[Joy Nott]

I guess my only answer to that would have to go along the lines of comments made earlier by Ms. Hall Findlay, in that I would assume yes, given the fact that the Panamanians have sat down to negotiate this. On behalf of our association, we believe, again, that they're adults. They sat down. They're playing on the world stage, so we assume, yes.

[Marina Connors]

I can add a little about the labour issue. Over the summer there were some misunderstandings about a change to labour legislation that the government passed. There were protests. There was a little bit of violence. Everyone was quite concerned. I remember talking to the Panamanian ambassador about this at the time.

Since then, because of these protests by civil society, by labour unions, and by environmental groups, they sat down over 90 days, actually sat down at the table—government officials, the deputy minister of labour and workforce development, the deputy director of the social security fund, and various other members of civil society, as well as the leaders of the Workers Confederation of the Republic of Panama—and they solved this issue together.

There were issues they did not like about law 30. It basically made union fees voluntary rather than automatically deducted from workers' paycheques. In the event of a strike, it allowed employers to replace the strikers with new workers. There were some serious issues that the labour unions didn't like.

They brought these to the table, and all of these issues were basically rescinded. Those aspects of the law have gone. They are working on rephrasing the law and repassing it, and that should be solved very soon.

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

That's what we see across the board in Panama: strong institutions, a well-trained workforce, people who are able to articulate and defend interests--indigenous groups, workers' groups, etc.

[Carlo Dade]

The country has made a decision about their labour practices. They've adopted a pro-business agenda for labour. But the government won the elections. The elections weren't contested; they were free and fair. The people of Panama chose a government that decided to implement these policies. You may differ with them, but if you really want to differ with them, you have to take Panamanian citizenship and go down and vote.