Proceedings of the Standing Senate Committee on
Foreign Affairs and International Trade
Issue 14 - Evidence, December 9, 2010
OTTAWA, Thursday, December 9, 2010
The Standing Senate Committee on Foreign Affairs and International Trade met this day at 10:35 a.m. to study the political and economic developments in Brazil and the implications for Canadian policy and interests in the region, and other related matters.
Senator A. Raynell Andreychuk (Chair) in the chair.
[English]
The Chair: Honourable senators, we will begin. We continue our study on the political and economic developments in Brazil and the implications for Canadian policy and interests in the region, and other related matters.
We have before us, as a panel, Todd Winterhalt, Vice-President of International Business Development of Export Development Canada. Accompanying him is Jean Cardyn, Regional Vice-President, South America. Welcome to the committee. I know you have an opening statement and that you understand the workings of this committee. We like questions and answers and maintain time for them.
I am not sure who will make the presentation, but please begin.
Todd Winterhalt, Vice President of International Business Development, Export Development Canada: Thank you very much for inviting EDC to appear before this committee. We appreciate your interest in EDC's activities in support of Canada's trade agenda.
When EDC began building a presence in foreign markets, Brazil was one of the first locations we chose, now 10 years ago.
We only suspected it then, but Brazil was already beginning to become what some experts have recently called a "key driver of emerging market power."
Today I will take a few moments to highlight how our two countries have a unique opportunity to expand our mutual trade and investment relationships, and how EDC is working closely with Canadian companies, other financial institutions and our government to help make this expansion happen.
The ongoing volatility in both the United States and Europe reinforces the need for Canadians to conduct business in emerging markets — not only to help reach new export customers, but also to invest in global supply chains for their long-term survival. Brazil and Canada, indeed, have many affinities that can help us accelerate our trade relationship.
I speak from long experience from EDC's perspective in the region. Aside from posting a representative in São Paulo in 2000 and another to Rio de Janeiro in 2004, EDC has been working with companies conducting business in Brazil for the greater part of 40 years.
Today, the most exciting development in Canada-Brazil trade is in the investment realm. Since 2000, Canadian direct investment in Brazil has jumped more than 70 per cent to $11 billion at the close of 2009. In the other direction, from Brazil to Canada, investment has exploded from the mere millions to nearly $15 billion today. That puts Canada now, in Brazilian terms, in the top 10 as an investor. In the other direction, Brazil occupies the seventh rank as a foreign direct investor into Canada.
The greatest opportunities for Canadians are in the infrastructure and extractive sectors. Brazil's infrastructure in its existing state remains a bottleneck to further economic growth. Brazil's infrastructure industry is projected to grow at a rate of nearly 7 per cent per annum between now and 2014. This growth translates into more than half a trillion dollars U.S. in planned government spending. In Canada, we can match up against that number with more than 4,300 firms involved in infrastructure exports and investment.
The oil and gas sector in Brazil also tells a similar story. Brazil's national oil and gas company, Petrobras, is one of the 10 largest corporations in the world, and expects to invest nearly US$200 billion in the industry in the next five-year period.
Here, too, EDC has played an important role side by side with Canada's trade commissioners in helping connect Canadian companies to Petrobras.
From only eight companies in 2000, more than 60 Canadian firms are now conducting business with Petrobras. At the same time, we like to think we understand the challenges confronting Canadian companies in Brazil. Indeed, to be respected in that market, Canadian companies need to have a local presence and to show they are committed to remaining for the long term. Continued uncertainty in the global economy means that credit markets may remain sluggish and that new sources of financing are more important than ever.
We believe that partnerships are key to overcoming these risks and challenges, and those partnerships are between business and financial players, public and private sector, foreign and domestic businesses. These partnerships increase the chances of a project or a specific transaction's success. Development banks, multilateral and export credit agencies like EDC, will continue to play an expanded role ensuring greater financial capacity. Canada and EDC are strong and trusted partners in Brazil.
I will touch briefly on two transactions that have taken place this year where EDC is helping Canadian companies to gain a stronger foothold in the Brazilian marketplace.
First, from a small- and medium-sized enterprise, SME, perspective, in 2010 EDC helped finance a wind power project in Brazil, assisting an SME company from the Gaspé region in Quebec. Also, this year, EDC provided a comprehensive loan of up to US$1 billion to the Brazilian mining giant, Vale. This loan supports capital expenditures for both Vale's Canadian projects and for the purchase of Canadian equipment and services in Brazil. Altogether, EDC expects to facilitate approximately $3 billion in Canadian exports and investments in Brazil this year, at least a 30-per-cent increase over 2009.
Similarly, our customer base in Brazil has grown to some 280 Canadian companies. That represents a 160-per-cent increase from five years ago.
To accelerate Canadian trade in Brazil, we are focused on the four following strategies: first, to develop and deepen relationships with reputable buyers and borrowers in Brazil; second, to deploy and strengthen our financial partnerships in the region; third, to help match Canadian capabilities to Brazilian market opportunities, particularly for mid-sized and smaller companies that may not have the size or the influence to do it on their own; and last, to deliver services that promote Canadian direct investment in key Brazilian sectors.
In conclusion, I will underscore three points. First, Canada and Brazil have an exceptional opportunity to work together perhaps as never before, from unique positions of strength and affinity across a number of industrial sectors.
Second, exports are not enough. We need to help Canadian companies invest directly in Brazilian operations or participate in global supply chains of major companies in Brazil.
Third, market presence and long-term relationships are key, with Foreign Affairs and International Trade Canada and EDC working together, helping to make these all-important connections and to facilitate concrete deals.
EDC remains optimistic that Canada can play a bigger role than ever in Brazil, just as Brazil prepares to host the world for both the 2014 World Cup and the 2016 Olympics.
I invite you to address questions to me or to my colleague Jean Cardyn.
The Chair: I will touch on one thing. You said that businesses need local presence and a long-term plan to stay in the country. You have not mentioned the knowledge of the language and whether it is an inhibitor. Is there a switch to systems that are international, which have gone more toward English?
Mr. Winterhalt: As part of what I consider to be a local presence, I think the knowledge of Portuguese is essential, and remains so for Canadian companies investing in the marketplace. The financial structure and the systems in place in the major centres have a great deal of affinity with English, and the structures are well known, but to be truly successful, particularly outside of the major centres, Portuguese is still essential.
The Chair: Do you mean Portuguese-speaking from Canada or having a Portuguese-speaking partner in Brazil?
Mr. Winterhalt: As long as they are able to communicate successfully with their end buyer, for example, or their client base, it can be the latter, as you indicate. Having a joint venture partner or a representative in market who has facility with the language works equally as well as having an invested relationship there.
[Translation]
Senator Fortin-Duplessis: First of all, welcome before the committee. I want to congratulate you for all the work EDC has done over the years. We can see, from your statement, that there have been positive results.
Personally, I believe that the manufacturing sector will continue to play a primary role in the Canadian economy. It is changing all over the world. So, it is quite clear that Canada should review its business models and should take account of the importance of the manufacturing sector in order to provide appropriate support to Canadian companies doing business on world markets.
Here is my question: could the government of Canada and organizations such as Export Development Canada do more to support Canadian companies trying to do business in Brazil and in other countries? Could you do more than what you mentioned on page 3 of your statement in order to increase business between Canada and Brazil?
Are you planning to do more than what is mentioned in the four components of the strategy you referred to?
Jean Cardyn, Regional Vice-President, South America, Export and Development Canada: I have been based in São Paulo since July. The strategy referred to by my colleague has four main components but we can certainly do more in cooperation with the trade service, and we do invest to that end. For example, increasing knowledge and becoming familiar with the Brazilian market is very important. The number of companies wanting to do business in Brazil has grown over the past five years. It has increased from 100 about five years ago to 280 last year. This represents a significant increase but the market is much bigger than that. There is much more to do to make Canadian companies more aware of Brazil and more comfortable with investing there. Brazil is not an easy market and, like everywhere else, one has to invest time and effort to become more knowledgeable about it, to develop contacts and to attract local partners.
We are very active with Foreign Affairs to raise the knowledge of Canadian companies about Brazil. We make our own knowledge of that market available through our five representatives in that country, with our office in Rio and our office in São Paulo. We are in contact with all the trade missions coming to Brazil. That is one aspect of our work.
Another aspect is to invest in order to make things easier for SMEs. We have mentioned a few major operations with Vale but there are also many small companies that need our support, and we help them by accompanying them in their visits, by providing advice on the Brazilian market and by trying to develop customized solutions for them: short- term financing, contacts with banking institutions to help them get funding. For example, we look for methods to help them get funding in the local currency. That is something we do and we keep trying to make that more accessible.
Those are a just few examples and I could give you more.
Senator Fortin-Duplessis: What are the main difficulties for Canadian companies wanting to invest in Brazil?
Mr. Cardyn: Excellent question. The Brazilian market, like many other markets, is very challenging. There are all the legal aspects of setting up business over there. One has to become knowledgeable about the accounting requirements and the local laws that are constantly being revised. That is something that should certainly be improved. There are many regulations which are often a little confusing. You might get advice from a lawyer but there might also be other aspects to take into account. That is one difficulty. As I said, one has to become as knowledgeable as possible about the market and one has to develop contacts.
In Brazil, as in many countries, personal contacts are extremely important, and one should nurture personal relationships. Doing trade tourism in Brazil may not be very productive in the long run. Companies have to be really engaged and have to demonstrate their commitment by developing contacts and by being present locally, not through a single visit but by coming back regularly and, if possible, by investing. Brazil is not only a country, it is very often seen as a continent.
Coming back to the previous question relating to language, I was surprised to find during my first visit that everything is done in Portuguese. People will speak English in international conferences but, in business, even though they may understand English, they will do everything in Portuguese and one has to try and learn the language. That effort will be much appreciated and will significantly improve personal relationships, which is critical to do business and get contracts.
Senator Fortin-Duplessis: Would you say that relations with the government are difficult for Canadian companies? Does the government do business only with local companies? How does that work? Are there any obstacles and are things particularly difficult at that level?
Mr. Cardyn: I would not say so. Brazil is a huge country. There are infrastructures, there is a legal context, there are public organizations that play an extremely important role in economic development, and one has to work with them and their people. I would not say that they are extremely difficult to work with because, at the end of the day, they want to do business.
One often hears that there is a lot of bureaucracy in Brazil. Sure, there is a bureaucracy but, when you look at the investment needs of the country and the pressures it faces to ensure its economy development, you see that decisions are being made. The world events that were recently announced, the Olympic Games and the World Cup of soccer, will increase the need to make decisions quickly and to ensure that things move forward. There were vast infrastructure projects that had been planned even before the announcement of those world events and they will be somewhat accelerated because of them. That creates pressure and demands decisions. However, I would not say it is difficult to deal with the Brazilian government. I believe that these are people who want to do business.
It may be difficult to navigate in the maze of Brazilian regulations and jurisdictions, but I would not say that those are major obstacles or that people are not willing to cooperate and do business.
[English]
Senator Downe: You indicated we have five officials working for EDC in Brazil now. How does that compare to five or six years ago? Have the numbers and the funding for the Brazilian operation increased; and if so, by how much?
Mr. Cardyn: Our business has been growing in Brazil over the last 10 years, since we established an office there in 2000. We had an office first in São Paulo, with two persons there; and then in 2004, we opened one in Rio de Janeiro, with two persons there as well. This year, we added one person in São Paulo.
We have a better capability now to cover all that we have to cover in supporting Canadian companies, and also the different sectors because it is a huge market. It is a continent in itself. To increase our familiarity and knowledge to help Canadian companies better, we have to provide better coverage, so there was ample justification to add another person there.
Who knows, maybe in a year or two, we may need to establish another position there to increase that coverage.
Senator Downe: Are those five people Canadian citizens, or are they locally engaged?
Mr. Cardyn: I am the only Canadian established in Brazil, in São Paulo, at the consulate there, working closely with the trade service. The others are locally engaged — professional, solid people.
Senator Downe: I am interested in the $1 billion loan the EDC gave to the Brazilian corporation. EDC, in the past, has not normally allowed loans to foreign corporations. Is that a trend they intend to continue?
Mr. Winterhalt: In general, we have a fairly active program with respect to direct loans to foreign entities. The size, perhaps, is a little outside the realm of the usual for EDC. Again, this loan was based on a clear set of opportunities we see in the immediate term with Vale, who is a giant in the mining community with significant investment in Canada through their purchase of Inco some time ago. The up-to-$1 billion loan is based on their activity and sourcing of Canadian product and service.
Essentially, it is split into two tranches, half of which is to support their activity in Canada — investments in Long Harbour, for example. The other half, roughly up to $500 million U.S., is from a procurement perspective from Vale in Brazil, to encourage additional Canadian export and support supply chain participation in Brazil.
Senator Downe: There have been allegations that a number of the promises this company made when they purchased Inco have not been kept. Was that situation a consideration and concern for the EDC?
Mr. Winterhalt: We were aware of some of the comments at the time of the deal's signing. They were something we spent a lot of time investigating. We were comfortable with respect to the billion dollars — that there was great opportunity for Canadian exporters and investors, both in the Brazilian operation but also for support of Vale's investment in Canada.
We were comfortable that we would be able to advance business and help support Canadian companies who otherwise would not have that opportunity.
Senator Di Nino: Thank you. It is interesting. This is probably one of our more interesting challenges and yet probably one of the best opportunities we have to increase our presence in South America.
We talked a little bit about the roadblocks we might have along the way, and we had a serious irritant between Bombardier and Embraer. Has that situation been totally resolved at this point, in your opinion?
Mr. Winterhalt: From our perspective, it is a legacy issue in some respects but one where EDC feels positive about future opportunities, more from a going-forward perspective. I will allow my colleague to offer additional colour here in a moment, but we have had a long-standing relationship with Embraer, for example, supporting other Canadian companies, such as Pratt & Whitney, in the manufacture and export of aircraft engines for Embraer aircraft.
The relationship is multi-faceted. The previous dispute that went to the World Trade Organization at the end of the 1990s and early 2000s is only one facet of that relationship. It is definitely multi-faceted.
For the past five years, we have been focusing on the positive opportunities to engage, not only with Embraer, but with other Brazilian manufacturers in the aerospace sector. We see a great deal of opportunity to match Canadian supply with that Brazilian demand.
I feel we have moved on from that point in time.
Mr. Cardyn: In terms of the relationship with Brazil and with the aerospace sector, I am tempted to say that the issues of the past at WTO are issues of the past, but it is normal in any trade relationship to keep an eye on the competition. Canada does that and so does Brazil. A new aircraft is being developed in Canada. Brazil is obviously interested in how these aircraft are being developed and whether there is any element of subsidies.
On the export credit side, I would say with a high degree of comfort that the "subsidies war," as we called it then, on the export credit is a thing of the past. We have moved to another stage in our relationship. Three years ago, at the Organisation for Economic Co-operation and Development, OECD, there was an aircraft sector understanding that governed the conditions that can be applied to official export credit.
The aircraft sector had an agreement. It was kind of old and it needed to be modernized and renewed. We invited Brazil into the tent and the negotiation. Canada was a strong leader and proponent for having Brazil there. There were a lot of questions and concerns around the table: Will Brazil really be a partner? How will this partnership go? What kind of influence will they have?
Brazil came in and we strongly supported it. It was a unique experience. Brazil came in with expectations, as did all the people around the table, and we developed a good relationship at the institutional and government level with Brazil. Canada and Brazil were strong partners in those negotiations. We had a good alignment of interests. We were financing the same type of aircraft.
We developed a high level of trust toward the end of negotiation. For instance, at some point there was a transaction in which there were allegations that Canada was doing this or Brazil was doing that. With the relationship we had developed there, all we had to do was call our counterparts in Brazil and say, "Look, we are hearing about this possibly being offered by Brazil for this sale of aircraft into this country; can you tell us, is this information founded?"
We had good open communication. We moved to another stage. Now we offer the same conditions as Brazil. There are no suspicions any longer at the export credit level. The relationship with government and government institutions in Brazil is good.
As my colleague said, we also have an ongoing relationship with Embraer. In September, our president visited Embraer. We had a mission in Brazil and we had a good discussion with them as to exploring possibilities for growing the business. We are doing the same as the trade service in trying to develop a business with Embraer; bringing missions into Canada and familiarizing them with Canadian suppliers that could participate in the development of new aircraft by Embraer.
We have moved to another stage.
Senator Di Nino: That is good information. We have obviously learned and adjusted a few things, which hopefully will be helpful in other situations.
For example, I met this morning with representatives of the agriculture industry. Agriculture is also a sensitive issue, particularly with Brazil. Are there any lessons that we learned that could be applied to our negotiations in that area for the benefit of our exporters? As we know, Canada's agricultural exports are large.
Mr. Winterhalt: At the highest level, there are lessons we can take from the interaction from the aircraft file or the aerospace industry, but they are at a high level. They tend to be around the value of early communication and maintaining open dialogue between all the stakeholders on both sides of the equation.
EDC has been less involved, for example, in the financing of agricultural goods or exports to Brazil, with more of a focus on the value-added products in the manufacturing sector, for example. However, commodities remain the top exports for each country. I would be pleased to come back to the committee through the clerk with additional information. However, our focus tends to be on the manufacture or the value-added goods side of the equation.
Senator Di Nino: Do we have any serious barriers, such as foreign ownership restrictions, regulatory concerns, et cetera, that you can share with us?
Mr. Cardyn: Brazil is a market that welcomes foreign investments because they need technology and investors, and they need to fuel their growth. Although Brazil is an advanced country with leading-edge companies and worldwide players, their needs in growing their economy are significant, and they are looking for investments and foreign expertise. They welcome it.
With that said, the market is not an easy one. When I say there are specific barriers to entry into Brazil, I would not say there is anything unusual compared to any other country. Businesses have to work through the bureaucracy, obtain their licences and know what their obligations are when they establish a business there.
For Canadian companies exporting to Brazil, there is an incentive for Canadian companies to want to invest there because of the size of the market. However, import duties are high and the bureaucracy can be slow. Are these design barriers that could impede trade between the two countries? I do not know, but I do not think so.
Senator Di Nino: Thank you. That is useful.
[Translation]
Senator Robichaud: In answer to Senator Downe, you mentioned an EDC commitment of $1 billion in two tranches. Did I understand correctly that the second tranche of $500 million is aimed at encouraging Vale to make purchases from Canadian exporters?
Mr. Cardyn: Yes. There is such a tranche. Vale is a huge multinational corporation. They invest not only in Canada but also in Africa. It has a huge investment program and huge equipment needs.
The second tranche of this credit facility is aimed at helping Vale to purchase Canadian equipment and services.
In such situations, we cooperate with the corporation to make it more familiar with Canadian capacities. That funding encourages it to make Canadian purchases. And that is not all. The corporation has to be familiar with Canadian companies which, in turn, have to be aware of its needs and to bid on its calls for tenders. In cooperation with International Trade, with the consulate, with Canadian provincial governments, we organize trade missions to that effect. It is what we call match making.
We bring to Canada representatives of purchasing departments, of technical departments, and we take them to the regions that would be more capable to fill their need for equipment and services. We set up meetings with Canadian clients. They come here and they show us their purchasing plans. We are planning something like that for Vale and that will be the next step once the credit facility is signed. At this time, we are talking to their funding group and their purchasing group to see what would be the best approach to put them in contact with Canadian companies and subcontractors, and then we will bring them to Canada to develop those linkages. We did that last year with other corporations such as Petrobras. We worked with the federal government and with the governments of Nova Scotia and Alberta. We organized a trade mission for people from their finance and purchasing departments, and they came to Canada to meet with about 30 Brazilian subcontractors who are in fact purchasing agents of Petrobras. That was a big trade mission including many Brazilian companies wanting to do business here. They submit their purchasing plans and they establish linkages. One of the best methods to increase our exports is it to make foreign corporations aware of our capacities and to develop a level of trust. Those missions are aimed at establishing first contacts and then, there has to be a follow-up. They learn about us and our products and then we follow-up with more meetings with the companies, with the subcontractors and with the purchasers directly.
Senator Robichaud: You talk about trade missions but what are the results, really? Do you know of Canadian exporters who have really managed to sell their goods to those foreign companies?
Mr. Cardyn: Let me take Petrobras as an example. My colleague referred to the growing number of Canadian companies doing business with them. Five years ago, there were 10 of them; last year, there were 60.
We will do the same with Vale. We are talking with them in Brazil to see how this can be launched. We will also follow up after the first contacts. We will not limit ourselves to providing credit, we will also ensure that Vale tells us regularly what they have purchased in Canada. Then, we will analyze that and, before providing a new facility, if it is requested, we will see if what was done previously led to concrete results and we will look at their future needs. We will work closely with them. Their interest is not limited to getting credit from us. It is more than that. They want to develop their relationship with us because they know that there is technology in Canada that can be provided competitively. This helps them and, in that way, we also open doors for many Canadian companies.
Senator Robichaud: It may be well and good to open doors but I would like to know how many Canadian exporters have really managed to cross the threshold. How much of that $500 million has already been used? Do you see what I am getting at?
Mr. Cardyn: I understand very well. Our relationship with Vale, further to the signing of the credit facility, is quite new. It was signed in September. There were some previous purchases. We looked at the history and at the potential. Some companies won some contracts, some engineering contracts, and there were others. It may be too early to say that it has been growing since it has just been signed and we have just started discussing with them how to expand those linkages. However, in all our operations of this kind, we follow-up closely to make sure that they lead to concrete results. We get calls from companies and we refer them to their purchasing departments, which is helpful.
[English]
Senator Mahovlich: Can the witness comment on Brazil's one hundred and twenty-ninth ranking in the World Bank group in 2010 in terms of ease of doing business; behind such countries as Fiji, Azerbaijan, Mongolia, Kazakhstan and Botswana? Another country in that region, Mexico, is rated thirty-fifth. This ranking makes it difficult if a company wants to do business with Brazil. They will have second thoughts. Can you extrapolate from that ranking?
Mr. Winterhalt: As my colleague has mentioned, Brazil is without question a challenging market. It is one where we see a greater level of success from mature Canadian exporters and investors who have had experience in other markets prior to selecting Brazil as a destination, either for investment or export of goods and services.
At the same time, we strongly believe that familiarity with the marketplace and utilization of the trade commissioner service of my EDC colleagues present in the market significantly mitigate some of the challenges that still remain. Some of those challenges are a bit of a legacy perspective. Brazil, over the past five to ten years, has come a great distance in terms of easing access to the market for investors and also for foreign companies who simply seek to sell their products or services into Brazil.
Is there room to improve, and do we hope to encourage that improvement? Absolutely yes, we do. At the same time, if we look at the trend over the past five-year period in particular, we have seen great movement easing the ability to conduct business in the marketplace.
I will conclude by saying the successful investor or company has a strong local relationship and a presence in whatever portion of Brazil they might operate in. We can go as far as to say that simply having an office in São Paulo, for example, if we are doing business elsewhere in Brazil, is not enough. The market is huge and one that has many component parts. The savvy investor or exporter is able to tap into the resources of the Canadian government, which include EDC but also the trade commissioner service, to help mitigate some of those risks.
Senator Raine: I am finding this interesting. Thank you for being here. I am interested in tourism. I know tourism is small between Canada and Brazil probably, but in particular, I am interested in the image that Canada creates in Brazil. Is the image strong? Are we unknown? Are we moose, mountains and snow? What would attract a Brazilian to take a holiday in Canada?
Mr. Winterhalt: Similar to my colleague, I lived in Brazil for four years at the end of the 1990s in a previous incarnation as a trade commissioner for the Government of Canada, and this question was raised frequently. In particular, at this time of year, as the thermometer dips, some Brazilians had pause and asked, "What attracts us to Canada? What makes it a successful tourist destination?" To be frank, the appeal is the raw size and the elements of nature. I would say Canada has a young perspective or vision to most Brazilians. They see it as almost a bit of a natural paradise in comparison even to our neighbour to the south. They would see skiing and athletic pursuits as being extremely enticing.
By and large, however, a challenging bar to get over is the distance and the climate. I think it is safe to say that Brazilians are cosmopolitan for a South American population with an emerging middle class now approaching 100 million. That jump is huge in the past 10 years. They definitely have discretionary income to spend, so we can look to tap that income as a possibility for future collaboration between the two countries. In my opinion there is room to grow that image.
Senator Raine: The Olympics in Canada this year raised our profile. With Brazil having the Olympics in 2016, I see a potential for the expertise developed in our successful Olympics to be exported to Brazil. Are you involved in any opportunities in that respect?
Mr. Cardyn: There is definitely an interest there and there is much expertise that Canada can offer.
Further to the previous question on tourism, when a Canadian runs into a Brazilian these days, they talk about the Winter Olympics. Many people watched the Olympics and they marvel at the success of them.
On a more institutional level on the development of the 2016 Olympics, there are missions of people who were involved in the Vancouver Olympics going to Brazil. We ourselves had a mission to Rio and São Paulo in September organized with our colleagues on the trade side. It was focused on the infrastructure sector and making contacts with the key players on the Rio Olympic committee. People are visiting there, making contacts and offering expertise.
The Brazilians welcome our expertise and knowledge on how we made the games such a success. They are interested in organization, management of the events, security aspects, infrastructure, telecommunication requirements and so on. There is definitely an interest.
Senator Raine: Finally, on tourism, does Brazil have a value-added tax and is it refunded? Is tourism in Brazil internally treated as an export product? One of the frustrations in the tourism industry in Canada is that it is not properly defined as an export product. A Canadian tourism holiday purchased overseas should be zero-rated with regard to harmonized sales tax, HST, or goods and services tax, GST, and it is not. How does Brazil treat taxation on foreign-sold tourism products?
Mr. Cardyn: I do not have the answer to that question, but I would be happy to provide it to you.
The Chair: The Canadian Tourism Commission has asked to appear before us in the spring. I hope you will remember that question for them at that time.
Senator Jaffer: I found your presentations interesting. My first question is about language. How easy is it for business people to navigate in Brazil, especially if they do not know Portuguese?
Mr. Cardyn: Portuguese is a lovely language to learn. I have been there five months and I did not speak Portuguese before I moved there. I took some courses, but not a lot. Fortunately I speak Spanish, which helps.
Portuguese is easy to learn if someone has an interest in languages, and Brazilians are welcoming. If one shows an interest in speaking and understanding the language, they earn a lot of sympathy and Brazilians are welcoming and will help them out.
Many Brazilians that we interact with in business speak English, but beyond the business community, few people speak English. It is a lot easier to learn the language. It is not insurmountable if one has the interest and a little bit of ability.
Senator Jaffer: I found it interesting that you said it is easier for mature investors to go to Brazil than for someone who is looking at new markets outside of Canada. Can you give us a list of four or five essentials that one must have in place before investing in Brazil?
Mr. Winterhalt: First and foremost, they must have a sense of patience with respect to the market, and I would tie that to a robust understanding and knowledge of the sector, in particular, but also the area of interest. Within Brazil there is a saying that there is not one Brazil but many. It is a country that is defined by its regions, and that definition includes language.
In certain major areas, English and Spanish are well known and spoken, but depending upon the investment a Canadian company is looking to make, a knowledge and understanding of the particular area and sector are key, and that knowledge and understanding bring with it the requirement for a certain amount of patience.
We have mentioned this requirement a few times, but I think the key element is the relationship with the local partner to ensure businesses not only reinforce the research and the market intelligence they are able to gather on their own but also that they have someone on the ground who can bring them up to date on the most recent changes, be it from a regulatory perspective or a taxation perspective. As we have seen recently, changes to the political structure in Brazil often have a follow-on impact, as they do in many countries, obviously. That local partner is able to provide them with a level of insight they might not have otherwise.
This may be slightly self-serving, but having a solid financial partner is also key. Understanding the nature of the buyer, their creditworthiness and their own local banking relationships, as well as having a strong partner are also essential for Canadians. If businesses have that along with their market knowledge, they are in a much better position to begin with.
We mentioned, and it bears repeating, the longer-term view. We often hear, which is a positive from our Brazilian buyers and partners, that Canadians appear, in comparison to some others, to be willing to invest for the mid- to long- term. That investment is key because it is about the development of a relationship with a Brazilian partner. Companies that are willing to put in a number of years, make their own visits to the marketplace and build that relationship have a much higher success rate. Those elements are three or four key elements.
Senator Jaffer: I am sure you are also in Mexico. One of my colleagues asked a question about ranking. Mexico is ranked thirty-fifth and Brazil is ranked one hundred and twenty-ninth. I know that we want to invest in as many markets as possible, but what makes Brazil more attractive to invest in at this time?
Mr. Winterhalt: Quite simply, it is too big to be ignored at this time. The size is enormous. There will be half a trillion dollars in investment over the next five years in infrastructure alone. That investment is almost independent of the World Cup and the Olympics. Even without those two major events taking place, the opportunities are gigantic in Brazil.
The trend line is also important.
We often find that the North American perspective relies a lot on the legacy piece with respect to Brazil and focuses on the challenges or the risks, but does not necessarily see the improvement over time and we see that improvement happening.
Mexico is ripe with opportunity as well and in some of the same areas; resources for example, amongst others. Again, it depends on the nature of the Canadian exporter's or investor's business. Brazil, I would say, has a wide suite of opportunities, and some that have not been tapped into at the same level as we have seen in Mexico to this point this time.
The Chair: I have two questions, in light of the time. One of them is the fact that you have a substantial line of credit in Angola, and Canada has a long history and relationship with Africa of development but also mining, investment and some trade, although that trade is minimal. Angola is figuring in everyone's subject matter, if I may call it, as a key long-term development country in Africa; huge resources, huge country and lacking infrastructure. Some parliamentarians from here accompanied me on a delegation where we saw incredible activity from Brazil in Angola. Obviously, there is the history and the language, and we are not doing as well.
Are there any opportunities for Brazil and Canada partnering into Angola, and in any way maximizing our presence in both countries by virtue of that linkage?
Mr. Winterhalt: In general terms I would say, yes, there are opportunities to go beyond the bilateral relationship and look to an almost multilateral approach with respect to trade not only in Angola, but in other African markets as well.
From EDC's perspective, Angola has long been an interesting market and we see interest, largely in the resources sector from Canadian companies in Angola. There is a market that is challenging in some ways as well and EDC, as we look to support Canadian companies and investors, always has to bear in mind our rigorous international standards and make sure we play the game by the rules, and the correct rules.
Once we bring other partners into the mix and try to do things in a multilateral way, that mix occasionally adds additional challenges. From my perspective, it is early days, but the interest in looking at new ways to do business in Angola and other African markets is there, and EDC, in terms of supporting Canadian exporters and investors, is always willing to look at additional avenues to try and move that business forward.
Mr. Cardyn: Brazil is active in Angola; it is only across the pond from them. There are strong, large, multi-national Brazilian companies that are active in Africa, and particularly in Angola, in oil and gas and mining. Brazil has huge projects there and not only in Angola. What we are trying to do now is to develop a relationship with these companies and introduce Canadian supply to these Brazilian companies that are procuring, for projects they are pursuing in Angola and other countries in Africa.
As we develop those relationships with these large entities, we see there is large potential there. We are interacting directly with them to help them out globally. Canada is expanding its footprint and so is Brazil. There is nothing better than to partner with them to open new opportunities.
There are affinities between Brazil and Angola. There are strong political links there. We have seen the current president, President Lula, visit Africa with trade missions. Brazil is looking at that continent and those countries and investing there, establishing their footprint, and taking hold. There are opportunities for Canada to work with them, as a supplier perhaps, on projects where we can invest together. Those opportunities are for companies to determine.
On the supply chain side, there are opportunities we are trying to develop.
The Chair: You talked about the regions, and Brazil is almost a vast continent. Can you comment on the variances among the states? Where do you concentrate? Where do you see the potential? Are there significant impediments, as there appear to be from the literature and elsewhere, of working from state to state with the variances, instead of this mentality we have of going into Brazil? Should we say we are going into a particular state, much like our provinces compete sometimes here, or work together, depending on what they are offering?
Mr. Winterhalt: It is analogous in some ways to the Canadian dynamic. In Brazil, with its 25-plus states in a federal district, they do have that level of government and bureaucracy as well to contend with as an investor and exporter. Again, it is opportunity-based, so to this point in time most of the economic activity in Brazil is concentrated in the south part of the country, in the State of São Paulo, the industrial heartland, and the State of Rio de Janeiro, which tends to be home to most of the resource-based oil and gas part of the economy.
I believe over time we will see a migration to opportunities more in the north and the northeast part of the country, which again, by and large, are resource-based. Manufacturing hubs are starting to move throughout the country, but in terms of a near-term strategy, I would say the south and southeast remain the key regions to focus on, with then the northeast cities and states, such as Fortaleza, Salvador — a city in the northeast — and Pernambuco, a state with a great deal of oil and gas reserves. Recently, we have seen an announcement by Petrobras, which we mentioned today, about a pre-salt find of huge oil and natural gas deposits.
These opportunities are almost yearly. I think the scope and size of the country will mean that we need to stay on top of that situation and follow it, but in general the south, southeast and northeast are the areas, from our perspective, where we should concentrate our activity.
The Chair: We have run over our time, and you can see that we are starting to explore a complex country and issue, and we thank you for your contribution.
If you have any other reports or some of your manuals that you use with businesses, if you can file them with the clerk, it will be much appreciated, as we explore this issue and look for recommendations that we can make to our government and perhaps to investors and others who wish to enter the Brazilian market.
Thank you for your input today, and we look forward to a continuing dialogue.
Honourable senators, our next witness is Dr. Cristina Rojas, Professor, International Affairs, Norman Paterson School of International Affairs at Carleton University. She has a long title and much expertise in the area. Dr. Rojas has opening comments to contribute to our study, after which senators will have questions. Welcome to the committee.
Cristina Rojas, Professor, International Affairs, Norman Paterson School of International Affairs, Carleton University, as an individual: Thank you. I want to express my gratitude for the invitation to be here; it is truly an honour. I am originally from Colombia and my expertise is mainly in the Andean region. As someone said before, Brazil is still a continent, so I will refer mainly to the foreign relations of Brazil within the region.
In this presentation, I will emphasize what I see as the most important driver of foreign policy in Latin America and Brazil. I will summarize it in one phrase: autonomy with collaboration, both at the regional and global level.
Collaboration of Latin American countries is an old Latin American dream, dating back to the time of Simón Bolívar, that was made possible in part by the experience of a program of structural adjustment. The increase in poverty and inequality in the region during that era created the necessity for Latin America to pursue more autonomous policies and to collaborate with each other.
President Lula's statement is clear in this regard: He said:
. . . we want to be protagonists and not mere spectators in the theatres in which the prospects for well-being and prosperity of our peoples are decided.
This autonomy has guided the internal social and economic policies of Brazil with positive outcomes. Most of the statistics in terms of poverty reduction and income distributions are good in Brazil as well as across Latin America.
On the economy and direct investment, Brazil has been able to attract important investment from other regions. During the economic crisis, Latin America, Brazil in particular, has been able to cope with the crisis better than it has done in the past.
Brazil is a key supporter and leader in the launching of initiatives and regional integration in terms of autonomy and collaboration. Brazil's role is regional as well as hemispheric. I will refer to some important issues, and later you can ask me about them.
After 10 years of negotiation, Brazil said no to the Free Trade Area of the Americas, FTAA. Brazil was a key player in launching the Union of South American Nations, UNASUR, which is an autonomous space for action and decision making without the interference of the United States.
Brazil also called for an end to sanctions against Cuba and the recognition of Cuba in regional scenarios. Brazil was key in condemning the coup in Honduras and in trying to re-establish President Zelaya to power. Brazil and other countries rejected military bases in Colombia. Under President Lula, Brazil mediated tensions between Colombia, Peru and Venezuela. The Rio Group participated in the role of mediator.
It is important to note that the collaboration of Latin America that started as a South American collaboration recently extended to the Caribbean with the creation of the Community of Latin American and Caribbean States, CLACS, which includes all area countries except the United States and Canada. One objective of CLACS is the setting of a Latin America and Caribbean agenda in international forums. Also important is the collaboration between Brazil and Mexico, because Mexico is part of the North American Free Trade Agreement, NAFTA. That collaboration was a key issue to the success of this meeting. The objective was to increase dialogue with other states and regional groups to promote synergy among the regional groups. For example, between 2000 and 2009, Brazil's trade with MERCOSUR rose 86 per cent. Brazil's trade with the Andean community rose 253 per cent, and with Mexico, 121 per cent.
At the global level, Brazil's Mr. Lula has been a spokesperson in relation to the United Nations, including the reform of the Security Council, and has been important in the agenda against HIV/AIDS and the environment and trade. Globally, also important is Brazil's recognition as one of the BRIC countries and its participation in the G20 group.
I think it was clear from the previous interventions that Brazilian transnational corporations are competing successfully in Latin America, Africa and in the Middle East.
Another important characteristic of Brazilian foreign policy is that it is guided by pragmatism in the sense that Brazil has been engaged in a variety of countries, including India and China and Africa, and has successful partnerships with the United States, Canada, Israel and Iran. Brazil, Argentina and Uruguay have declared the recognition of a Palestinian state, declaring autonomy from U.S. policies.
What are the implications for Canada? One of the issues to which I would like to draw to your attention, if we look at the policy that I just mentioned and at the Canadian policies, we can say that there is a lack of synchronization of Canadian policies with Latin American and Brazilian policies. There is Canada's support of FTAA; Canada's alignment with Colombia on free trade, which contrasts to these regional initiatives, as well as the lack of support in the case of the coup in Honduras.
In terms of the environment, these are very important topics in Latin America, as we have seen this week with what is happening. Canada's defeat of Bill C-300, establishing a code of ethics for Canadian mining operations, I think runs counter to the spirit of environmental protection.
As for Canada's position regarding visa requirements for Brazilian visitors, it will be interesting to see that in the context of the question in the previous section about promoting Brazilian tourists to Canada.
One important issue is how Canada will synchronize its policies with what is happening in the region. It is important, and something that I want to emphasize, that Canada could benefit from a stronger partnership with Brazil. I think Brazil is a key entry, not only to the market in Brazil, but also, as was mentioned before, with Africa and other parts of the world.
There is room for better collaboration in the area of the environment and support of Canada to innovations in the region and South-South collaborations.
One key area where Canada fortunately is doing well is the increasing opportunities for higher education and for collaboration with Brazil in research and development. I understand that there was a recent memorandum of understanding between DFAIT and Brazil to increase mobility and scientific cooperation.
As for the question raised about language, I think it is an important question in terms of how to promote Portuguese in universities. It is important, in terms of Brazilian studies in Canada, to say there are Mexican studies in Canada. It is important to think about these academic linkages with Canada.
To finish, I will say that, yes, Brazil is a key partner, and it is important to strengthen linkages. Canada, like the case of a strategic partnership dialogue, is starting to increase these linkages with the region, but I think it needs to move ahead.
Senator Johnson: Welcome to our committee this morning. I agree with you that Canada has a good relationship to build with Brazil.
Brazil has emerged politically and economically and is becoming very influential in the world. You touched on it, but could you further explain what impact their regional and global aspirations are having on their relationships with other countries in the region? How have Colombia and Venezuela responded to these aspirations?
Ms. Rojas: Maybe I will start with Colombia because it is a case I know well, but also it is interesting.
During the previous administration, Canada put most of its emphasis on the relationship with Colombia, and I will say against the spirit of what was going on in the region. Colombia was isolated because it ended up with problems with Ecuador and Venezuela. Fortunately, these things are changing, and I will demonstrate the problem that Colombia has under the new President Santos. One of the first acts of President Santos was to receive President Chávez in Colombia. Columbia restarted a relationship with Venezuela and they made stronger commitments in terms of trade.
Colombia has no diplomatic relationship with Ecuador. It was tense in terms of Colombia interfering and even bombarding a camp in Ecuador. There were tense relationships after that. The two countries blocked their relationship.
Now, in the latest meeting in Guyana, President Lula, in one of his last acts, had Ecuador and Colombia restore their relationship. Colombia is committed to name an ambassador, in the next one or two weeks, to Ecuador. Brazil has been a key player in terms of restoring and maintaining equilibrium between the countries. This role has not been seen since the time of the Rio Group.
I think with Venezuela there are tensions. For example, we look at the two main initiatives. ALBA is the Bolivarian initiative. Brazil is not part of ALBA, but Venezuela and Brazil are part of UNASUR. Sometimes ALBA and UNASUR are seen as competing with each other. It has been a good competition.
As you know, Venezuela has asked to be part of MERCOSUR. There has been dialogue, and they are considered a partner of MERCOSUR. That is part of what I mentioned about the pragmatism of President Lula that will continue under President Dilma Rousseff.
Senator Johnson: They are having a significant impact now, of course.
Ms. Rojas: Yes.
[Translation]
Senator Fortin-Duplessis: I congratulate you for appearing before our committee. Your statement was very interesting and one can see that you have an excellent knowledge of the region. You mentioned several areas. President Lula of Brazil worked actively for a kind of South American integration that would transcend many regional or infraregional groupings. In some sense, one of his major accomplishments has been the creation in 2008 of the Union of South American Nations, UNASUR, the objective of which is regional stability, conflict resolution as well as economy and military integration. To all that was added in February 2010 the agreement between the Rio Group and the Caribbean community that led to the creation of CELAC, the Community of Latin American and Caribbean States, which is to be officially inaugurated in July 2011.
CELAC claims to be an organization representing all the countries in the Hemisphere, except Canada and the USA, and wants to replace the Organization of American States. What issues could either slow or maintain the progress of those agreements and their result?
[English]
Ms. Rojas: According to some specialists in the region, these different agreements are not seen as one meaning the end of the other. Most probably the countries will follow the treaty. OAS will not disappear as some people predicted. It will continue in Canada and the U.S., but that will be one scenario. UNASUR will be another scenario, and the community with the Caribbean countries will be a third.
That is important because if you look at the relations with the Caribbean and Latin America, there are different interests. Mexico, Central America and the Caribbean are closer to the United States in terms of partnership while South America has different interests. They will probably deal with issues differently, according to the interests they have. Some issues will be raised at the level of UNASUR, others at the level of the OAS and some in terms of the corporate community of Latin American and Caribbean countries.
One problem that all of those groups, except the OAS of course, have under this other initiative is that it is still not wholly institutionalized. There are many good intentions, but it is not clear how they will implement all of these agreements, some more than others. I think one of the key issues, especially with the relationship with the Caribbean, is to try to see how they coordinate the agenda of these different meetings and how they will promote a dialogue between all of them.
[Translation]
Senator Fortin-Duplessis: Which countries will benefit from those initiatives, and which will not?
[English]
Ms. Rojas: There are huge disparities in the region as big as Brazil and Bolivia and Brazil and Haiti. It is a very unequal region. Of course, I tend to believe that the smaller and weaker countries politically and economically will benefit the most. One example is Bolivia. When the United States ended the preferential treatment for Bolivian exports, Brazil intervened and granted a large quota for manufacturers' products going from Bolivia to Brazil. That is a clear example of benefit from these agreements.
Haiti is a case where collaboration between the regions will be important. In the latest coup attempt in Ecuador, there was a very fast solidarity and response from all countries, even Colombia, in support of the president and democracy in Ecuador. I think that is sending a clear message to the international community, and they approved at the latest meeting in Guyana the need to support countries and not to accept military intervention. For democracy, this is an important step in the region.
Senator Smith: I have one question that relates to Canada having a particular focus on Brazil when it comes to Latin America as a whole, although we are already engaged with Mexico through NAFTA. I suppose Brazil is a logical candidate. You mentioned the BRIC countries. I keep looking up these annual statements in The Economist where they go through every country. Of course, the size of its economy is just slightly larger than Canada's; on the per capita basis, there is no competition.
Would you have thought it made more sense for us to focus on CELAC as a whole as opposed to Brazil or both, or are they incompatible?
Ms. Rojas: That is a good question. Right now, because of this lack of institutionalization of all of these initiatives, there are several. I think Brazil is a good point of entry into different collaborations. ALBA has clear leadership in terms of President Chávez in Venezuela. In other places, it not as clear who is in command. Brazil is a good point of entry for a regional dialogue, because there is a tendency to engage bilaterally, country by country. In South and Central America, there is more negotiation and engagement in a dialogue with institutions, such as Canada is doing with the Central America initiative.
Senator Smith: In our case, certainty is better than uncertainty. When you are dealing with Brazil, there is a certainty there. It is not that they are incompatible in stages, but I do like your reference to entry point.
The Chair: There was a feeling for some time that Brazil was the alternate voice for many of the countries when they did not see eye to eye with the United States. Are they now seeing Brazil as a leader in its own right, not as a counterbalance to the United States? Have the initiatives that Brazil has taken in the region and internationally, verified it as the country to go to. Is Brazil seen as a leader or is it still seen as the counter to the United States?
Ms. Rojas: I think that the spirit of seeing these initiatives as counter to the United States still prevails. You can see this in the newspapers, both in the United States and in Canada. There is a lack of information in Canada about the latest developments in the region.
In terms of the United States, this is changing. One of the indications of change in this area was Hillary Clinton's meeting with UNASUR. That is recognition of a regional interlocutor. These types of steps are important. I do not think this type of prejudice against the region has completely disappeared, but there is some progress.
The Chair: One of the points that many of our witnesses and senators have speculated on is this dynamic leadership coming out of Brazil and these new initiatives were a direct result of President Cardoso's stabilization of the economy, and the political imagination and leadership of President Lula. The question is, will this continue or will it diminish under the new president?
Ms. Rojas: It was an excellent combination. There is no doubt that President Lula, coming from a trade union tradition, is an excellent negotiator. That is part of his advantage. One can say that President Rousseff does not have this type of advantage.
Looking at what is happening in Brazil, and in reading different reports, the idea is that it will continue with the policies and that there will be no big changes in foreign policy. The theme, in terms of foreign policy, comes from the headquarters of the Worker's Party. I think there will be continuity. In terms of oil, President Rousseff comes from that sector. I think that is one reason why President Lula picked her as the minister.
The Chair: I think the point is that President Lula went the extra distance in diplomacy. The debate is whether President Rousseff will develop this personal style in diplomatic relations.
Ms. Rojas, thank you for bringing a broader perspective to our view on Brazil. It is extremely helpful to us to remember the interconnectedness in Latin America and South America. You have shed more light on these agreements that we should pay attention to. Within our study, you have broadened our horizons, and I thank you for that.
(The committee adjourned.)