Proceedings of the Standing Senate Committee on
Foreign Affairs and International Trade
Issue 18 - Evidence - Meeting of November 28, 2012
OTTAWA, Wednesday, November 28, 2012
The Standing Senate Committee on Foreign Affairs and International Trade, to which was referred Bill C-24, An Act to implement the Free Trade Agreement between Canada and the Republic of Panama, the Agreement on the Environment between Canada and the Republic of Panama and the Agreement on Labour Cooperation between Canada and the Republic of Panama, met this day at 5:05 p.m. to give consideration to the bill.
Senator A. Raynell Andreychuk (Chair) in the chair.
[English]
The Chair: Honourable senators, today the Standing Senate Committee on Foreign Affairs and International Trade is beginning its examination of Bill C-24, An Act to implement the Free Trade Agreement between Canada and the Republic of Panama, the Agreement on the Environment between Canada and the Republic of Panama and the Agreement on Labour Cooperation between Canada and the Republic of Panama, also known as the Canada-Panama economic growth and prosperity act.
Appearing before us as the first witness is the Honourable Ed Fast, Minister of International Trade and Minister for the Asia-Pacific Gateway. He is accompanied by a number of officials. From Foreign Affairs and International Trade Canada, I see Cameron MacKay, Director General, Asia-Pacific Trade Policy Bureau; Pierre Bouchard, Director of Bilateral and Regional Labour Affairs, Human Resources and Skills Development Canada; from Environment Canada, Mollie Johnson, Director General, Americas; and from the Department of Finance, Alain Castonguay, Senior Chief, Tax Treaties.
You have quite a group with you, minister. It is our usual process not to go into long biographies. Everyone has access to all kinds of services these days and we want to get the best out of your presentation and have time for questions.
The floor is yours. Welcome to the committee.
Hon. Ed Fast, P.C., M.P., Minister of International Trade and Minister for the Asia-Pacific Gateway: Thank you for the opportunity to share some thoughts on the Canada-Panama Free Trade Agreement.
I am joined by a great team. As you know these trade agreements tend to be complex and require expertise from many different disciplines, which is why I have drawn together these experts who will help me answer some of the questions you may have going forward.
Let me begin by stating that Canada's prosperity is directly linked to reaching beyond our borders for economic opportunities that serve to grow Canada' trade and investment.
The Canada-Panama Free Trade Agreement being considered here today is yet another step our government is taking to help Canadians compete and succeed in the global economy. Panama is an important global logistics hub, with a robust economy, strong economic growth and the second highest per capita income in Central America. A free trade agreement with Panama will give Canadian exporters, investors and service providers preferential access to a dynamic and innovative market considered to be the fastest-growing economy in Latin America and a strategic gateway to the larger region.
In 2011, Panama's real gross domestic product growth was a staggering 10.6 per cent and its real GDP is expected to continue to grow by over 6 per cent over the next five years, annually. This growth respects significant opportunities for Canadian businesses. The Canada-Panama Free Trade Agreement will help Canadian businesses identify and capitalize on opportunities arising from growth in this strategic market and the billions of dollars earmarked for infrastructure development.
If I can diverge for a moment, some of you may be aware that Panama is undertaking a huge canal project right now with all the spinoffs that creates. On top of that, they have a huge infrastructure investment that they are planning on making over the next few years and it so happens that Canada has expertise in areas such as infrastructure and financing, which at present are still in some respects stymied because of trade barriers. That is what this agreement is intended to address, namely, some of those trade barriers that Canadian companies still face.
Our trade agreement with Panama will help ensure that Canadian businesses can continue to compete in Panama on a level playing field with the competitors from the United States and the EU, which have also negotiated free trade agreements with Panama. Of course, a major benefit to Canadian businesses will be the elimination of the tariffs that they currently face when exporting to Panama. Upon implementation of the free trade agreement, Panama will immediately eliminate tariffs on 95 per cent of recent non-agricultural imports from Canada. If we take our history and look at what we have exported to Panama, 95 per cent would be eliminated and 78 per cent of agricultural imports. Most of Panama's remaining tariffs will be eliminated over a period of five to fifteen years. For example, once implemented, the agreement will immediately eliminate current Panamanian tariffs on things such as industrial and construction machinery, certain pork and beef products, wood products, vehicles, frozen french fries, and Canada is the leader in that. These are significant reductions in trade barriers that will make Canadian exports more competitive in the Panamanian market.
Canada's service sector also stands to benefit from this agreement. Upon implementation, the agreement will provide Canadian service providers with a secure, predictable and transparent rules-based environment that will improve access to Panama's $20.6 billion services market. Areas of Canadian expertise and export interest, including mining and energy-related services, and professional services, such as engineering and architecture, will all benefit from increased market access. Let me mention that in Canada, 71 per cent of our GDP is driven by services. That is how important services are to our economy and that is why it is so critical that we open up new opportunities for Canadian service providers to be able to export that services expertise around the world, including to Panama.
Panama is already an established destination for Canadian direct investment abroad, particularly in the mining, banking and financial services sectors. This agreement will provide greater stability, transparency and protection for Canadian investments in Panama. It should not come as a surprise that Canadian investors in Panama support the implementation of the Canada-Panama Free Trade Agreement.
Government procurement is another area where Canadian workers and companies stand to benefit. In addition to the widely reported $5.3 billion project that I just mentioned to expand the Panama Canal, additional infrastructure expected to be built in Panama is expected to be valued at somewhere in the order of $13.6 billion. What an opportunity that is for our Canadian companies who happen to have expertise in infrastructure. Many infrastructure projects to build and improve roads, hospitals, social housing and bridges are either already in progress or under consideration. Looking ahead, tendering processes for projects such as airport improvements and the construction of the fourth bridge over the Panama Canal are expected in the coming months.
Canadian firms possess expertise in the areas that Panama is looking to develop. This agreement will allow them to bid competitively for such opportunities by guaranteeing that Canadian suppliers will have non-discriminatory treatment to the procurement market. This means that Canadian companies who want to bid on a government procurement contract for goods and services will receive the same treatment as Panamanian firms and competitors from Panama's other FTA partners.
From all of these examples, it is evident that Canada negotiated a strong, comprehensive free trade agreement with Panama that will benefit hard-working Canadians. An important factor behind our government's ambitious pro-trade plan is to ensure that Canadian firms can operate on a level playing field. That is why the swift ratification of the Canada-Panama Free Trade Agreement is so important to our government.
The U.S.-Panama Trade Promotion Agreement entered into force October 31, 2012, so Canadian firms are now operating at a competitive disadvantage. Over 87 per cent of U.S. exports of consumer and industrial goods to Panama are now entering Panama duty-free, while Canadian exports continue to face tariffs. As well, I would remind the committee that the European Union has had the foresight to negotiate a free trade agreement with Panama. The European Parliament is set to vote on the agreement during the week of December 10. If the vote is positive, the agreement will likely enter into force on a provisional basis in early 2013. This will result in Canadian companies losing market share in Panama to both their American and European competitors, unless we move swiftly to implement our own high-quality free trade agreement.
I hope the committee members will agree with me, with the House of Commons and with Canadian exporters and investors that it is imperative that we defend the competitiveness of Canadian firms in Panama by implementing this agreement. We must allow our Canadian companies to compete on a level playing field because when they do, our companies are more than capable of winning. Canada's exporters, investors and service providers are among the best in the world, and our government has committed to helping them to take advantage of good opportunities to prosper.
That is why we developed the Global Commerce Strategy and why we have pursued such an aggressive bilateral trade agenda. We have also sought to deepen our trade relationship with some of our key partners around the world, which has potential to open up these new trade opportunities that would include countries such as Panama. The opportunities are there and Canadians are ready to take advantage of them. It is our job to help them do so. That is why I hope you will join me in supporting the speedy passage of Bill C-24.
Senator Downe: Thank you, Minister Fast, for your attendance today and your opening remarks. I have a couple of questions that may be better directed to the officials, but there may have been a political reason so I want to ask while you are in the room.
This is the second time that a bill has appeared before Parliament on the free trade agreement with Panama. I am interested in the changes from the original bill, Bill C-46, to Bill C-24. For example, Bill C-24 has 10 schedules but Bill C-46 had only 9 schedules; and there appear to be fewer tariff items listed in Schedule 5. I wonder what caused these changes.
Mr. Fast: You are correct. That is a question that I will refer to my officials.
Cameron MacKay, Director General, Asia-Pacific Trade Policy Bureau, Foreign Affairs and International Trade Canada: I cannot speak to the details of the differences between the bills, but I can assure you that there was no change of course to the agreement between Canada and Panama. I suspect that these changes relate to the so-called coordinating amendments in the bill and perhaps other changes made to Canada's tariff code, for example in between the time the bill was first introduced and when it was introduced a second time. To provide a more detailed response, I would need to consult with some of our legal colleagues, who could give more details if necessary.
Senator Downe: If it is agreeable, chair, could you ask them to send the information to the committee clerk in writing?
My second question pertains to clause 34 on pages 13 and 14 of the bill. This paragraph does not appear in Bill C- 46. The question is: What happened between the two bills and why the difference? If you do not have that information, I understand that you will send it to us.
Mr. MacKay: We would be happy to provide that information through the minister's office and the chair.
Senator Downe: I appreciate those were technical questions, but as I said in my opening, if there is a political reason, I wanted the minister to be here to explain it. However, it appears to be administrative in nature. I look forward to the information.
Prior to the United States and Panama signing their trade agreement, they did a tax information exchange agreement. We have not done that prior to our agreement and I wonder why that is.
Mr. Fast: I can confirm that we are in the process of negotiating a tax information exchange treaty with Panama. It took us a while to bring them to the table. We are pleased that they have agreed to do so. Certainly, it will address concerns that anyone might have that Canada is able to determine the tax responsibilities and information required to ensure that nefarious tax activities do not take place.
I would also add that Panama, we believe, is taking significant steps to move forward in terms of transparency and accountability. As honourable senators know, they have commenced negotiations and have actually signed tax information exchange agreements with quite a number of countries, Canada just being one that has recently signed on to negotiations. We believe that is a significant indicator that Panama really does want to join the family of nations that want to do business in a way that is transparent and accountable.
Senator Downe: I guess that is the question I am getting to. I noticed that in a number of these agreements they have signed, Panama has declined to share information if such sharing would be ``contrary to the public policy of Panama.'' As you know, there are tremendous concerns about Panama's status as a tax haven. Are you concerned that the Organisation for Economic Co-operation and Development recently moved Panama from what they call the grey zone to the white zone? However, of the nine criteria the OECD examined, Panama failed in five of them. Essentially, it is shut down. Do you have a concern about their tax haven status?
Mr. Fast: Canada always has a concern that its trading partners act in a manner consistent with Canadian values and with the whole notion of transparency, openness and accountability. You quite rightly note that Panama was recently moved off the grey list to the white list, which clearly indicates that they are making progress in complying with the OECD requirements.
The approach Canada has taken is that engagement, not isolation, actually moves countries forward in terms of these transparency issues. Historically, Panama had a reputation for money laundering, something that we took very seriously. The fact that they have now taken steps to be moved off that grey list is very encouraging to us. The fact they now agreed to engage with us in negotiating a tax information exchange agreement is also a very good sign.
I would be pleased to have Alain Castonguay make further comments as to the progress of that negotiation, perhaps other aspects that may be relevant to your question.
Alain Castonguay, Senior Chief, Tax Treaties, Department of Finance Canada: I believe that the honourable senator was referring to a peer review report produced for Panama by the Global Forum. The Global Forum's core mandate is to perform peer review of member countries. There are over 100 member countries now in the Global Forum, and the first phase Panama undertook was to verify that its laws and regulations are onside with the OECD standards as developed in detail by the OECD.
You are correct that their first report identified anomalies with a number of their laws. Panama has committed to fix them, and we expect a supplementary report will be issued in due course that will report on the progress of Panama in complying with these nine requirements because Panama is eager to move to the second phase peer review that looks at the implementation of the exchange of information agreements they have already signed.
From where we sit, we think Panama is committed to implementing the OECD standard.
Senator Downe: My understanding is that everything froze when Panama failed five of the areas and that they have made no additional commitment. Your information is they have?
Mr. Castonguay: I can tell you that Panama was not pleased that the Global Forum identified a number of defects in their laws and regulations. What you mean by ``froze'' is they cannot move on to the phase 2 peer review which looks at the implementation of their DTAs and TIAs, and obviously they are committed to get to that phase. They told the Global Forum that they would fix what remains to be fixed and then ask the Global Forum to produce a supplemental report to demonstrate to the Global Forum that it has in fact implemented these.
Senator Downe: It would be helpful if you could send any additional information you have on this issue to the clerk.
Finally, given the problem of money laundering and tax evasion in Panama, did the Canadian government consult CSIS and the Financial Transactions Reports Analysis Centre of Canada or the RCMP when they were negotiating this deal?
Mr. Castonguay: I can only speak for tax compliance as opposed to money laundering.
No, we did not consult at all. Basically, we took on board Panama's commitment to negotiate those deals and started the negotiation because we operate on the strength that the Global Forum will monitor their observance of the standard, so that satisfies us that the deal we want to sign will have integrity and be efficient.
Mr. Fast: I can also add that when we move forward with a negotiation it requires a cabinet mandate, and that essentially involves a review by all the relevant ministers and would have certainly involved the Minister of Finance and the Minister of Public Safety and Security. We will provide you with additional information as to exactly what consultations took place and the effect of those.
Senator Finley: Minister, thank you very much for being here and for your presentation. My questions are a little less technical, perhaps, than Senator Downe's.
I have heard it said that this particular agreement and the one we recently concluded with Jordan are small potatoes, that this is only our sixty-seventh or seventieth largest trading partner. I think I have managed to convince Senator Downe that there is a future in Panama for Prince Edward Island — perhaps not entirely, but I have certainly tried.
Could you explain for our committee and our wide TV viewing audience how this type of agreement, and this one in particular, fits in the overall strategic plan of the government to enhance trade and improve our economy?
Mr. Fast: Thank you very much. It allows me to talk a bit about our Global Commerce Strategy.
In 2007, our government embarked and implemented the Global Commerce Strategy which was focused on identifying the markets in the world that Canada should be engaged in where we were not sufficiently engaged, and to flesh out a strategy for taking advantage of those opportunities that exist in the world that can contribute to economic growth and long-term prosperity here at home in Canada.
We did that, and as we moved forward, we identified the regions where Canada needed to be engaged and also strategized on what countries we should start with. Some have suggested that somehow the approach has not been focused enough. As with any government department, within the trade branch there are limited resources, so you want to focus those resources on high-value activities and engagements.
Jordan was mentioned. It is not a large free trade agreement. It is relatively small. I think the total bilateral relationship is somewhere in the order of $89 million. That is quite modest. However, the Jordan free trade agreement is the first that Canada has with an Arab country and is our gateway into the larger Middle East region.
We are also negotiating a free trade agreement with Morocco. Why Morocco? It is a relatively stable country. We do have some trade with Morocco. It will provide us with a gateway into Northern Africa.
Why are we having exploratory discussions with Thailand? Canada does not have free trade agreements in Southeast Asia. Thailand happens to be our largest trading partner in that region, so it becomes a gateway for us.
In South America, for example, we have three free trade agreements with three countries that are like-minded with Canada on key issues such as the economy, on free markets, on an open investment regime and on democracy. Those countries are Chile, Peru and Colombia, again providing us with a beachhead in the region of the world where we need to be engaged. It makes sense to engage with those countries, at least initially, that are most like-minded to us.
We actually do have a very focused plan of how we want to move Canada's trade objectives forward. I am absolutely confident that as we continue to flesh out the Global Commerce Strategy, it will pay significant dividends in driving economic growth here at home.
I would add that we are in the process of refreshing our Global Commerce Strategy. It was initially for a five-year period. We have come to the end of that five year term, and we have consulted broadly across Canada to ensure that all of the key stakeholders, including the provinces, the territories and the industrial stakeholders, have the ability to shape where Canada's future lies in terms of using trade and investment as a key driver of economic growth here in Canada.
Senator Finley: I have also heard it said in debate that often the result of free trade agreements is that we end up in a sort of negative relationship with the party with whom we have signed the free trade agreement. Coming from the business side of life and having dealt with many of these countries in the past, I know there are difficulties. A lot of it really has to do with the corporations and private industries actually moving forward into the gap that has been opened by the free trade agreement. I wonder if you could share with us, if indeed you have looked at this, how we might further encourage our corporate partners to move forward more aggressively into the areas that you are creating with these free trade agreements?
Mr. Fast: I think the question, more perfectly focused, is how we get Canadian businesses — small- and medium- sized enterprises and larger corporations — to look for opportunities outside of Canada or even outside of North America. In some respects, we have been missing in action in certain regions of the world. When it comes to the larger corporations, they generally have the resources to take advantage of new opportunities around the world. Where we find real gaps is with our small- and medium-sized enterprises. Canadians are a very cautious lot, even the business community. It takes a fair bit for us to push them over the line and encourage them to explore new markets around the world.
One of the ways we do that is to use treaty instruments, such as foreign investment promotion and protection agreements and free trade agreements, to provide more confidence so that when a Canadian company looks to a new market, they understand that there are some rules in place that will improve their prospects of success. The same is true for Foreign Investment Promotion and Protection Agreements. Many businesses do not want to invest abroad unless there are clear rules in place and unless disputes are resolved in a manner that is transparent and fair. In most cases, our Foreign Investment Promotion and Protection Agreements lift the dispute resolution process out of the domestic context and into the international arena, where there is a fair and transparent process underway. That is one of the strategies that we have employed in encouraging Canadian businesses to look abroad for opportunities.
The second way that we are doing that is through our Trade Commissioner Service, which I have often called Canada's best kept secret. That is no credit to us. It should not be a secret, and we want to get the message out to small- and medium-sized enterprises that they do not have to walk this path alone. Trade commissioners are highly qualified professionals familiar with the markets in which Canadian businesses are thinking of investing or doing business in. They can provide information on the legal and regulatory environment and the business environment in a new market. They also do something else; they add value by providing connections to local partners that Canadian companies can partner with. In many cases, in new markets your prospects of success are dramatically improved by having a trusted, dependable local partner who can help with the engagement in that new market.
[Translation]
Senator Fortin-Duplessis: First of all, Mr. Minister, we are delighted to have you and your officials with us this evening.
I want to follow up on Senator Finley's question and find out more about the Panama Canal expansion. The project is tremendous and worth $5.3 billion. Multiple infrastructure projects worth billions of dollars are planned over the next 10 years. They are largely energy, telecommunications and public transit projects.
Is there anything we can do to help Canadian companies play a role in projects like the Panama Canal expansion?
[English]
Mr. Fast: It so happens that we have the Panamanian ambassador here in the room, and I understand that he will be appearing before this committee next week. Further details on the Panama Canal and its expansion are probably more appropriately put to him. I know that he would love to share with you some of the opportunities that that project will offer to Panamanians.
In terms of your follow-up question, though, Canada has significant strengths in many different areas related to infrastructure, and I mentioned in my opening remarks that the services sector in Canada represents 71 per cent of our GDP. That is something that most Canadians would not be aware of. They would assume that trade is always done in terms of goods.
In fact, trade is done in terms of goods and services. We have huge opportunities, around the world, to export our expertise in things such as architecture and engineering. For example, Canadians probably are not aware of the fact that Canada is the fourth largest exporter of engineering services in the world. We have a population of 34 million people out of 7 billion in the world, and yet we are number 4 in terms of engineering expertise. That says something not only about our capacity to deliver infrastructure and environmental projects but also about the fact that we have an incredible education system in Canada, which is one of our strengths. We are well regarded around the world. We have, I would venture to say, the best education system in the world, and we are able to export that expertise, derive value from it and use it to drive economic growth right here at home. In Panama, because of their very significant investment in infrastructure, we believe that Canadians will compete very well and successfully.
The challenge with services is that, wherever you go around the world, there are still significant barriers to the trade in services. One of the reasons that Canada is considering perhaps joining a plural lateral negotiation on services under the auspices of the World Trade Organization is how critical services are to our economy and the value that we can add by opening up new opportunities around the world and removing those trade barriers to make our service providers more successful.
That is where I see some of the opportunities. We are also a leader in financial services, and we are looking to expand our presence in Panama in the financial services sector.
[Translation]
Senator Fortin-Duplessis: In less than six years, Canada has signed free trade agreements with nine countries, not to mention the negotiations under way with the European Union, India and Japan. Recently, Canada joined the Trans- Pacific Partnership talks. Senator Finley asked you to compare the Panamanian free trade agreement with Jordan's.
Is the agreement we are working on and signing with Panama as beneficial to Canada as those signed with Colombia and Peru?
[English]
Mr. Fast: As a general response I would say it is advantageous. It has followed a similar negotiating template as we have with some of those other countries like Peru and Colombia.
You had mentioned India and Japan and the TPP. Each of those negotiations is ongoing.
With India we have completed six rounds of negotiations. Of course, India is the world's largest democracy, with some 1.2 billion people. It is a market we must take notice of. It represents significant opportunity. Of course, it also represents significant challenges in terms of Canadian business engaging in that country.
This week we started negotiations with Japan, so we are in the first round of negotiations with them. Japan has a huge economy, one we want to have a trade agreement with and remove some of the barriers to trade that remain between our two countries.
Of course, the Trans-Pacific Partnership is a regional and not a bilateral negotiation. This is very important to Canada because it involves our two NAFTA partners: Mexico and the United States. The United States is still by far Canada's largest trade partner. In fact, some have suggested that there are other countries that might someday rival the U.S. as our number one trading partner. Think about it: Our trade with the U.S. is 10 times that of our next largest trading partner, being China.
I believe we will always have the U.S. as our number one trading partner. That is where our focus needs to remain. We need to continue to build that relationship.
The advantage with the TPP is that the United States, Mexico and Canada get to walk shoulder to shoulder in opening up new opportunities within the Asia-Pacific region which was, of course, the whole goal of the TPP negotiation. We are looking forward to joining those negotiations from December 3 to 12. That will be the first round we will be involved in. I am looking forward to being involved in that process. Hopefully, in the near term, we will have a conclusion to those negotiations.
Senator Wallace: Minister, among the many opportunities that this could open up for Canadian firms in Panama, you mentioned mining, the natural resource development opportunities in Panama, and you also mentioned finance. My understanding is that Canada has considerable investment now in the natural resource field in Panama, in particular involving gold exploration. As well, we have a sizeable presence in terms of banking and financial institutions.
Could you expand upon that as to what opportunities, if this is approved, this FTA would provide Canadian firms in those two fields, mining and finance and banking?
Mr. Fast: One of the key chapters in any free trade agreement is an investment chapter. The purpose of an investment chapter is to set out those clear rules and guidelines under which investments are made by foreign investors.
Once the Canada-Panama Free Trade Agreement is actually in force, it now represents much enhanced protection for Canadian companies that are going to invest in Panama. You are absolutely correct. Natural resources is one of the key interests that Canada has. Financial services is another one.
In fact, Canada is the world leader in mining. It is my understanding that 50 per cent of all mining activities that take place around the world involve Canadian companies. We are the world leader in mining, and we are acknowledged as such.
The challenge is to ensure that when our Canadian companies actually make those investments that the governments of those foreign jurisdictions do not change the rules to significantly compromise those investments after the fact. There are examples around the world of Canadian companies that have invested in good faith and have, after the fact, found out that the rules were changed and lost their investments.
That is something we are hoping to mitigate by entering into free trade agreements. Where we do not have FTAs, we hope to at least get into place foreign investment promotion and protection agreements.
In terms of financial services, as you mentioned, Canada is a world leader. We are very proud of the fact that Canada has the soundest banking system in the world. People from around the world are looking to Canada and asking what we have done to ensure the stability of our financial system. We would gladly export that expertise around the world, including Panama.
We have banks that have been successful abroad. One of the leaders would be the Bank of Nova Scotia, which has a presence throughout Latin America, Southeast Asia and a number of other regions around the world.
Senator Wallace: We have, in Canada, strict requirements: environmental requirements and labour law standards that must be met. My understanding is there is reference to those types of standards in this agreement and standards that perhaps are met now, I am not sure, but would have to be met now and in the future by Panamanian companies.
Could you expand on that and perhaps tell us more about those two aspects: environmental requirements or standards and labour law standards in the agreement?
Mr. Fast: Canada's free trade agreements all include very strong environmental and labour provisions. In most cases they are done as parallel agreements and in some cases they are actually chapters within the agreement. That being said, they are absolutely important in reflecting Canadian values when we do business around the world.
I have with me, of course, as part of my team, officials who were involved in negotiating the labour and environmental texts. I will defer to them. Perhaps we could start with Pierre Bouchard, who will elucidate the labour provisions included in the Canada-Panama Free Trade Agreement.
The Chair: I understand, minister, you have to vote at six o'clock; is that correct?
Mr. Fast: Yes. I have a few minutes.
The Chair: I wonder if we could defer questions to officials until six o'clock and hear questions directed to the minister. We will still have a few minutes with the officials afterwards.
Would that be all right, Senator Wallace?
Senator Wallace: That would be fine. I had one other question, but I will leave that for the second round.
The Chair: You can ask the other question of the minister.
Senator Wallace: I want all my colleagues to have an opportunity and we have 15 minutes. That is fine; I will wait for the second round.
Senator De Bané: Mr. Minister, we are very happy to have you here with us because you have a very important role in expanding Canada's market. Our domestic population is very small, and so we have to find a way to expand our markets.
Exports represent what percentage of our GNP today? As a percentage, what do exports represent in our total economy, domestic and trade?
Mr. Fast: Let me start with services. Perhaps I will focus on services, which is essentially 71 per cent of our GDP. Somewhere in the order of 15 per cent of our exports are related to services, which is why our trade agreements actually involve a very clear focus on making sure we open up service markets.
In terms of goods, total GDP related to exports, I can get the exact figures for you and have my officials get back to you on that.
Senator De Bané: As a percentage of the total economy, how much of our total economy, including trade, does it represent? Would it be 30 per cent or 35 per cent of the total?
Mr. Fast: In terms of total percentage, I can tell you that about 60 per cent of our GDP is actually either directly or indirectly driven by international trade.
Senator De Bané: We are fortunate that our closest partner, neighbour, is the richest market in the world, the United States. You alluded a few minutes ago to what percentage is related to China.
What percentage of our total foreign trade does the United States market represent?
Mr. Fast: I can give you the actual dollar value of that trade. It is in the order of $708 billion a year to the United States. About $1.8 billion worth of trade takes place across our common border every day. If you add in Mexico, with which trade has actually increased sixfold since we signed the North American Free Trade Agreement, our trade every year is worth somewhere in the order of $1 trillion. Those are remarkable figures. The Canada-U.S. trade relationship is, and has always been, the most successful in the world.
Senator De Bané: You talked about our trade commissioners. Did I hear you well that they can be of great assistance to the exporter, or their attitude is to say, ``We will give you an overall picture, but it is up to you, the business person, to do your contact, et cetera,'' or can they be more proactive?
Mr. Fast: If you ask the clientele who use the Trade Commissioner Service, you will find they are very supportive of the work that the trade commissioners do, because they are proactive in how they approach trade opportunities for their clientele.
We have somewhere in the order of 1,000 trade professionals across Canada and around the world. We have 150 trade offices around the world, through which trade commissioner services are delivered. Across Canada, we also have offices to ensure that Canadian companies have access here at home and can be directed in a way that will allow them to make the proper assessment of a new market that they may be interested in.
Senator De Bané: That businessman who has a small company, who goes to a foreign country, to what extent can he expect that the trade commissioner there will help him more than just giving him an outline of the country? Would he help to open doors, et cetera, or would he say, ``That is now your problem and I cannot go to that extent''? Can you give us an idea to what extent they can help the person?
Mr. Fast: I can certainly say that they are, in fact, door openers. They are not only a source of information; they actually make contacts for Canadian businesses. They provide connections between our Canadian businesses and potential partners. They even provide introductions to government officials so that our Canadian businesses have all the information they need to actually make an informed choice whether to penetrate a new market.
I think if you had a chance to chat with some of our many clients who have used the Trade Commissioner Service, you will find them to be very laudatory in terms of the work that these professionals provide. There is clear evidence from a number of surveys that have been done that Canadian companies that used the Trade Commissioner Service actually significantly improve the exports that they derive from their export activities abroad. Trade commissioners clearly add value to what our Canadian businesses do abroad.
The Chair: Minister, you have six minutes before you have to go to vote.
Senator Lang, is there a quick question for the minister so he can answer it quickly and get to vote?
Senator Lang: As quickly as I can, Madam Chair. I have just two questions.
Assuming passage by the Senate prior to Christmas, when is the agreement intended to go into effect?
Second, I would like to follow up on the question of small- and medium-sized businesses in Canada and the opportunities that are there. I am thinking of the regions of Canada, not unlike yourself, coming from British Columbia.
What kind of program do we have in place to let businesses know, whether they be in the construction business or the service industry, that these opportunities actually do exist? I know in the part of the world I come from, I do not know if these people are made aware that these opportunities are there. There are probably three or four firms that might well be interested if they knew these opportunities were there. Is there an ongoing program to involve people and let them know these programs are there?
Mr. Fast: You touched on what I discussed earlier, which is the value of the Trade Commissioner Service in making Canadian businesses aware of what the opportunities are. The challenges I have, as Minister of International Trade, are promoting, first, the value of trade to Canada's economy and to our long-term prosperity; and, second, the opportunities for Canadian companies to take advantage of the resources that are already there.
The Trade Commissioner Service is a resource that any small- or medium-sized enterprise should take advantage of in terms of finding out if there are some opportunities out there to export. These trade commissioners are a wealth of information about markets around the world. Say a small business has a thought, ``Hey, I would like to maybe look at China.'' Immediately they will be referred to trade commissioners who are specialized in the Chinese market and they can tap into that expertise.
With respect to your first question, we would like to see this trade agreement with Panama come into force as soon as possible. It does require, obviously, formalization of the process that is taking place here at the Senate. Then it will move ultimately to a situation where there is an exchange of diplomatic notes, which then brings the agreement into force. It is very important that we get that done as soon as possible, because we are losing market share to the U.S. as we speak and could lose market share very quickly to the EU because they are also implementing their agreement shortly.
The Chair: Minister, I think you need to come back at some other time because you can see the interest in the trade issues and some of the newer perspectives you are bringing to it. Thank you for the information on the bill and on the broader trade. I think the officials can continue with us, and you have a vote. I will thank you on behalf of the committee.
Mr. Fast: Thank you.
The Chair: We will go right to the officials. Senator Nolin has some questions for them.
[Translation]
Senator Nolin: I will start with Mr. Bouchard. We recently studied the bill to implement the free trade agreement and side agreements with Jordan. How would you rate Panama's compliance with international labour standards?
Pierre Bouchard, Director, Bilateral and Regional Labour Affairs, Human Resources and Skills Development Canada: Thank you for your question. The first thing to keep in mind is that obviously Panama is a developing country. We are not expecting the same level of standards or compliance from the Panamanians that we have, here, in Canada. When you compare Panama with other Latin American countries or developing nations, what you find is a government with the willingness to make improvements and one that is genuinely working towards them. Efforts to strengthen the legislative framework have been made in the past few years; it was already fairly sound, but there have been major improvements in recent years.
It is now a question of continuing to provide the resources needed to implement and enforce the existing laws. In that regard, even before the agreement is implemented — this is a cooperation agreement, after all — Canada is already providing labour-related technical assistance to Panama.
In my estimation, the situation is quite good, relatively speaking, but calls for ongoing cooperation to get better.
Senator Nolin: There is room for improvement, then, but things are on the right track.
Does the side agreement on labour include provisions similar to those in the Jordanian agreement whereby an ordinary Canadian citizen can identify a failure to comply with a rule — such as child labour — and initiate an investigation process that may result in a breach of serious conditions being remedied?
Mr. Bouchard: Absolutely. The Panama agreement falls under what we call the new generation of labour agreements, which really started with Peru, Colombia and Jordan. And this one follows suit. So there is a mechanism enabling someone to complain about non-compliance, as you mentioned, and the facts of that complaint would be submitted to our office. An initial decision would be made as to whether the complaint is legitimate. And if so, an investigation is carried out, as you said. Consultations between public servants take place. Our office publishes a report, and in it, we make recommendations to our department on whether to pursue ministerial consultations. If the issue is not resolved further to consultations between the labour ministers, an independent panel of experts can be convened to make recommendations. The goal of the process is to find a cooperative approach to solving the problem. If, at the end of the day, the matter is not resolved, monetary penalties can be imposed up to a maximum of $15 million per year, and that money goes into a cooperation fund in order to resolve the problem. So there is a fairly sound and open process in place to ensure compliance with obligations.
[English]
Senator Wallace: Ms. Johnson, you might recall that I asked the minister what provisions were in the parallel agreement dealing with environmental standards that would be required of Panamanian companies. I believe that he was turning toward you for a response. I would be interested to hear what you could tell us.
Mollie Johnson, Director General, Americas, Environment Canada: I believe he was. What underpins the environmental side agreement to the trade agreement is the premise that trade liberalization and our environmental protection can and quite frankly must be mutually supportive in working together. Those general principles have been enshrined in both the side agreement to the free trade agreement and the agreement.
The environment agreement has a series of domestic obligations for both parties that include: Both Canada and Panama shall pursue high levels of environmental protection; improve and enforce environmental laws and governance; maintain procedures to assess the environmental impacts of projects that will happen within our jurisdictions; and not relax laws to encourage trade and investment. Those are the key principles within the agreement.
Senator Wallace: A couple of Canadian businesses came to mind when I listened to the minister's presentation. He mentioned the export of french fries. Of course, I am from New Brunswick, the home of the largest french fry producer in the world, McCain Foods, and that is of great interest to us in New Brunswick. As well, the beef industry in Canada is extremely important. I am not sure to whom I should direct the question, but what would this Canada-Panama FTA mean to those particular industries in terms of increased opportunities for those Canadian firms to access the Panamanian market?
Mr. MacKay: Under the agreement, Panama has agreed to cut its tariffs immediately on 78 per cent of Canada's current exports to Panama. That will include, for example, duty free immediate access for fresh and chilled high quality cuts of beef within a quota of 200 metric tonnes; hams and sausages, with respect to pork, to a volume of 200 metric tonnes; and frozen shoulders and hams up to 450 metric tonnes. The over-quota tariff will decline over a much longer period of time. Frozen potato products, including french fries, currently suffer a tariff of 20 per cent entering Panama, but will enter duty free on the day that the FTA comes into force. Pulses, malt, linseed, maple syrup and Christmas trees will enter duty free on the day that the FTA comes into force — 78 per cent of our current agricultural exports. If there are questions, we can go into more detail as well about the non-agricultural exports to Panama. As the minister said, roughly 95 per cent of the current exports to Panama will be duty free immediately, and some of the other tariffs will be phased in over a longer period of time.
Senator Downe: Frozen french fries will dominate the meeting from here on in, I am afraid.
When you compare the Canadian deal signed with Panama and the United States deal, how does the access to frozen french fries compare?
Mr. MacKay: I believe the U.S. also got duty free immediate access for french fries and frozen potato products. I can say more broadly that when we began negotiating with Panama, Panama had already concluded its FTA negotiations with the United States, and the text was available publicly. One of the major objectives of the Canadian negotiating team was to match as best as possible what the United States had negotiated with Panama. We are satisfied that we did that. There are some small differences, of course, between the two agreements. The tariff schedules reflect stronger Canadian export capacity in certain areas as opposed to others, so some of the trade-offs were a little different. On the whole, we are very satisfied that we have negotiated a deal that gives Canadian businesses and exporters a level playing field with respect to their U.S. counterparts.
Senator Downe: I have a document from Foreign Affairs Canada that charts a comparison of Panamas' tariff elimination schedule under the Canada-Panama FTA versus the U.S.-Panama FTA. Under frozen potato products, the comparison comments section from the department says, ``USPTPA superior.'' What does that mean?
Mr. MacKay: I would need to see the chart to confirm, but sometimes in our internal products, this means that we did better than the United States did in the negotiations. I would need to double-check the chart.
Senator Downe: I have a copy of the chart.
Mr. MacKay: I just had a brief review of the chart and have to say that I am not familiar with it, although I may have seen it at one time. It says that on frozen french fries, Panama has a current tariff of 20 per cent. The Canada- Panama FTA provides for immediate duty free access. The U.S.-Panama FTA outcome is a ten-year phase-out for retail size. For others, it is immediate, with TRQ access five years for over-quota tariff.
Senator Downe: It is the comment that I am interested in.
Mr. MacKay: ``USPTPA superior.'' I will double check with my agricultural negotiators, but I believe it means that Canada negotiated, in our view and for our exporters, a superior outcome to what the U.S. government did with respect to these particular products described here.
Senator Downe: Could you send us that information?
Mr. MacKay: Yes.
[Translation]
Senator Nolin: I have a question for Mr. Castonguay. As I understand it, Mr. Castonguay, you are responsible for fielding our investment-related questions.
Mr. Castonguay: Taxation.
Senator Nolin: My colleague asked you about Canada's investigations into illegal trafficking that may have occurred in Panama before we sign the agreement.
In light of Panama's geography and strategic importance — easy transit, relatively large banking centre — have you explored the whole issue of money laundering and ways to protect Canadians from that activity? Let us face the facts: that part of the world is unfortunately plagued by violence related to trafficking and the money transfers generated by that enormous trade. I certainly do not need to remind you of the death toll resulting from such violence in that part of the hemisphere. Is that aspect something you have explored?
Mr. Castonguay: In response to your question, I would say that my area of expertise is taxation, and in this particular case, tax information sharing agreements to combat tax evasion. Money laundering is not really my specialty.
Senator Nolin: Has anyone given the matter consideration?
[English]
Mr. MacKay: Perhaps I could provide an answer from a broader perspective. It certainly is true that Central America now, including Panama, is suffering greatly from the fact that it is a transit region for drugs that are produced in South America, and then they transit through Central America up to North American consumers. This illegal trade has been described in Central America as a kind of a cancer on the society and on the economy. It is a very serious problem.
The Canadian government works very closely with all of the governments in Central America, including the Government of Panama and with our friends and allies who are also very concerned and are affected by this trade, including the United States, European Union, United Kingdom, et cetera, to try to fight this trade. We do have various cooperation programs with the countries in the region — both drug-producing and drug-transit countries — to try to fight this trade. We have good cooperation between the Canada Border Services Agency and the border protection agencies in Central America. We have good cooperation as well, I can say, between the RCMP and police forces, including in Panama and in the rest of the region.
I have to acknowledge that it is a serious problem. The Panamanians themselves are suffering from this. They take it seriously. We are doing everything we can to help out.
The one thing that the FTA will do over the longer run is that by providing legitimate economic opportunities to Panamanians and by helping to grow the Panamanian economy by opening up Canadian markets further to them, I think we will provide over the longer run an alternative to some of these illegal economic activities.
Senator Nolin: I am also very positive, but because we are going to ease the transfer of money, what about money laundering? What about putting in place all the measures to ensure that Canada will not be open to even more? We should not kid ourselves; that drug money needs to go somewhere.
Mr. MacKay: Broadly speaking, once we conclude a tax information exchange agreement with Panama, that is one of the things we would hope would help to ease the flow of information back and forth between the two governments in order to give us an even stronger basis upon which to cooperate and fight this kind of illegal activity.
Senator Downe: I will be brief, but it is relevant to the question asked.
I do not know what you would base that hope on because Panama made a policy decision in the 1970s to set up their financial institutions the way they have. In their tax information exchange agreement with the United States they state quite clearly that the sharing would be contrary to the public policy of Panama — which is what they set up in the 1970s, the current financial structure that we are opposed to — and that they do not have to disclose information. If that is the best the United States could get, where is the hope that Canada will do better?
Mr. MacKay: Broadly speaking, as the minister said before and as my colleague Mr. Castonguay said, we do believe that Panama has improved over time its record in this regard. It has removed itself from the OECD grey list by negotiating a sufficient number of tax information exchange agreements. The OECD continues to look at the record of Panama quite critically, and we have heard from my colleague that Panama has expressed publicly that it wants to move forward and improve its record in that regard.
Senator Downe: To get off the grey list, what they committed to was 12 initiatives; and of those 5 that they failed, the whole process has ground to a halt. They moved from grey to white, full stop.
Mr. Castonguay: If I may, obviously the grey list and the white list was an interim measure to distinguish the countries that were cooperating early on from those that were not. Most countries right now have moved to the white list. There are almost no countries left on the grey list. What matters now is compliance of members of the global forum with the standard and their implementation of recommendations found in their peer-reviewed reports. That is the new standard by which a country's commitments are judged. Of course, members are expected to implement their agreements in good faith, and the phase 2 aspect of the peer review will monitor just that. I think there is light put on this whole process, so it is very difficult for countries that have committed to implement information exchange in an efficient manner to get away from their commitment that easily.
Senator Wallin: I have a very quick question on procurement. You have negotiated — congratulations — offsets for domestic requirements. Did we want to export goods or services in that area?
Mr. MacKay: The Government Procurement Agreement that we negotiated, or the chapter in the FTA, just to build a little bit on what the minister had said earlier, there is the $5.3 billion Panama Canal expansion, which should wrap up in about 2014. Panama has a national plan to spend over $13 billion over the next five years in government spending to improve the development of the country. More than $9 billion of that is scheduled to be spent on infrastructure.
Currently, Panama is not a member of the WTO Government Procurement Agreement, and therefore Canada and Panama have no obligations to one another with respect to non-discriminatory treatment for government procurement bidding. Both of our systems are relatively open now, but we have no obligations to one another. The government procurement chapter of the FTA would change that and would ensure that Canadian companies, be they goods exporters or service providers, in whatever fashion, have non-discriminatory access to the bidding process in Panama, and that includes both national treatment obligations, meaning the Panamanian government must treat them equally as compared to Panamanian bidders, and MFN obligations; we must be treated equally with respect to the trade partners with which Panama has government procurement obligations, including the United States now and we expect very soon the European Union.
Certainly, given the nature of the Panamanian economy right now and its level of development, the government procurement chapter is one that we think will be important for Canadian businesses, on both the goods and services side.
Senator Wallin: That may be a large dollar figure in terms of that expansion project. There is no way to predict that at this point, though.
Mr. MacKay: In many cases, even if Canadian businesses may not be taking on the biggest aspect of some large infrastructure project, the smaller contracts and subcontracts to support can also be very lucrative, and Canadians do very well in that area around the world.
Senator Downe: I assume an economic analysis was done using the standard model for this agreement. Could we have a copy of that?
Mr. MacKay: In fact, unlike our largest trade partners, for example, the European Union, we did econometric modelling and a detailed study of the potential impact of a free trade agreement with the EU. These figures have been widely disseminated. With Panama, with the trade being so small, we did not do any econometric analysis. Instead, we went out and consulted with Canadians and Canadian businesses and asked them directly, ``Do you think that a free trade agreement with Panama would support your efforts to do business there?'' We got wide support from major Canadian businesses and small ones who were either already doing business in Panama or who were thinking about it. That was one the reasons that the government decided to move ahead with an FTA with Panama.
Senator Downe: I am surprised that you did not do an economic analysis. Are there any other trade deals that you have not done analysis on?
Mr. MacKay: We really only do that kind of modelling with our biggest trading partners. The EU is an example.
Senator Downe: For example, when you did Peru two years ago, you did not do one?
Mr. MacKay: I believe that we did neither for them nor for Colombia. It is very difficult to predict the impact of market opening on a small economy abroad, where there can be, frankly, pretty wild swings in trade over a short period of time. Canada/Panama trade, over the last two years, has gone up by 78 per cent, largely because Canada, over the last two years, has suddenly started to import large quantities of unprocessed gold, which contribute to the Canadian economy. That shot our numbers up.
These kinds of changes with a small trading partner make the modelling much more difficult.
Senator Downe: I am wondering if you could explain to the committee how DFAIT goes about negotiating an agreement. Where do you get the resources from? Do you involve government-wide departments? Do you have a dedicated budget, for example, for this agreement? How many hours and people are assigned to it? Without specific numbers, can we have a general sense of what you do when the government decides to do these agreements?
Mr. MacKay: Broadly speaking, with respect to the Panama agreement, for example, it was all financed out of existing resources within the department. There is a trade policy and negotiations branch within the department, with a number of officials who are experts in trade negotiations.
We work very closely with other government departments. It is very much a whole-of-government effort. You can see that, at the table, we have four departments represented, and there were up to seven involved, in one way or another, in the negotiations.
In the case of Panama, it comes out of the existing budget of the department. The negotiations were concluded relatively quickly, less than a year from start to finish. This was, frankly, a pretty efficient free trade agreement negotiation.
Senator Downe: You say resources come out of the existing budget. Roughly how much would be dedicated toward this exercise?
Mr. MacKay: I could not guess.
Senator Downe: If you have it, could you send it to the clerk? Thank you.
The Chair: I thank all of the witnesses for the detailed answers to the many questions. We will look forward to the written responses that have been asked for. We want to move as quickly as we can, so I trust that we will get those as quickly as you can produce them.
I thank the senators for cooperating and getting all of our information in today. We will not call the officials back tomorrow morning at 10:30. We will convene with the other witnesses at 11:30. We hope then that we can continue for the hour and return to the study next week in our usual slot.
(The committee adjourned.)