International Trade Committee on Sept. 25th, 2012

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

I want to explore the other part of that picture a little bit. There's a fair amount of discussion about the value of the Panamanian economy as it exists today, and the changes and the advantage that will be brought to that economy with the twinning of the Panama Canal in 2014.

Your numbers show some $200 million worth of trade with Panama now. Two-way merchandise trade with Panama has grown by 78% over the last two years alone. The IMF is expecting 6% growth over the next five years. That is a phenomenal record in an economy that's quickly becoming one of the leading economies in the Americas.

As for the potential after the twinning of the Panama Canal, as some of those infrastructure projects get started—they're definitely in an infrastructure deficit, if you will—there's an opportunity there for Canadian investment and Canadian exports going into Panama, with a 78% increase in merchandise trade and a potential 30% increase in the next five years. Can you put a number to that? Is it even possible?

[Cameron MacKay]

I certainly don't have those estimates, other than the IMF growth estimates I referred to in my opening remarks, but I do think that in general, if we take into account Panama's efforts to improve and widen the Panama Canal, to invest many billions of dollars, as I referred to, in its own infrastructure, and to negotiate liberalized trade agreements with the United States, the European Union, Canada, and others, we can expect to see some very positive changes in the Panamanian economy and the structure of the economy in the coming years.

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

If I could, Mr. MacKay, I'll put it in a slightly different context. Let's look at the $9.6 billion infrastructure investment that will be required in Panama in the next decade, in probably the next five years.

We can look at our competitors there, which are certainly Mexico, the United States, the European Union now, and other countries. There's Brazil as well. Brazil has its own infrastructure challenges for more infrastructure than they can possibly build on their own, let alone trying to build anyone else's, so even given the competition we face from our natural trading partners, the opportunity there for Canadian companies should be huge.

Of that $9.6 billion, what would be the capacity that exists in Panama now for them to build that themselves?

[Cameron MacKay]

Again, I don't have specific figures, but I think their capacity would be relatively limited. Management of a lot of those infrastructure projects would need to be taken on by major foreign multinationals. Certainly, we expect that there will be opportunities for Canadian business in that regard.

Our expectation is that this free trade agreement, by combining tariff cuts with government procurement obligations that go beyond what Panama's current.... Well, Panama has no commitments to Canada now under government procurement via the WTO. With the WTO plus services commitments and an improved investment protection agreement as one of the chapters of the FTA, we think we've laid a very solid foundation for Canadian companies to compete in what will be both a very fast-growing market and a very competitive market, because our companies will face competition from other countries in that market.

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

My final question is to Mr. Castonguay.

I'd like to drill into the tax information exchange agreement a little more. I think it's pretty easy to cast stones against Panama and say that the advances it has made in the last decade in particular have somehow not been serious advances, but just exactly how do you go from being on the grey list to being off the grey list?

[The Chair, Conservative, Rob Merrifield]

Give a very quick answer, please.

[Alain Castonguay]

First of all, the criteria for the grey list were that you needed to have 12 agreements in place. Then you'd be on the white list, but I would say that's just an interim measure.

What is really going on with those countries that enter into TIEAs is this. We're all members of the Global Forum, which basically performs peer reviews on each country, looking at their regulatory and legal frameworks to ensure they're able to exchange information. It has been done with Panama. A full report was published, a number of flaws were identified, and Panama said it would take corrective action. Then, after they do, they move to phase two, where we can then test the efficacy of their exchange of information under the agreements they have. Of course, they're all recent agreements.

All I'm saying is that the grey list was just a milestone; I think the real substance is to ensure those countries that sign agreements actually follow up. The Global Forum is there to ensure those agreements have integrity and are effective.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Now we will go to Mr. Easter. Mr. Easter, just to remind you and the committee, you are the first one to have at the table a specific witness on the list. You have the advantage over the rest of us.

Go ahead.

[Wayne Easter, Liberal, Malpeque, PE]

Oh, that's wonderful, Mr. Chairman. You're on my good side already.

Thank you very much, folks, for coming.

In the whole area of trade there are certainly lots of negotiations going on. I don't mind admitting that I get kind of tired of hearing how many negotiations these guys have negotiated, when at the same time we're seeing, for the first time in 30 years, a deficit in Canada. The month of July was the biggest merchandise trade deficit ever, a record trade deficit, so the talk and the results are at odds.

I'd like to see just how valuable this trade agreement is in context. There's no question that all trade agreements are important. We support trade, but at the top of page 3, you do talk about the two-way merchandise trade with Panama having grown 78% over the last two years. In terms of our global trade as a country, what percentage of global trade would Panama account for?

[Cameron MacKay]

In terms of global trade, I believe the figure is roughly 5% of global trade transits through the Panama Canal. In terms of—

[Wayne Easter, Liberal, Malpeque, PE]

No, I'm talking about our trade with Panama.

[Cameron MacKay]

It's a very small percentage. I don't have it at hand. I'd have to look it up.

[Wayne Easter, Liberal, Malpeque, PE]

If you could provide it, that would be great.

[Cameron MacKay]

It would be quite small.

[Wayne Easter, Liberal, Malpeque, PE]

I did a little research—which at one time, Mr. Chair, I think I even brought to the table—on all the agreements that the government has signed to date. They really only amounted to the equivalent of about 126 hours of trade with the United States.

My point is that trade is important, but let's not lose sight of ensuring that we protect our interests in the countries with which we already have trade agreements, one of them being the United States. Out of all these agreements, the equivalent of 126 hours of trade with the United States is not a whole heck of a lot.

Does Panama have any free trade zones within their own country? I know that when we met to discuss some of the other agreements, there were the companies on the one hand, but then you had free trade zones that in some countries were clearly set up for foreign workers, for abuse of labour. Are there any such free trade zones within Panama?

[Cameron MacKay]

There is, on the Caribbean side of the Panama Canal, an area called the Colon free zone, which I believe is, after Hong Kong, the second-largest logistics hub for trade in the world. Basically, ships bring their merchandise trade through the Panama Canal. They can unload it in the Colon free zone, repackage it, and then containers can be shipped off to various other destinations in Latin America, Europe, or the U.S.

Really, more than anything, it's a shipping and logistics hub on the Caribbean side of the canal.

[Wayne Easter, Liberal, Malpeque, PE]

It isn't, then, what we have seen in especially one other agreement, which was a situation of foreign workers being brought in and basically abused in many ways, given low wages and being captive to the zone. We don't see that happening in Panama.

[Cameron MacKay]

Let me first just say that in terms of manufacturing, for example, Panama is not really a manufacturing economy. It's much more a services- and logistics-oriented economy. Much of the economy is based on shipments through the Panama Canal.

I know that Mr. Bouchard had something to add about the labour question.

[Wayne Easter, Liberal, Malpeque, PE]

Just before you answer, Mr. Bouchard, you can answer the other area at the same time.

The labour and environment agreement is a side agreement, and one of the problems with the labour and environment agreements is specifically labour. I know we encourage countries to do better, and that encouragement is there, but what is there in the agreement at the end of the day that allows us to enforce? Are there any enforcement mechanisms that provide for better labour rights, better labour wages, etc.?

[Pierre Bouchard]

On your first question, there are several free trade zones within Panama—the one that was mentioned by my colleague, and the Peru free trade zones. There are 2,790 employees in those EPZs, as they are called, and 8,830 employees in call centres as well are covered by the EPZ law, the free trade zone law.

On the issue of workers' rights, several years ago there used to be a particular condition that would apply to the labour rights. Therefore, as to limiting labour rights in those free trade zones, this has all been corrected by the government. Now there are no distinctions, and the normal labour law applies there. It's been corrected over the past two years, so we're happy with this development.

On the enforcement issues, our labour agreement has very strong enforcement mechanisms. First of all, on the level of obligation, this is the most comprehensive labour agreement or labour provision through a trade agreement that Panama has signed with any country on the range of obligation. There is also a strong dispute settlement mechanism that includes the possibility eventually of financial penalties of up to $15 million per year that can be deposited into a cooperation fund that is controlled by both parties, Canada and Panama, to resolve the matter at hand. We think this is an effective deterrent for compliance with labour laws and with international standards and at the same time a problem-solving approach.

[Wayne Easter, Liberal, Malpeque, PE]

Thank you.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

We'll now move to Mr. Shipley, who will close out the questioning for the department.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

Thank you very much, Mr. Chair.

I'll direct my questions to you, Mr. MacKay.

You said in your commentary that the United States.... Actually, they signed an agreement in 2011. We started this process in 2008 and 2009.

You mentioned that this isn't one of those large trade agreements that we have, but what is the difference that we've lost? Is there something? What would be the consequences of not moving ahead with this agreement now that the United States has already signed one and is going to be implementing it?

[Cameron MacKay]

The U.S. in fact had concluded the negotiations of their free trade agreement with Panama before Canada began to negotiate with Panama, but they had not yet signed the agreement. It was during that period that we moved in and negotiated ourselves, over a period of about a year, between 2008 and 2009, our own agreement.

There have been some delays in the United States side in terms of implementing the U.S.-Panama trade promotion agreement, as they call it. In particular, those were related to certain questions about Panama's record on labour and taxation. My understanding is that those were addressed last year, and in that light the U.S. Congress last October passed the implementing bill for the U.S.-Panama agreement. Some weeks later, President Obama signed it.

That agreement still has not come into force because there are some administrative measures that the United States is still waiting for Panama to implement, but our understanding is that it could come into force as early as October of this year.

Certainly if the U.S. agreement comes into force before the Canadian agreement with Panama does, and if Panama starts to cut its tariffs with respect to imports from the United States before it does with Canadian imports, then there could well be an impact on Canadian exporters who are already in the Panamanian market. They will no longer be on a level playing field with their American competitors, and the U.S. will have in some cases a significant tariff advantage—15% on beef, up to 70% on pork, etc.—that the Canadians would not enjoy.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

It is one that's had a lot of discussion since 2008 and 2009, so I think the ratification of it and moving it, while being thorough and having it right, are important.

I want to go to the next question. You talked about the Panamanian tariffs on non-agriculture imports from Canada and on 78% of agriculture imports. In the agreement as we talk about it here, Canada is not making any commitments to reduce over-quota on supply-managed goods.

Can you talk to us a little bit about that? It's always, quite honestly—and it doesn't matter where we come from on this side, or our political stripes—about the protection in Canada of supply management. We've made some significant advancements as a government to make sure that we're protecting it. Is our commitment to supply management stated in this particular agreement?