Proceedings of the Standing Senate Committee on 
Foreign Affairs and International Trade

Issue 15 - Evidence, February 10, 2011


OTTAWA, Thursday, February 10, 2011

The Standing Senate Committee on Foreign Affairs and International Trade met this day at 10:33 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: I call to order this meeting of the Standing Senate Committee on Foreign Affairs and International Trade. The committee is continuing its special study on the political and economic developments in Brazil and the implications for Canadian policy and interests in the region, and other related matters. This meeting is our eighth on this particular study.

Our witness this morning is Annette Hester, a Research Associate with the Canadian International Council. Ms. Hester works in association with the Centre for International Governance Innovation in Waterloo, the Canadian International Council, the Centre d'études interaméricaines de l'Université Laval and is a Senior Associate with the William E. Simon Chair in Political Economy at the Center for Strategic and International Studies in Washington, D.C.

I am tired just saying all of that.

She was also the founding director of the Latin American Research Centre at the University of Calgary. Ms. Hester has authored numerous articles on oil and gas trade relations and regulatory environments in Canada and Latin America.

Welcome to our committee. Thank you for taking the time to be present here. Our usual procedure is to have a short opening statement you wish to put on the record, and then senators would appreciate the opportunity to ask questions. Welcome.

Annette Hester, Research Associate, Canadian International Council, as an individual: Thank you very much. It is a great pleasure to be here. I have that many titles because I am an independent. Unless one is associated with all the centres, people say, ``You do what?''

I am Brazilian born and have lived in Calgary for 30 years. It is not surprising I end up dealing in oil and gas.

I have read all the statements that were given, except for yesterday's testimony. I have decided to focus my remarks on perhaps a different take, and on things that have not been said yet.

As a Canadian Brazilian, nothing pleases me more than seeing a concerted effort to understand Brazil and its potential as a partner for Canada. Of course, we are not starting from zero, as many senators know; we have a common history. It is not marked only by the aggravations of Spencer and Lamont, Bombardier and Embraer, and the beef episode. It is also shaped by ``Light,'' or the Light and Power Company that supplied electricity to Rio de Janeiro, where I grew up. That company became Brascan and is now Brookfield Asset Management.

Like many of my generation, I grew up being told to turn off the lights because, as my dad said, ``I am not a shareholder in Light.'' We gave my dad some shares in Light so he could change his little sing-song to us. Light was definitely part of my life and the life of anyone who grew up in Rio.

Right now Canada is significant. I am not sure if you are aware of who Eike Batista is, but he is the eighth wealthiest man in the world and is currently Brazil's most prolific entrepreneur in oil and gas infrastructure. His largest private investment is the Ontario Teachers' Pension Plan. Those investments were at the core of why the OTPP weathered the financial meltdown so well.

Additionally, Canada is the largest recipient of investments from Brazil. I am not sure if you are aware, but the investments of Brazil in Canada follow a very different corporate strategy.

Not every company follows the same strategy, but most of them have taken the same steps; namely, they purchase a well-priced asset in Canada and start building a North American management team. They develop the asset, take care of it, turn it around and bring all their people to learn. Then they form a core North American team and they start purchasing U.S. assets. They use that team and that learning — the capacity building — to understand the North American market.

The first one to follow that strategy was Gerdau, which is now Gerdau Ameristeel. This team bought the American Ameristeel asset. Then, Votorantim bought St. Marys Cement and did the same thing. Then, there was the beer situation with Inbev going after Molson and Labatt, then Anheuser-Busch in the U.S.

The only exception to this rule is the Vale Inco purchase, as mining assets follow the location of resources. That kind of learning is not necessarily helpful.

Canada is a wonderful learning ground from which one can jump into the U.S. To my knowledge, Brazil is the first country that has done that. Japanese investment has functioned differently, and other Asian investments function differently. I have not yet found an approach like that of Brazil.

In following steps for the future, here is my first item: Develop an intimate relationship with the top executives of those companies because they are weighty participants in the Brazilian economy. They have full transit in the federal and state governments in Brazil. In fact, Johannpeter Gerdau is a member of the Consultative Council for Civil Society established by President Lula, which I will discuss in detail later.

Mr. Gerdau is now the leading member of President Dilma Rousseff's new Competitiveness and Management Council. President Rousseff announced a new council that will reside in the executive power and work directly with President Rousseff to monitor the performance of her ministries. President Rousseff gave marching orders to her ministers to have an objective, to follow a budget, and to provide measures of performance.

The members belonging to this Competitiveness and Management Council have not yet been announced. However, Jhonpeter Gerdau will belong because it was his idea. He will be at the core of the council, to see and to measure the performance of the ministers.

That means he is part of President Rousseff's inner circle. If you want to learn about President Rousseff's style, do not ask me. I do not have any insight. Ask him. Invite him for a conversation. He will be honoured and delighted, and you will be delighted in meeting him. He is wise, an old style entrepreneur, and a wonderful individual.

Understandably, one of your objectives is to figure out a way to increase trade and investment between our countries. That measure is the most concrete one of an increase in mutual welfare: the increase in trade and investment. I have read through the previous testimonies, and I see that you have wrestled with the challenge of reconciling domestic interests with the greater welfare. This challenge is neither new nor surprising.

The consequences of our choice for supply management for agriculture market structure are better known by you than by me. This reality will not change until the day that we have a government that is willing and able to take those groups on. It will not change with a minority government in an election year. This is the same set-up as the last time we opened negotiations for a trade agreement between Canada and Mercosur.

In Paul Martin's government, Jim Peterson was the Minister for International Trade. Mercosur's delegation, led by Brazil, was extremely keen on having an agreement with a developed country. It was the year before President Lula fought his re-election, and he needed to show progress in the trade file.

Brazilians were so serious they sent a delegation to Canada in Carnival of Brazil week. I interviewed the lead negotiator. I laughed with him and I said that for his lot in life, he must have done something really bad, because it was Carnival in Brazil and he was in Ottawa, in the middle of winter. This is serious. They should not put someone through that.

They encountered something different. The negotiations failed not because of Brazil, but because of Canada. Prime Minister Martin reacted to the falling apart of the Free Trade Area of the Americas, FTAA — which was unravelling at that point — by deciding that he would have a trade agenda with Mercosur inside the FTAA.

Obviously, the Canadian trade officials were at a loss to figure out what to do and how to do it. They could not understand it. When they explained to the minister what Brazil would ask for, what they wanted, and what they could offer, the minister said there was no way they would go down that road.

The disconnect was so great that, at one point, we asked to have a quiet — not even open — public consultation to figure out who was interested in a trade agreement and who would benefit from one. We thought that perhaps if we could develop a constituency for it, it would be something to counteract the constituency against it. People always coalesce against something much easier than in favour of something.

However, even that consultation was not allowed. We could not do consultations; we could not do anything. It went nowhere because of Canada.

In terms of steps for the future, step two, I say this: If you are not prepared to negotiate in earnest, do not go down that road. The minister and the Canadian officials that are negotiating this trade might be new to this file. However, you must believe that, sitting across the table, are people who know this file inside out. Brazil Itamaraty, the equivalent to the Department of Foreign Affairs and International Trade, DFAIT, is better at institutional memory than Canada is. We were at fault last time. Let us not make the same mistake.

Times have changed, and global affairs are moving into a new paradigm. We are living in the era of waning traditional U.K. and U.S. western power.

What is ahead is still undefined. We know that, regardless of this changing world, our most important partner is, and will remain, our southern neighbours, the U.S. The well-being of the U.S. economy is energy security. I will not bore you with an entire lecture on energy politics — a subject on which I have spent years writing and researching. Suffice it to say that the U.S. depends on the western hemisphere for its energy stability and that, in the future, the two main suppliers will be Canada and Brazil.

That means that the stability of the entire region, of the western hemisphere, will be delivered by Brazil, the U.S. and Canada. In that light, there could not be three countries better prepared, or that I would feel more comfortable depending on. They are strong democracies. They are respectful of human rights. They are imaginative. They are daring, and they are committed to the multilateral system.

Step three, in my mind, is dealing with Brazil as an equal partner. It is fine to have values, but being evangelistic about them is not conducive to an equal relationship. Brazilians are equally passionate about their own values, and they will not impose them on others. They have their own ways of dealing with other nations, particularly their own neighbours, and they must be respected for those ways.

Brazil is much fun, and the place is vibrant and full of life. There is much happening and much that we can do together. The potential is huge — oil and gas technology development, carbon innovation, nanotechnology, health, rodeos and chuck wagon races. Brazil has huge rodeos, which means tourism. I have many ideas. We could sit here for hours talking about this subject.

I have one last step, and that is to be open to learning from Brazil. I want to leave you with one example. I left with the clerk a copy of an Oxford Analytica brief that I prepared. I prepare a lot of briefs on Brazil and on energy for Oxford Analytica. I recently prepared one on Brazil's Consultative Council for Civil Society. The body is a brainchild of President Lula, who, surprising to me, because I have never been a supporter of his party, turned out to be an amazing president because of his ability to bring people together. His ministers, at times, were ready to kill each other, but he managed them. He has a way of bringing people together.

President Lula's second announcement was to create an institutional civil society consultative mechanism. It is institutionalized. Its workings and how the thing functions are in this brief, and you can read it. Contrary to civil society consultation and to public consultation that happens on a one-subject, one-time basis, this consultation is institutionalized. The council has representatives from the entire society. It meets with the executive and the president four times a year. The council meets with every minister constantly. The body is given the objective of having a vision for the country and determining what kind of country Brazilians want. What is it that they want? The council goes about making big, broad recommendations, not dealing with day-to-day affairs.

In this council, more important than their conversation with the government is their conversation with each other. With one-time, one-subject consultation, groups against and groups for become rigid. They have only one go at it. They coalesce among themselves, and then they become antagonists. One can never convince them to talk to one another. They talk to one another, not with one another. It is like a continuous game. In game theory, it is like repeated games. The changing of subjects and issues means that I might be someone's ally in round one but I am not in subject three. Moreover, I will be nice to someone now because I need their support later, and there is nothing to gain by creating antagonism.

In the process of following this council, which I have for a number of years, I have watched Mr. Gerdau talk to the head of the labour union, the position that President Lula used to have. The head of the labour union is an interesting, charismatic man, a sociologist. They have an enormous respect for one another and talk, one to one. I also watched during the financial crisis when Brazil chose to support Embraer with a loan from the Brazilian development bank, and Embraer proceeded to cut jobs. Obviously, the union was livid.

We were at a meeting with President Lula, and the subject came up about whether any company that received a loan from a development bank should be allowed to cut jobs. They debated, and went back and forth. In the end, when President Lula prepared to leave, he looked around the room and found Mauricio Botelho, the CEO of Embraer, and the head of the union and sequestered the two of them in another room. He sat down and talked to them.

I cannot tell you what happened. It was between them. However, the fact was that they had an environment where this kind of meeting could take place at a time and with a feeling of, ``We have a problem: The company has a problem, and labour has a problem. Can we reach a solution?''

Having a forum where this can take place is interesting. I think about what is happening right now from an Alberta perspective, and it is the first time in the last 20 years that I have heard Alberta asking for a national energy policy. They hate asking for that name, but this is actually happening. We talk about this subject often in Alberta. I keep thinking that if we had healed our differences from that period, we would not find ourselves in the same position now. I think there is something for us to learn. I would like to see it here as well.

I am delighted to take any of your questions.

The Chair: Thank you.

Senator Johnson: It is lovely to have you here today. You have had an incredible history with regard to Brazil. When I picked up The Globe and Mail today and read the business section, I read about Canadian developers going shopping in Brazil. Ivanhoe, Cambridge, Canada Pension Plan Investment Board, and of course Brookfield Asset Management are all there. I think Brookfield has been there for a number of years.

Ms. Hester: Right.

Senator Johnson: I wonder how they are viewed by Brazilians. I know that they know they have to work with Brazilians. One of the key things in your country is to partner with companies. Are they doing that? Is the reception good? What do you think in terms of the future of these companies and others? This article relates to the fact that Brazil is a huge and strong consumer culture, and there is a great need for housing and shopping malls.

Ms. Hester: There are a number of things. Brazilians are very much like Americans and Canadians. They are absolutely western in taste. A gadget has not been invented that Brazilians do not want two of. They are absolutely early adopters. They are out there — ``go get it.''

However, Brazilians also have Western tastes. It is not like we have to change the palette of the product. We do not have to change the language. When we talk to rodeos, I explain that those in the interior of Sao Paulo are exactly the same as those in Calgary, except the jeans are much tighter. Apart from that, the rodeos are the same.

It is easy for Canadian companies, but Canadian companies are leery of risk and Brazil is risky. The price is big and Canadian companies have a lot of competition. The Americans, Europeans and Asians will not take it sitting down. The competition is stiff.

How Canadians are viewed depends on which Canadians, who they are and how they act — like anything else. Canadians are not all the same.

The Ontario Teachers' Pension Plan has been entirely successful. As I said, they went early with Eike Batista: OGX, EBX, MMX et cetera. He is the Mr. X guy. He cut his teeth here in Canada. If it interests you, I did two Oxford Analytica briefs on Eike Batista and his companies and I would be glad to send them to you. He cut his teeth here in Canada and learned about the initial public offering, IPO, market here. He has long ties with Canada and Canadian investments, as do Brascan, Brookfield and Light, as I said.

Senator Johnson: Is Brookfield the biggest company from Canada involved in development now in Brazil?

Ms. Hester: I do not know because I do not know where to obtain the data to measure this involvement. I am not able to obtain this aggregate data.

Senator Johnson: The company says they have invested $18 billion. Having said that about Canadian companies, how does that measure comparatively to Asian and American involvement now in Brazil?

Ms. Hester: It depends on the sector. I do not have these figures at hand and I do not think one can segregate the data that way. That is part of how they collect it.

Senator Johnson: What about the variation?

Ms. Hester: There are huge investments. Brazil is the largest recipient of investments outside of China, I believe. I have not looked at the figures lately. Everyone is there and everyone wants a piece of the action.

What do we want to invest in? Do we want oil and gas? Unfortunately, Canada does not have big companies anymore. The prizes in the big offshore and new pre-salt fields are really big. The big players are there such as Statoil, BG, Exxon Mobil and other big companies. However, there are a lot of medium and smaller prizes, and a lot of Canadian companies are trying to go there.

It is complicated. Brazil is complicated. Brazil takes a long time. If you are going for the short time, do not go because you will spend a lot of money and you will get nowhere.

Senator Johnson: Are you excited by the new president? Do you have knowledge of the new president? Is she inspiring? How will she be?

Ms. Hester: Am I excited? I do not know if I would be excited by any new government in Canada, either. I do not know if ``exciting'' is the right word.

Senator Johnson: Okay, how about inspiring?

Ms. Hester: Our government is what it is; the people elected a government. Do I think Dilma Rousseff is capable: yes. Do I think that she has earned the right to be there: absolutely. Do I trust that there is continuity in Brazil: yes. Do I think she will do anything foolish: no. Will she imprint her style: yes. Do I know it: not quite. Are the early indications good: yes.

From what I can see, she will be looking inwards. She is cutting spending. Brazil has managed to grow because it has a foolish fiscal policy and a tight monetary policy. We can do one or the other. If we are to be as foolish as Brazil has been in the last year on the fiscal side, especially with the financial crisis, et cetera, we better reign in our monetary policy, which they have.

There is a lot of pressure to increase the minimum salary. That increase is difficult for Brazil. Increasing it also has one of the strongest impacts on income inequality. If they want to have a fast impact on income inequality, they deal with the minimum salary. Once they deal with the minimum salary, their own budget shoots up because all the pensions and everything in that country is based on multiples of the minimum salary — government payroll expenses, et cetera. Her own budget will shoot up.

It is complicated. I get knots in my head when I think of all the consequences of trying to balance all these things, and she does want to do that. For her to do that, she must give her ministries a draconian objective of having a cut and following through, so that she can do both.

I see almost a CEO-type executive. I expected that from her. I have met her on several occasions; I have seen her speak forever. She is a lot less of a conciliator and a lot bossier than President Lula. He knew what he did not know; he really did. He is an incredibly humble man and did not pretend that he knew it, or he did not care if he did not know it: his attitude was, ``big deal.'' She is not like that. It is different.

Am I excited: no, but am I hopeful?

Senator Johnson: We will eliminate ``excited.''

Ms. Hester: Yes.

I have to say one thing. My biggest beef, or my biggest question is that every time I have a new idea and I bring it to my friends in Canada, they say, ``yes, but'' and then there is the list of why we cannot do it or why it will not work — why this or why that. That is fine.

I go to Brazil and I say, ``Have you thoughts of this?'' Then they say, ``yes, but'' and then comes a list of other ideas that we could do together to make that first idea much better.

Senator Johnson: That is great. Thank you so much.

[Translation]

Senator Fortin-Duplessis: Ms. Hester, let me first welcome you to the committee. I really appreciated your presentation. My first question is about energy because I get the impression that you know a lot about it.

What research and development investments has Brazil made in the area of energy? I have two more questions for you afterwards.

[English]

Ms. Hester: Brazil has invested in oil and gas research from the beginning. This decision was made by the military government because Brazil's energy history is that it was the first country that understood energy security. Brazil did not have any energy security, and did not have any money, either. It did not have assets or resources inland. The government understood from the geology of the country that it had to look to the ocean and offshore.

The military government made a decision to invest in the technology for exploration and production. It created a research centre inside Petrobras called Cenpes, and developed the expertise. Brazil is now a leader.

Also, because Brazil did not have any resources and there were two embargoes, et cetera, Brazil developed all the technology for biofuels. Brazil has invested, and continues to invest, massively in research and technology for the oil and gas industry. Does that answer your question?

[Translation]

Senator Fortin-Duplessis: You are from Brazil originally, but you live in Alberta. So you know the energy sector in Canada and Alberta very well. What are Brazil's priorities in renewable energy? Are you familiar with those priorities?

[English]

Ms. Hester: First and foremost, Brazil has a booming ethanol industry that stands on its own. It is not subsidized, and the ethanol industry is not encroaching on the Amazon or any of that. The industry is sustainable. Brazil developed the flex fuel car because necessity is the mother of invention. They needed it. The problem they had before is that they had unreliable vehicle technology. That is why they had a problem with using ethanol. They developed the flex fuel, and now they have no problems and they have whatever choice they want in fuels. They can fill it up with gasoline, and all gasoline in Brazil is between 20 per cent and 23 per cent ethanol. There is no pure gasoline in Brazil, period.

The Brazilian government then decided to go into biodiesel and to marry development policy with energy policy. So far, the biodiesel program produces a lot of biodiesel, but, as far as development goes, it is a failure. It is awful. Yes, that development encroaches on the Amazon, because it is now all soy-based, and that is detrimental.

Brazil never intended to do something or the other. Brazil does not have a strategy of, for example, ``Let us do this.'' In Brazil, things happen by error. Brazil is fast at recognizing mistakes. The government starts a program, and most of the time the first program fails, almost invariably. The history of ethanol is a disaster. They made every error in the book. However, they are fast. They look at the mistake and say, ``Oops, that did not work out the way we wanted: next.'' They move, and they adapt.

I am less pessimistic about biodiesel because I expect that 20 years from now, they will get it right. It will take that long, but right now, it is hard.

A bunch of secretaries of state for energy came together a year and a half ago and produced what they called a letter on wind, which was a statement on their need and desire to develop wind energy. Last year, Brazil had the first auction solely of wind energy. Some states in Brazil — there is a list of the ones that are good for wind energy — use wind energy. Solar energy is moving along, but not as much. I think that the biggest problem is that hydro is huge in Brazil. However, the production of ethanol represents 5 per cent of Brazil's electricity. Ethanol is a by-product of the sugar cane process.

There is much variety and desire for renewable energy, but everything is happening at the same time. Brazil, like Canada, is multipolar. There are many interests, and many things are happening. I do not think Brazil has come to realize and reconcile how they will be the green producers of the world and the biggest producers of oil from the pre- salt fields. When I question the Brazilian government on this issue, I say, ``You better watch your rhetoric. Otherwise, I will start writing about the fact that you are green at home and then you export your oil so someone can be dirty or less green outside.''

They are changing their rhetoric. They are trying to reconcile these issues. They are grappling with them but they are not there yet.

There is much research in carbon that Canada and Brazil can do jointly because pre-salt oil is carbon-intensive. It is more carbon-intensive than conventional oil. Brazil also has shale oil, by the way, which they have not even begun to address. They have small projects in that area. However, with the new shale oil technology that Canada is at the forefront of with Packers Plus and others in Calgary, I think we will see a lot that can be done in that area.

[Translation]

Senator Fortin-Duplessis: Thank you so much, Ms. Hester. You have given us a great overview of energy.

[English]

Senator Downe: Can you tell us about Brazil's position in South America? Is Brazil building up its military? Are they concerned about Venezuela? Are they perceived by other countries as a future leader of the region, or are there conflicts with other major economic powers like Chile and, to a lesser degree, Argentina?

Ms. Hester: Regarding the military, I have no idea. I do not follow military budgets. Others are much better at that.

I generally go to the Summits of the Americas or big multilateral meetings with a press credential because I find that is the best access I can have. In particular, the Brazilians are kind enough to give me access as if I were Brazilian press. I say this because I was at the last summit in Trinidad and Tobago. We were questioning Lula. I call him Lula because everyone does and not because I mean to be disrespectful to our president. Everyone was asking about leadership because of the issue between President Chávez and President Obama. It was the first time they met. He gave him the book, and there was that whole brouhaha over that relationship. There was a lot going on.

Many people were trying to suggest that Lula was the leader and things like that. Lula's response was insightful. He said, ``Do you really believe that a country would ask another president to represent them in anything? Do you really believe that is the way things are done? You have to be kidding. Of course they would not ask me to represent someone or to speak on behalf of someone. That does not happen. Leadership is not something that you ask for. Leadership is something that either people trust you or they do not.''

I do not believe that Brazil is set to be a leader. I believe there will be moments. Brazil is an influential player and always will be an influential player. Brazil has a huge economy. Is the U.S. an influential player: yes. It always will be. Look at the size of Brazil and all its neighbours. We cannot ignore Brazil.

By the way, Canada does not have an Americas strategy if it does not have a Brazil strategy. That is the way it is; it is not a question.

Will Brazil be a leader? I think that depends on who the president is of Brazil, who the others are and the relationships between the different personalities.

Senator Downe: You mentioned Venezuela. The root of my question is that, if there is to be trouble in the region — and we will pick on Venezuela for the moment — traditionally the United States has tried to assist the region. Will that role be taken over by some other country? If so, will that country be Brazil?

Ms. Hester: Senator, you touch on a sore point. I grew up in a dictatorship. The ``help'' of the U.S. was to instigate a revolution that led to 20 years of military dictatorship in my country. Help; values; I have a problem with that concept.

Senator Downe: I agree totally.

Ms. Hester: I am saying that because Brazil is cognizant of Mr. Chávez. There is no one in Brazil who does not know who he is, what he is doing and what he is about. It is not a concern of Brazilians because Mr. Chávez has zero influence in Brazil. He has tried to get Petróleus de Venezuela, PDVSA, into Brazil for as long as I have been in oil, and that is a long time — I just have a good hairdresser. I am kind of a dinosaur.

Mr. Chávez wants into Brazil. Having a piece of that distribution would be good. He cannot get in. Petrobras will let him in over my dead body.

Carlo Dade said something that is true: Brazil does that all the time. Mr. Chávez comes to them with these bombastic ideas. He has a radio or television broadcast, ``Aló Presidente,'' every Sunday. He needs to have a new idea every single Sunday. That is complicated. He goes on and on. However, Brazil says, ``Yes, great idea, excellent; let us do that; we need to study.'' Then the subject disappears.

Petrobras agreed to build a refinery with Mr. Chávez in Pernambuco. We questioned this decision. Why do they need this refinery? Why will they build this refinery? Why were they putting Brazil's refining park in the hands of Chávez? I could not understand that decision. I have been after Petrobras for years on this subject. To this day, the partnership continues, and to this day Mr. Chávez has not invested a cent and has nothing out of it. The plan becomes lost in some mysterious box.

Brazil needs to deal with Mr. Chávez. Brazil will deal with him but it will not deal with him or with any of its neighbours the way the U.S. deals with them.

Senator Downe: This is my final question. You are the expert on Brazil and you know far more than any of us. As a Canadian looking at Brazil and looking at the region, I think everyone is pleased with the government's model that has developed over the last number of years. We are all familiar with the dictatorships, not only in Brazil, but in Chile and throughout the region.

Rather than reverting back and regressing, the question is, what role Canada can play, if any, without being paternalistic, in helping governments in the region? Do you see there being any assistance we can provide?

Ms. Hester: No.

Senator Johnson: No.

Ms. Hester: I do not think the point is to help. I think we need help with our own governance. I see more governance problems where I am sitting here in Canada. I am honest. Come on. I sit in Alberta — ouch. Ed Stelmach will resign, Ted Morton is dead, then there is Danielle Smith and a new mayor in Calgary who is brilliant — one, two, three and then he happened.

I do not know what is happening in Ottawa; I have not been here for a while. From what I see, there will be an election, then there will not be; whatever.

While I understand that we have a lot of help to offer in Haiti and in many different specific issues, the idea that we are in a position to offer help makes Brazilians puzzled. They say, ``What part of this do I not get?''

The Brazilian ambassador to Canada that left recently, Paulo Cordeiro, is at the top. The new Foreign Affairs Minister for Brazil, Antonio Patriota, who was the Ambassador to the U.S., was his colleague. They both worked together for the former Foreign Affairs Minister in Brazil when he was at the UN. There were about four of them who were lieutenants to Celso Amorim. Those four lieutenants are at the top of the new ministry. They have known each other and worked together for a long time. Paulo knows Canada inside out. He is smart and astute.

My answer is that partnership is better.

Senator Downe: That was my final question. For the record, however, having been to Alberta many times, I do not think it can be compared in any way, shape or form to a military dictatorship from South America. I am sure the witness did not mean it that way.

Ms. Hester: Oh, no. I did not mean it that way at all.

The Chair: I did not even take that meaning.

Senator Downe: Then I misunderstood. Thank you.

Ms. Hester: Please, let me correct it. What I mean by governance is not military dictatorship because there are military dictatorships in Latin America. Part of the agreement that we helped cement with Marc Lortie on 9/11 was signed in Lima, the democratic charter of the Americas. Mercosur has a democratic charter that countries cannot belong to Mercosur if they are not a democracy.

There is not a group more dedicated to democracy than a group that has lived in a country that is not a democracy. Because we all have democracies, I took it that the help you are offering with democracies is help on the workings of democracy, because we are all past dictatorships.

Senator Downe: Thank you. It was a misinterpretation.

Ms. Hester: My apology. I did not mean it that way.

The Chair: I think the clarification has covered that point.

Senator De Bané: Ms. Hester, the gross domestic product of Brazil is already $300 billion larger than Canada's. In our country, we have wide disparities between the different regions. When we look to the North, the territory of Nunavut, or to other provinces, there is a wide disparity between the different regions of our country. We have included in our Constitution, in the supreme law of the land, that the federal government must give unconditional transfers to the regions that do not have the same fiscal capacity as others. We make those transfers unconditionally.

You know Canada inside out. You know Brazil inside out. Tell us about the soul and values of Brazil compared to Canada, particularly on that issue of economic disparities within the same country. Canada has not yet been successful, but at least we have put in place all sorts of measures to deal with that issue, and a large percentage of the central government expenditures in this country is allocated to that purpose. The impression I had when I went to Brazil is that they do not want to discuss this topic. They know that the state of São Paulo cannot compare to anything in Canada or the United States, and other areas, particularly in the North.

Tell me more about the values, the psyche and the soul of that country that you know so well.

Ms. Hester: Someone mentioned that, in Brazil, we have both Belgium and India. It is interesting. I will try to be efficient and say one thing. The difference is that Brazil is making big strides in the fact that Lula won, and Brazilians understand more and more that unless there is better distribution, their lives will be miserable, because life becomes cheap, and when life is cheap, people kill for nothing. If my life is not worth anything; yours is not either. To live with insecurity is the worst thing in the world.

If we talk about the ethos, Canada thinks collectively much more than Brazil. There is a huge middle-class feeling of collectivity to Canada. In Brazil, everyone believes in the collective, but first they guarantee their own interests and their family's, and then they believe in the collective. There is a disconnect mentally in the fact that the process of defending their private interests and those of their family's prevents the distribution in the country. There is much more of a colonizing effect of Portugal on Brazil, compared to the way Canada developed on a much more egalitarian basis. It has to do a lot with that real collectivity feeling, and changes in culture are the hardest changes to effect. Cultural changes are generational. It takes a long time to change culture.

Change is happening in Brazil. In a way, I think that the insecurity ended up having to be so extreme to shake people up. The insecurity is a reflection of inequality. My dad lives in Rio, and to go to my dad's house, an apartment in Ipanema, you had to have, and still do, four sets of keys. There are four different sets of keys that I have to open and close one at a time before I reach their apartment.

My kids looked at me once and said, ``Did grandpa do something wrong? How come all the bad people are inside?'' This is a little Canadian kid from Calgary, used to leaving the door open. I have a house on an island off the coast of B.C. I do not lock the door. The key is there. It is okay, because you cannot get off the island.

Senator De Bané: Thank you.

Senator Di Nino: I want to focus on the issue of trade and investment. The Canadian relationship with Brazil in investment and trade is a long-standing one. It has existed for a long time. How do we perform? Have we had a good relationship throughout the past period?

Ms. Hester: I think we have fallen short on the potential, but governments do not invest in trade. Individuals and companies invest in trade. Governments can create conditions. I keep wondering what is happening to Alberta myself. My husband has a consulting company in oil and gas, and I have been a partner and worked with him for many years. The reality is that although we do international work, the guys are really busy in Alberta — sometimes way too busy — so it becomes hard to do a lot of international work when we are run off our feet.

Now he has the ambition to grow more internationally and have more people. I would say it is underperforming, but we are reaching the situation, particularly in Eastern Canada, because of the competition with China and because of the U.S. economy, et cetera, in which we will need other opportunities.

Canada is coming a little bit from behind, but there is much potential. For instance, as I said, something the Canadian government could do, but I do not know if it has the political will to do it, is to drop its tariff on ethanol. The tariff is insignificant to Canada, but it would send a huge message to Brazil, because the U.S. will not drop its tariff. Drop the ethanol tariff ahead of the U.S.

This market is small. It does not affect Canadian producers. It is all fine. It is not a big deal. It is not costly. The ethanol lobby can be dealt with from the conservative perspective. I do not think it is as huge a political problem as others. It is something Canada can do.

The Toronto Stock Exchange, whether the merger goes through or not, will give lots of opportunity for listing, because one thing that Brazilian companies need is experience in initial public offerings, a much broader access to capital, expertise in how to put those deals together and so on.

Much more can be done, and maybe we can go back. One thing that will be extremely helpful to recommend and pursue from this chamber is a real conversation and consultation with Canadians in general for a better sense of what exactly they are interested in, where the venues are and who is interested. I have been having this conversation for years, and I still do not have a broad, ample clear picture on who would be interested in that market. Ultimately, people invest or companies invest.

Senator Di Nino: You moved into the second part of my question. Because of the similarities between the two countries, oil and gas are an important component of the relationship. However, Brazil presents a huge market for a variety of opportunities. We are awakening to those opportunities. You mentioned a couple and there are many others. Agriculture, education, and environmentally friendly services come to mind. Do you have additional wisdom to share with us that we can put into our report?

Ms. Hester: Yes; another opportunity is nanotechnology. The government has invested greatly in nanotechnology institutes. We have a health relationship. However, the combination of nanotechnology, health, and research yields huge potential. Brazil is interested.

We could have a much more concerted effort in tourism.

Brazilians and Latin Americans in general could benefit from wide training in regulatory economics and in the business of devising energy policy. In the Americas, training is weak in that area. This training would benefit them.

Those areas come to mind. Remember that the market in Brazil is big, and everyone wants in. We must be cognizant that, if we want in, we must be prepared to offer something. If we are not ready to offer, then we should be cognizant of that.

Senator Di Nino: Recognizing the position that President Rousseff holds, is the female population in Brazil beginning to achieve a certain status in business and politics, et cetera?

Ms. Hester: We rock! We have more women executives in oil in Brazil than in Canada. Can Canada learn from Brazil? I would think so. We had two candidates who were women. I have met Minister Diane Ablonczy. She is a Calgarian, and I have known her for a while. I commented to her that, at some point, she should meet Marina Silva, the other presidential candidate.

However, I forgot to say something that I think is important. One thing that Dilma Rousseff said she would do — and she was clear about it — was to increase the presence of women in her cabinet. She has done that. She made a number of appointments, specifically with that in mind. She makes no bones about it.

We have a woman President; we have Michelle Bachelet as head of the new UN women; we have our former Governor General at the United Nations Educational, Scientific and Cultural Organization, UNESCO, special envoy to Haiti; we have a minister and a Secretary of State for the Americas, Hillary Clinton.

These appointments have gone beyond the feminist agenda. They form a real, concrete, and powerful agenda that refers to the rights of women in development and speaks of the potential impact of women in the developing world. Canada would be wise to engage in that agenda. It would go a long way.

Senator Di Nino: Thank you.

Senator Robichaud: You said 20 per cent to 22 per cent of Brazil's gas reserves is ethanol. Now that Brazil has reserves, do you foresee a change where land, or whatever agricultural facilities are used to produce the ethanol, would be moved to some other production?

Ms. Hester: Brazil has the most available arable land in the world. Ethanol does not take 3 per cent. I think the figure is 2, but, in between 2 and 5. However, not even 5 per cent of arable land. Ethanol is environmental, and a huge source of jobs in Brazil.

The powers that be in the state of São Paulo will not acquiesce to the oil and gas of the pre-salt in Rio and even in São Paulo. The agricultural lobby is the most powerful lobby in the universe. They are so well organized in Brazil, the U.S, Canada, and Europe. I joke with them; I call them my sweet little feudal lords.

Our institutional memory must be better in Canada. There was a program — I do not think it exists presently — of the Canada Visiting Research Chair in Brazilian Studies. This chair was shared by University of Calgary, University of Western Ontario, York University, University of Quebec at Montreal, and one other in Eastern Canada. Call Ted Hewitt, the organizer of this chair, to speak before you.

The first recipient was Marcos Jank, who was a trade economist, and was involved in the G20. Mr. Jank is now the president of the Brazilian association of ethanol producers. Mr. Jank is a link to Canada who can tell you more about the strategies and the dealings of the ethanol and agricultural issues in Brazil. Ask him. I believe he would be delighted to talk to you.

The Chair: We are coming to the end of our time. I want to ask one question. Europe appears to have more interest in Brazil, and so there seems to be more activity recently. The question is whether that activity is diminishing America's role or not, but that is not the issue I want you to answer.

Canada and this committee are looking at ways of strengthening an important bilateral relationship. You said if we were to have an Americas strategy, we need to start with a Brazil strategy. What are the Europeans — who are pursuing trade initiatives and who are looking at foreign policy initiatives — doing differently towards Brazil and the Americas? What are they doing differently, and are they developing a Brazil-first strategy, or is it haphazard or a different strategy? Please answer to the best of your knowledge in investment, trade and overall foreign policy.

Ms. Hester: First, I did not say that if you wanted to have an Americas strategy you had to start with a Brazil strategy; I said you had to have one. This idea that all of a sudden, we will develop a strategy of strengthening bilateral relationships has been going on forever. This idea has been around a long time; there is nothing new about it.

The best person who followed Spanish investment, which is the most aggressive and concerted effort from Europe — because the European Union is not monolithic — is named Ken Frankel, the Chair of the Canadian Council for the Americas. He is now the Legal Advisor at the Organization of American States, OAS, and he is someone you want to talk to. He was the counsel for Spain. Spain has a specific strategy and he knows much more about it than I do. I learned from him, so you can learn from him, too.

Senator Mahovlich: I wondered about the population of Brazil. China had to come up with a strategy a few years ago to control their population. Does Brazil have a problem with the population of their cities and their country?

Ms. Hester: That one-child policy was a disaster. To try to do something like that in Brazil would not happen. Brazil is crazy. Are you kidding me? Brazil is kind of amoral; it is crazy out there.

I will tell you one thing. Brazil has a different approach. Brazil is smart when it comes to talking to the population. It does not try to talk to the population by ruling through decree. Who will follow a decree? Who will enforce this thing? It is impossible in Brazil. Even in a dictatorship, they cannot do it. We are unruly by nature.

Brazil has a bad problem with dengue fever. Brazil has soap operas and they are not like the ones that go on and on in America. The soap operas are two or three months long; they have a beginning, middle and end; they are a story; and they are watched by everyone. They are popular. Even in the interior of Brazil, there will be one television in the middle of the central square and then the fight will be between the men who want to watch soccer and the women who want to watch telenovela. The women win, of course.

So what did they do? They had someone in the telenovela who contracted dengue, and they did everything wrong. In the process of righting the wrong, they taught the population about what not to do.

When AIDS started to be widespread and Brazil wanted to send a message for people to use condoms, condoms became a huge carnival success. There was a song by a group that basically said, use condoms. I happened to be in Brazil with the kids that year and my kids were running around in the streets yelling about condoms, but they had no idea what they were saying. The message becomes a song; it becomes an advertisement.

I will leave with you something that was indicative of Brazil. You remember when President Clinton had a great deal of trouble with Monica Lewinsky and all that situation. Brazil had a president, Itamar Franco, who was a widower. He had a girlfriend or lady he went to see a parade with. The stands for the parade are high up in an avenue, and someone took a picture of him and this lady from below. It happened that she did not have underwear. The picture exploded around the country and all the guys in Brazil said, ``Hey, he did well.''

It does not become a big deal in Brazil. However, two days later in Rio, we woke up to the big outdoors advertising from the biggest underwear manufacturer in Brazil. There was a woman from here to here with underwear that said, ``Do not leave home without it.''

The Chair: I think this might be the point where we will stop.

Ms. Hester: Did I not tell you Brazil was fun? I told you Brazil was fun.

The Chair: I want to bring the meeting back to order.

You have certainly brought a flavour of Brazil. I am not sure those points will be in the report, but you have entertained us, informed us and made us think about Brazilian possibilities for Canada.

You have been blunt as to the art of the possible. You have given us a new dimension. All kidding aside, you have given us insights into people who have contributed from Canada to Brazil. The relationsip is a deeper textured one than we have heard otherwise. You have confirmed that some of our sources were the appropriate sources to reach, and others you have named will be good sources.

Ms. Hester: I laugh. I had the best intentions to behave; I really did.

The Chair: Most Brazilians do.

Ms. Hester: I want to say something. I read the testimony by starting with the presentations. I read the exchange of Senator Segal with Jon Allen. In questioning Brazil's position on Iran, which troubles me and troubled me as much as it would trouble anyone, I marvelled at the ability of these two gentlemen to do so with such insight and grace. There is so much depth in this chamber, and I think a lot of times it is not appreciated because it is not known. However, it delighted me to see that; to see the quality of our officials in answering questions and to see the class of this chamber.

My congratulations to all of you. It has been my pleasure to be here, even if I am as informal as I am.

The Chair: Thank you.

(The committee adjourned.)