Proceedings of the Standing Senate Committee on
Foreign Affairs and International Trade
Issue 20 - Evidence - Meeting of December 10, 2014
OTTAWA, Wednesday, December 10, 2014
The Standing Senate Committee on Foreign Affairs and International Trade met this day at 4:16 p.m. to examine the potential for increased Canada-United States-Mexico trade and investment, including in growth areas in key resource, manufacturing and service sectors; the federal actions needed to realize any identified opportunities in these key sectors; and opportunities for deepening cooperation at the trilateral level.
Senator A. Raynell Andreychuk (Chair) in the chair.
[English]
The Chair: Honourable senators, we are here to examine the potential for increased Canada-United States-Mexico trade and investment, including: growth areas in key resource manufacturing and service sectors; the federal actions needed to realize any identified opportunities in these key sectors; and opportunities for deepening cooperation at the trilateral level.
The Standing Senate Committee on Foreign Affairs and International Trade is studying the issue. We have had several witnesses. And we are pleased to have further witnesses today, from the Energy Council of Canada, Graham Campbell, President; and, in his own capacity, Jean Daudelin, Associate Professor, Associate Director of The Norman Paterson School of International Affairs at Carleton University
Welcome to this committee. I'm just going to take you in the order that you are listed unless you have another preference.
I will turn to Mr. Campbell. We generally like efficient, shorter introductions so that we can leave a little time for questions and answers. The floor is yours.
Graham Campbell, President, Energy Council of Canada: Thank you to the Standing Senate Committee on Foreign Affairs and International Trade for the kind invitation to participate in your proceedings today
My remarks will focus exclusively on energy today, in keeping with the mandate of the organization I work with, the Energy Council of Canada.
Our mission is to forge a better understanding of energy issues in order to optimally shape the energy sector for the benefit of all Canadians.
What makes us unique is our diverse representation: 65 members made up of leading energy corporations; industry associations; the federal government, represented by Natural Resources Canada; and six provincial governments. We work closely with our colleagues in the United States and Mexico and as members of the World Energy Council.
I would like to start today by describing, in a way, the role that energy plays in North America from the fabric, as seen from the continental economy, its geography, its flows of patterns in trade and investment, and jobs.
Perhaps the strongest rationale for the continental agenda is economic. The continent generates close to 30 per cent of global goods and services. Canada's trade with Mexico now amounts to about $20 billion annually, albeit still a small fraction of the billion dollars a day of trade that we have with the United States.
Lastly, a reason of perhaps more current significance is that the energy scene is changing so rapidly at the moment. This increases the need for the three countries to share information and develop their national strategies so that, together, the benefits from energy developments across the country can be won.
I would like to talk about four ways that the North Americans collectively can work together to support trade and investment. The first is nation-to-nation dialogue. Our political leaders at the highest level met most recently in Toluca in February 2014.
The announcement from the Toluca meeting said that they committed to opening:
. . . a new chapter in our partnership. . . and they recognized energy as a trilateral priority. Further, they clearly stated the direction and benefits. . . securing affordable, clean and reliable energy supplies can drive economic growth and support sustainable development, as we shift towards a low carbon energy future.
With this broad direction, the energy ministers of the three countries will be following up on the high-level commitments with a meeting in early 2015. The mandate assigned to the top political leaders in February is very comprehensive:
. . . opportunities to promote common strategies on energy efficiency, infrastructure, innovation, renewable energy, unconventional energy sources, energy trade, and responsible resource development, including the development of relevant technical studies.
Canada has its turn to host this event 2015. Sustained leadership from the highest political levels in our governments is the essential top-down driver to propel the trilateral energy agenda forward. Likewise, the ministers of foreign affairs from the three countries discussed ways to harmonize energy policy in October. This discussion also included reference to the opportunity to take control of energy security for the future well-being of the three countries.
Dialogue on energy is not only confined to the three energy ministers and the foreign affairs ministers. The first-ever meeting of the Canada-United States Inter-Parliamentary Group took place on December 1 and 2, involving federal legislators from Canada, the United States and Mexico.
According to their press release, our discussions about security, energy and other issues identified opportunities where greater collaboration among us would lead to benefits for people and businesses in all three countries.
The second channel of dialogue is between states and provinces, essentially sub-national dialogue. The continental energy agenda is certainly not limited to the federal level alone. Collaboration and cooperation is also being led by state governments in the United States and Mexico and the provinces of Canada.
This is a particularly relevant plane of interaction for Canada, given the leading strong role played by the provinces in all energy matters.
An example is the joint sale of emission credits in a carbon market created between California and Quebec. This is an exciting implementation of a climate policy between two sub-national entities. An interest in emission trading as one policy means to control emissions is expanding. On November 21, the cabinet ministers of Quebec and Ontario met in Toronto and signed agreements related to energy. Among the outcomes of that meeting was that:
Québec has also agreed to share with Ontario new information learned from its participation in California's cap-and-trade program, which works to curb greenhouse gas emissions and promote sustainable economic growth.
Regulation of energy activities in a sound and sustainable manner is an essential ingredient to financial investments. Canada has a long experience with oil and gas regulation by both provincial and federal organizations.
This is particularly true in the oil and gas sector, where provincial organizations have developed mature, stable and sound regulatory regimes that are well-recognized globally. This experience and expertise is being put to good use in the context of energy developments in North America. The Alberta energy regulator will provide information, expertise and assistance to its counterparts in Mexico. The mechanism is a memorandum of understanding between the Alberta energy regulator and Mexico's minister of energy, represented by the National Hydrocarbons Commission. This was signed in June 2014.
The third channel is business opportunities. A central feature of Canada's approach to energy policy is to let markets work. In the context of today's meeting, this approach could well result in letting industry get on with business in a positive way.
The Chair: Could you speak a little more slowly?
Mr. Campbell: I'm sorry. I was trying to conserve your time.
The Chair: I think you're covering some technical issues, so a slower rate would be fine. I know the bells are a little disconcerting both to you and the interpreters, but we will try to do the best we can.
Mr. Campbell: So the third channel I'm talking about today is in the business sector. The reforms being implemented in Mexico as we speak will result in a more open market for companies to do business in a manner that is more similar to the way things are done in the United States and Canada. This opens up a strong opportunity for Canadian companies in the energy sector. Canada has a strong expertise in horizontal drilling, new techniques to access unconventional oil and gas resources, pipelines and a host of energy-related services. The guiding principles of Mexico's energy reform were described by Mr. Gabriel Heller Green during the World Energy Council North America Region Energy Forum in Calgary on June 26. The goals he identified then were: an open market environment and promoting free competition between state enterprises and the private sector under equal conditions.
In fact, energy business is already happening. Export Development Canada estimates that there are 85 Canadian companies presently active in the Mexican energy sector. According to a report by the Canada West Foundation, 3,000 Mexican firms have reported receiving capital investments from Canadian companies. Further, the Government of Mexico has permitted private investment in natural gas distribution systems since 1995. The Canada West report notes that TransCanada has estimated that its involvement in Mexico by 2016 will add up to approximately $2.6 billion U.S. The report makes the point that Canada's strong position in the energy sector and its political, geographic and economic ties to Mexico could benefit Canadian companies across the oil and gas value chain.
With respect to the electricity sector in Mexico, where reforms are perhaps even more dramatic than in the oil and gas sector, there are significant opportunities as well. In the Canadian business community broadly, interest in increased energy trade and investment is not just confined to energy executives. The Canadian Council of Chief Executives has just released its report, entitled Made in North America: a new agenda to sharpen our competitive edge.
The CCE's recommendation and its 44-point agenda are designed to sharpen North America's international competitiveness. They cover a wide range of economic and environmental issues.
In the area of energy and environment, for example, the CCE has made 11 recommendations in all.
The fourth area I would like to talk about briefly today is the work of trilateral non-governmental organizations, which play an important role in creating a supportive environment for trade and investment.
Many organizations outside of government are dedicated to strengthening the implementation of trilateral connections between the United States, Mexico and Canada. Such organizations play a key role outside of government and are a key component of fostering collaboration around specific initiatives. By way of example, the Commission for Environmental Cooperation, CEC, with its headquarters in Montreal, was created under the North American Agreement on Environmental Cooperation. The mandate of the CEC is to support cooperation among the NAFTA partners to address environmental issues of continental concern, including the environmental challenges and opportunities presented by continent-wide free trade.
The CEC has recently published reports on green buildings and on emissions from power plants in North America. These are milestone reports that help to guide trilateral trade.
In closing, I provided brief perspectives today on four channels of trilateral engagement relative to the energy sector to guide the committee's study of the potential for increased Canada-United States-Mexico investment and trade. I've talked about the level of national leadership; the level of interaction and engagement between states and provinces in the three countries; opportunities from the perspective of business, either technological or with services; and through the work of trilateral organizations.
Opportunities are available through these channels to foster increased trade in the latest technologies, where Canadian firms have world class expertise in providing energy services, such as legal expertise and professional business advice, accounting, strategic planning, through supporting the development of a sound and stable regulatory regime that provides the underpinnings for energy investment and for sharing information on energy flows and trades.
Here are a few closing thoughts. First, we're on the threshold of a completely different energy situation in North America. The promise of North American energy independence can now be seen as a reachable goal.
Second, this includes a much greater role for Mexico in the North American energy picture of the future. This brings both promises and challenges for increased investment in trade.
Third, the transition applies not only to oil and gas, but to electricity as well. More broadly, energy efficiency, the role and penetration of renewables, and good management technologies, to cite a few examples, are also being advanced trilaterally. Business is leading the way. We see this as very encouraging and in keeping with Canada's approach, built on the fundamental reliance on market forces and opening a level playing field for business to invest, to innovate and meet market opportunities and needs.
Lastly, many organizations are involved: national governments, provincial state government, business organizations, companies themselves and trilateral organizations.
Thank you for your attention this afternoon.
The Chair: We will turn to Mr. Daudelin.
[Translation]
Jean Daudelin, Associate Professor, Associate Director, The Norman Paterson School of International Affairs, Carleton University, as an individual: Good afternoon, members of the committee. Thank you for the invitation.
I will give my presentation in French and I will talk about slightly broader issues than those addressed by Mr. Campbell.
I will start with a brief summary. Even after 30 years of free trade, Mexico remains a relatively minor source of imports for Canada, a marginal destination for Canadian exports and investments, and a negligible source of direct investment in Canada.
The integration of the two economies has weakened in recent years largely because of the redeployment of the auto industry, away from Canada and into Mexico.
The liberalization of Mexico's energy sector — which my colleague discussed with great erudition — opens up significant opportunities for investments from oil and gas firms in particular.
While the decline of the auto sector is unlikely to be replaced in the relations between the two countries, Mexico has very well-established trade linkages. It has signed free trade agreements with many countries. Its robust and globally competitive manufacturing sector could offer promising opportunities for Canadian manufacturers looking for partners to produce for the Canadian or global market.
Despite the media coverage, Mexico is certainly in much better shape today than it was when NAFTA was signed in 1994: politically, socially, and economically.
Even in terms of violence, the current homicide rates are pretty much comparable to what they were back then, and the number of people killed by the police is lower than what it used to be. So there is a difference in perception, which I would be happy to discuss during the period for questions.
However, the country is currently going through a difficult political period, because of the violent demonstrations in connection with a group of young people being killed by police forces literally controlled by criminal organizations.
Even so, the government seems to be quite organized in its response, and prospects are good for multi-party support for a series of institutional reforms that could put the country on a sustainable path to institutional and political stability, as well as to broader-based guarantees of security for its citizens. The country is not chaotic right now. The central government is solidly in charge, but clearly quite a few states are extremely poorly governed by local authorities.
In addition, and this is a general constraint, Mexico is still confronted with legal uncertainty that could limit investments, especially in terms of traditional indigenous rights over land.
Trade, tourism as well as business and academic exchanges with Mexico, as well as investments between Mexico and Canada are currently crippled by the visa issue. These are very difficult to obtain, to the point where it has become a major point of diplomatic contention.
Beyond this issue, which could be resolved easily, in my humble opinion, the scale of potential interactions between Canada and Mexico certainly does not justify a deeper institutionalization. As I will explain in a few minutes, I do not think there is a need for another NAFTA.
Let me highlight a few details. Canada's exports to Mexico represent less than 2 per cent of Canada's total exports. Imports are more significant, at just under 6 per cent. We must note, however, that these numbers underestimate Mexico's importance as Canada's trade partner because of Mexico's imports that are integrated into imports from the U.S. Even considering that factor, Mexico remains a secondary trade partner as a source of imports and a marginal destination for exports. In terms of investments, Canadian investments in Mexico are at $12.2 billion, representing 1.6 per cent of the global total. I checked again today, but Statistics Canada indicates $22 million for the value of Mexican investments in Canada, which is extremely marginal.
The prospects are nonetheless interesting. North-American integration had two drivers, one of which was the auto industry. Value chains were perfectly integrated, there was a trilateral auto industry and, in addition, the United States needed energy. As you know, the auto industry is crumbling in Ontario, but booming in Mexico. This driver, which prompted NAFTA, is about to disappear. In terms of energy, the countries are not interdependent. The U.S. depended on its neighbours when the free trade agreements were signed. However, there is no interdependence right now. On the contrary, the three countries are net exporters. That opens up the possibility of joint exports. However, the mutual interdependence that could have fueled institutional construction has disappeared.
Mexico remains an interesting partner nonetheless. The 11th economy in the world, Mexico is a sizeable market. It has signed free trade agreements with 45 countries, including all major OECD countries, for all intents and purposes. For someone looking for a global export base, Mexico offers better prospects than Canada, the U.S. or any other European country.
Growth has been relatively modest in recent years and Mexico has been shaken by the U.S. recession. The GDP dropped significantly, but it is starting to get better. It is interesting to note that the Mexican economy has stabilized to a certain extent and its prospects are very good.
Although there is still a lot of work to do, a series of institutional reforms are already under way. The legal system and the police are being reformed. The reforms announced by President Nieto since he came to power promise to change the country significantly, although not all of them have been implemented. Mexico still confronts major internal security challenges. But, as I said, those institutional arrangements seem quite robust.
The current crisis could be a turning point. Clearly, the situation is very fragile, but all the parties are affected. There is no major party that can really take advantage of the crisis escalating, so it is in everyone's interest to work together to implement institutional reforms that would make it possible to manage the security situation, which is the major source of people's discontent.
While not all the reforms announced by President Peña Nieto last week are practical — we can discuss them in detail, but probably not all will be adopted — I think they are quite appealing and promising.
In terms of Canada's options, at this point, I don't think there is good justification to make big plans or have high hopes, especially in terms of institutional structures. The relationship, be it in trade, investment or cooperation, could still grow.
However, because we are talking about a minimalist scale through small initiatives that would build on what are now three decades of intense relationships, Mexico has become a normal partner for Canada, although it was not on Canada's usual policy radar.
The first issue — and I stress this — is the visa restrictions, which has now become a massive symbolic obstacle to forming and developing better relations, in addition to a very real impediment to the interactions between the two countries.
In coming years, and assuming little progress on the visa front, the most interesting development probably lies in the energy sector reforms announced by President Peña Nieto. However, this does not mean that Canada would fully benefit from the reforms; from Canada's standpoint, this evolution could have a negative impact. Let me explain. The threshold of profitability for Mexico's resources seems quite low, meaning that their oil seems to be more competitive than the oil from the oil sands, and Mexico is competing with Canada to attract global investments to the energy sector. As a result, a portion of the investments that could be directed to Mexico in the wake of the current institutional reforms might actually be deflected from, and represent losses for, Canada.
Furthermore, a point that my colleague raised at the beginning, which I had not thought of, but which seems important, is the increase in oil production that will create strong competition in terms of continental refining capacities. In that area too, the increase in Mexican production could be problematic for Canadian oil.
Thank you.
[English]
Senator Johnson: Mr. Campbell, good afternoon. A previous witness, Professor Monica Gattinger, spoke to us about the idea of establishing a North American energy council and recommended that the council's first study be an articulation of what North America's energy future might look like, different scenarios for energy mix, production flows, labour, climate change, et cetera. What do you think of this idea? We used to have a North American energy working group. Its last report was, I think, 2006.
Mr. Campbell: By way of historical comment, I was actually on the staff supporting NAWEG way back when.
I think a picture integrating the changing supply mix, the access to resources that haven't been previously allowed, and putting that together in a cohesive way would be a strong recommendation. Part of the work done previously by NAWEG was to create a North American energy picture, which was essentially a snapshot at the time of how energy flows were going between the three countries, where the growing areas were, et cetera, what the pipeline and electricity pipelines were that were feeding that system. It would be worthwhile doing in that sense.
I might say the organization I work with now, the Energy Council of Canada, has very close relations through the World Energy Council with the United States, Mexico and other Latin American countries. I have just returned from Cartagena, Colombia, and the topic there was finding a coherent integration of work by Latin American countries as it pertains to the development of power resources in one country and transmission to another. There were real opportunities there.
I'm wondering if perhaps that could be done under the auspices of the World Energy Council. I haven't talked to Monica about this, but it would be a possibility to explore. Certainly I would endorse the idea in general.
Scenarios are fraught with risk. Changed regimes can change the pace of resource development. Mexico is determined to reverse the decline in its oil production through these reforms, and they're on a path to do just that, but there are a number of uncertainties you get into with scenario planning. Generally speaking, though, I endorse the idea.
Senator Johnson: Professor Daudelin, I would like to ask you about President Peña's recently announced decision and package of measures to reform the criminal justice system in Mexico's most troubled states, and that includes constitutional amendments to allow federal authorities to assume control over municipalities where local police have been compromised by organized crime as well as other critical amendments. What do you make of these initiatives, and what are their chances of success in establishing some primacy of rule of law?
Mr. Daudelin: I think you will have to give it time. To give you an example, he wants to establish state police instead of municipal police because, quite logically, given their size and resources, they are extremely vulnerable to corruption by very rich drug trafficking organizations. The extent to which this is likely to reduce violence is unclear. There is a neat logic about this, but, to give you an example, in Brazil, the police at the state level kills more than the Mexican police, and it's also corrupt, depending on the state. It has to do with the nature of the reform. There is significant debate right now. The justice system is embedded in traditions, interest, judges. It's as if —
Senator Johnson: There are many layers.
Mr. Daudelin: Exactly, so it's a huge animal. Reform will proceed slowly, but this is not a bad idea.
To give you another example, if you want to get rid of the local police because they are corrupt, that could mean putting 40,000 policemen on the street who are quite adept at using their weapons, and compensating them, obviously, for losing their jobs. It's costly. On the other side, the overall impact on public order may not be that high. I think we should not be optimistic. We should not hope for quick change. Quick change may be bad. Slow reform, I think, should be expected, and should be sought. That's one thing.
Second, and I mentioned this but I want to insist on this, there seems to be quite a broad-based agreement among parties that something has to change. He was able to get multi-party support for energy reform. Energy reform in Mexico is like medicare in Canada, only worse, and he was able to change it. This is promising.
The fact that the particular scandal unfortunately affected politicians from the more left wing of the three largest parties is also good, because even they have to buy in to some kind of reform agenda and cooperate with the government. I'm not overly optimistic, but I think there could be a turning point and we should see these kinds of reforms as driving a tanker and not expect radical change, and not hope — again, I insist — for very quick changes because the negative implications and purpose effects of radical change could be extremely negative. I see a chance for the tanker to shift a bit with significant support.
The other thing that is very encouraging is public criticism of the government is extremely strong and doesn't seem likely to disappear. They will be held accountable through public pressure, so I'm relatively optimistic.
Senator D. Smith: With regard to the issue of the visa requirement and the crime, I have had several people indicate to me that they're very nervous about that visa requirement because of this very high crime rate and the high degree of corruption and people coming up here who are involved in that stuff. Another aspect of this is sometimes people come to Canada and then go through all this refugee status stuff and drag it out.
I have had a number of people say we need that visa requirement, given that high level of criminal activity that's going on down there. What's your response to that?
Mr. Daudelin: First of all, let's talk about violence. The violence is extremely concentrated in very specific areas. One of the reasons why levels of violence are extremely high in Mexico is because of the attempt by the previous government to change the situation, to attack the drug cartels and weaken them very quickly.
In 2006 homicide rates were at about 8 per 100,000, which is not particularly high by Latin American standards. In two years they were up to 20; it doubled. That's 8,000 deaths. This can be traced directly to an attempt by the government to adopt an extremely disruptive policy of decapitating drug trafficking organizations. I think this should be kept in mind.
In 2006, Mexico was not a very violent country. Mexico City is not very violent, but there are pockets of violence and criminal organizations are extremely powerful in some areas.
What are the risks for Canada? I think the risks for Canada should be assessed by looking at what happens to the United States. Hundreds of millions of crossings take place between Mexico and the United States, and in the last few years some of the most violent cities in Mexico and in the world were on the Mexican side of the border. The best known case is Ciudad Juárez.
Right across the border, in El Paso, Texas, was the most secure large city in the United States. If you look at homicide rates all along the border with the United States, over the last 10 years they rank among the safest cities in the United States, yet drugs and criminals go through. What should we think about that? We should look at the way in which criminal organizations are disciplined in the United States and here. When I say ''disciplined,'' there are levels or views of violence that are simply not tolerated and are impossible to sustain here, which is why we have high levels of drug consumption and a homicide rate that is ridiculous.
The possibility, from the standpoint of these very organizations, that they would move north to Canada and start killing one another as they are doing in Guerrero, is extremely unlikely.
If you want to get into the more specific discussion of the visas, there are ways to make things more flexible. They get into the United States. The United States is very preoccupied with insecurity in Mexico, and if you talk to Mexicans it's much easier for them to get into the United States legally than into Canada. From a security standpoint there is no reason whatsoever for our regime to be more restrictive than the United States.
[Translation]
Senator Fortin-Duplessis: First of all, let me welcome you both to our committee.
My first question is for Professor Daudelin. You are an expert in Latin America, including Brazil, Central America and Colombia where you studied religious movements, indigenous policies, urban violence, economic integration and social policy.
I noticed that your current research focuses on crime and violence in Latin America. In your view, in terms of the main economic, political and even cultural barriers to increased trade and investment between the three countries, can the violence you have seen be one of the greatest barriers to the economic relations between our two countries?
You know, I was in Mexico on June 22 and 23; before I went there, officials from the Department of Foreign Affairs advised me to be very careful and not walk on the streets of Mexico City. I would like your opinion on that. What do you think?
Mr. Daudelin: Let's just say that, in terms of the impact on trilateral relations, there are two very important channels. The first one is quite straightforward: insecurity and corruption at the local and state level are major considerations for companies interested in investing, whether they are resource-oriented companies or manufacturing companies. They have to be able to call the police and trust that, if a contract is violated, they can take their case to court.
From that point of view, corruption continues to play a major role. In addition, we must be able to feel that our people can work in safety and do not live in constant fear of being attacked. Clearly, that has a direct impact on investment incentives and is hurting Mexico tremendously, but I think the Mexicans got the message. No doubt that plays a role; the advice that the Department of Foreign Affairs gives people is not wrong. It is true that the possibility of being attacked on the street is probably higher in Mexico City than in most, if not all, Canadian cities. However, the level of violence has improved a lot over the past 20 or 30 years and, clearly, has led to a significant and widespread willingness from Mexican society and political elites to do something about it. Investors need to think about that, and their decisions are certainly influenced by it.
The second type of impact is indirect. When violence erupts, as it has since 2006, on the border with the United States, this causes political instability and discontent with political authorities. Right now, what happened — the killing of 40 students — is causing a significant political crisis. I think the government is doing fairly well and should come out quite well in the medium term, but this is an extremely serious crisis. It has led to political insecurity. If Enrique Peña Nieto were to fall in the wake of the scandal, all the economic reforms that we talked about would be called into question, and that would then destroy the extraordinary potential created by the liberalization of the energy sector.
So there is a direct and indirect impact, unfortunately.
Senator Fortin-Duplessis: My second question is for Mr. Campbell.
Mr. Campbell, we heard from the president of the Canadian Chamber of Commerce, David Robillard, who claimed that the Mexican government expects oil production to increase by 3 million barrels of oil per day by 2018, and that $100 billion will be needed over the next decade to develop shale gas. Unlike Canada, Mexico is moving forward with pipelines construction.
You know, Quebec has a lot of shale gas, but it cannot be developed because many environmental groups oppose it; I don't know what the situation is in other provinces. I have not read anything about it.
However, could you tell us more about that sector of the economy and explain how Canada can benefit from those opportunities?
[English]
Mr. Campbell: Thank you.
The question of shale gas development is a significant opportunity for Mexico. Geological basins on the North side of the Mexico-U.S. border continue into Mexico with similar geological characteristics. They haven't been developed on the Mexican side. The key issue with respect to shale gas development is doing it in a way that doesn't disturb the environment. This is a challenge, of course, but Mexico has an opportunity starting with the production of this particular type of geological resource and to do it a way that's more amenable to environmental protection, monitoring and control, et cetera.
I'm not familiar with the numbers that you quote, so I can't speak to the details there. But certainly a significant level of investment would be required in order to make this work.
In order to attract Canadian companies to bid on the land, under the new regime and in order to get exploration and production rights, it would require a stable regulatory regime, such that the investments could reap their full cycle benefit. I think Canadian companies would very much look forward to having this experience. You mentioned pipeline projects. There has been significant pipeline investment already by Canadian companies in Mexico. I think there is a huge opportunity as new companies come into the country to find ways to share that information such that new entrants into the market can learn from the experiences, the techniques and the practices from companies that have been there for some time. I am sure the industry would be very willing to cooperate.
Mexico seems to be amenable to proceeding with shale gas development and shale oil development. Other jurisdictions in Canada are considering the implications and have postponed for further development, as you mentioned in the question. I think there is a real opportunity at this juncture to do it in a way that is less damaging to the environment and take the opportunity with the latest technologies to do so. Canadian companies have excellent expertise in this area. We are actively developing shale resources in Northeast B.C., Northern Alberta and the Southern part of the Northwest Territories. The environmental standards are high and are being well respected.
[Translation]
Senator Fortin-Duplessis: Thank you very much, Mr. Campbell.
[English]
Senator Eaton: I might be wrong, just for the record, but to pick up on what Mr. Daudelin was saying, yes, they have an easy time legally getting into the States but how many people cross the border every day illegally? The minister has been working on making it so that if you get a visa, it's good for 10 years, for the duration of your passport, so there would still be a mechanism to discourage people from coming up as refugees. We had an interesting witness, the Mexican Ambassador, and he was talking about an energy security perimeter, which I guess when NAFTA was put together all those years ago that was the dream, the pie in the sky, that we would have one open-trade area. He talked about the fact that when a truck goes through the U.S., it is searched and when it comes back, it is searched again. He was talking about all these barriers that don't have anything to do with trade, necessarily, but costs money and makes it inefficient.
Can you comment on whether an energy security perimeter could ever be realized? And, second, what are some of the non-tariff trade barriers that you see for a more open border?
Mr. Daudelin: I touched on energy because I look at international affairs in the Americas, but I'm not an expert. Regarding the energy perimeter, I think it's a dream at this point, that's extremely unlikely to be realized for the simple reason that there is no interdependence. Each country is a net exporter. There can be, for regional reasons, some arrangements in the East, in West, in the centre, between Canada and the U.S. and between Mexico and the United States. But the idea that Mexico and Canada should work together at developing infrastructure looks fanciful to me and is not necessarily a productive way to use scarce resources.
That Mexico could be appealing for Canadian companies is extremely clear, but the extent to which Canada is likely to benefit from those investments is much less clear.
Senator Eaton: I'm looking at the fact that Saudi Arabia doesn't want to lose its market share and oil prices are tumbling. Wouldn't it be nice if North America could be self-sufficient one day?
Mr. Daudelin: We are more than self-sufficient. What we need now are export markets and they are being cut off by oil and gas being discovered all over the place. Once Argentina calms down, it will be appealing because they've had a ridiculous regime, just like Mexico. Brazil is doing now what Mexico was doing, closing off its energy sector to foreign investments, increasingly, and at some point, they will come to their senses and open up. When they do that investments will flow in and energy prices will decline even further. So the necessity that you're talking about, I don't see it existing.
Regarding the trucks, my colleague at the school, Michael Hart, says security is red tape. I think that says it all. The point is that trade is valued but security is extremely valued, too. So the three countries, on both sides, have been working for years on making trade and the circulation of people between the countries more fluid. It's a struggle. Every time I take a plane, I was in Mexico last week and it's a big pain. You get reviewed and so on, look at me, do you really think that? It's a major problem but clearly, the North American public accepts the need for high levels of security at the border.
The challenge is to find technical solutions and there is some progress. In fact, the Mexicans are quite good. The Mexican airports are better than quite a few airports in Canada at managing security quickly, but I think it's a technical issue because the fundamental political problem is security and people want security and they are willing to pay a price for it.
Senator Eaton: Is most of the Canadian relationship with Mexico tripartite, in other words, through the United States, or do we have a very good relationship with Mexico with or without the United States?
Mr. Daudelin: Do you mean politically? The relationship is poisoned by the visa issue. In spite of the number of measures taken, they are clearly seen as insufficient. If you look at economic relations, direct economic relations are not very important between the two countries. They are significant, though. At 6 per cent of imports, possibly up to 8 or 9, if you consider the Mexican component of goods that we import from the United States, it is significant. As a source of imports, we'll be increasing importing cars and car parts from Mexico because Mexican production is now significantly higher than Canada's. So trade will grow from that standpoint.
Senator Eaton: Canadian auto companies have established themselves down there.
Mr. Daudelin: Yes, that was my point before. If you look at it from the standpoint of the Canadian public, the fact that Canadian companies are establishing in Mexico and make good money there is not necessarily a huge plus when the whole of southern Ontario is being decimated by the collapse of the auto industry.
Senator Eaton: We could get into the politics of that.
Mr. Daudelin: There is a complex of reasons, and it's certainly not decisions on the part of the Mexican government. They've done their things.
Senator Eaton: Or the federal government.
Mr. Daudelin: To go back to your core question, the political relationship is not very good and economic relations are okay. Investments are likely to grow if Mexico is serious. Canadian investments are likely to grow significantly. Mexican investments in Canada are likely to remain marginal. I can't see sectors in which they would be particularly interested.
Mr. Campbell: I believe there is a Canada-Mexico partnership that's active. You mentioned whether it's a trilateral thing always or bilateral. Canada has strong bilateral relationships in the energy area with the United States, and I believe the Canada-Mexico partnership is one vehicle for the Canada-Mexico bilateral arrangement.
You mentioned security from an energy standpoint. I think the fact that three countries may be involved to a greater degree in the energy picture in North America will lead to a stronger supply side picture for energy in our continent.
That, I think, is a positive thing. It doesn't insulate us from world oil prices because a producer will have a choice, sell on the world market or sell within North America, and that will tend to equilibrate, or make the prices comparable. So it's not cheaper oil in North America; it's a more reliable source of supply for oil.
In addition to that comment, I wanted to mention the opportunity that occurs from time to time for two countries to do energy in a synergistic way. The best example is Manitoba and Minnesota have worked out an arrangement whereby Manitoba's wind power can be used in Manitoba, thereby saving the water behind the dams in Manitoba, and when the power is needed in Minnesota and the wind resource isn't available, that stored water can be used to generate electricity that flows back to Minnesota as well as meeting Manitoba demand.
The point is not that this is going to happen synergistically between Canada and Mexico. There is a geographical problem, to say the least. But certainly there will be opportunities that have come together for making those synergistic international linkages make sense.
The Chair: Thank you. We did study Brazil. One of our findings was the misconception of what Brazilians are today and the opportunities that are there and equally they knew very little about us. We were often in that case marked by some rather high profile irritants that had actually faded away but were still imprinted in the minds of the reporters, politicians and some of the general public. And one of the recommendations was to use education, students coming over and seeing the new Canada and the new Brazil — both ways. It seems to me that in Mexico, when I listened to Mexicans, they have a very unusual take on Canada, and we certainly do on them. We think of tourism, holidays and crime.
How do you propose that we can portray a more realistic picture to these two countries? We're always going over the U.S. We talk about the U.S., sometimes as a positive and negative, but it is a trilateral relationship. How do we improve the understanding of the two sides of this large giant in the middle?
Mr. Daudelin: That's an excellent point. I was at a meeting a few weeks ago organized by a Canadian organization that promotes educational exchanges for a two-day workshop on Canada-Brazil relations. Right now, there are thousands of Brazilians in Canadian universities, students who come here as part of a program established by the Canadian government called ''Science without Borders'' that they are now expanding from undergraduate to graduate students. In the Ottawa region, there are thousands of Brazilians. It's a joke. People sing sambas in Hull, whole restaurants for the whole night, and everyone knows the words. This has resulted from a massive investment of resources exclusively from the Brazilian government. The Canadian government has put extremely little money into this.
I run the PhD program, and in my shop we have demands almost every day from Mexican, Colombian or Brazilian students and they have to pay tuition that's extremely high that makes Canadian universities uncompetitive, given their reputation in the country. It's extremely difficult to attract them, in part, because not enough money is invested in this. That's an excellent channel, but it's costly, and right now we're making huge progress with Brazil because Brazil foots the bill.
Mr. Campbell: I was going to offer perhaps an observation that there is a tremendous dialogue under way now in the energy sector particularly with Brazil. Companies are new to the country. They're trying to figure out how it's going to work, what the rules and so on are. Our own organization, Energy Council of Canada, held a forum in Calgary in June. That was organized jointly with the United States, Mexico and us. About a third of the content was on what it all means for Canadian companies either in the electricity sector or in the oil and gas sector.
The Chair: You said Brazil, but you meant Mexico.
Mr. Campbell: I meant Mexico. I misspoke. There are many activities just like that going on all the time. That's within the energy community, if you like. Companies are interested in reaping the opportunities.
Likewise, Mexico has been very welcoming with this sort of dialogue. When we planned our Calgary event, it was a positive experience. They really wanted to hear from Canadians.
It doesn't get into the student issues, and that's an area I can't touch in terms of the opportunities that might exist for exchanges, research, travel et cetera, but it's beyond my expertise.
The Chair: I think we've come to the end of our time. I want to thank both of our presenters today. It has been the new fields that we touched on in our study and in one case more intense so we very much appreciate your input and expertise.
Senators, we will continue our study tomorrow at 10:30. We will have one panel. I think that will end us for this term.
This meeting is adjourned.
(The committee adjourned.)