International Trade Committee on Sept. 25th, 2012

[Ed Holder, Conservative, London West, ON]

One of the points we've made before is that we already trade with Panama. What we're looking to do is establish a rules-based system to ensure that Canadian investors and Canadian businesses know what they're getting into and have some serious expectation on the other side in terms of dealing with that country. Would you agree that this makes good business sense?

[Michael Harvey]

Yes.

[Ed Holder, Conservative, London West, ON]

I'll quickly ask Mr. Tilk a question. Thank you very much. You've been very patient.

When I travelled to South America on business on behalf of the trade committee, we met businesses doing work in South America. One of the areas that we've always focused on is the importance of corporate social responsibility.

You're there. I'm not. This committee is not. What is your sense of Canada's respect of Panama and how it approaches corporate social responsibility in that country?

[Jochen Tilk]

Well, I think it's extremely high. I think the Panamanian government and the people in government and the population as whole, to the extent that they have knowledge, appreciate that Canada is a leader in the extractive industry and a leader in exporting corporate responsibility and good corporate governance, and they value that. There will always be people who have a view on the extractive industry as a whole that is independent on certain principles, but I think Canada ranks extremely high on its ability and the country's ability to teach, develop, and implement very high corporate responsibility standards.

[Ed Holder, Conservative, London West, ON]

In your earlier testimony, you talked about the last 20 years that Inmet has been in Panama and the periods of what I would call insecurity and uncertainty. What impact would it have for businesses like yours to have a free trade agreement in place with provisions relating to tax treaties, to environmental and labour treaties, to ensure there is...? I'll stop with the advertisement. I want to ask your opinion: why it would matter to a business such as yours?

[Jochen Tilk]

It means everything, because Inmet's board of directors made a decision on May 18, after effectively 20 years in studies and investments, to proceed with the investment of $6.2 billion, which, as you will appreciate, is very significant.

We made that decision in the absence of an agreement but in anticipation that it would come. To take the risk out of uncertainty to the extent that it's eliminated by the pact would be great. It would make the decision for management, for the board of directors, and for other stakeholders a lot easier to proceed with investment and all the benefits that come to Canada from that.

[Ed Holder, Conservative, London West, ON]

Thank you both.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Mr. Hiebert, the floor is yours for seven minutes.

[Russ Hiebert, Conservative, South Surrey—White Rock—Cloverdale, BC]

To continue that line of questioning, Mr. Tilk, what value would you place on an FTA with Panama? If the deal that you have just signed is worth $6.8 billion, and there's a component of risk that you've assumed will be addressed by a free trade agreement, can you put a number on it, just to help the committee understand the value of these kinds of free trade agreements?

[Jochen Tilk]

That's very difficult to do. I mean, I could hypothesize that some companies, in some instances, could take the position that without a bilateral agreement that governs the relationship of the countries, they wouldn't go ahead.

We haven't taken that decision, because we are hopeful and have confidence that a bilateral agreement will be developed. From that point, you're talking about billions of dollars—let me quantify that, billions of dollars—that would not be invested because, from a risk perspective, a company or an institution may not be prepared to proceed without the backup of a bilateral agreement that governs everything from taxes to dispute resolution arbitration.

[Russ Hiebert, Conservative, South Surrey—White Rock—Cloverdale, BC]

All right. Perhaps we could unpack that a little bit more for the benefit of the committee. What in particular in a free trade agreement would benefit your company? You've mentioned taxes and you've mentioned dispute resolution mechanisms. Can you just dive into that a little bit further and add anything else that might be relevant?

[Jochen Tilk]

I can't really take a specific one and say that my company will specifically benefit from that section, because I think many areas of a free trade agreement or bilateral agreement will govern situations that I can't possibly anticipate. If there is a tax conflict, if there is a customs conflict, if there is any type of dispute, those are all opportunities for us to rely on the existence of a bilateral agreement.

[Russ Hiebert, Conservative, South Surrey—White Rock—Cloverdale, BC]

In the U.S., President Obama has signed an agreement that hasn't yet come into force as a free trade agreement with Panama. Negotiations have concluded between Panama and the European Union. If these agreements went ahead and Canada's FTA was not implemented, what kind of disadvantage would that place you in, as a company?

[Jochen Tilk]

I think the point was made earlier on that, but I'll give you one example.

We're currently, as part of our project, negotiating with two companies for the supply of equipment. It's approximately $300 million to $400 million. That's mining equipment that will be imported. Both companies are American-based. Both companies have decided to develop a base in Panama far beyond our particular project, on the basis that Panama is a hub, a country where they would like to invest. It's a country that provides benefit.

Both of them are doing that in anticipation of the agreement. Their investments are significant. Their employment is significant.

In that example, without wanting to mention the specific names of the companies, I think those companies will move and develop a competitive advantage in Panama. The Canadian companies, either in the service sector or in another manufacturing sector, could develop but may not, because of not being able to rely on an agreement.

[Russ Hiebert, Conservative, South Surrey—White Rock—Cloverdale, BC]

Fair enough.

[Jochen Tilk]

I think you just have competition moving faster and quicker.

[Russ Hiebert, Conservative, South Surrey—White Rock—Cloverdale, BC]

In your opening remarks, you mentioned that you had been working with the Panamanian government for the last 20 years in building capacity. Could you expand a little bit on what that means? How have you worked with them to build capacity?

[Jochen Tilk]

Yes, sure. Again I'll give you an example.

We went through the approval of the environmental and social impact assessment. When the question was raised earlier of whether or not such a process exists, I answered, “Yes, it does”, and I find it very comparable to the process in Canada or the United States.

We've asked the government to contemplate the support of third party groups that would help it technically and otherwise. The government went ahead and retained a consulting firm from Chile that has a lot of experience in the sector. They retained that company for the period of the evaluation of the ESIA, which is approximately three years. As you would imagine, it's incredibly, significantly important, and it's a large document.

In that instance, the government built that capacity and moved forward. There are similar examples over the past 20 years. I think with every step the government matured and moved forward. I can tell you that there's a very significant difference from 10 years ago to today.

[Russ Hiebert, Conservative, South Surrey—White Rock—Cloverdale, BC]

Mr. Harvey, I'd like your perspective on what kind of opportunities might exist for Canadian direct investment in Panama.

[Michael Harvey]

There's everything around the increase in the size of the canal. A lot of engineering, services, banking services, and equipment are going into that. It's a huge thing.

There are also engineering services around the growth in the tourism industry. In Panama I think we sell a lot on the agricultural side. There are Canadian food products that don't necessarily exist there and that can do well. Those are the main ones I'd see.

There are investment opportunities. With this growth in infrastructure, there's going to be a need for capital to build more highways and better ports and airports, etc. That's where maybe our pension funds and our private equity companies can do quite well.

[Russ Hiebert, Conservative, South Surrey—White Rock—Cloverdale, BC]

Would those pension funds and equity firms move into a place like Panama without a free trade agreement?

[Michael Harvey]

I think it's just the percentages thing. Some will and some won't, but having a free trade agreement gives you added confidence that can tip the balance a little bit more in your favour.

[Russ Hiebert, Conservative, South Surrey—White Rock—Cloverdale, BC]

I would imagine that specifically in the area of dispute resolution, when there are contracts at stake and breaches occur and negotiations break down, it would be very beneficial to Canadian companies to know what the rules are in terms of resolving these disputes.

[Michael Harvey]

Yes. As I said before, I think for some it could be the deal breaker, and for others it would mean it would be a little bit more expensive to do business, because they'd have to take that risk and compensate for it through buying additional insurance or something.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Go ahead, Mr. Davies.