International Trade Committee on Dec. 6th, 2010

[H.E. Francisco Alvarez de Soto]

Thank you very much. I'll try to be extremely brief.

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

No, not now. That was before.

[H.E. Francisco Alvarez de Soto]

Merci.

In terms of the potential contracts for the canal, indeed, as you know, this is an extremely transparent international process that is taking place. I want to report that contrary to what the skeptics are saying, the project is running on time and under budget. That's something we are very proud of.

For major contracts, of course, pieces of the project have already been assigned to international consortiums, as I'm sure you know. However, let's keep in mind that the multiplying effect of this $6 billion--more or less--project has to do with the subcontracting. Subcontracting is now happening in all stages, of course. Some are more advanced; some will take place, and so on. So the opportunity for Canadian companies is there. Again, these contracts are happening as we speak.

In addition to that, let's remember something. It's not only the project itself, but the regular business of the Panama Canal Authority, the ongoing normal operation of the canal, provides for great opportunities for Canadian companies, particularly taking into account that within the agreement, in the government procurement chapter in our negotiation, we actually included the canal as an offer to Canada. This is something, I want to say, that we do not grant to all our trade partners. We are very specific as to what trade partners we make the offer to and include in the list to the Panama Canal Authority. So that's also an opportunity, particularly with the reassurance not only of the national legislation that guarantees non-discrimination and full transparency--you can actually look at the contracts on the web--but also of the provisions of the agreement that guarantee everything will be done on a non-discriminatory basis.

In terms of the importance of ratifying this agreement before the Panama-U.S. TPA is ratified by Congress, I would say it is evident. If you talk to congresspeople and senators in Washington, actually from both sides, many say that Canadians will go first. So on the other side of your border with the U.S., they are actually realizing the same thing, of course, thinking of Panama as a hub for trade. Again, don't think of a 3.5 million market, but rather of a regional market. The sooner it is, the better. And actually, Canada, as a large G-8 economy, would be the first. Remember that we have the agreement with the U.S., our main historic trading partner, but also with the European Union.

Let me give you a figure on the European Union. Panama buys 57% of all European Union imports that the region buys. Panama's government procurement project for the next four years equals the sum of all government procurement of the other five Central American countries. We're talking about $15 billion worth of government procurement projects. The entire region sums up to that figure. So again, the sooner it is, the better.

The European Union agreement will take time. It won't be ready before 2012. And we are on time. They are being very expeditious. With the U.S., we'll see. Nobody knows. We are very pleased with the latest news regarding the agreement between Korea and the United States. We would hope that this would call for sort of a trade initiative on the part of the White House. The minister and I were in D.C. just two weeks ago talking to the Republican leadership, reassuring them that Panama has actually been there and that we remain committed to the agreement. But again, we're not stopping. We made it very clear. We will not stop in our trade policy, and that includes ratification and implementation of this Canadian agreement.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

Thank you, Mr. Chairman.

[The Chair, Conservative, Lee Richardson]

Why don't you take an extra couple of minutes here? I think we're not going to have a chance for another round on your side. Take four or five now, and we'll finish up with Madame Folco. I'm sorry we're not going to have any more time than that.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

Thank you for that clarification, Mr. Chairman.

Welcome, Ambassador. It's a real pleasure to have you at committee. Thank you for bringing your chief trade negotiator with you today. He's given a very impressive discourse here, so much so that even when we went over time with the NDP, I wasn't about to interject.

There are a couple of questions on this. In my part of the world in Nova Scotia, we've been trade partners with Panama for over a century—from the schooner trade that went into Panama and the rest of Central America, to the Bank of Nova Scotia, which has been a long-time banking presence in Panama.

What you said about the non-double taxation agreement, I appreciate. At the same time, we're still looking forward to a tax information exchange agreement. That is still something that Canada is interested in and would expect to be able to put to bed.

Your information on procurement, $15 billion over five years, I think is enlightening to most of the committee. We expected a lot to come out of the doubling of the Panama Canal.

You said on budget and on time. Did you say the timeframe was the end of 2014?

[H.E. Francisco Alvarez de Soto]

I said “under budget”.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

Under budget? Pardon me. Even better.

At that time, 2014, we're expecting about 5% of the entire trade on the planet to be going through the Panama Canal. Do you know if that's going to be a higher figure, and what about the value-added potential in the Colon free zone, the remanufacturing? What do you expect that to be worth?

[H.E. Francisco Alvarez de Soto]

Indeed, the figures we are looking at indicate that once the enlargement of the canal is complete, 6% to 8% of world trade will be coming through the canal.

Let me also make a clarification on how trade will be evolving because of the Panama Canal. You will see an increase in world trade going through the canal. In addition, much of this trade will actually be reoriented and redirected, because of the facilities that are being built as we speak around the enlargement of the canal.

Please do not forget that port facilities in Panama have more than tripled in the last five years. For example, the containerized handling capacity of our ports equals that of the largest ports in the world. That makes Panama an even more attractive place for trade with the Americas and with the region. That is something we are very pleased with. For example, when you look at Brazil's foreign trade strategy, the Panama Canal is an element of it. In that regard, trade is going to change because of the enlargement.

Government procurement remains important. Our government is able to engage in infrastructure investment because we believe that by 2014, in light of international efforts to enlarge the canal, we need to be ready with this international trading centre, which is the canal.

We are building a new international airport. We are tripling the size of Tocumen International Airport, which services the Americas both in passengers and cargo. We are increasing our ports, our roads, our railway capacity. In other words, there is great potential there.

I want to refer to the non-double taxation and the aspiration of Canada to have the TIEA. We recognize this aspiration on the part of Canada, but again, the Panamanian government has been extremely clear and consistent with the offer of the non-double taxation agreement, particularly in view of the free trade agreement.

[The Chair, Conservative, Lee Richardson]

Thank you.

I'm going to wrap up now and ask Madame Folco....

Nice to have you with us again.

[Raymonde Folco, Liberal, Laval—Les Îles, QC]

Thank you. I have to say, it's one of my favourite committees.

[The Chair, Conservative, Lee Richardson]

Mine too.

We're going to ask Madame Folco to be very brief, and I'd ask that the answer be equally as brief. We have other witnesses waiting. I appreciate your patience.

[Raymonde Folco, Liberal, Laval—Les Îles, QC]

It's the story of my life. When it gets to me, it always has to be brief.

I know I'm late in welcoming you to Canada, Deputy Minister. It's a cold time to be here. In my hometown of Montreal, there's a major snowstorm, so I hope on the way home you're not going through Montreal.

You mentioned the City of Knowledge. As it happens, I will be going there in two weeks' time on another objective I'm pursuing apart from free trade. I'm certainly looking forward to travelling around Panama.

The question I have to ask you stems from some of the remarks you've made.

You've talked at length about agriculture. Of course, that makes sense, given the kinds of agricultural goods that Panama exports all over the world, and particularly to North America. You've talked very little about industrial goods. I wondered whether you might want to talk about the kinds of industrial goods...the kind of market that would open to Canadian industry in terms of this free trade agreement.

My question is quite short.

[H.E. Francisco Alvarez de Soto]

I take note that you will be in Panama in the next two weeks, particularly looking at the City of Knowledge. We are very pleased with that.

We've talked about agricultural goods at length because that's the main export that Panama has. Please bear in mind that 75% of our GDP is services and 6% is agriculture. When it comes to agricultural exports, Panama is one of those countries that you can map out really easily: it's tropical fruits and a little less....

As for industrial goods, this agreement will definitely improve market access for things coming from the Canadian industry, such as iron and steel products, aircraft and parts, plastics and wood products, including plywood, motor vehicles, electrical machinery, fish and seafood products, glass and glassware, construction equipment, information technology products, and medical and scientific equipment.

Again, as a market of 3.5 million, it sounds very small, but when you think of these major projects that demand a lot of industrial goods, it becomes a much larger market. When you think of, for example, medical equipment, you think of medical tourism. We are building new and very modern hospitals. John Hopkins, for example, has an extension in Panama. It's a state-of-the-art private hospital, and it's actually importing a lot of medical equipment.

On issues such as energy, we are very aggressive in terms of energy and mining. But in energy we're also looking at the region, with great investments in—

[Raymonde Folco, Liberal, Laval—Les Îles, QC]

If I may interrupt you, Deputy Minister, you talk about the region, and you mentioned Barbados just a little earlier, but you didn't mention the CARICOM countries as a general region.

[H.E. Francisco Alvarez de Soto]

Sorry, I mentioned Barbados because of the double taxation agreement.

Regarding CARICOM, if you go onto the website of the minister of trade, you will see in our strategy for this coming year that CARICOM is definitely a market we are pursuing. I'll be travelling to Trinidad next week. It definitely is a market we are looking at.

Panama has a free trade agreement with the region. Of course, we are engaging in economic integration with the region. Central America is definitely our back door. It's critical for us, and again for our trade partners it's an opportunity.

[Raymonde Folco, Liberal, Laval—Les Îles, QC]

That's fine.

[The Chair, Conservative, Lee Richardson]

Thank you.

I will take this opportunity to thank our panel of witnesses today. Thank you very much for coming and for again taking the time, and for that clarity. We very much appreciate it. I hope we don't have to have you back again, although we'd very much like to.

Thank you again.

We'll take a one-minute break here while we bid adieu to our first round of witnesses and welcome our second round of witnesses.

[The Chair, Conservative, Lee Richardson]

We have to resume, ladies and gentlemen. Thank you.

We're going to continue our discussion of the free trade agreement between Canada and the Republic of Panama.

We've had some interesting questions on taxation in the last round, and I'm sure that will continue.

I see we have an eminent author with us in this round. I think it should be stimulating and very interesting.

In this hour, from the Canadian Manufacturers and Exporters, we have Jean-Michel Laurin, who has been with us before. Monsieur Laurin is the vice president, global business policy, for the Canadian Manufacturers and Exporters. From the Université du Québec à Montréal, we have Alain Deneault, who is a sociology researcher. We also have Brigitte Alepin, who is a writer and an expert on fiscal policy and public finance. She is a published author on very similar matters, let me say, so it will be interesting.

I'm going to ask our witnesses to join us with brief opening remarks, maybe five minutes or less, to set a little background by way of their appearance here today.

So without further ado, I think I will begin with Brigitte Alepin.

[Brigitte Alepin, Writer, Expert on Fiscal Policy and Public Finance, As an Individual]

My name is Brigitte Alepin and I am an expert on fiscal policy and public finance. I've written books on this topic. My presentation is meant to give you a very brief overview of who I am.

I am a chartered accountant by training. I have a master's degree in taxation from the University of Sherbrooke and a Master in Public Administration from Harvard University. With my team's help, I have conducted major studies on some of the most complex topics in fiscal policy and public finance. These topics include energy taxation, e-commerce, tax havens, the environmental crisis and the health care system. These studies have yielded concrete results that are now reflected in the Canadian tax systems.

I wrote the well-known book Ces riches qui ne paient pas d'impôts, a best-seller in Quebec. My second book, La crise fiscale qui vient, will be available in bookstores on February 7, 2011.

Thank you.

[The Chair, Conservative, Lee Richardson]

Thank you.

Monsieur Deneault.

[Alain Deneault, Sociology Researcher, Université du Québec à Montréal]

Thank you. My name is Alain Deneault. I am a researcher at the Chaire mondialisation, citoyenneté et démocratie of the Université du Québec in Montreal and I am also the author of the book Offshore: Paradis fiscaux et souveraineté criminelle.

My work tackles the issue of tax havens not only from the perspective of accounting, taxation, criminology or economy, but also from the global perspective of political thought, where all these areas come together. In my opinion, this type of work provides an opportunity to think through the precautions a legislator must take when dealing with a tax haven, a free port or a free zone, like Panama, which is a country of convenience.

From the references I used in my work and after reading tax experts like Grégoire Duhamel or Édouard Chambost, who are in favour of tax havens, I have come to the conclusion that Panama is a tax haven that allows ships to be registered at ridiculous rates because, around the world, free ports make it possible to lower maritime standards in terms of environmental protection, the right to work and taxation.

Panama is not only a tax haven in tax clemency, but also because corporate shareholders can remain anonymous and the owners of private foundations, where money laundering often takes place, remain unknown. Insurance companies can also be created in Panama and so on.

I would now like to stress that a number of criminologists will consider Panama as a hub for money laundering, linked to international drug trafficking, because of the Colon Free Zone. In his book Trafic et crimes en Afrique centrale dans les Caraïbes, Patrice Meyzonnier, the chief commissioner at the headquarters of France's judicial police, talks about a state involved in drug trafficking and in the laundering of a good chunk of the world's dirty money, with the Cayman Islands. He says that Panama plays a bridging role between the south and the north, from Colombia to the United States.

The criminal activity in the Colon Free Zone takes place mainly in the hotel industry, fictitious commercial spaces and fictitious rents. It is actually a whole economy of money laundering, corroborated by Marie-Christine Dupuis-Danon in another book, Finance criminelle : Comment le crime organisé blanchit l'argent sale. Marie-Christine Dupuis-Danon was the anti-money laundering advisor for the United Nations Office on Drugs and Crime. She tells us the following:

Drug traffickers capitalize on the benefits associated with free zones like the one near Colon in Panama. This zone actually fosters the movement of goods and cash, with little surveillance from the authorities. There are no fewer than 1,890 companies generating a total of $5 billion annually in re-export activities. By definition, there are no customs duties on the operations carried out in the Colon Free Zone. As a result, the authorities are not able to enforce the regulations that are in effect in the rest of the country, including the declaration of sums over $10,000. Drug traffickers buy goods and resell them for cash with a 20 to 30% discount to the dealers in the free port. So they deposit their pesos in banks in the free zone and transfer their funds to their regular accounts in Colombia.

Marie-Christine Dupuis-Danon also insists on the fact that, between Panama—

[The Chair, Conservative, Lee Richardson]

I have to ask you to slow it down just a little for the benefit of our translator. She's doing an amazing job--well done--but we don't want to press her too much.

[Alain Deneault]

Since we don't have much time, I was speaking quickly. My apologies to the translators.

Still referring to the work of Marie-Christine Dupuis-Danon, I would like to add that Panama is open to the network of international tax havens where, as we know, about half of the world's flow of funds goes.

I will go over other data by focusing on another book, Les Cartels criminels, written by Alain Delpirou and Eduardo MacKenzie—MacKenzie being a jurist by training, that stresses that cocaine and heroine trafficking is a major industry in the region. It is an even greater problem since we know that the free port of Colon has direct access to an uncontrolled zone in Colombia.

Thierry Cretin is the author of Mafias du monde : Organisations criminelles transnationales, actualité et perspectives. He is a former French judge and he worked for the European Anti-Fraud Office. He tells us that the Colombian and Mexican mafias are very active in Canada while also being very present in Panama. Need I say more.

I will not go back to what Todd Tucker said in this committee. To conclude, I will just say that a free trade agreement between Canada and Panama would increase the porosity of Canadian jurisdiction when dealing with an economy described as criminal by many reliable criminologists. These are enough data for us to remain extremely vigilant. We can also add that, in principle, as citizens, not even as experts or specialists, we should not recognize a state that is not able to guarantee that it does not provide a safe haven for international crime. We also have to show caution in our policies. Thank you.

[The Chair, Conservative, Lee Richardson]

Monsieur Laurin.