Proceedings of the Standing Senate Committee on
Foreign Affairs and International Trade
Issue No. 6 - Evidence - Meeting of May 4, 2016
OTTAWA, Wednesday, May 4, 2016
The Standing Senate Committee on Foreign Affairs and International Trade met this day at 4:18 p.m., to study foreign relations and international trade generally (topic: bilateral, regional and multilateral trade agreements: prospects for Canada); and to study recent political and economic developments in Argentina in the context of their potential impact on regional and global dynamics, including on Canadian policy and interests, and other related matters.
Senator A. Raynell Andreychuk (Chair) in the chair.
[English]
The Chair: This is the Standing Senate Committee on Foreign Affairs and International Trade. We are authorized to examine such issues as may arise from time to time relating to foreign relations and international trade generally. Under this mandate, the committee will continue to hear witnesses today on the bilateral, regional and multilateral trade agreements: prospects for Canada.
To date the committee has held many meetings on this topic and heard from academics, experts and government officials, and today is no exception. I'm very pleased to welcome, by video conference, the Honourable Yves Fortier, a lawyer, an international arbitrator and a former diplomat who served as Canada's ambassador and permanent representative to the United Nations in New York from 1988 to 1992.
Welcome, Mr. Fortier.
I'm also pleased to welcome Mr. Hassan Yussuff, President of the Canadian Labour Congress, accompanied by Pierre Laliberté, Senior Economist.
I thank all of our witnesses for being here. I'm sure all of you have testified before, so we would like to hear an opening statement and leave some time for questions.
We are looking at possible forthcoming agreements, but we thought as a committee it was important to take stock of the trade agreements that we have been involved with and get varied perspectives on the point of view of agreements but in the context of economic development, security and prosperity for Canada.
Welcome to the committee.
[Translation]
Hon. Yves Fortier, P.C., Lawyer, Cabinet Yves Fortier, as an individual: Honourable senators, I'd like to begin by thanking you for the honour of inviting me to appear before you this afternoon to discuss the use of investor-state dispute settlement mechanisms in the context of trade agreements between governments.
The committee is studying bilateral, regional and multilateral trade agreements. Today, I would like to focus on the Comprehensive Economic and Trade Agreement between Canada and the European Union, or EU, a multilateral trade agreement known as CETA currently subject to approval. Specifically, I am going to address the chapter of the agreement that deals with investment.
Inclusion in the chapter of an investor-state dispute settlement mechanism is probably the issue that has sparked the most controversy. The EU's resistance took many Canadians by surprise, not only because the EU held so steadfastly to its position, but also because the principles underpinning that position were so striking.
I, myself, was quite surprised when I read and heard the grievances of the EU representatives, who were critical of a system that had proven its worth for nearly 50 years.
As my friend Pierre-Marc Johnson told you when he appeared before the committee in February, some 4,000 investor protection bilateral agreements have been signed around the world. Canada has signed more than 80. Like NAFTA — a regional multilateral agreement to which Canada is one of three signatories — almost all of those bilateral agreements include a chapter that sets out a dispute settlement mechanism to resolve complaints between investors and the host state, and that mechanism is arbitration.
I must confess, from the outset, that I have somewhat of a bias when it comes to this topic, given that, for nearly 25 years, ever since I returned from New York, I have been working almost exclusively as an international arbitrator. I assume it was in that capacity that I was invited to appear before the committee today.
Since 1992, when I returned from New York to Montreal, I have served as an arbitrator on more than 150 international tribunals charged with considering trade disputes, investor-state disputes and disputes between two states.
As you can see from my CV, from 1998 to 2001, I had the privilege of serving as president of the London Court of International Arbitration, as the first non-European to be appointed president of the court. So it's an area I know a fair bit about. I have to tell you that's why I was surprised to hear so much criticism, at the 11th hour, from various groups — some less informed than others — who opposed the arbitration mechanism, which, imperfect though it may be, is far better, in my opinion, than the hybrid legal mechanism that was negotiated.
Now that I have given you a bit of background on my experience and admitted to my partiality, but not my lack of objectivity, mind you, I will return to the issue at hand.
I have noted that the resistance to the investor-state dispute settlement mechanism CETA was to initially include is two-pronged.
The first prong revolves around the notion that advanced legal mechanisms at the national level better protect integrity and independence than any arbitration system could. As I tried to explain, the history of international trade arbitration would seem to empirically reject that viewpoint. Commercial operators, including those who transact business between Canada and Europe, arguably two jurisdictions with some of the most highly respected legal systems in the world, have a clear preference for arbitration.
The second prong of resistance is based on the opposing line of thought, with permanent international tribunals being viewed as superior to ad hoc arbitral tribunals. Unlike national tribunals, permanent international tribunals tend to maintain the key characteristics of arbitration. Their jurisdiction normally depends on the parties, who give their consent and usually have a say in the constitution of the tribunal dealing with the case. Therefore, permanent international tribunals are, for the most part, institutionally designed to duplicate the constitutional protections of legal independence associated with national tribunals, and that may be seen as a vote of confidence for internationalization and a vote in favour of some form of institutionalization based on the national tribunal model.
As we all know, the second prong of resistance is the one that prevailed. Although the investor-state dispute settlement mechanism negotiated by the previous government was consistent with that adopted by Canada in other agreements, the resistance to the mechanism that emerged when the United States and the European Union were negotiating the Transatlantic Trade and Investment Partnership, or TTIP, forced Canada back to the negotiation table, as Pierre-Marc Johnson so articulately explained to the committee.
The latest draft text of CETA proposes the creation of a completely new system, comprising an investment tribunal and an appeals process. This marks a fundamental change in approach, and should raise questions about whether an agreement as significant as CETA should be the first to set out a new mechanism.
Questions could also be raised about whether the flaws in the arbitration mechanism warrant its replacement by an untested and hastily created mechanism, the ramifications of which are not yet known. The success of international arbitration, its capacity to establish and shape a system based on international legal principles and to hold states accountable under those principles, cannot be denied. While no doubt flawed, the arbitration process is now an integral part of highly advanced international practices that contribute to international governance in a meaningful way. It would seem more reasonable to build on and improve these established practices than to disregard them altogether in favour of an uncertain model seemingly based on internal legal analogies and whose merit remains questionable.
In order for justice and the rule of law to become entrenched, the development of common cultural, social and legal practices is essential. And that can happen only with time. What I humbly hope to convey to you this afternoon is that the development of these practices will go hand-in-hand with the political will articulated in the agreement, determining whether CETA realizes its full potential.
[English]
Thank you very much. I'll be happy to answer your questions in either of Canada's two official languages.
The Chair: Thank you, Mr. Fortier.
Mr. Yussuff?
Hassan Yussuff, President, Canadian Labour Congress: Thank you for the opportunity to address the issue of trade and investment agreements.
The labour movement is keenly aware that trade is and always has been an important feature of the Canadian economy. However, while trade agreements bring benefits, they do not always increase trade, improve economies and benefit Canadians.
When we look at the proposed trade agreements, we ask whether they meet three basic tests. Do they help our economy create jobs? Will they improve labour and social conditions? Will they strengthen our democracy?
In the 1980s, we were told free trade was essential because, relative to the U.S., Canadian productivity was lagging and that giving up the ability to protect sectors with tariffs or manage trade, such as the Autopact, would force Canadian producers to become more efficient. Any losses would be offset by gains in jobs and lower prices for consumers. Thirty years later we have not only lost hundreds of thousands of good manufacturing jobs, but we have also seen dismal productivity growth, especially compared to the U.S.
In the age of free trade, Canada has gone back to being an exporter of semi- or unprocessed natural resources. Canadian innovation has also suffered. Research and development spending is now only at 0.8 per cent of GDP. In the 1980s, Canada was the sixth most technically complex economies in the world. By 2013, we were number 33. Finally, recent trade agreements have increased the economic deficit, which is now a chronic feature of our economy. We are now seeing greater income wealth inequality virtually in all participating countries.
If anything, signing a trade agreement has so far been a failed industrial policy. Now we are called upon to ratify two new agreements: the TPP and CETA.
The CLC does not want our government to ratify the TPP. Why? First, it would give corporations more rights to sue while leaving workers less protected. Second, it will of course lead to a massive job loss in the manufacturing sector, seriously undermining supply management in dairy and poultry. Third, it would lower food safety standards and increase our prescription drug costs, which has already been acknowledged. Fourth, it would also limit the ability of countries to fight climate change.
Unlike the TPP, unions and civil society in Canada and Europe believe CETA offers an incredible opportunity to create a trade agreement that actually works. We are united with the European Trade Union Confederation to call for five changes to the text. First, the investor court system and investor-state dispute settlement mechanisms should be removed from CETA. They are not needed in an agreement between countries with fully developed and effective court systems. Second, CETA must require participating countries to ratify and fully implement ILO core labour conventions. If participating governments really want CETA to be the gold standard of trade agreements, violations of labour provision must be subjected to sanctions.
Third, we propose that the final agreement requires a full review of the merits and effectiveness of both investment and labour provisions within five years of ratification. Fourth, CETA must contain a positive list of its service commitments, and no ratchet or standstill clauses so that public services are fully excluded from the deal. Fifth, local governments must maintain the right to attach social, economic and environmental conditions to public procurement.
Governments use public procurement to promote public interests by, for example, creating local jobs, providing training for local workers, promoting affordable housing, supporting local businesses and protecting the environment. If ratified as is, CETA will curtail local governments' rights. This is especially troubling while governments everywhere are being called upon to fight climate change and address economic uncertainty.
Madam Chair, of course we are debating these agreements in a time of growing inequality, economic instability and, undeniably, a climate crisis. All trade agreements must reflect reality or not be ratified at all.
Thank you for your consideration. We are open to answering questions from the committee members.
Senator Johnson: Good afternoon, gentlemen.
Mr. Fortier, you are one the world's top arbitrators. I would like to gain insight into investor-state dispute settlements. One of the main criticisms of these settlements is that the very possibility of a case being initiated by companies against governments could create a regulatory chill or reluctance by governments to make new regulations in the public interest.
Another is that ISDS mechanisms are not sufficiently transparent and the members selected for arbitration tribunals are not fully impartial, particularly since some act as legal advisers in other cases.
Further, it is also claimed that these tribunals sometimes favour investors by interpreting certain provisions in investment agreements too broadly. The interpretation of the principle of fair and equitable treatment of investors and investments has been criticized for its variability from one tribunal to the next.
Can you give us your response to these criticisms?
Mr. Fortier: How much time do you have, senator?
Senator Johnson: All night.
Mr. Fortier: This is a series of very good questions.
As I said in my opening statement, I appreciate that the system of arbitration is not perfect. It can be improved. Significant improvements have been made over the years.
The criticism that the investor is given a free hand at suing the states is probably the reason why, when NAFTA was negotiated, the United States was very reluctant to accept a mode of settlement which was dependent on arbitration. Eventually they signed on. There have been a number of arbitrations against the United States since NAFTA was signed. The United States has won them all. They haven't lost any of them. So the United States has become somewhat more receptive today to the system in place.
As for the lack of transparency, you are absolutely correct, senator, initially one of the bases of arbitration was that it would be confidential. As a result of a number of decisions, some of which I have participated in, there is now much more transparency than there used to be. Some of the hearings are open to the public. There are situations where third parties come and join the arbitration as amicus curiae, so that criticism is no longer as valid as it was initially.
Senator, you've touched on another point that I'd like to pick up on. There are some arbitrators who also continue to serve as counsel. I have been an advocate for many years of arbitration being seen as a profession. This is what I have implemented in my professional life. It has been 15 years now since I've done work as a counsel. I act exclusively as an arbitrator because, as I said, I consider it a profession, and a very noble one. Sometimes when I'm asked what I do for a living, I say I'm an international judge. As a judge, I should not also be an advocate.
More and more members of the international arbitration community are doing the same. I'm not the only one advocating that if you are an arbitrator, you should only be an arbitrator. There are many of us around the world, and there are more and more.
There are arbitral institutions where, if you serve as an arbitrator, you are not allowed to also serve as an advocate. I am a member of the Court of Arbitration for Sport in Lausanne. My colleagues and I who serve on that tribunal are not allowed to represent a party as an advocate.
I predict that ICSID, the International Centre for the Settlement of Investment Disputes, which is an arm of the World Bank, is going in that direction. Sooner rather than later, that will be a general rule, but it's a very valid criticism.
[Translation]
Senator Rivard: Welcome, Mr. Fortier. Had I read your presentation beforehand, I would've asked you this question. For lack of a dispute settlement mechanism, which system would fix the problem? You said that, government aside, be it the former or the current, the old formula was the right formula.
Something else you said in your presentation struck me: you were surprised that the EU's representatives showed up at the table with this demand at the 11th hour. What is your take on that? Was it to buy time? We know that certain members of the European Community are very reluctant to sign and approve the agreement. Romania and the Czech Republic come to mind; their citizens were under a visa requirement for travel to Canada. Is this simply a tactic to further delay the process? Or would you argue that this dispute settlement mechanism should be implemented and that all we can do is lament the fact that we didn't think of it first?
Mr. Fortier: Thank you for your question, Senator. I should have handed out my little pitch beforehand. I read Pierre-Marc Johnson's remarks to the committee in February and I think he did an excellent job of explaining the situation. He has first-hand experience, whereas I, do not. He's a good friend of mine and he told me that most of the opposition came from the U.S. It's odd; the agreement is between Canada and the European Union, but much of the criticism originated in the U.S. and was upheld by the EU. If I understand correctly, the EU ultimately showed up at the negotiation table demanding a legal mechanism, as opposed to a system of arbitration. As I explained to you earlier, there has never been such a system, so it worries me — not having experience with such a system in another bilateral or multilateral agreement, myself — to see it introduced under an agreement as important as the Comprehensive Economic and Trade Agreement between Canada and the European Union.
But the pressure came from the United States. The arbitration system is the target of criticism, some of which is entirely warranted, as I mentioned. But to decide, after 50 years, to abandon the mechanism in favour of a new one in the context of such an extremely important agreement as CETA is risky. We will see what happens. Judges will be appointed to the tribunal on a permanent, full-time basis and can therefore not sit on other tribunals. I don't think it will be easy to find distinguished lawyers in Canada or the EU who will agree to sit on just that one tribunal and to stop serving as arbitrators in numerous other cases. I am very eager to see how successful the measure will be.
[English]
Senator Downe: I have a question for the representative of the Canadian Labour Congress. You outlined five points you would like rectified in the trade deal. It seems to me they all relate to a loss of control in this country: a loss of control on procurement, labour standards, investors' rights and governments' rights. Is that not the overarching issue here: that we have moved to some agreements and it's conventional wisdom that all these agreements are great?
I note today in the newspaper that our exports have fallen again. I have tracked these agreements closely, and I am not sure if other countries are more prepared than we are, but after we sign them our trade deficit seems to increase rather than decrease, particularly with Mexico. The United States is very positive for a host of reasons that we know about: our close, long-time relations. But with other countries like Peru and Jordan, where is the benefit for Canadians? Where does this lack of control as a trade-off return positive benefits to Canada? Would these conditions create those benefits?
Mr. Yussuff: We think, as the agreement has currently finished a legal scrub, with the proposed changes we are seeking, it certainly will improve these agreements significantly. As you know, most of our trade with Europe right now is pretty well tariff free. A small percentage of our trade is still subject to tariff.
The reality is that what this agreement would do is bring in a permanent regime as to how to govern our relationship going forward. The areas we address are to ensure we don't have an unequal relationship with Europe.
Right now municipalities, in their decision, the local rate bearers base the taxes at the local level. If they decide on procurement, they want to add local content for job creation; they have the right to do that. We are not saying you have to restrict who should apply. Ultimately, they should be able to assess conditions. If they decide, for climate change reasons that they are leading on — most governments are following municipalities — they want to put conditions that would meet climate change objectives, they have the right to take that into consideration.
On the labour side it's greatly acknowledged in the agreement that labour is an important provision that should be in the agreement, but it has no enforceable mechanism. Fundamentally, we are saying that if this is so important we should put mechanisms to ensure countries actually comply with the requirement that we state in the agreement in the first place.
By the way, Europe is developed. This agreement is not with a third-world nation. This is with the developed world. We should have the maturity to say these are things we can address in a concrete way to ensure this agreement provides what ministers have been saying, that this will be the new gold standard for negotiations at the international level. It's quite possible. We have seen changes to the state-investor provision. Most of what has been suggested publicly in the legal scrub is positive, but we think we can go further than that.
Canada and Europe have very developed legal systems. Why isn't it sufficient to deal with disputes from investors, whether they are international or domestic investors?
Given our experience with NAFTA, it's fundamental that we ask these questions. How much are we prepared to give up as a sovereign nation to act in the interests of regulating our interest publicly without having to be sued by some multinational that believes we are somehow impeding their ability to make profits?
We have done this thoughtfully, recognizing that if there is an agreement that we can work to improve, the CETA agreement speaks to that reality.
Senator Downe: The CETA agreement is one thing. The Trans-Pacific Partnership is quite another, because you are dealing with underdeveloped, second- and third-world countries. Of course, it may all be academic, given the U.S. election results that will come this fall. I assume you have different conditions for the TPP than you would for the European agreement?
Mr. Yussuff: The TPP agreement is not subjected to any amendments. You either vote it up or down, simple as that. We met with the Canada trade negotiator who negotiated the deal and asked her a basic question: What was her mandate? She wasn't given one. Get an agreement.
Now that we are able to properly examine the agreement, it will seriously damage the manufacturing base in this country, and specifically heavily damage the auto sector, which is still the base of our manufacturing in Canada.
You can't fix this. The Americans, by the way, sought and got almost 25 to 30 years to remove their tariffs for Japanese autos. We have five years to remove that tariff. Most of the Japanese investment that we have been able to secure in the decades leading up to that investment will dry up and there will be no more new investment in our country. The parts sector will suffer enormously. You have heard from other witnesses who have come before this committee state how it might affect our research and development going forward.
Putting the TPP aside, it's a much greater challenge for this country and it will do some tremendous damage. You are right that it's quite likely that the mid-term or presidential election in the United States will solve the problem and this agreement will simply disappear. Will it come back in some other form? I hope our government is better informed as to whether or not they would want to sign similar provisions in this agreement.
Senator Downe: I have one last short question on the TPP negotiation. I assume you had suggestions to the government. Were any or all of them accepted?
Mr. Yussuff: No, actually the government did not consult with us prior to the negotiation of the agreement. The text was not released. Since the new government has been in office, we have met with Minister Freeland twice. She and her representative have been involved in this negotiation, and I think she understands where we are coming from. She said, "Listen, we can't amend this agreement." The challenge we have in this country is that we either ratify it or we don't. We are going to wait to see what happens in the United States before we move forward.
Senator Johnson: Mr. Yussuff and Mr. Laliberté, it says on the CLC website that you support international agreements that promote economic equality, encourage the creation of good jobs, support the interests of working people and ensure ecological sustainability. According to the CLC congress, the TPP is a deal that is bad for Canada. On what studies or data did the CLC base its findings that the TPP is a bad deal for Canada? How do you think Canada ensures that the agreement it negotiates promotes job creation and workers' interests?
Mr. Yussuff: To start with, about 97 per cent of our trade with TPP countries is already tariff free. We will give up sovereignty and, of course, management of the areas important to our country. Most of the rules that we're operating under now are NAFTA rules. If the TPP was to become the new agreement, all of the rules currently under NAFTA would disappear. Of course, it will apply to TPP countries.
In terms of the job losses that we have identified, we believe most of those losses will be in the auto industry, according to an analysis provided to us by one of our affiliate organization, Unifor. They have done a complete analysis of how this agreement will affect that particular sector.
Second, I think all three manufacturers have now joined with Unifor to say they have strong reservations about the TPP and what they think it will do to the auto sector as a whole.
Senator Johnson: Mr. Fortier, the modifications to CETA's investment chapter clarify concepts such as the right of states to regulate "fair and equitable treatment." They also claim to improve the independence of transparency of arbitration tribunals as well as establish an appeal mechanism.
Could these modifications influence other agreements on investment at the international level? Should Canada draw upon these modifications when negotiating agreements on investment protection?
Mr. Fortier: That's a very good question, senator. Will the exception that we find in CETA be successful? It may be, but I have my doubts.
As I said to Senator Rivard earlier, I don't think it's going to be easy for Canada and member states of the European Union to find jurists around the world who will be prepared to sit, in effect, permanently as first instance or appellate judges of this hybrid tribunal that is being constituted. But you have to hope, because I think it's in the interest of Canada and Canadians that it be a success.
Will it be adopted by Canada and other countries that negotiate bilateral investment treaties? It may well be. Only the future will tell. I'm an optimist, so I'll wait and see whether or not the new system can be implemented successfully and give results which are better than the one with which we have been dealing for 50-plus years.
Senator Johnson: Are you pleased about Canada moving along in this area?
Mr. Fortier: Yes.
Senator Johnson: As an arbitrator, professionally?
Mr. Fortier: Senator, that's a very valid comment that you are making. There are some people in the Canadian public service who believe that arbitration is not the end all and be all. Let's give the judicial, or quasi-judicial, system a chance.
I know in Canada's negotiations with China recently this was put on the table as an alternative, and we'll see whether it is accepted by China.
Senator Johnson: That will be very interesting.
Senator Cordy: My question is for Mr. Yussuff. The Alberta Federation of Labour has said that provisions in the TPP related to labour mobility will distort or skew the Canadian labour market. Would you comment on that?
Also, what the Canadian Labour Congress has said is that employers, under the TPP, will be able to transfer trades or technical employees to Canada without first seeing whether or not there are Canadians who would be able to do the job. Is that correct, or not?
Have these labour mobility provisions been included in any of the other multitude of trade agreements we have signed in the past few years? We're having difficulty with mobility of trade workers across the country from province to province. I know Alberta and Nova Scotia, which is where I'm from, have signed agreements so that trade workers can indeed be mobile and the skills they develop can actually be transferable, but that's not the case across the country.
I believe we should have mobility across the country. Why do we not have mobility across the country while, because of TPP, we're allowing trades and technical people to just come into Canada?
Mr. Yussuff: I think you're asking about a very important part of our analysis. This is one area we also focused on because we believe this agreement, as opposed to others we have negotiated, has the most far-reaching mobility section in it. Our analysis of the TPP is that it will allow companies that bid on particular contracts to bring in an entire workforce if they choose to, without restrictions of the federal government. That's our interpretation of it. Of course, we have made it very clear that this is dangerous, recognizing we have no ability to determine the certification of those workers coming in.
More importantly, when our economy is already struggling with the creation of jobs, why would we allow this provision to have such a far-reaching effect? There have been some parts of the NAFTA agreement that provide for some mobility, but that's more at the technical level of managers and highly skilled people at the top. That's been used, in a limited way, to the best of our ability.
This is the most far-reaching clause in this agreement. We're now debating this across the country and raising this with the parliamentary committee. Again, we have no ability to restrict, challenge or change this clause in the agreement. We can only vote the agreement up or down, one or the other.
Your point is well taken. We have too many restrictions in our country on trades going back and forth. I think the provinces are working to try to create national standards so that workers can go back and forth under the Red Seal Program, but we don't have uniformity yet in terms of how Canadian trade workers are travelling across provincial and territorial lines right now.
Senator Cordy: I'm not saying we should never allow tradespeople to come in, depending on whether or not they are needed in a specific job and whether or not there are shortages in specific skills or trades. That would be acceptable.
We were discussing this on a bill to do with temporary foreign workers. There was concern about salaries being paid, so do you think if this becomes prevalent that it would indeed reduce incomes being paid to Canadian workers?
Mr. Yussuff: There are two aspects to consider. Workers who are under a company's supervision and here under their auspices are far less likely to complain about the conditions they may be faced with because the reality is their employment might end, and we have seen that happen under the current Temporary Foreign Worker Program. Our concerns are much deeper because we don't know what these workers might be subjected to.
Clearly a company operating in Canada should be subject to our national laws. At the provincial level, whatever the prevailing wage might be in a particular sector, well we don't know that because this agreement does not speak to it. It says workers can come in under a particular bid and, of course, we can't restrict them from being here. As to how they will be paid and treated, those are areas that would be litigated down the road. I guess we'll find out what impact provincial or federal laws may have on those workers as to how they may be treated by that employer who, of course, secured a contract to build a particular project, whatever that might be at the end of day.
We have had a lot of concerns. We have had many concerns under the Temporary Foreign Worker Program, and most of them have been proven to be true. This one deeply disturbs us because this is the most far-reaching provision we have seen in any trade agreement with regard to the mobility of workers coming in from a foreign company without having to subject themselves to our own immigration process.
Senator Cordy: Thank you.
Senator Ataullahjan: My question is to you, Mr. Yussuff. On the Canadian Labour Congress website you say that you support international agreements that promote economic equality, encourage the creation of good jobs, support the interests of working people and ensure ecological sustainability, but you also feel that the TPP is a bad deal for Canada. What studies or data have you based that finding on, that the TPP is a bad deal?
Mr. Yussuff: Some of the data is already available. Let me go back and start with the one area we have not talked about. Prescription drugs we know will go up significantly. The agreement already speaks to that. I think the estimated cost is close to $900 million that will need to be added to provincial and territorial budgets to pay for the increased costs because of the protection we will provide to pharmaceutical companies. That's one area in terms of costs.
In terms of marketing boards across the country, they have less protection, and of course they will now have to compete with much more foreign products coming into our market, so clearly it will have an impact on those sectors. Similarly, our study of the auto industry, from our affiliate organization Unifor, shows that an estimated 20,000 jobs will disappear in the auto sector.
I worked for General Motors for many years. The ability to attract investment from Japanese multi-nationals in Canada, when they can source to any one of the TPP companies at much lesser cost, will be restricted. China will be given a huge opportunity to put parts on vehicles. Even though China is not a TPP country, the companies can source from China and add that content to their cars or manufacturing products and ship them into our country. Our analysis is based on where we examined specific sectors, and I'll allow my colleague to continue on that. A couple of studies have been done internationally on the TPP agreement in terms of job losses.
Pierre Laliberté, Senior Economist, Canadian Labour Congress: Actually, this has been an issue with the TPP. We have been asking for the government to do thorough studies and reviews and have yet to see anything that resembles this. Other groups have done some macro studies, and these studies you always have to take with a big grain of salt, but the C.D. Howe came out recently with one study. A researcher from Tufts University has also done a study that encompasses all the TPP countries. The results converge on one thing: the economic impact aggregate over time is minimal.
However, it does have differential impact on different sectors. For the TPP, as for the CETA, the sectors that tend to gain are all natural resources sectors or agricultural sectors: beef production, pork.
It speaks to the point that was made earlier as to what direction we want this economy to go. If we want to build a Canadian economy that's truly sustainable, clearly further investing and further going down the resource route will lead us into a conundrum at the very least, if not a stalemate.
Those are the hard questions that are kind of pushed aside whenever we talk about trade issues, instead of really squarely looking at the reality in front of us and asking how we meet the immediate challenge in front of us and ensure that we create good jobs.
Clearly manufacturing has been a big loser, and I will leave it at that. Thank you.
Mr. Yussuff: One of questions we asked the federal government was whether this was done under the previous government before the conclusion of the TPP agreement, and had they done an impact study on the economy overall to see both the benefits and losses. The Minister of Trade back then said there was a study done; Minister Freeland has said they can't find any study in the government vaults that was conducted, an impact study on how the TPP will affect the economy and how it will affect jobs and what sectors specifically.
We have requested the government to do an impact study on how this agreement will benefit Canada. Whether or not they are in the process of doing that, we don't know, but we have asked them to do that. We think it is fair that when previous agreements have been signed the government has always produced some macro data to suggest how it will help the economy. In this particular case there is no study to make any argument pro or con, so we are relying on those that have been done. Of course they said there will be minimal improvement in terms of wages and growth of the economy as a whole.
Senator Oh: I want to follow up on the question from Senator Cordy just now regarding investment. We commonly hear that Canadian labour costs are too high. Regardless of the TPP coming or not coming, you are going to face steep competition from all over the world.
You mentioned losing jobs in manufacturing. Probably more will be lost if we are not competitive enough on labour costs. Investors are not coming. Does your organization look at this, and how do you improve competitive labour costs to international?
Mr. Yussuff: Competitive labour costs, labour costs is only one part of a manufacturing strategy. There is technology, training and a whole bunch of things that have to be considered. I will refer to one, the auto sector. The labour cost is the smallest part of the whole cost of why companies locate here.
If you look at the Canadian auto industry, it is as competitive as any auto sector around the world. We are highly competitive; we make a quality product. In terms of cost, yes, Canadian workers are paid better, but more importantly they produce a very good product for the companies here and they are profitable.
It is not just labour costs you have to look at. I think we have to look at the overall competitive reality between countries and are they encouraged to raise their standards. Will we simply lower the standard to the point where none of us can co-exist in making a decent living?
The whole idea of trade is to lift people to have a better wages and working conditions. Since we have signed this agreement, we have been seeing a downward pressure on wages and social conditions in our country. Fundamentally we have to stop and ask the question: What is trade supposed to do? Is it only supposed to improve a small group of people's wealth or is it supposed to be shared broadly with the rest of our society? That is a fundamental question both for a government but more importantly in terms of how we are going to work with countries to ensure they bring their standard up rather than use that to create downward pressure to attract investment.
Mexico was given a good opportunity to participate in a North American economy. If you look back 20 years later, are Mexican workers' conditions any better today than 20 years ago? I think overall most people would argue they haven't improved, yet they've gained a competitive advantage. They have failed to improve and enforce their labour laws.
The reality is we are locked in an agreement and, despite all the commitments made, it is yet to be realized. By the way, we don't hold them accountable with regard to what they committed to in the agreement. Never mind anything I am saying, what is in the agreement?
It is a fair question you are asking. Is it simply lowering workers' costs that will give us more competitiveness? Many factors must be considered. Skill levels of workers in our society, investment in technologies, how much are Canadian companies investing in technology? What is the research investment in this country to create new products and add value to that? These are fundamental questions. It cannot simply be based on workers all being paid minimum wages. Will that get us more jobs in this country? I'm not sure, but I think you are asking a valid question.
Senator Oh: How do you increase the productivity? That is important. I did not say you have to lower the costs. You mentioned a loss of manufacturing jobs, and probably more will come. If you are not more competitive, how do you tackle the international problem? You will just have a job-loss problem.
Mr. Yussuff: For quite some time the federal government has been using its budget to encourage companies to spend more money on their equipment, to buy new equipment and improve manufacturing and productivity in the workplace. Year after year, Canadian companies have failed in that responsibility, despite generous tax incentives for them to do so.
Your question is the right one. It should also be asked of employers who come before this committee to testify: how much have they done to add research capacity; how much have they done to invest in buying new equipment and machinery; and how much have they invested in training of their workforce? These are all relevant questions if we want to increase productivity. We would like to see our members receiving more education and training because that will improve their skills to be more competitive.
Mr. Laliberté: You are right. There is a certain fatality to this. As manufacturing redeploys itself worldwide, it is somewhat normal that Canada loses its edge. It's not entirely a wrong premise, but it's questionable.
There is always this false conventional wisdom that somehow manufacturing goes down in all advanced countries. It's not true. Some countries such as Japan, Germany, Switzerland and Austria are investing in applied manufacturing vocations. They have managed to keep their edge and maintain their position worldwide despite fairly high wages.
In Canada, free trade has, in a sense, has created redeployment where many of our manufacturing champions have moved away from or not done the investment to give us the edge. This is really the conversation we should be having. How do we make this happen? In what way do these trade agreements help us make it happen? We have it the wrong way. We pursue trade agreements as if by definition they will get us there. It's a false premise.
The Chair: We have run out of time, and a moment ago Senator Ngo put his hand up. We're running into the next panel. Is it a burning question?
Senator Ngo: It's a burning question.
The Chair: We'll hear the question and determine how we respond to it.
Senator Ngo: The CLC says the labour provision in the TPP has no guarantee for basic workers' rights to form unions and collective agreement. However, we know that the United States has negotiated a side deal with the Vietnamese, to use as an example, to focus on other things, and among those is freedom of expression.
We also know that Canada has recently signed a side agreement with Vietnam spelling out ways to improve labour standards within the country. Is the CLC familiar with those arrangements? Will that arrangement be effective?
The Chair: We need a very short response. You can follow it up with any written comments you wish.
Mr. Yussuff: In the context of the TPP, this simply is inadequate. Here are the most sophisticated countries negotiating a trade deal. They think labour is important to reflect in the agreement, yet they don't require any of these countries to ratify the core labour agreement of the ILO. This is a fundamental failure of leadership, in my view, and to say the only way to achieve this is to have a side conversation over here and maybe sort out the problem.
First, there are no incentives for these countries to raise their standards and no incentive for these countries to ratify core labour provisions of the ILO. Second, why would we give them trade access to our country if they don't meet basic human rights requirements in the 21st century?
The Chair: Thank you.
I wanted to thank Mr. Fortier for coming on a very specific area with his expertise. To come clean, I worked with Mr. Fortier in the diplomatic core. He was always very succinct and helpful when answering questions. I appreciate the years of experience that you've had in this field and that you have given us your time very generously.
Mr. Fortier: Thank you very much, Madam Chair.
The Chair: To the CLC, this is a continuing venture that we have with you. We include you on any of these issues. We started to touch something that is very important to this committee. We talk about trade agreements. We talk about pluses and minuses and winners and losers, and how to reinforce trade agreements.
However, we started to touch on what is more important, the economic development issues, productivity and research and development. We hope that our committee will add to that debate and not just look at specific trade agreements. We've had some witnesses who have said just that. You cannot just look at a trade agreement; you have to look at the other supporting mechanisms and the atmosphere. We hope we contribute that to the Canadian debate as the House of Commons is looking more specifically in drilling down on the agreements.
We appreciate your input and starting a dialogue. Thank you for coming.
We now turn to our second panel, and during this part of our meeting we will hear testimony as part of our study on recent political and economic developments in Argentina. The committee has heard from several witnesses on this study, including the Argentine ambassador to Canada.
I am pleased to have by video conference Mr. Daniel Kerner, Practice Head, Latin America, Eurasia Group. Mr. Kerner has spent many years analyzing political, economic and regulatory developments in Latin America, with a special focus on Argentina, Chile, Mexico, Brazil, Peru and Venezuela. That covers much of our interest in previous studies and where we hope to go with our present study.
Thank you for being with us. We are running a little late, so we welcome your opening remarks.
Daniel Kerner, Practice Head, Latin America, Eurasia Group: Thank you very much. It's an honour to be here and to participate in this session. I'll try to give some very general and brief remarks as to how we are seeing Argentina and to understand what is happening. I will be happy to go into more detail on any issues that you would like to discuss further.
The most important thing to understand about Argentina is that the country is undergoing a very significant transformation and transition. It's not something that is unique to Argentina. It is something that we are going to see and are seeing in many Latin American countries, but it is happening in Argentina at a faster pace and with certain characteristics that make it an interesting case.
You not only have a new government with a different orientation, but you have a paradigm shift in terms of how the government works and views the economy and the world. If you think about Argentina over the past 12 years, it has been a very different story. Since the previous political group came to power, first the former president Néstor Kirchner and then his wife, Cristina Kirchner, everything that happened in Argentina was a function of two things: First, the way the Kirchners understood politics, the economy and the world, which really was a very political and conspiratorial view of how things worked. For them anything that happened in the economy or the world, they saw it as something that was designed to weaken them, and hence the response was usually increasing state intervention to address them. That was true of diplomatic relations, inflation and energy problems.
The second characteristic is there was a very high degree of concentration of decision-making power in the hands of the president. That meant that, together with the particular view they had, governments had very short-term time horizons and the quality of the decisions and the policy responses tended to be low, and the quality of the advisers and the people working there also tended to be very low.
Those two things have changed materially in Argentina since the new government came into office in December. First, we have a government that has a much more normal, modern and rational understanding of the way a modern country and modern economy works, and a much better understanding of what the problems in the Argentinian economy are and how to deal with them.
We have a government that has a different worry of managing the country, a much more decentralized organization with a president that makes decisions but, for the most part, ministers and undersecretaries have power and are knowledgeable over their areas, and that has been a major change in the way Argentina is being run.
The current government has been focused on trying to normalize Argentina's economic and diplomatic situation, dealing with a stagnated economy and has high inflation of approximately 25 per cent. When the new government came into office, it was in default, had a substantial problem in terms of the fiscal account, very draconian foreign exchange controls and bad relations with the world.
The government has been moving decisively, trying to address this and move Argentina back into a normal situation. The path has not been easy. The reason is because the inheritance has been difficult. The economic situation was not easy. Much more importantly, the government had limited political room to make many of the needed adjustments to improve Argentina's macroeconomic and microeconomic situations.
President Macri won by a very tight margin. The now-opposition Peronist party has a majority in the Senate. It has large representation in the lower house. Argentina is a federal country and controls most states. Former President Cristina Kirchner left office with high levels of support, with approval ratings of between 45 and 52 per cent, depending on which pollster you rely on.
I mention this because this tells us is that, in contrast to previous years where there have been major transformations in the Argentine economy, the population was not feeling or experiencing a crisis and thus the appetite and tolerance for major adjustments is very limited. That's why what we are seeing is a government that is trying to advance decisively but cautiously in the terms of the adjustments it is making, really betting that some of the transformations and this new way of managing politics will improve business sentiment and lead to an investment-led recovery, especially in the second half of the year, that will allow President Macri to consolidate his power. The government has been able to lift most foreign exchange controls, so there are no more restrictions for companies operating in Argentina.
It has been trying to do a fiscal adjustment, although I think you know that is where some of the problems have been, and has settled with holdout creditors to gain and regain access to international financial markets, which is essentially where I think the government will really start to focus.
What you have now is a government that will continue to try to advance in that direction, trying to really put a lot of emphasis in improving Argentina's not only macroeconomic situation but really relying on foreign direct and indirect and financial investment while they make more of an adjustment on the domestic market, hoping this will play out well and allow Macri to stabilize his political situation.
We are already starting to see some of the problems. Political opposition has been increasing. You have seen more opposition in Congress, with Congress passing legislation that really affects the government's efforts. Labour unions are starting to mount. I think really what we're seeing is segments of the population that are suffering from the adjustment and a government that wasn't really prepared to deal with it.
So I think going forward what you're likely to see is this discontent continuing to rise, the political situation becoming a little more complicated, but I think the government still has enough tools at its disposal to turn Argentina around, at least compared to what you have before.
As I said, the political opposition is a little bit divided. There is enormous appetite in financial markets for Argentine debt that could run at some point into some trouble. But there has been a lot of under investment in a number of sectors in Argentina, especially the infrastructure sector, which is the one the government will try to focus on and try to get as much foreign direct investment into the sector. Energy is another sector where you will see more efforts in spite of lower prices, and hoping that all of this allows the government to essentially do well.
In my view, this is an experiment that will probably turn out well, but the risks are not trivial. The main risks I see are that the government gets into more trouble, leading to a wavering in its efforts to implement the fiscal adjustment so the fiscal situation gets complicated, inflation remains high, business confidence doesn't recover, and thus the president's popularity remains low. Next year's mid-term elections are very important because if the government doesn't do well then I think there are going to be very serious doubts as to the government's ability to really stabilize Argentina's economic situation.
Just to conclude, I think what you see is the government will continue advancing in this positive direction. I think there are some low-hanging fruit and positive aspects that will allow the government to deliver on most fronts, but with substantial risks that it under delivers or relies too much on financial debt. With that, and being conscious of your time, let me stop and I'm happy to address any questions that you may have.
The Chair: Thank you, Mr. Kerner. You certainly have covered a lot of ground. Two points that I just ask you to add to your submission. Number one, we have heard that of course the President has an understanding with the opposition leaders who also want to change the economy, not the Kirchner element, per se, but the opposition, that they were tending and trending, so they have supported him. Is this sort of coalition of understanding, not a coalition politically, still holding?
Secondly, to what extent is the Brazil issue impacting on Argentina? We have asked that question before to witnesses. Finally, the position of Argentina moving back to more international relations, will this impact the countries around South America? I want to take the opportunity to ask, because you're an expert in those areas.
Mr. Kerner: Sure. On the first one I would say that it's still going to be an issue of negotiations, issue by issue. I think you're right that most of the Peronist opposition is not controlled by Cristina Kirchner, and the power in the party has gone back to governors and governors want political stability, economic stability and financial resources. So they will support the government in issues that help them on those areas. They will not support the government in areas and issues that affect them.
We are starting to see this governor viewing the government as weaker and trying to exploit those weaknesses to extract more resources. Last week the Senate approved, by a very ample majority — the same Senate that approved the deal that allowed Argentina to settle with holdout creditors — a bill that will ban companies and the government from layoffs of people for six months. Obviously this is a very negative development for a government trying to improve the business climate. The President will veto it, but I think this is a good example that they will support them in certain areas and try to hurt them in others, and especially trying to extract financial resources.
Over time, I think as we get closer to next year's mid-term election, forming this coalition is going to become harder and harder. A lot will depend, this year at least, on where Macri's popularity is. If the economy doesn't recover as rapidly as the government hopes, then I think you will see more and more opposition. If Macri remains popular then they will be a bit more cautious.
The issue of Brazil, I think the main impact it is having is on the economy. Argentina's industrial sector is very tied to Brazil, and you are seeing the numbers of industrial exports suffering quite a bit from that. So it makes the recovery much harder. I don't think there is necessarily a direct political implication, but it just affects the government's ability to really rekindle growth in a very key area, which is the industrial side. Essentially that's why I think the government will, in the end, have to rely a lot more on infrastructure than on the real economy.
Finally, in terms of international relations, I think yes to some extent. I think there is a regional phenomenon, which is that as we're exiting the commodity super cycle and governments are struggling more and more with their external accounts, with their fiscal accounts. Because commodity prices are lower and growth is slowing down, you are starting to see throughout the region a move towards more market-friendly, right-wing governments just because the governments that were in office when the commodity super cycle started were on the left. So you are already starting to see in every country a move towards looking more for trade because of their own constraints.
Now in the case of Argentina, especially in Mercosur with Brazil in trouble, with Argentina looking to expand trade and with Uruguay and Paraguay a little the same, I think you will start to see more and more pressure there to expand trade relations. The problem in Mercosur remains Venezuela. I think you will see the region as a whole moving there because the international economic environment has changed.
The Chair: Thank you.
Senator Downe: I read in the media recently about Argentina settling a longstanding debt problem they had. I think they settled in New York. If that's true, how does that affect their credit rating? Second, how difficult was it for them to come up with the money to settle that debt?
Mr. Kerner: Thank you. They did. They settled with all the creditors which had taken them to court in New York. They compensated them very heavily. It's very important for Argentina because essentially it allows Argentina to issue debt in international markets again, which was very difficult without settling, given the restrictions that the courts in the U.S. were putting on Argentina — not only in the U.S. but internationally.
Argentina issued $16 billion in debt. I don't think there had been any issuance of an emerging market's country of that size in more than 20 years. They did it very easily. I think in the current context of low interest rates and the fact that Argentina has been out of international markets for quite some time meant that the appetite was very big. They paid a decent interest rate, around 7 or 8 per cent. It wasn't that bad for Argentine's standard.
What you'll see now is Argentina going more and more aggressively to markets, not only the national government but also provincial governments and companies. This is very important because this is the cornerstone of this government's economic strategy, which is that they can finance a gradual adjustment on the fiscal front and thus on the inflation front. Argentina has a fiscal deficit of around 4.8 per cent of GDP because there is all this appetite in markets. If that appetite suddenly goes away, then it's going to force the government to make a much more decisive and painful adjustment, and I think then the story becomes more complicated.
Senator Johnson: Good afternoon, Mr. Kerner. President Macri's fast and sweeping reforms, and we have heard about them from other witnesses we have had in our study, will result in a lot of short-term pain for the people of Argentina but will likely result in longer-term gain. How long, in your estimation, will it take before the people and the economy of Argentina start reaping the benefits of access to international bond markets, private investors and the increased trade that results from that?
Mr. Kerner: The government thinks that you'll start to feel the effects in the second half of the year, and in a more meaningful way next year.
I am much more skeptical than that. I think that the government is making some reforms but not all that are necessary, and it's taking a very gradual pace, especially on the fiscal side. The more political troubles it faces, the more it's going to waiver in terms of its intentions and efforts to do so.
My own sense is that you'll start to see a decline in inflation in the second half of the year for sure, but it will still be around 20 per cent. You'll start see a very mild economic recovery in the second half of the year, and then maybe some degree of economic recovery next year, driven by an appreciation of the currency and some of this investment.
It's hard for me, to be honest with you, to see a very substantial recovery. If this is enough for this government to do well in next year's mid-term election — and I'm skeptical of that, but it's a possibility — then I think you will start to see more improvements in the second half of Macri's mandate, meaning 2017-19.
I am skeptical that you will really start to see a substantial recovery, just because the distortions were very large and the political room to make these reforms is limited. As the government is already starting to feel the constraints, I think the impact is going to be a bit more subdued.
Senator Johnson: I have a question about the famed Argentinian prosecutor Alberto Nisman who, in January 2015, was found dead in his home after openly investigating Iranian involvement in the 1994 terrorist attack on a Jewish center in Buenos Aires. There remains such controversy around his death, as well as the role of the previous government therein. What can you tell us about this case, and what does this say about the state of the rule of law in Argentina?
Mr. Kerner: Let me start with the state of the rule of law, which, I think, is not the best. What you're seeing now — and I'll talk about the case — is an increase in advances from federal judges investigating some cases of corruption of the previous government.
I think that tells you a lot, because what you see is that the same judges who didn't investigate the previous government for 12 years have suddenly decided to investigate some cases — but not all of them, and not the entire political class. Essentially what this shows you is the judiciary in Argentina is extremely politicized and usually goes with the political winds. That's what you're likely to see: more cases tied to the former President and, to some degree, of corruption, but not, I think, beyond that. There will not be many investigations on this government until it is unpopular or is out of office.
Specifically on this case, it's a very confusing one. Nisman was a particularly controversial figure to the extent he was in charge of the investigations for a number of years. The investigations didn't advance. He relied quite a bit on the advice of the U.S. government, and much less on other clues emerging in Argentina as to other connections to the case. We really don't know anything about who bombed Argentina, other than speculation. He didn't investigate that much. It's unclear how much evidence he really had on President Christina Kirchner, and thus who was involved with that.
It's likely you will see some advancement on those investigations as federal judges try to hurt the former President, but depending on who actually was behind it, I would be skeptical that we will see a lot. What I mean is that if it really was just the former President, then we will probably see something. If, as some people believe, it had much more to do with the Argentine intelligence service and those of other countries, then you probably won't see that much.
Remember that the two bombings were in 1993 and 1994, and to this day we don't know who did them. I wouldn't be surprised if in 20 years we still don't know what happened to Nisman because of the different incentives that affect the judiciary in terms of advancing against some of the more corrupt parts of the Argentine state.
[Translation]
Senator Rivard: Mr. Kerner, we have heard from a number of witnesses about Argentina's economic and political situation, and in reading the documentation, I see that Argentina still hopes to reclaim the famous Falkland Islands it lost during the Falkland War almost 35 years ago.
Could you explain to us briefly why Argentina, despite all its problems, still wants to retake the Falkland Islands? Is it revenge for its defeat 35 years ago? Are there economic benefits to having the islands, for instance, as regards fishing area boundaries, or is it strictly a matter of pride?
[English]
Mr. Kerner: On your last question, it's surprising to me the level of popular support that the idea of the Falkland Islands has in Argentina, in spite of the enormous British influence there. The Argentine elites want to go and study in Great Britain instead of in the U.S. or other parts of Europe. The issue of those islands being Argentine is very hard to argue against, and it's very ingrained in the population for reasons that I don't fully understand, to be honest with you. It's a little more irrational and nationalistic.
In terms of practical issues, I think you know the Argentine military was enormously weakened following the fall of the dictatorship in 1983 and a number of reforms and enjoys very little support. Any military venture is almost out of the question in Argentina.
The previous government wanted to do a bit more. They tried to limit relations with the islands — banned flights to the islands and passed legislation that would affect companies engaging in activities of oil exploration in the Falklands — which had limited impact, but they tried.
The current government has little intention of doing anything. If anything, as I tried to explain, improving Argentina's relations with the world and attracting foreign direct investment is extremely important for this government.
I think what you'll see happen is that the rhetoric will remain unchanged. The government will not push any legislation, and I think they will try to go back, as much as they can, to the policies that Argentina had in the 1990s: essentially putting the discussion of sovereignty of the Falkland Islands under an umbrella and engaging with Great Britain as much as they can without talking about those issues. You will see that more and more as they try to attract more investment into the area.
The only thing that I think could change this is if at some point there is a meaningful discovery of commercially viable oil exploration in the islands. That would have an enormous impact and, if that happens, any Argentine government will be under great pressure to do something because everyone in Argentina will feel that's oil that we have.
Since that seems unlikely, at least from on what I know, I wouldn't expect them to do anything beyond this. It's an issue that has been a very important part of the way Argentines think about their own country for almost 200 years. I don't think it will go away.
The Chair: I think there is oil exploration and other minerals, but also the question of whether the Falkland Islands will go to some form of self-determination model of referendum. Would that trigger one?
Mr. Kerner: No, I don't think so. If they want to go, there could be more noise in Argentina. But it's unlikely to trigger real efforts to reclaim the islands if they suddenly become independent. For that to really mobilize beyond that it would have to be some issue related to the economy.
The Chair: As a committee we studied Brazil. When we brought up Mercosur and perhaps some economic relationship through it from the Canadian perspective, we were told, no, it started as a customs union. It's not going to expand and it's not interested. I think we were somewhat muted in our comments within our report about that.
We know that Europe is engaging in, as they call it, a free trade negotiation with Mercosur. What is your take on that? Should Canada be thinking of looking to Mercosur as a lever for some economic relationship?
Mr. Kerner: Yes. There are two things that are happening in Mercosur. One is that as global economic conditions have become less favourable for Latin America the pressures on governments to find new avenues to expand trade are growing as governments are feeling more external constraints.
You have big pressure there, especially in the two big countries: Brazil and Argentina. As far as I know, there is a growing feeling in the economic and political elites in both countries that Mercosur hasn't lived up to expectations and that it's a little more of a problem.
When you had leftist governments and external conditions were favourable that was less of an issue, but it was still under discussion. Now with more market-friendly governments in both countries, you will see more of that. As I said, two of the smaller countries wanted to have free trade agreements with other countries for a long time. Venezuela, as long as it remains where it is, is going to be the biggest problem.
The way it may end up working is that the pressure from the bigger countries is going to make the rules of Mercosur more flexible: to either allow the bloc to sign and explore new deals or individual countries. It's a process that is starting in both countries. Argentina and Brazil may go together at some point. More and more they will want to go.
If the TPP is finally approved, that will be a big wake-up call for this government to the extent that they will see the expansion of trade in the Pacific and they won't want to miss it. If that's not approved, then that wake-up call won't happen. Overall, the need for trade and FDI will push governments in one direction. It's something that governments in both countries will be more willing to have conversations about.
The Chair: Thank you for succinctly covering so many areas. We look to your organization and group around the world. Today is no exception. Thank you for your input, and we have pressed you for some suggestions but we have also pressed you for some crystal ball gazing, and you have effectively answered all of our questions. It will be very helpful in our study.
(The committee adjourned.)