International Trade Committee on April 29th, 2014

[The Chair, Conservative, Rob Merrifield]

I call the meeting to order. We have three witnesses with us. We'll go perhaps an hour and a half, perhaps a little bit longer, and then we'll break into committee business at the end.

We are dealing with Bill C-20, An Act to implement the Free Trade Agreement between Canada and the Republic of Honduras, the Agreement on Environmental Cooperation between Canada and the Republic of Honduras and the Agreement on Labour Cooperation between Canada and the Republic of Honduras.

From Aura Minerals Inc., we have the president and chief executive officer, James Bannantine.

It's good to have you with us.

Our second presenters will be from Cavendish Farms, Vincent Taddeo, vice-president international; and from J.D. Irving Limited, Wayne McDonald, senior vice-president, corporate relations.

I believe you are splitting your time.

[Vincent Taddeo, Vice-President International, International, Cavendish Farms]

We are.

[The Chair, Conservative, Rob Merrifield]

Very good.

Then we have, from Canada Pork International, Mr. Urias, director, Latin America.

Let's start with our presentations.

Mr. Bannantine, the floor is yours.

[James Bannantine, President and Chief Executive Officer, Aura Minerals Inc.]

Good morning, ladies and gentlemen. I'm Jim Bannantine, president of Aura Minerals.

We're a Toronto Stock Exchange listed company under the symbol ORA. Just for reference, last year we were a $350-million revenue company, with our operations split among Toronto, Vancouver, Mexico, Honduras, and Brazil. We produce copper and gold. We produced 200,000 ounces of gold last year and 14 million pounds of copper. For reference purposes, of our operations, our mine in Honduras, which is a gold mine called San Andres, was $100 million of our $340-million revenue last year. That's just for reference purposes.

With respect to the subject for today, at a high level we believe that the best hope for Honduras and Central America in general is integration into the economies of North America: economic integration. We also believe this is good for Canada in terms of security, human rights, environmental issues, democracy—CSR in general.

We also see in the regions we're operating in, both in Honduras and Mexico, production moving from Asia back to the Americas, in particular production that's integrated with engineering design, marketing, and manufacturing and production—or elements of production—split between the various countries in the area. We believe this provides jobs in these countries, which is the best defence against what is the biggest problem in the areas we're mining and operating in, and that is narco-violence. The best defence against a young man's going into the narco business is a job. So the best thing for security, the best thing for human rights, is employment and jobs.

Going from a macro level down to the micro level, in our own particular case, to put things into perspective, we've employed over the last two years between 13 and 25 people between Vancouver and Toronto, and we have a monthly payroll in those two cities of about $400,000. So they're good jobs. Over the last two years we have spent approximately $10 million on engineering and services in those markets, on various engineering and consulting firms that we use for the technology and services we need both to operate and to build the mines where we're operating.

If you look at our website, you'll see we publish annually a corporate social responsibility report. A big part of management's efforts and our efforts in the region is corporate social responsibility, including environmental and human rights, all of this governed by the Equator Principles, as defined by international finance corporations standards of the World Bank. We are often standard bearers in the countries that we operate in, including in Honduras.

Honduras had a democratic presidential election last November. Juan Orlando Hernández was elected president, but there was a very vigorous contest with a very high voter turnout.

We also don't believe at this point in time, even today, that democracy can be taken for granted in the areas where we operate. We operate in Latin America, but we see examples in Venezuela, Bolivia, Argentina, Cuba, and even Nicaragua, next to us, of a lot lacking.

At least as far as we can see, we think the economies of Canada and Honduras are complementary. Honduras's competitive advantage and focus is on tropical products such as fruit, textiles, coffee, and in our case minerals. Honduras, in our case, also benefits from Canadian services, technology, and manufacturing.

At $100 million in revenue, our wholly owned mine in Honduras is one of the biggest companies in the country. We employ about 700 people at the mine, one of two mines in the country. There's a great potential for many more mines in Honduras. Obviously, mining is a very significant sector for Canada. We're the world leaders in mining, and so more mines in Honduras and Central America should mean more opportunities for Canadian companies.

Central America is very narrow, and the biggest part of the land mass is mountains. They are the spine, the backbone, that goes from North America to South America. There's good geology there, a lot of good faults. However, relative to the geology there are very few mines. I think there's potential.

Honduras passed a new mining law last year. It still has room for improvement, and it's still open for improvement, but the new mining law was debated and there was a lot of input from Canadian companies and Canadian consultants into the new mining law. Again, we're still working on that.

Specifically with respect to the free trade agreement, the investment protection provision is the greatest element of the free trade agreement in our favour. A new mine is $100 million-plus. It's a big investment. It takes many years to recoup that investment, to amortize that investment. The investment provision in the free trade agreement is the single most important element to us.

With that, I'll conclude my comments and look forward to your questions later.

[The Chair, Conservative, Rob Merrifield]

Very good. Thank you very much.

We’ll now hear from Cavendish Farms.

Go ahead, Mr. Taddeo.

[Vincent Taddeo]

First of all, good afternoon, ladies and gentlemen. Thank you for giving us the time to present our points of interest.

My name is Vince Taddeo. I work for Cavendish Farms. I would also like to introduce my colleague, Wayne McDonald.

Please go ahead, Wayne.

[Wayne McDonald, Senior Vice-President, Corporate Relations, J.D. Irving Limited, Cavendish Farms]

On behalf of Robert Irving, we would like to thank you for the invitation and the opportunity to appear before this committee today. Our operating structure at J.D. Irving isn't commonly known, so it might benefit the committee if I gave a very brief description of where Cavendish Farms is within the organization.

At J.D. Irving Limited we have six operating divisions: forest products, consumer products, shipbuilding, retail and distribution, food products, and transportation. We often describe ourselves as a plural organization. We have two co-CEOs, led by brothers Jim and Robert Irving. We have two corporate offices located in Saint John, New Brunswick, and in Dieppe, New Brunswick. Jim Irving predominantly takes care of the forest products, shipbuilding, and the retail and distribution divisions, and Robert Irving takes care of the consumer products, food, and transportation divisions.

My role of corporate relations encompasses community investment, sponsorship and donations, philanthropy, and government relations for the organization. I play a support role to each of the subject matter experts within the independent operating businesses, and it's in this capacity that I'm joining my colleague today, Vince Taddeo.

Vincent is well qualified to be here today. He has over 39 years of international trade experience, all within the food sector, so I'll turn it back to Vince.

[Vincent Taddeo]

Thank you, Wayne.

I want to talk a bit about Cavendish Farms. We're a frozen french fry and appetizer processor located on the east coast with our head office in Dieppe. We have two plants in Prince Edward Island; one in Wheatley, Ontario; one in Lethbridge, Alberta; and one in Jamestown, North Dakota.

We currently produce in excess of 1.3 billion pounds of frozen product and utilize over 2.5 billion pounds of potatoes. Our modern plants are approved by all of the major QSRs, or quick service restaurants, that you can think of, including Wendy's and Burger King. We are one of the largest private-label packers for many of the largest North American retailers, such at Walmart, Sam's, Loblaws, Sobeys, Costco, and so on.

Cavendish Farms, as Wayne said, is a division of J.D. Irving. We're a team of 15,000 dedicated employees. We have been in business since 1881, so more than 133 years.

I would like to give you a little bit of an impact of the kinds of things we do. On Prince Edward Island, for example, we have 780 full-time employees and 130 seasonal employees. We have an annual payroll of over $45 million. We produce over 760 million pounds of frozen product; 1.2 billion pounds of potatoes, which represents 42,000 acres; and we buy from 280 suppliers.

Aside from providing for the U.S. and Canadian marketplaces, we ship our products to more than 50 countries worldwide. My history has always been in the international; after 39 years in the food industry, I've seen both the pros and the cons. One of the things I would like to talk to you guys about is the positives that Canada has instituted in the international but also the negatives. If you give me just a few seconds, I'd like to attest to some of those things.

Cavendish Farms relies on exports and access to foreign markets. Our ability to sustain growth in export markets has been hampered by the lack of free trade agreements. As an example, on May 18, 2010, Central America and the European Union reached a free trade deal between the two regions, and we have suffered because of that. But the one that really hurt us the most was the Central America free trade deal where in 2005 the U.S. got the free trade deal, and Canada had been discussing this one for years prior to the U.S. The day after it went into implementation stage, all our Burger King, Wendy's, KFCs—we lost them overnight. It was that quick. It was because all of a sudden they had a 15% duty advantage.

The same thing has happened again in the Dominican Republic, where the U.S., in January 2010, got a free trade deal implemented and immediately we lost all our business.

Now, having said that, let's talk about the positive side of the FTAs. Canada in 2002 got a free trade deal with Costa Rica. At that point in time, from then to now, our sales have ten times increased. It just goes to show that whenever we can conclude these free trade deals, there are massive positive aspects. The same thing happened in the EFTA, the European free trade agreement, with Liechtenstein, Norway, Iceland, and so on. In Iceland our sales are up five times what they were.

Having said that, what is it that's required? The Canadian government must make the timely establishment of free trade negotiations a greater priority and ensure a more level playing field for our exports and exporters; revive the Central America countries of Guatemala, El Salvador, and Nicaragua negotiations; resume negotiations with the Dominican Republic; and be proactive and aggressive in negotiating and conducting other free trade agreements.

Please conclude the Korea trade agreement as quickly as possible. This area represents ten times what Central America represents.

We're here to answer any of your questions. Thank you.

[The Chair, Conservative, Rob Merrifield]

Very good. We're well on our way on those.

Mr. Urias, the floor is yours.

[César Urias, Director, Latin America, Canada Pork International]

Thank you.

Honourable members of Parliament, I'll introduce myself really quickly. I am the director for Latin America of Canada Pork International. I'll describe what CPI is and what we do in the pork industry.

Canada Pork International, CPI, is the export market development agency of the Canadian pork industry. CPI is a joint initiative of the Canadian Pork Council and the Canadian Meat Council. CPI membership includes the national and provincial associations of hog producers as well as federally registered pork packing and processing establishments and trading companies. Combined, CPI members represent nearly 99% of the Canadian pork exporting industry.

This industry has been serving international markets for more than 100 years, and currently reaches clients and consumers in more than 100 countries: more than 60% of Canadian pork production is exported. This said, Canadian pork exports account for nearly 20% of today’s world pork trade. In 2013 Statistics Canada reported that Canadian pork exports amounted to nearly 1,184 metric tons worth $3.2 billion.

Over the last five years, Canadian pork exports have registered record years in volume. One of the reasons for this consistent development of the export business has been establishing free trade agreements with strategic partners, obtaining preferential access conditions such as reduced and/or eliminated tariff rates, and unrestricted access in veterinary and sanitary regulations.

The free trade agreement with Honduras is estimated to generate sales of $5 million to $7 million in the first year following implementation. The FTA will open a duty-free tariff rate quota, TRQ, for pork products starting in year one; the quota will be 1,644 metric tons. It will expand to 2,710 metric tons by year 14. By year 20, the 15% duty rate for the out-of-quota imports will be reduced by one percentage point per year with unlimited volumes at zero duty by year 15 as well.

Furthermore, Honduras has granted system approval to Canadian Food Inspection Agency pork plants, meaning that all federally registered pork plants can export pork products to this market. This measure will effectively restore access for Canadian pork to the level it enjoyed prior to 2009 when regulatory changes made by the local government limited the number of Canadian plants eligible to serve this market.

In 2004, similar to the case of the potato industry, Canada exported 1,345 metric tons estimated at $2.2 million, approximately one-third of Honduras pork imports. By 2006, Canadian pork exports dropped to zero as the Dominican Republic-Central America-United States free trade agreement, the CAFTA-DR, came into effect. The strong competition from the United States is evident in the Central American region. U.S. pork exports account for 99% of Honduran pork imports. The ratification of the FTA between Canada and Honduras could allow Canadian pork exports to attain 10% to 12% of the market share just within year one.

Pork is one of the main animal protein sources in the region. Exported items can serve mostly to further the processing industry. However, CPI will target niche and high-end market segments as trade evolves. Additionally, local pork consumption in Honduras has increased over the last ten years. The current average per capita consumption is about 4.7 kilos a year, not very comparable to what it is in Canada, nearly 15 kilos per year.

In conclusion—I apologize, I'm trying to keep this brief—there's plenty of room for growth. Canadian pork products have been selling well in Honduras in spite of the higher tariff, which is also 15%. Our exports have already risen in 2014. Therefore, Canada Pork International strongly supports Canada's ratification of the free trade agreement with Honduras.

I thank you for your time, and I remain open to any questions or comments you may have.

[The Chair, Conservative, Rob Merrifield]

Thank you, all three of you. I'm sure you've stimulated a lot of good questions.

We'll start with Mr. Caron.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Thank you very much, Mr. Chair.

I would like to start by saying that, last April 11, Carlos Mejia was murdered. He was a journalist and a member of the reflection, investigation and communication team for Radio Progreso, which is affiliated with the Jesuits in Honduras. He was stabbed to death in his home. This did not really come as a surprise. He had just completed a public opinion survey about various public policies related to the Government of Honduras.

On five occasions, between 2009 and 2011, the Inter-American Commission on Human Rights asked for special protection for him given that his life was in danger. He is the 34th journalist to be murdered since the coup d'État in 2009. In 15 of those cases, it has been confirmed that the reporters were working on corruption issues or that they had worked with the opposition to the government following the coup d'État. In the 15 cases in which work with the opposition or work on corruption has been confirmed, only four arrests have been made to date.

With that, my first question goes to Mr. Bannantine.

You mentioned your policy of social responsibility. Basically, your policy reads as follows. Correct me if I am wrong:

“Aura Minerals is committed to sustainable development, the protection of human life, the preservation of the environment, and the improvement of positive impact on the communities where the Company operates. The Company demonstrates this commitment through corporate responsibility strategies and sustainable growth aligned with all corporate responsibility practices.”

Is that a reasonable reflection of your policy?

[James Bannantine]

That is correct.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

We have previously heard from a number of expert witnesses who, murdered journalists aside, mentioned the fact that dozens of members of the opposition party LIBRE were murdered in the months leading up to the elections in November 2013, that dozens of trade unionists, indigenous leaders and hundreds of campesinos have been killed since the coup d'État for reasons linked to resources and political conflicts. They also mentioned that the impunity rate for these murders is 98%, that there is an office of special human rights prosecutor but that the budget is only enough for one person's salary and the use of a car and that the Honduran government's social spending has dropped since the coup d'État although overall spending has risen.

Tell me this, Mr. Bannantine. How do these facts tie in with your policy of social responsibility? If Aura Minerals can conduct activities in Honduras—as you are already doing—without the free trade agreement, is it not your opinion that the Canadian government should establish the improvement of the Honduran government's social responsibility as a priority in the negotiations?

[James Bannantine]

The security situation in Honduras is very bad, no doubt about it. It's the per capita murder capital of the world. San Pedro Sula, the main city, the business city, the city you fly into, is the per capita murder capital of the world when it comes to cities.

I also have lived in Honduras. It's a major concern. With boots on the ground, the biggest source of insecurity is the drug trade, by far. Our operations, to be honest with you, are not affected much by the security. We're not in the line of fire. We're not on the front lines. Our mine is in the department of Copan, which is in the northwest corner of the country.

So we have, in terms of our ability to implement our CSR policies in the country and enforce our standards, if you want to call them that, or do things like we would do them in Canada, or do them in Brazil or Mexico—

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Let me interrupt you for a few moments.

You are telling me about the drug trade, but the question was whether the Government of Canada should be using these agreements to promote social responsibility with the Government of Honduras, rather than simply making economic agreements.

You are telling me about the drug trade, so let me remind you that your mine in San Andrés is about 25 km from El Paraíso, where the situation is very problematic. According to the Woodrow Wilson Center, the mayor himself, a member of the party in power, is working with the Sinaloa cartel and travels with an armed bodyguard of 40. A number of situations are causing problems for the elections and for freedom of expression precisely where the San Andrés mine is located.

Are you not concerned by the link between the drug trade and the public and police authorities in the same region where you are conducting your activities?

You will eventually have the opportunity to talk about the role of the Government of Canada in the negotiations and to tell us whether trade accords should be used to advance the country's social responsibility.

[James Bannantine]

I was going to get there, actually, in my answer to your question, after my introduction.

In answer to your question, the free trade agreement, through the economic integration and jobs, is the best effect on the security in Honduras. By far the number one positive factor in security in Honduras, that allows us to practise our CSR and operate unimpeded, is jobs, economic growth; jobs make the best defence against this violence.

The real violence, as you said—you referenced the Sinaloa cartel—is driven by the drug trade. The drugs aren't going through Honduras, just the cash. Honduras is the route for the cash. The violence and the deaths are by far gang on gang, the Mara Salvatrucha versus the Zetas, one gang versus another gang, who are trying to fight for the drug turf.

In relative terms, with all due respect, the Mexican army and police are winning the war in Mexico, and the bad guys are going to where the vacuum is. They're going to El Salvador, Honduras, Guatemala.

So I think the best thing we can do for that is to create jobs, and the free trade agreement does that.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Mr. Hoback, seven minutes.

[Randy Hoback, Conservative, Prince Albert, SK]

Thank you, Chair.

Thank you, witnesses, for being here this morning.

Listening to Mr. Caron, I agree; some things have happened in Honduras in the past that are not acceptable. They're just not acceptable. We've had witnesses here before who have talked about some of the violence, the murders and everything else that goes on there.

The question I have—and I pass this on to my colleagues in the opposition—is that the status quo is not acceptable either, so how do you help them? How do you get them out of the scenario they're in today, where they are the murder capital in the city that you mentioned there, that they have these types of social issues?

You mentioned that you have some 700 employees in your operation. What would they be doing if you weren't there?

[James Bannantine]

The 700 employees in our operation in Honduras are some of the best-paid employees in Honduras, and our city is not 25 kilometres from El Paraiso. Our mine is 25 kilometres from Santa Rosa de Copan. That department, Santa Rosa itself, the region, is in relative terms much more secure than other regions of the country. You can't say it's statistically cause and effect, but just observing, you would say that where the jobs are, the security is much better.

[Randy Hoback, Conservative, Prince Albert, SK]

So again, on the micro side of things in your region, it's better because there is actually opportunity. There's something to look forward to. Of course, with jobs comes respect, and with respect, it means raising a family properly. It means activity in the community, which again makes the bad people, for lack of a better word, go somewhere else.

Is that fair to say?

[James Bannantine]

Yes. We pay approximately 6% of our revenues in taxes in Honduras. Of that, 2% goes to the municipality, and 2% actually right now goes for security at the national level, to police and to army. I'm sure you can imagine the outside influences and the weight of the outside influences on a tiny country. Honduras is a tiny country with the weight of the Mexican drug trade, the South American to North American business inflows are so huge—

[Randy Hoback, Conservative, Prince Albert, SK]

You have just explained why Canada needs to be there to help.

[James Bannantine]

Yes.

[Randy Hoback, Conservative, Prince Albert, SK]

That's actually better for us back here in Canada, because any dint we make in drug trafficking there is a dint we make in drug trafficking here in Canada. It's basically relative.