Proceedings of the Standing Senate Committee on
Foreign Affairs and International Trade
Issue 2 - Evidence - Meeting of October 6, 2011
OTTAWA, Thursday, October 6, 2011
The Standing Senate Committee on Foreign Affairs and International Trade met this day at 10:30 a.m. to examine and report on 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: Welcome to the Standing Senate Committee on Foreign Affairs and International Trade. We are here to examine and report 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 three witnesses: Mr. Elias G. Ray, Senior Vice President — Latin America Division of SNC- Lavalin International; Mr. Jim Rakievich, President and CEO of McCoy Global joining us by video conference from Edmonton; and Mr. Jean-Michel Laurin, Vice President, Global Business Policy, representing Canadian Manufacturers & Exporters. Welcome, gentlemen. Thank you for joining us.
I will test the system from Edmonton. Can you hear me?
Jim Rakievich, President and CEO, McCoy Global: I can hear you clearly, yes. Good morning.
The Chair: Good morning. I understand Mr. Laurin will start with opening remarks, then Mr. Ray and then Mr. Rakievich. Then we will go to questions, which is our normal procedure.
Jean-Michel Laurin, Vice President, Global Business Policy, Canadian Manufacturers & Exporters: Thank you for inviting us to appear before the committee today as part of your consultations on the development of Brazil's economy and its implications for Canada.
I had the opportunity to appear as a witness on behalf of Canadian Manufacturers & Exporters before the committee on February 16. I am pleased to be back today with representatives from two of our member companies. Mr. Ray, on my right, is Senior Vice President for Latin America SNC-Lavalin International and Mr. Rakievich, who is President and CEO of McCoy Global as well as past Alberta Chair of our association, is joining us by videoconference from Edmonton. We are fortunate to have both of them take time from their travel schedules to share their insights with the committee this morning. It attests to the importance of the work of this committee.
Canadian businesses are achieving record sales levels in Brazil due to the hard work and investments that people like Mr. Ray, Mr. Rakievich and colleagues in their industry are making. During my previous presentation, I outlined the tremendous growth potential that Brazil offers to Canadian manufacturers and exporters, especially in several industry sectors where Canada is recognized as a world leader with unique capabilities. I also had the chance to point out some of the most important barriers to trade, investment and labour mobility that we need the governments of Canada and Brazil to get together and help us to resolve.
I know you have heard from other witnesses, such as the Brazil-Canada Chamber of Commerce, who iterated some of the points we made and expanded on some of the trade barriers that Canadian businesses encounter when doing business in Brazil.
Before yielding the balance of my time to Mr. Ray and Mr. Rakievich, I would like to say a few words about our association. Canadian Manufacturers & Exporters is Canada's leading trade and industry association and is the voice of manufacturing and global business in Canada. Our association directly represents more than 10,000 leading companies nationwide. More than 85 per cent of our members are small- and medium-sized enterprises that represent every industrial and export sector of the Canadian economy. Also, as Canada's leading business network, CME, through various initiatives such as our Canadian manufacturing coalition, touches more than 100,000 companies nationwide that are engaged in manufacturing, global business and service-related industries.
I will stop there for today. We are fortunate to have Mr. Ray and Mr. Rakievich with us, so I will yield the balance of my time to them.
The Chair: I agree; on behalf of the committee, I appreciate that they have taken the time to be with us to share their information.
Elias G. Ray, Senior Vice President — Latin America, SNC-Lavalin International: Thank you. I am honoured to be here on behalf of SNC-Lavalin International to speak before this important Senate committee. I would like to start by summarizing some of what SNC-Lavalin International is doing in Brazil, our interests and our history in Brazil.
We have been in Brazil for over 30 years, where we have had a presence of varying sizes over the years with operations or projects that start and end. It has been a variable presence. For the last few years, we have had a more permanent presence in Brazil with some acquisitions made about three years ago in the form of an important engineering company in the mining sector. We followed that up with the acquisition about one year ago of a company in the power sector. We currently have a good footprint in Brazil with 2,200 employees in Brazil. We have offices in Rio de Janeiro, Sao Paulo and Brasilia, as well as satellite offices that open and close as projects start and end.
I am not sure how familiar you are with the activities of SNC-Lavalin International, which include power, mining operations and maintenance and in the environmental sector. We are aiming to grow our presence within those sectors and expand our activities to oil and gas and infrastructure. We are also looking at concessions in the country. There is quite a bit of work to be done there. I am responsible for Latin America so I spend the majority of my time travelling to Brazil to grow that presence as fast as possible.
I also want to highlight some key information on these sectors relevant to the SNC-Lavalin International activity. You heard last week from the economist intelligence unit, who expanded on the economic performance of the country, so I will not go into that. Obviously, being the seventh largest economy in the world and having one of the highest growth rates in the world calls for a lot of attention from countries all around the world. The competition in Brazil is really brutal for us as an engineering and construction company; and it is brutal competition for Canada. There is no week in the year when we do not hear about a mission from England, the U.S., France, Germany, Israel, Korea, China, et cetera, all over the world competing for the opportunity to do business there.
In the mining sector, we have seen an important growth rate in the output over the past four years at 4.5 per cent, and it is forecasted to grow another 4.6 per cent over the next five years. The investments can range from $40 billion to $65 billion depending on commodity prices and so on. There is a lot of activity happening. We have a well established operation in that sector.
Another sector growing impressively is oil and gas. Today, Brazil's output is about 2.7 billion barrels per day. By 2020 that capacity is expected to double. One can see the investments made by Petro-Canada, the EBX group, Shell, et cetera.
Regarding infrastructure, it is important to mention that Brazil has laid out a plan. They have an accelerated growth investment plan called PAC, which they implemented in 2007. In the first round, they dedicated about $350 billion, of which they have spent about $200 billion. For a country that lacked infrastructure investments over the last 30 to 40 years, that is a major accomplishment. PAC 1 was such a success, they came up with PAC 2, which started in 2010 and goes to 2014. They are expected to invest over $500 billion in infrastructure in Brazil.
Those investments range from oil and gas to social infrastructure like housing, water and light to power. It also includes what is required for the Olympic Games and the World Cup, the governing investments, I would say.
Finally, the other sector relevant to us is the power sector. In the power sector, Brazil is going through a growth of energy demand of 5 per cent per year. You can see here in this summary I have put together that they need to invest about $5 billion a year in new power generation and about $10 billion a year in transmission and distribution. Those are major investments from our perspective as an engineering and construction company.
One of our international priorities is to establish a larger presence in Brazil and be able to participate in that sector and capture as much as we can from that. Obviously, we are facing significant challenges. I already touched on the competition, which is huge. There are at least five EPC companies — engineering procurement construction companies — that have over $3 billion a year in revenue. They are large by any measure. They are also very influential in the country. They have a presence throughout the country, and they have backing from BNDES, which is the Brazilian development bank, as they go overseas. You do not see them just keeping a strong grip in Brazil, but they are also growing importantly in the rest of the region.
The other barrier or challenge we see in Brazil is related to taxes and fees for foreign services. I am sure you have heard that many times, so I will not expand on it.
Finally, the foreign governments are backing their industries as they go into Brazil. This is a competition between countries more than competition between private companies. It is the way we feel when we are down there on the ground and you see what we are up to and the challenges we face.
I will only outline three of the major challenges so you do not get a feeling it is all about challenges in Brazil. Opportunities also come with those challenges.
Just to summarize and also let Mr. Rakievich speak, I will wrap up by saying what I think we need from the Canadian government as support to be more successful in Brazil is a true partnership between the Canadian government and Canadian businesses, as the other businesses we are seeing from other countries are getting from their governments when they go into Brazil.
I will leave it there. I think there will be questions around those lines. I will pass it over to my colleague.
Mr. Rakievich: Good morning, and thank you for the opportunity to present this morning. McCoy Global is a Canadian publicly traded company on the Toronto Stock Exchange. Our revenues are in the neighbourhood of $150 million a year. We are specific to one industry, and that is the oil and gas industry. Predominantly, we design and manufacture equipment for operating on drilling rigs throughout the world, for both land and offshore applications. That is the business we are in. We are based in Edmonton, Alberta. We have physical operations in Edmonton as well as British Columbia, and we have operations in Houston and Louisiana.
We sell our products throughout the world. There is a lot of intellectual property related to our industry. We are always designing new ways and new technologies to assist our customers in getting to oil and gas. That is very important to us.
We export a tremendous amount of our products outside of Canada. Canada is a market for us, obviously, being in Alberta and a lot of drilling activity in Western Canada. However, Canada represents not as large a portion of our market as the rest of the world. The rig counts around the world are very significant. We have the opportunity, if there is a rig anywhere in the world, to sell our technology. That is a bit about McCoy Global. Last year, for example, we shipped products to 48 different countries, so that gives you an idea of our geographical scope.
The Brazilian market specific to this discussion here today is a very important and emerging market for McCoy Global. All of Latin America is, quite frankly. We have done business in Latin America, including Brazil, for over 10 years, and we have been involved as the oil and gas industry has begun to really ramp up in that country and is now arguably the third largest oil reserve in the world. As was discussed prior, the intention of Brazil is to double their production over a very short period of time. What that means to companies like ourselves is that there will be a tremendous amount of capital spent on new equipment, with new rigs and equipment going into the country and service companies from around the world going after contracts. It represents a tremendous opportunity for companies like ours. We have targeted Brazil as a good long-term geographic region for our goods and services to generate revenue for the organization.
With that said, this year, it is kind of ironic that the fiscal year of 2011 will be a record-breaking year for revenue out of the country of Brazil, yet what I would like to discuss today is our firm belief that it is a short-term opportunity. If we do not have the ability to meet some of the local content rules and work around the tax regime and other barriers, we will probably lose market share over time. That brings me to the key hurdles that our organization is experiencing and we think we will experience in the long term, unless we can have some things change.
I read the transcripts from yesterday, and there was a lot of discussion around the tax regime in Brazil. It is very complicated. There are multiple layers of tax, and certainly our products are no exception to our customers. To put it in perspective, when we sell our products to our customers, when they finally get our product in their hands and ready to go to work, their actual cost is 70 to 100 per cent more than the original invoice from us once it gets through the tax regime. That is because of the local content rules.
Our products are manufactured either here in Canada or in the U.S., and we export them into Brazil to our customers. The customer must pay a heavy price for not complying with the local content rules. The obvious question is this: Why the heck do they buy from you? Why not buy locally and not pay that tax? Right now, we do not have a tremendous amount of competition in the country. The oil and gas industry in Brazil is not nearly as mature from an infrastructure perspective as it is in Canada or the Middle East or other parts of the world where we do business and the oil and gas industry has been thriving for many years. There are not a lot of companies that do what we do there, but they are starting to crop up. For example, we identified a couple of Brazilian companies that are up and coming. As those companies grow and have a competitive advantage from a tax perspective, they will slowly erode our market.
There are smart people down there; there is a lot of good expertise in engineering, et cetera, and they can develop products. Over time we will lose market share. The only way around that is either we comply with the local content rules or there is a better agreement between our countries where we can be more competitive.
I have already indicated that intellectual property is important to our company. We do a lot of new product development. In this industry, technology changes very quickly. There is a lot more automation and the construction of wells is getting much more complicated.
In Brazil offshore, for example, they drill in 10,000 feet of water which, as you can imagine, creates technical challenges. We actually like that because it requires more technically advanced equipment and gives us a chance to develop some of these. I read the testimony of one of the witnesses yesterday who described the requirement for better understanding between the countries on respecting each other's intellectual property, so that we have a formal intellectual property agreement where we do not have to go down there and see some of our stuff being copied and have a difficult time defending our position with our technology.
The third item is with respect to travel. This includes not only Brazil but other BRIC countries as well. For the oil and gas industry, our biggest markets that are growing significantly are pretty much all of the BRIC countries. That is where the future is for us and many other companies. If you look at the economic growth going on in the world today, they are some of the few countries that actually have some light in the near term. They also are the hardest countries for us to do business with from a travel perspective in needing visas.
I travel extensively. We do business in almost every country in the world that is involved in looking for oil and gas. For me to give up my passport for six weeks to get a visa to go to Brazil is a tremendous barrier, but that is the way it is; it is very cluttered.
I see Canadian companies at the airports, on the airplanes and in the hotels because more and more Canadians are doing business in Brazil. For all of us, whether it is me, chief financial officers or operating people, I am sure there is a backlog of activity in the visa offices in the Brazilian consulates here in Canada. For people like us, giving up your passport for six weeks is too onerous. We have to do it for the other BRIC countries as well, whether it is Russia, China or other parts of the world.
We do have a travel barrier and it is very burdensome. It is a lot of paperwork. You have to get invitations from companies and all kinds of stuff.
I have been to Brazil seven times in the last 18 months and it is very challenging. When I am negotiating in Brazil and I am sitting across from someone from Great Britain or Germany and they do not even need to have a visa to travel, it does not make a heck of a lot of sense to us Canadians.
I would like to wrap it up by suggesting that there is a tremendous opportunity in the oil and gas industry over the next 10 years for Canadian manufacturers to participate in a very meaningful way in the growth that will take place in that industry. There are some issues around doing business in that country, and we believe that the Canadian government could play a very meaningful role in helping us and the Brazilian companies create a more business- friendly environment where we can do business better together in the future.
I know it takes time. I have learned a lot about the business culture and how that country thinks. It will take time, but we need to start somewhere so that hopefully in three to five years from now, the business environment between the countries is much smoother and more beneficial.
The Chair: I think the witnesses have covered a lot of ground and the visa issue continues to come up. No doubt you will see something in our report about that; hopefully it will be helpful.
I want to ask a question more to you, Mr. Ray, because it was the way you phrased one of your questions. You said how tough it is to do business — the impediments, et cetera. We hear that. We have studied the other BRIC countries, as has been pointed out elsewhere, and it seems we always hear there are difficulties. We have to pay attention to them.
What is it about Brazil that is more difficult; or are we simply saying as we work from country to country, we have to face that there are impediments and difficulties and we have to find solutions for them? What I am getting at is it is very hard to do business in India with the competition we have there, as well as in China. Is there something different about Brazil? Is it Mercosur, or do you even think about that?
Mr. Ray: I cannot speak for India. I am not as familiar with it as I am with the Latin America countries. Definitely Brazil is at a different level of challenge than the rest of the Latin America countries. We have a well-established presence in Colombia, where we have about 1300 people. We have 500 people in Chile and almost 300 in Peru. We do business in different countries and we do not face the same degree of difficulty as we do in Brazil.
What is it about Brazil? It goes back in history. Over time, Brazil has relied predominantly on its internal consumption. That is why they have such a huge internal market. For years, it has imposed barriers for companies overseas to come in. If you want to go into Brazil, you have to produce in Brazil, manufacture in Brazil and deliver services from Brazil. Foreign services are subject to up to 42 per cent for fees and taxes. You can hardly compete in Brazil for delivering services from overseas.
Only about 24 or 25 per cent of the GDP in Brazil comes from exports. It highly relies on that, which has provided a lot of power to the local companies. It allows them to grow significantly, and they have a lot of influence in all federal, state and municipal governments. That makes it more challenging.
To do business in Brazil, you have to spend a lot of time mixing with the crowd in order to understand the flow of the country. Developing that kind of relationship takes more time, just to understand where you are and what is considered bad.
The Chair: I have a long list and we always have limited time, so I appeal to senators to limit themselves to about five minutes each for question and answer.
[Translation]
Senator Fortin-Duplessis: First of all, I would like to thank you for appearing before our committee and I would like to thank Mr. Rakievich for joining us by videoconference. I noticed that you took the time to familiarize yourself with the answers that our witnesses gave when they appeared before our committee.
As you might know, Brazil ranks third among the countries that are experiencing the most difficulties with recruiting qualified staff, which exceeds the global average. Those results were published in the latest Manpower study conducted with a panel of 40,000 employees in 39 countries.
Behind Brazil, listed at 57 per cent, is Japan with 80 per cent of employers being dissatisfied; in India, the rate is 67 per cent, and the global average is 34 per cent.
The shortage is especially felt by developing sectors. We are talking about civil construction, with an ambitious social housing program, the major projects you mentioned, the projects in preparation for the 2014 FIFA World Cup and the 2016 Olympic Games. Generally, technical positions and jobs in technology are the most difficult to fill.
I also read that Brazil trains 40,000 engineers and architects per year when they actually need 60,000. The temporary solution would be to relax visa formalities for highly skilled foreign nationals. At the same time, Brazil is a very protectionist country.
Do you know whether Brazil is doing something to make up for this lack of technical training? On the ground, do you hire Brazilians for the major projects or do Canadians go there to do the work?
[English]
The Chair: Are you asking Mr. Ray or Mr. Rakievich?
Mr. Ray: Excuse me; I think I missed the translation, if there was any translation.
The Chair: Then you are probably not on the right channel.
Senator Fortin-Duplessis: I asked if the Brazilians work for you when you have projects there, or if Canadians can go and work there. Do only Brazilian workers work for your projects?
Mr. Ray: There is one issue ongoing in Brazil. The country is going through such a high growth in so many different sectors that there is a real lack of qualified personnel in Brazil. You can hear the Brazilian companies speaking about that very openly.
For example, about two months ago I heard Eike Batista, one of the wealthiest men in Brazil, speaking about how many welders he needs to bring from Brazil to work in their operations.
We definitely need to maximize the number of Brazilian engineers that we work with from a cost-competitive situation, but in many instances, we need to have lead engineers in specific sectors brought in on an expat situation for the specialized or project managers. A customer said to me, when I was asking where I could find a good project manager, that that is a species in extinction in Brazil. There are certain qualifications that are just not available, and we need to, obviously, bring them from here, to the extent that I think we are reaching the point where it will be as competitive to deliver the services from Canada and paying the services. Obviously, there is high inflation in Brazil that also impacts the labour market that makes you more competitive to deliver the services from there. Typically, you have to do it there, and if you have BNDES funding, you have minimum local content requirements. You have to watch that, too.
Mr. Rakievich: When it comes to looking for local skilled talent in Brazil, it is very difficult. Right now, the labour market is very tight for engineering and finance people. We know at some point in the future we will have to establish a footprint. I have been spending my time down there. I looked at two potential acquisition opportunities in Brazil. One of the reasons we considered acquiring was that when you do an acquisition, you get the people that come with it. That gives you a head start.
There is no question that the growth in all sectors in Brazil is so rapid that the country has not kept up with providing skills to match the growth. It is definitely a very tight labour market, especially for skilled people from anyone that you will have do professional services or in an operating plant, like a machinist or things like that, no question.
Senator Wallin: I will put a quick question to you because we are making recommendations and we have heard from many witnesses. The consistent message is trouble with patent protection, better tax treatment, the visa issue and travel. You have all talked about the need for a free trade framework of some kind to protect against that. Although, as we see with our neighbour to the south, free trade agreements do not do much about Buy America policies or, in this case, "buy Brazil" policies.
Is that enough? Do you feel this will solve the problem if we get a trade agreement or that that is your priority issue?
Mr. Ray: I think Brazil is currently in discussions with so many parties on free trade. As a company, we would love to see a free trade agreement between Canada and Brazil.
From my personal perspective, I have the concern that I will just get in another queue, that, just like the European Union, we will be negotiating one for the next 10 years. That is a real concern I have about the free trade agreements.
That is why we have to jointly team up, government and Canadian businesses, and see what alternative path we can come up with a free trade agreement. Brazilians have some flexibility to do things that they say they normally cannot do, but they do them. One example is that, typically, they just tender every job, but they signed with Sinopec a 1200- kilometre pipeline, and it was a government-to-government agreement.
Mr. Laurin: Even though a free trade agreement is not a panacea and not a perfect remedy to a trade dispute, as we see with the United States on an on-and-off basis, it would help tremendously to have not necessarily one comprehensive agreement but maybe an incremental approach where we build interests on both sides. That is what the government is pursuing right now, with Prime Minister Harper going to Brazil recently, and Minister Fast going there a couple of times. That has been helpful having both of them spending time there. I know many member companies appreciate it. Sometimes people see that on television and wonder why they are spending time there. Well, I can tell you from a business perspective we hear repeatedly from our members that this makes a difference.
As Mr. Ray pointed out, we are competing against other countries that are doing the same thing. If we are not there, it sends a message but if we go, it also sends a very strong message.
There are a number of areas. When it comes to labour mobility, there are things that can be done that do not require us to enter into long trade negotiations. There are some things we can do even on a unilateral business to facilitate business travel, and it would be in our interests. On patents and IP, for example, we have some agreements to cover those issues with some other countries. On taxation, we have double taxation agreements with a number of countries with whom we do not have a free trade agreement. Many things can be done.
With Brazil, when it comes to formalizing our trade relationship, we are starting from almost a blank page, so there is a lot of potential. We have some agreements with them in science and technology, but there is a lot more that can be done. I know the government is quite committed to a trade policy that would enhance our trading relationship with Brazil.
Mr. Rakievich: I absolutely believe that improving our trade between the two countries in a formal way, between both the Canadian government and the Brazilian government, is critical in the long term. We can think about what can fix things in the short term, but reducing some of these trade barriers in the long term between the countries will solve many of these problems for sure.
Senator Finley: In previous committee meetings, I concentrated particularly on the areas of protectionism, taxes and so on, and you have covered that a bit. I do not want to revisit that. I think we understand that the Brazilian government tends to use fiscal measures and taxes to socially engineer within the country.
I want to look at the other side of the equation here. I think this is probably particularly relevant to Mr. Ray at SNC-Lavalin International. The labour union situation in Brazil has its collective agreements, strikes and any right to work in parts of Brazil. I am asking this because very much of the union's minimum wages will be set, which will have an impact economically but particularly so in Brazil's case because the pensions are linked to the minimum wage, and a small increase in minimum wage can mean a huge collective liability on the part of the government downstream.
How do you see the labour union, say vis-à-vis Canada or the United States? Where would you see labour activity or labour unrest in Brazil or even in South America generally?
Mr. Ray: In Brazil, that is one of the mounting pressures the government will have to deal with. That has been accumulating for a long time. In a way, that was a way for the government to stimulate internal consumption. That has been the major focus of the government. However, the government also realizes that it cannot continue accumulating that liability.
How they will deal with that pressure is still to be seen. I could not say how the government will be moving and mitigating the impact of it because I just do not know. This is new to the government. This is something they have to figure out, how they continue stimulating internal consumption and, at the same time, contain inflation. I do not know.
Senator Finley: Has SNC-Lavalin International and your very considerable experience in Brazil been affected by labour unrest in any way?
Mr. Ray: Not in Brazil. It may affect the future operations of the mines, as we have seen in Peru, where it has slowed down daily operations or even stopped projects until they settled their labour issues. In Brazil, we have not seen that yet. That is why I could not comment on the impact in Brazil.
Mr. Rakievich: We do not have any people operating in Brazil as employees at the time, so I cannot speak to that nearly as well, other than it appears there is tremendous inflation on labour costs, which is an interesting thing going on there right now.
Senator Downe: Mr. Ray, in your presentation you mentioned the need for a true partnership between the government and business. Do you have any specific examples of what would be in that partnership?
Mr. Ray: Yes. As I started this short list of things that we need to address together with the government, it starts with consultation. When talking about the trade agreements, what are the areas and priorities of concern, getting feedback from Canadian businesses on what their priorities are. When arranging high-level visits, discuss what the plan is and who we need to see.
One thing I am seeing now — and please excuse me because I am not as familiar with Canadian politics — if there was more coordination between private Canadian businesses and the government in general, not just federal, I would advise to coordinate so we can target all the states in Brazil, because there is activity beyond Sao Paulo and Rio. I have seen missions on almost a monthly basis from Canadian provinces. They always go to the same places, Rio or Sao Paulo and sometimes to Brasilia, but there is a lot of activity in northeastern Brazil or in the south of the country. We can maximize the resources that we are spending in the country together, and that is one of my challenges here. We have some presence in Rio, in Brazil, and in Belo Horizonte.
There is a lot of activity going on beyond that of which our organization alone cannot possibly address. They would welcome more high-level visits from the Canadian government than what people in Rio or Sao Paulo would because they do not get any visits from any country.
When we are talking about establishing a partnership between the Government of Brazil and the Government of Canada, it is a huge area of improvement that we can collectively address.
Senator Downe: My second question is for the witness appearing by video conference from Edmonton.
You mentioned you are operating in 48 countries. I am wondering about what solution works best for the visas in those other countries. You explained in some detail the problem you have getting a visa for Brazil. What is the best case study, in your experience, for other countries?
Mr. Rakievich: The best case study is to have no visa requirement at all, like we have in some of the European Union countries; we are free to travel into Germany or the Czech Republic now without visas. That is the ultimate best.
In China, all of the processes are very similar. If you are getting a business trip visa, typically in all these countries you have to get an invitation from somebody as part of the application process, and then you have to fill out the forms and explain exactly when you will be there, when you will leave and all that kind of stuff.
The only difference I can see between the visas we have received in our company for our management to travel throughout countries that require visas is the timeline. The process is very similar. I do not think anybody has a fabulous process that we can say, "Man, this is the thing to follow," but it is the timing.
What I did learn in all my trips to Brazil is that the process is really slow there, so as Canadians, we have maybe a certain expectation on how things get done. I am sure my counterpart will agree that in Brazil, you have to be able to sit back and watch things happen very slowly. In anything we have done in Brazil, even with the Brazilians getting the visa process through, it happens very slowly.
In this particular case I am not convinced it is the specific process that is better or worse than anybody's, it is how long it takes them to get things done. Maybe it is the backlog. I am not sure.
Senator D. Smith: I think this question was triggered in my mind when Mr. Rakievich made reference to 42 per cent. When you think of all the extra taxes for us to go in there, I am wondering whether is it driven more by revenue or to give them a huge advantage in doing it on their own or to put us in a position that if we want to be in there we have to hook up with Brazilian companies and form partnerships?
I am reminded that it was almost two years ago that we went to Khanty-Mansi in Russia to hear all about the similarity of their oil issues to Alberta's issues. We listened to several days of primal screams. I know these are challenges. What are your thoughts on what is driving this?
Mr. Ray: It is a way of protecting local industry. Here is an opportunity that can be worked out. We can find some interest on the Brazilian side because given the specialized labour shortage that Brazil is going through, I am sure they see the benefit of an exchange of technical expertise as a way to transfer technology. That would allow some room for the Canadian government to go in and explore exchange agreements for technical expertise with them.
They have put this in place at a time when all they wanted was to protect the local companies. Right now, when I go out and talk to giant construction companies that they try to protect over the years, about teaming up because we are bringing in the Canadian expertise, the engineering expertise in specialized sectors, they welcome that alliance now. They are not as opposed to it as one could have imagined.
Senator D. Smith: When it comes to solving problems, where there is a will there is a way. Are you saying that you think the Brazilians have the will to try and solve this?
Mr. Ray: I think so because the growth in several industries, including the oil and gas industry, will be limited by this constraint in specialized labour.
Senator D. Smith: Are you nodding in Edmonton?
Mr. Rakievich: Yes.
Senator D. Smith: You agree?
Mr. Rakievich: Yes, I agree to the answer to your specific question. What we are still experiencing is that legacy of a protectionist culture and that is what created where we are today. The only reason we are able to have what I described as our best revenue year in Brazil is because no one in Brazil can make what we make. That is the only reason we are able to sell and our customers who are buying and importing our products are holding their nose and paying the big tax and paying the big bucks because they do not have much choice either.
That is great short term for us but if we think long term that is not sustainable. Somebody will be in there doing what we do and then my market will disappear. Our job is to be proactive and make sure that our Canadian manufactured products and our technologies get developed and get utilized in that market for a long period of time. That is what we are trying to navigate.
Senator Mahovlich: Over the years, Canada has been known to have mines in Brazil. Have we built up confidence with the Brazilians doing business with them? Do they look towards Canada as a good business partner?
Mr. Ray: I do think so. However, I have to say at this moment the experience with the Canadian companies has been good. There has only been one event that keeps coming up in the aeronautic business that created some tension between the two countries in years back. However, in the mining sector the experience has been positive.
Senator Mahovlich: We have a good reputation?
Mr. Ray: I think so. That is why we need to keep promoting the good Canadian brand. It is positive.
Senator Mahovlich: I am from Toronto and we have a lot of Brazilians there and we are well thought of.
Senator Finley: Good soccer players too, Frank.
Mr. Rakievich: In the seven or eight trips I have taken to Brazil, in the oil and gas — I can speak for the oil and gas industries — there is a tremendous amount of respect between the Brazilian companies doing business there and the Canadians that are also working with them. It is very interesting. I met so many people that have had either college age children or themselves had taken some of their education in Canada. Canada is very well known and well respected in my view. That is something the Canadian government can use as an anchor point. Is it bad enough to try to sort out trade barriers, but it would be really bad if we had a bad relationship to begin with culturally or otherwise.
The good news is I think there is a tremendous amount of respect certainly between the Canadian business people and the Brazilian business people, and the general population. That is a great start.
Senator Mahovlich: Is the oil and gas business in Brazil mostly offshore or onshore?
Mr. Rakievich: Right now there is so much talk about the offshore. The offshore is where the largest reserves are, but the onshore part of the industry is just starting to grow. The trouble they have with onshore is the lack of infrastructure. We know of a Canadian company, for example, that has created a land rig where they can disassemble it and helicopter it into the jungle to get it into the site because of the infrastructure of roads. The next thing is it is great to drill a well but how do you get the stuff out of there? You need pipelines and other things.
The land is going to grow. It is the smallest part now but there are a lot of opportunities. It just needs more infrastructure, and that will take time.
The Chair: We have many more questions. We want to explore why the region of Belo Horizonte seems to be on everyone's conversation list and why there is not the activity from some of the other states. However, we have run out of time and it would be unfair to the next panel. Therefore, I have a feeling that we will back to you in Edmonton and elsewhere to follow up more specifically.
This has been extremely helpful. We moved from enthusiasm and pessimism to some practical steps, and I appreciate that. I hope that some of your thoughts and certainly some of your wisdom will be reflected in our report.
Thank you very much to Mr. Rakievich, Mr. Laurin and Mr. Ray.
Honourable senators, I should say that it has been the policy of this committee for many years not to do background introductions on our witnesses. That material is received by committee members, and we want to maximize the time for presentations and questions.
We now have before us representatives of Transport Canada. Kristine Burr, Assistant Deputy Minister of Policy, is here, along with Marc Rioux, Director of International Air Policy.
I am sure you have read our testimony. There are many questions, and we are constantly being told, anecdotally and otherwise, that this is one of the impediments of improving both government-to-government but also business-to- business and other ways our relationship with Brazil.
I think the questions were put to you. The floor is yours for an introduction and then I will go to questions as usual. Welcome to the committee.
Kristine Burr, Assistant Deputy Minister, Policy, Transport Canada: I would like to thank the committee for inviting Transport Canada to speak about the recently signed Canada-Brazil Open Skies Air Transport Agreement. We have prepared a deck, which we will leave with the clerk for further information.
The Canada-Brazil Open Skies Air Transport Agreement was negotiated pursuant to Canada's international air transport policy, which is called the Blue Sky policy. Before I touch on the agreement itself, we thought it would be helpful to you to have a very short context on how our air agreements are negotiated and implemented.
As you may be aware, the negotiation of international air transport agreements worldwide is conducted on a bilateral basis following principles set out in the 1944 Convention on International Civil Aviation, which is called the Chicago Convention. It is often mentioned when airline agreements are discussed. This convention is founded on the principles of non-discrimination and the sovereign right of states to manage their own air space. Canada and Brazil, along with 188 other countries, are signatories to the Chicago Convention.
Commercial aviation in the post-World War II period was also heavily influenced by a 1946 air transport agreement between the United Kingdom and the United States. This very carefully regulated agreement became a very early model for thousands of other air transport agreements that were to follow. We have been moving from a world that was very tightly regulated to a world that has become more open over the last few years.
It is important for us to remember, though, that air transport agreements are treaties, which means they are binding instruments under international law. Consequently, they should not be entered into lightly because they have long-term consequences.
Air transport negotiations are driven by national self-interest, and Canada can only accept this reality as well as the framework of the Chicago Convention globally. This means that we are rule takers as opposed to rule changers in the world of international air transportation.
The Blue Sky policy guides our negotiation of these agreements. Its objectives are to provide a framework that encourages competition and the development of new and expanded international air services that will benefit travellers, business, shippers, tourism and anyone using air transportation. In doing so, we create commercial opportunities for Canadian airlines to grow and compete successfully in international markets, and we enable Canadian airports to market themselves with greater flexibility to Canadian and foreign airlines.
To the extent that the traffic rights we negotiate are used by carriers, our efforts support Canada's international trade objectives, such as the Global Commerce Strategy, the Americas Strategy and the Federal Tourism Strategy.
Finally, the Blue Sky policy aims at supporting a safe, secure and viable Canadian air transportation industry.
I would note that other recent transportation policies, such as the Asia-Pacific Gateway and Corridor Initiative and the Atlantic Gateway, also complement Canada's trade agenda by providing connections between our transportation system and emerging markets.
The Blue Sky policy was developed following extensive nation-wide consultations with airports and air carriers; provincial, territorial and municipal governments; and other private stakeholders. We took into account the nature of the Canadian economy, our very large geography and dispersed population, and our air industry. Some of these are unique to the Canadian reality.
Under this policy, we pursue the further liberalization of air transport agreements and, in particular, seek reciprocal Open Skies type agreements when it is in Canada's overall interests. These agreements are reciprocal because the rights and provisions apply to both parties.
Before each negotiation, our team analyzes the particular case of the other country to decide how far we want to liberalize as there are times when we feel the more prudent approach might be warranted. For instance, considerations that can influence our approach include discriminatory airport access or problems with facilitation limitations in a particular country, and problems with the business environment; for example, rules on the transfer of funds or provisions on double taxation, which may impede the ability of Canadian airlines to operate commercially. From time to time, when foreign carriers appear not to be behaving in accordance with rational business principles or are protected from normal market disciplines, it results in a markedly imbalanced playing field vis-á-vis Canadian airlines.
In the five years since the policy was adopted, we have negotiated new or expanded air transport agreements with close to 60 countries. Whereas we had two open agreements before the Blue Sky policy came into effect, we now have these types of agreements with over 40 countries, which collectively represents around 72 per cent of our international passenger traffic. Close to three quarters of the traffic is now covered by agreements that have no practical operating restrictions. In addition, many of our other agreements have unused rights, which means that new services could take place without having to renegotiate a treaty.
I know you are interested in the BRIC countries, so I will mention that both China's and India's agreements at that point in time have unused rights, which means new carriers can enter tomorrow. This brings me to the Canada-Brazil Open Skies Air Transport Agreement that was concluded last February and signed during the Prime Minister's visit to Brazil in August.
Brazil is currently Canada's twenty-first largest international air transport market and, with its growing economy, is considered to have significant bilateral traffic generation potential. Canada approached Brazil to launch discussions on an expanded agreement in 2010. This led to the successful negotiations that took place in February of this year.
The new agreement allows for an unlimited number of flights by airlines of both countries — and it is important to note this is unlimited number of flights for both passenger and cargo — access to all cities in each other's territories; liberal pricing provisions; liberal code-sharing provisions, which means an airline industry marketing practice where airlines can cooperate in ways to grow their traffic; and unrestricted services to and from third countries. For example, Canadian carriers can combine service to Brazil with service to a third country.
Since the ratification process can be lengthy, Canada and Brazil have agreed to apply the provisions of the new agreement on an administrative basis. This means the new rights are available for designated airlines to use right now. As per Canadian policy, the agreement will be tabled in the House of Commons for 21 sitting days. Following that, the government can continue with the domestic ratification process. Once both signatories have completed their internal ratification process, they will confirm this step via diplomatic notes. It is at this point that the agreement will become binding under international law.
Currently, Air Canada operates daily flights between Toronto and Sao Paulo. It also cooperates with the Brazilian airline TAM to transport passengers to other Brazilian destinations and TAM's passengers to other Canadian cities.
In consultation with the Canadian Tourism Commission and others, we know there are positive tourism and trade opportunities that will spur growth for air traffic for airlines in both countries. Happily, we now have an air transport agreement that will give airlines all the tools they need as private sector players to accommodate that growth. This Open Skies agreement is yet another example of the Blue Sky policy at work. We are hopeful we can accomplish more in the future.
I thank you for your time and Mr. Rioux and I would be pleased to answer any questions the committee may have.
The Chair: Thank you. That was extremely helpful, putting it in context. I think I learned more. Some things I should have known and some I have forgotten. That was well put in the context of what we need to think about when we talk about the impediments at the moment to businesses and their wish to have more access.
I have a list, so I will turn quickly first to Senator Downe, followed by Senator Fortin-Duplessis and Senator Finley.
Senator Downe: You indicated Air Canada has a direct flight to Brazil. Do any Brazilian airlines have any flights to Canada?
Ms. Burr: Not yet, but we are hopeful.
Senator Downe: We heard from a previous witness a few weeks ago, who indicated we only had 72,000 visitors from Brazil last year, which seems to be directed to the difficulty in obtaining a visa. I assume once the visa issue is solved, this agreement will make it easy for airlines to increase their travel load.
Concerning the ratification of the agreement, does the federal government ratify it alone or do they have to involve the provinces?
Ms. Burr: I think it is federal jurisdiction, so we are responsible for this solely at the federal level.
Senator Downe: How difficult is it on the Brazilian end? Do you know that?
Marc Rioux, Director, International Air Policy, Transport Canada: At the Brazilian end, I believe they have to submit the treaty to their congress and the congress must approve it. There are some steps they must go through.
Luckily for us, and this is a bit different from trade agreements, as was mentioned in the introduction, we are able to apply this agreement on an administrative basis right away because it is exclusively under federal jurisdiction and does not require implementation legislation and because it has no impact on the budget of the federal government. We are able to put at the disposal of airlines the rights that have been negotiated. On the Brazilian side, they were also able to do this.
While the current agreement can be used by airlines to launch new services, it is not binding under national law. However, carriers usually accept that fact and they often launch new services on the basis of an agreement that is only being applied on an administrative basis. For the airlines, that is very important because it is a very dynamic business and they can use the agreements to exploit commercial opportunities very quickly.
[Translation]
Senator Fortin-Duplessis: Welcome to both of you, Ms. Burr and Mr. Rioux. I have a quick question about the recent Open Skies agreement between Canada and various partners, including Brazil. This agreement is likely going to significantly change the architecture of the sky as we know it.
If the agreement leads to increased competition and therefore to a drop in prices, are you not worried that it might put passengers and the environment in danger?
Ms. Burr: With this type of agreement or link, we are first and foremost concerned about safety and security. We look at the other issues too, but safety and security are the main objectives for Transport Canada and the Government of Canada.
Senator Fortin-Duplessis: Do you feel that partners from other countries and Brazil have the same concern, or does Canada seem to be the only one to care about security and protection?
Ms. Burr: I think that almost all the countries are members of the International Civil Aviation Organization, whose headquarters are in Montreal. Countries like Brazil are also concerned about safety and security.
Senator Fortin-Duplessis: A number of airplane crashes have occurred in Brazil. So that was their area of weakness. Their security programs did not seem very effective. I assume they will be making an effort to overcome those challenges.
[English]
Senator Finley: Good morning. I have a few technical questions about the agreements generally and a couple of specific questions about Brazil, if I may.
In determining Blue Sky agreement, is this driven by your sector of the government, or is it driven by some other economic force, such as an airline or maybe even a hotel chain? Where does the impetus start?
Ms. Burr: I will ask Mr. Rioux to answer that question because one of his responsibilities is to help develop the negotiating plan for a given year. The responsibility resides with the Minister of Transport, but we work very closely with the Minister of Foreign Affairs and the Minister of International Trade and that department. Mr. Rioux will give you the details.
Mr. Rioux: An interdepartmental process is in place. It is led by Transport Canada but involves other departments in the government to help us determine which countries we want to negotiate with.
The process takes into account several considerations. The first one is the commercial priorities of Canadian airports. For instance, they may have discussions with foreign or Canadian carriers about a new opportunity. Sometimes the argument could be an impediment to that opportunity. They would tell us: "We would like you to negotiate with country X so we can remove this impediment and then we can have a new service." Similarly, we consult with Canadian carriers, obviously, because they are the ones who carry the goods and people between the countries. They also have their commercial considerations. We work closely with the Department of Foreign Affairs and International Trade because they advise us on international trade concerns.
There was a question earlier about safety and security. On the security side, before negotiating with a country we always consult the Interdepartmental Working Group on Aviation Security, which is chaired by Transport Canada and on which sits the whole national security community in the government. We always run our ideas by them on negotiations and the countries we would like to negotiate with.
Senator Finley: In terms of the impetus, for example, how would I get a Blue Sky agreement going with Mongolia, if I were so inclined? As part of your process, do you consider immigration clusters? For example, there are high numbers of Chinese immigrants in Vancouver and Toronto, but perhaps not so many in Hamilton. Is that part of the equation? Do you do that or do the airlines do that?
Mr. Rioux: We do not do that at Transport Canada, per se. That information would have an indirect affect and be reflected in the size of the market between Canada or certain provinces in Canada and other countries. The size of the market is something we look at Transport Canada. I was explaining the process. The variables include international considerations, the size of the market and where people are applying.
Of course, the tourism factor is important. This year under the Federal Tourism Strategy, the government consulted the tourism sector, who told us that Brazil has big potential. We are marketing in that country, and we think it will lead to demand for air services. We take all of these factors into account. There is not one particular variable that drives the whole process all the time; it depends on each case.
Senator Finley: Are ethnic or immigration clusters considered?
Mr. Rioux: Yes.
Senator Finley: Ms. Burr mentioned fairness and equitability. A number of world airlines are extraordinarily heavily subsidized by their governments; they are flagship carriers, if you like. If they are not currently subsidized, they are underwritten; i.e. their government would never allow the airline to go under. How do you balance that against carriers such as Air Canada, for example, which has to operate without the benefit of a safety net from the government in terms of service, pricing, overhead and facilities. How do you balance all of that?
Ms. Burr: We look first and foremost at the country-to-country traffic and how much traffic there is, how much traffic there will be, and the potential growth. That is one of the driving factors. There is no doubt that in some parts of the world, level playing field issues are a concern. We try to look at each case in terms of the potential for traffic between these countries.
It gets a little more complicated when airlines have a model whereby their market is focused on traffic beyond the immediate city pair or country pair. At this time, our policy is to focus solely on country-to-country traffic.
Senator Finley: I will tell you where I am going with this. We know that certain airlines have tried to open in Canada with an initial purpose of flying from A to B, but their long-term purpose is actually to fly from A in Canada to C, D, E, F, G and H in other countries. Presumably, that is fairly strictly regulated.
If someone were to negotiate a Blue Sky agreement with Transport Canada and then breach that agreement, would you have the power to immediately cancel that Blue Sky agreement? Is there some form of judicial process or international court that you would have to go to?
Ms. Burr: As I mentioned in the presentation, these agreements are treaties, so they are hard to rip up immediately. This is one of the reasons that we tend to be somewhat careful about how we negotiate. Mr. Rioux, do you want to speak to this from a technical standpoint?
Mr. Rioux: Yes. These are risks that we would analyze before going in and that are built into the negotiating mandate. These risks would inform us about how far we want to go with a particular country. Our approach is on a case-by-case basis.
The issue of traffic that you mentioned can be a risk. The issue is whether there is an undue reliance on that kind of traffic and whether there can be offsetting commercial opportunities for our industry in that country. Sometimes there are, and so we accept that, and when there are not, we have to be more prudent.
These treaties have a termination clause that says with one year's notice a party can inform the other party that it plans to end the treaty. It is rather rare to find this clause invoked, but it is in the treaty. It has been used on a few occasions before, by both Canada and some of our partners. That tool is always available, but you have to think twice about cancelling the whole treaty when there is only one problem.
Senator Finley: Ms. Burr also mentioned in her presentation the phrase "liberal pricing provisions." Can you define "liberal pricing provisions"?
Mr. Rioux: It essentially means that airlines can react very quickly to changing market conditions in terms of the prices they charge. It is very flexible.
Senator Finley: Airlines operate in a market-driven world and not under a government regulated structure.
Mr. Rioux: Yes they do that in terms of getting prices approved by the other country, filing on time, et cetera.
Senator Finley: As you came to the decision and conclusion to negotiate a Blue Sky agreement with Brazil, which we all agree needs to be done, there must have been some statistics of future passenger traffic growth projections. Are those publicly available and, if so, where might we find them?
Mr. Rioux: There are commercial databases that would provide data traffic between the two countries.
Senator Finley: What about the forecast?
Mr. Rioux: I am not sure whether those companies do forecasts. We do some forecasting within Transport Canada.
Senator Finley: Can we see those figures?
Mr. Rioux: We can ask about them.
Ms. Burr: Yes.
Mr. Rioux: In the case of Brazil, we can see that the market has been growing. We are fairly confident that the growth rate will probably increase due to the active presence of the Canadian Tourism Commission in Brazil, its marketing of Canada in Brazil, and its spending of money in Brazil to market Canada. That helps to stimulate demand.
Senator Finley: I am not looking for the numbers in any way to criticize decisions. We all agree it needs to be done and if it will help spur tourism and business, we are totally in agreement.
I was asking for them because they might give the committee a framework in terms of potential numbers and growth of passengers over the next few years.
Ms. Burr: If I may respond to the question, another factor, as I mentioned in the presentation, is the analytical work we have been doing on the Asia-Pacific Gateway and on the Atlantic Gateway as well. In our work on the Atlantic Gateway, we were well aware that Brazil is a country with an enormous amount of trade potential for Canada. Those studies and the work we are doing with the Atlantic Provinces and with the Atlantic Canada Opportunities Agency have helped us to increase our knowledge of the potential for economic activity. That too would be a factor going forward.
The Chair: As a supplementary, Brazil is almost as large as Canada is geographically. Currently, Air Canada flies into Sao Paulo but there is potential for more flights throughout Brazil. Are you tracking that? Was that part of the Blue Sky agreement? I am mindful that Brazil stopped flying to Canada, which I presume was their decision. Anecdotally, we heard they may have stopped because they have more lucrative markets elsewhere or they did not see much business or tourism activity here. I do not know if any of that information is available. Do we need to broaden our focus because concentrating on Sao Paulo alone has not worked well? There is a push back that we should look somewhere else to the future because Brazil is changing.
Ms. Burr: As Mr. Rioux mentioned, we regularly canvass all the stakeholders, the airlines and others we have mentioned. The airline business is very dynamic. Carriers regularly decide to come in and go out of countries. I am sure whether we know if there are plans for other Brazilian companies.
Mr. Rioux: One of the factors that helped us to decide to negotiate with Brazil was that some Canadian airports, and one of our carriers, were seeing opportunities in that market. The carrier had plans to launch new services and could not because of the previous agreement, which was a constraint.
When we negotiate these agreements, we put in place a framework within which carriers make commercial decisions. While we hope there will be new services, we cannot guarantee it. It is up to the carriers to decide what to do. Up to this point, there are no Brazilian carriers flying to Canada. We would like to see a carrier come to Canada and offer additional services, but it is up to them to decide what they want to do.
Senator Downe: This goes back to the problem that our previous witness identified. The visa is a hindrance. This framework is for the future. Assuming you get the restrictions lifted, then, in a country of 190 million, if you spend additional funds in marketing, you will increase that 72,000 figure dramatically. Then airlines will be interested in flying into Canada, and more Canadian airlines will fly to Brazil.
You have a foundation here for what we hope will be a prosperous future. It is certainly not the reality today because of the restrictions on visas.
Senator D. Smith: I fly a lot and look at maps all the time, so I am always intrigued by this stuff. Sao Paulo is bigger than Rio, but Rio is more of a tourist destination. I have been to both places, though not recently enough.
Air Canada flies Toronto to Santiago and then Santiago to Buenos Aires. Those are two different countries, so they can get away with that. Could they not do both cities if they did not carry any passengers between Sao Paulo and Rio? I would think that is something that might work. Has that ever been explored?
Mr. Rioux: From a regulatory point of view, they could do it. It comes back to whether it is commercially viable for Air Canada to do that. They could fly from Canada to Sao Paulo and drop some passengers, then continue to Rio and drop the rest of the passengers.
Senator D. Smith: They have not shown any interest in that?
Mr. Rioux: You would have to ask them.
Senator D. Smith: Having been to both cities, I guess you would go to Sao Paulo for business. If you are visiting one or the other, though, I certainly know which one I would take. I would head for Ipanema or Copacabana.
The Chair: Personally, I would stay in Sao Paulo because you will be at the beaches and we are doing business.
The other problem is airports. In Sao Paulo, there are the two airports and now, with having to switch, it is the same thing as living in Regina and having to come to Ottawa. It is generally through another city and there is the frustration of delays, weather and connections.
You are saying there are opportunities between Brazil and Canada, and the only limitations would be the commercial ventures themselves and any other impediments that are naturally in the country. We have carriers that say they want to come into certain places. Perhaps the airport cannot accommodate them, or they are asking for special favours. They have to live within the agreement. If they can live within the agreement, then it is a commercial decision. We can be the power of persuasion and we can encourage, but it will be, finally, their decision.
From that, are you telling me that there are no further airlines now in Brazil that are subsidized, other than through tax concessions or anything that other countries might give to their companies?
Mr. Rioux: The main carrier is TAM, and I understand it is a private company.
[Translation]
Senator Robichaud: In response to Senator Smith's question, you said that a Canadian carrier can take passengers from within the country to São Paulo. Can it take passengers from Rio to São Paulo?
Mr. Rioux: No, that would be cabotage, which is not in the agreement.
Senator Robichaud: It is the same thing for Brazilian companies that want to come to Canada.
Mr. Rioux: That is it.
[English]
The Chair: There are possibilities of sharing. That is helpful.
If there are no further questions, this overview of the Open Skies agreements and, in particular, Brazil has been extremely helpful. I have to thank you for coming and adding to our study.
Senators, we are adjourned.
(The committee adjourned.)