International Trade Committee on Oct. 25th, 2011

[The Chair, Conservative, Rob Merrifield]

We'd like to call the meeting to order. We'll ask members to take their seats.

This morning, pursuant Standing Order 108(2), we are commencing our study of the trade relationship with Brazil.

We have with us, from the Department of Foreign Affairs and International Trade, Neil Reeder, director general, Latin America and Caribbean. Susan Harper is on our schedule, and I believe she is a little late and will be coming in around noon, or something like that. Then we have Don McDougall.

Thank you for being here.

I understand, Mr. Reeder, that you're going to start us off with a bit of a presentation, and then we'll open it up for questions and answers. The floor is yours, sir.

[Neil Reeder, Director General, Latin America and Caribbean, Department of Foreign Affairs and International Trade]

Thank you very much, Mr. Chairman, and members of the committee. It's a pleasure to be back with you today.

I'm joined by Mr. Don McDougall, deputy director, trade policy negotiations division at Foreign Affairs, and we expect to be joined a little later by Susan Harper. Susan is our director general, trade controls and technical barriers bureau.

We look forward to our exchange with you today and responding to your questions.

I will make a few comments in English and French. I would be happy to answer your questions in the official language of your choice.

I am delighted that the committee continues its study of the Canada-Brazil commercial relationship. The committee's September 2009 report Exploring Enhanced Commercial Relations with Brazil provided very useful analysis and recommendations related to strengthening this commercial relationship—a priority for Canada under the Americas Strategy and the Global Commerce Strategy, including recommending the initiation of exploratory discussions on the possibility of a free trade agreement or an economic cooperation agreement with Mercosur.

Brazil is an economic powerhouse by almost any measure. The size of Brazil's economy has surpassed that of Canada, and the International Monetary Fund expects that Brazil will be the 6^th largest economy globally by the end of this year.

In 2010, Brazil was Canada's 10^th largest merchandise trading partner globally. Bilateral merchandise trade with Brazil totalled almost $6 billion in 2010, an increase of 11% compared to the 2008 data available when the committee studied this topic in 2009, and a 38% increase since 2005.

Investment is the bigger story. In 2010, Brazil was the eighth largest source of foreign direct investment in Canada, with $13.5 billion invested in our country, primarily in the mining sector, cement, and the brewery beverage sector. Brazil was the 11th largest recipient of Canadian direct investment abroad, with a total Canadian investment of nearly $10 billion in Brazil. We currently have 400 Canadian companies active in Brazil, with over 50 in the mining sector.

Brazil was also the highest tourism growth market for Canada last year. Brazilians, according to the Canadian Tourism Commission, are the highest per day spenders among those who visit our country.

The number of students from Brazil coming to Canada has also increased. We have over 80 bilateral academic agreements between the two countries, and currently we are receiving over 17,000 students from Brazil each year, both full-time and part-time. They contribute almost $70 million to the Canadian economy. Canada is currently the number one destination for Brazilians who study foreign languages abroad for less than six months. We have 15,000 part-time language students from Brazil in Canada each year.

The Canada-Brazil relationship has seen major progress in recent years, achieving a new level of maturity and positive engagement.

The re-launch in October 2009, after a 10-year hiatus, of the Canada-Brazil Joint Economic and Trade Council, JETC, was a turning point in underscoring our mutual desire to reinforce our bilateral commercial relationship. This mechanism provides an excellent forum for dialogue and has resulted in a number of new initiatives. The next annual meeting is scheduled for December 1 in Brasilia with DFAIT's Deputy Minister, Mr. Louis Lévesque, heading the Canadian delegation.

Other important mechanisms include the Consultative Committee on Agriculture, the Canada-Brazil Joint Committee for Cooperation on S&T and Innovation, and the OECD's aircraft sector understanding on aircraft export financing.

In June of this year, International Trade Minister Fast led a successful trade mission to Brazil in the context of a booming Brazil infrastructure sector, spurred by opportunities associated with Brazil's hosting of the FIFA World Cup in 2014 and the Summer Olympics in 2016, as well as the Brazilian government's ambitious $800 billion infrastructure investment program. Minister Fast expressed the desire to deepen our economic ties and integrate our global value chains to increase our mutual global competiveness.

Following up on this committee's recommendation in your 2009 report, Minister Fast also announced the launch of exploratory trade discussions with the Mercosur countries. These include Argentina, Brazil, Paraguay, and Uruguay—four countries with a combined population of 245 million people and a combined GDP of $2.6 trillion.

A positive first meeting was held from May 31 to June 1 of this year in Ottawa, and a constructive second round occurred earlier this month in Uruguay. Officials continue to exchange technical information regarding the approach Canada and Mercosur take in their respective negotiations. Don is here with me to handle any questions that might come up in that respect.

I should say that we've also expanded our commercial footprint in Brazil. Since your report, we have added two new trade offices in Porto Alegre and Recife. We've also increased our trade staff in our consulates generals in Sao Paolo and Rio de Janeiro.

Only two months after Minister Fast's visit, Prime Minister Harper visited Brasilia and Sao Paolo from August 7 to 9 of this year, accompanied by an unprecedented delegation of four ministers, and members of the business community. He was accompanied by Ministers Baird, Fast, Ambrose, and Ablonczy. During this official visit, the Prime Minister also visited Colombia, Costa Rica, and Honduras.

The Prime Minister's visit amply demonstrated the priority that Canada attaches to its relations with Brazil. He and Brazil's new president, Dilma Rousseff, agreed that, despite the existing commercial dynamic, we had significant unrealized commercial potential.

A number of important new initiatives were announced during the visit, and I'd like to list some of them briefly. There is the creation of a Canada-Brazil CEO business forum. Scotiabank president Rick Waugh was designated by the Prime Minister as Canada's co-chair, and the Brazilian president of the Vale mining group was the designated co-chair on the part of Brazil. A Canada-Brazil strategic partnership dialogue at the foreign minister level was also announced, and we expect Brazil's foreign minister in Canada to meet with Minister Baird in the second half, or even the first half, of next year. Agreements were also announced on air transport, to facilitate air transport and social security. Two memoranda of understanding were announced in relation to Olympic Games cooperation and international development cooperation. There is also a new science and technology action plan focused on innovation. An energy dialogue will be pursued between the two countries, who are both major energy producers. Canada also announced the opening of three new visa application centres in Brazil, which will pre-screen applicants' documents to ensure that we provide speedy visa service to legitimate business travellers, tourists, and students. We also announced an agreement during the Prime Minister's visit to negotiate a defence cooperation agreement between the two countries and to initiate or explore the possibility of a space cooperation dialogue between the space agencies of the two countries.

These two high-level visits (within two months of each other) sent a strong message to Brazilians. Expectations are now high in terms of follow-up and work to sustain and strengthen the engagement. As always, we welcome this committee's views and recommendations with regards to our work towards the development of a strong and dynamic relationship between Canada and Brazil, for the benefit of our businesses, our citizens and our economies.

Thank you, Mr. Chair.

I'd be very pleased to answer any questions you may have.

Thank you.

[The Chair, Conservative, Rob Merrifield]

Thank you very much for your presentation.

We'll now move to questions and answers.

We'll ask Mr. Chisholm to lead us off. The floor is yours, sir.

[Robert Chisholm, NDP, Dartmouth—Cole Harbour, NS]

Thank you, Mr. Chairman.

I will begin with a question and if there's time, I will pass it on to my colleague, Mr. Ravignat.

Thank you very much for being here to talk to us about what I think could be characterized as a very exciting but also a very challenging opportunity. There are all kinds of issues around Brazil, not just with the history, with Bombardier and other issues. There is the complexity of their tax system. They're fairly protectionist, with a six percent tax on foreign capital, and so on and so forth. There's also their tie with the Mercosur trade alliance, which is pretty significant. I understand that Mr. McDougall could talk to that.

I would like to have some understanding of what our realistic hope is of moving this file forward any time in the near future.

[Neil Reeder]

I may ask Don to respond on that point, but let me just say that we appreciate the potential. We are realizing significant gains in the relationship with Brazil, there's no question, given the investment numbers, the trade numbers, the infrastructure, and oil and gas opportunities. You can go down the list.

So we're very positive about this relationship, but we also recognize, as you mentioned, that Brazil's is a challenging domestic environment to work in. If you look at the red tape, the regulatory requirements, the time needed to set up a business, it's not that easy. Even the Brazilians will recognize that they have to undertake certain reforms to make the country more attractive for investment in trade. But we are making good progress.

I think what's even more important is that we're taking this relationship to a very different and much more positive level, because, as you mentioned, we've had rocky times in the past with Brazil, particularly in the aerospace sector and some of the consular cases we've had with the country.

We still have differences with Brazil. If you look at the international agenda, there will be foreign policy areas in which we don't see eye to eye. But I think both governments and countries want to move forward and deal with difficult issues in one sector without contaminating the larger picture, moving forward with this wonderful potential that we see with a country that's a priority for us under both the Americas strategy and the global commerce strategy—and one that we're spending a great deal of energy on.

So we've moved beyond the disputes of the past. Some of these may come back from time to time, but I think the potential is enormous.

Don, do you want to add to that?

[Don McDougall, Deputy Lead, Mercosur Trade Discussions, Department of Foreign Affairs and International Trade]

I'm not sure whether you were asking specifically whether we'd be able to move forward with a free trade agreement with Brazil.

[Robert Chisholm, NDP, Dartmouth—Cole Harbour, NS]

This is a country that seems to have a pretty clear idea of who it is and what it is and how it wants to do things. It has made a pretty significant commitment to multilateral trade in its region.

I understand that you've had some initial meetings with that trade group, but I would like you to comment on how realistic it is that we will make much headway on a bilateral deal with Brazil.

[Don McDougall]

Sure. First I'll touch on the point you raised about their relationship with Mercosur, because that's important to the approach we're taking with them.

Mercosur is a customs union, and they will only negotiate free trade agreements as a bloc. If you're going to negotiate a free trade agreement with Brazil, you have to negotiate with Brazil, Argentina, Uruguay, and Paraguay. So we're in discussions with all four, but as you point out, there are a lot of open questions about how serious they are about free trade.

I think it's clear that there's a lot of economic opportunity, but we are really in the early stages now of feeling out how interested they are, what they would be interested in doing, and the type of approach they might consider taking. We're really in the early days and are having some technical exchanges, but it's a little early to speculate about the likelihood of launching a full-fledged negotiation.

[Robert Chisholm, NDP, Dartmouth—Cole Harbour, NS]

Thank you, Mr. Chair.

[The Chair, Conservative, Rob Merrifield]

Mr. Ravignat.

[Mathieu Ravignat, NDP, Pontiac, QC]

How much time do I have?

[The Chair, Conservative, Rob Merrifield]

You have a minute and a half, time for one quick question and one quick answer. How's that?

[Mathieu Ravignat, NDP, Pontiac, QC]

With respect to Mr. Chisholm's question, when we talk about negotiating for free trade agreements, considering all the problems that Brazil has with internal trade, what should Canada be requiring to make sure that there is a favourable context for Canadian companies in Brazil?

[Don McDougall]

We usually try to conclude an overall agreement that touches on the investment, protection of investors, exchange of goods and services, as well as public procurement. We explore with them the possibility of doing something that deals with all these issues. But as we explained, there are only some technical exchanges at the moment.

[The Chair, Conservative, Rob Merrifield]

Okay, thank you very much.

Mr. Keddy, the floor is yours.

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

Thank you, Mr. Chairman, and welcome to the witnesses.

I'm going to be splitting my time with Mr. Holder, so I'm going to try to save some time for him.

This is a very exciting discussion here this morning. I was in Brazil, both in Rio and Sao Paolo, two years ago, and the Brazilian economy was booming even in these difficult times. They have some challenges, which we all recognize, especially on security and crime.

There is one thing that wasn't mentioned here. He did mention the FIFA soccer championship coming up, and the Olympics in 2016, but there's a huge investment being made in Brazil in their offshore oil field. We know they're expecting to spend $200 billion in the next, I think, two decades in the offshore. They can't produce the pipe. They can't buy the pipe. They can't put the pipelines in. They can't supply the rigs. They know this is a tremendous investment and there's a great opportunity there for Canadian expertise in the oil industry, both upstream and downstream.

Could you touch on that and the potential of that type of development and investment by Canadian companies for encouraging and promoting trade between Canada and Brazil? How can that help with things like trying to negotiate a closer trading agreement, whether a free trade agreement or whatever context it takes?

[Neil Reeder]

You're quite right, sir. The opportunity in the offshore oil and gas sector is significant, and what we'll be trying to do now is to marry up Canadian technology with the opportunity in Brazil. In the case of the Maritimes, I know that the Atlantic Canada governments are now looking at a trade strategy for Brazil specifically, encompassing opportunities for oil and gas sales of Canadian services. So this is a very exciting area. We obviously have extensive deep water experience in Nova Scotia and Newfoundland that we can share with the Government of Brazil. The petroleum facility in Brazil is essentially managed by the government, so this becomes, in part, a government-to-government conversation. Their procurement expectations to develop these very deep water deposits are in the billions and billions of dollars and, from what we're seeing, the estimates of the realized potential of that are quite significant.

So this is a very exciting opportunity for us, where, again, we have an opportunity to marry our expertise with what Brazil needs. So part of the conversation during these official visits to Rio, where this industry is based, was very much looking at opportunities in that sector.

And I think at the federal level we're now going to try to develop a follow-on mission that would look at oil and gas opportunities in Brazil, and also to work with our colleagues in the provinces because of the interest in Atlantic Canada in expanding its trade relationship with Brazil.

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

Thank you.

[The Chair, Conservative, Rob Merrifield]

Okay, Mr. Holder.

[Ed Holder, Conservative, London West, ON]

Thank you very much.

I'd like to thank our guests for attending today.

I had the unique opportunity back in June 2009 to travel to Brazil with this committee to see first hand its vastness. It's an incredible country, and for those who have not yet had the opportunity, I encourage you to go.

We talk about emerging nations. Frankly, Brazil has emerged. To me there's no question about that. It has challenges, including some severe challenges, but as an economic powerhouse it has clearly emerged. I think that some of the statistics you provided, Mr. Reeder, support this comment that it is a country that has emerged.

Having said that, it has its challenges, in terms of the huge poverty that is obviously still there. They have some very big differences between the well off and the not well off. It would strike me that having a good middle class would not hurt them at all. It's certainly not for me to tell them about their affairs, but that would concern us all, that is, their huge poverty levels.

I've always believed--and this is part of my passion for being on this trade committee--that if you want to increase lifestyles and standards of living you trade with them, you give people opportunities, you develop a middle class through that process.

I'd like to carry on from some of Mr. Chisholm's comments and perhaps some of Mr. Keddy's.

I'm not sure if this is a question for you, Mr. Reeder, or Mr. McDougall, but in terms of the prospects of a Mercosur FTA, when I was there two years ago, it struck me that the prospect of having an agreement with Mercosur was going to be very challenging. It wouldn't stop us from doing a variety of side agreements and various agreements that you've cited, Mr. Reeder, but I'm wondering from an end-game standpoint—and you can put a date on the end, if you wish—if you see this as fulfilling.... When thePrime Minister was there and we signed a number of agreements, I am not sure if the end-game is just to fulfill those various agreements? Were these signed with the notion in mind that at some point a connection or a more formal FTA with Mercosur is possible?

I'll stop there and allow you to respond, please.

[Don McDougall]

Thank you.

We're engaging with Mercosur in good faith, with absolutely every intention of looking into the possibility of launching free trade negotiations. That said, I think a number of people have pointed out the challenges, and it's clear that there are some. We don't know yet whether we will even be able to launch a negotiation, much less conclude one. Bit at this stage of the game, we're absolutely exploring the possibility of, and doing some real due diligence on, the question.

[Ed Holder, Conservative, London West, ON]

Let me stop you there and ask the following question. It was rather interesting when I was there and speaking parliamentarian to parliamentarian about wanting to enhance our economic activity between the countries, they clearly said yes.

So I will ask you quickly, when you're there, do you ask these folks the straight-on question, can we do this deal? You might be a little more diplomatic than I am when it comes to these things, but I had a sense from the candour I received in return was that Brazil didn't think it was going to be practical to do the four-country agreement at the time, but they said we should continue to enhance our relationship with Brazil.

Do you just go straight on with them and ask, can we do this deal? How do you approach that?

[The Chair, Conservative, Rob Merrifield]

I'd like a quick response, if we can.

[Don McDougall]

I'll give you a quick answer. I think you made an important point that the free trade agreement is really one option in a very large tool kit. We've got a lot of other things going on. It's not by any means the only thing happening in the bilateral relationship.

We try to have as frank conversations as we can, while recognizing that we're not always talking to the person who can make that decision. At our level, we're mostly seeking to fill out the picture as best we can. I think sometimes those conversations have to happen at other levels.

[The Chair, Conservative, Rob Merrifield]

Thank you.

Mr. Easter, the floor is yours.