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

Issue 13 - Evidence, December 1, 2010


OTTAWA, Wednesday, December 1, 2010

The Standing Senate Committee on Foreign Affairs and International Trade met this day at 4:20 p.m. to study the political and economic developments in Brazil and the implications for Canadian policy and interests in the region, and other related matters.

Senator A. Raynell Andreychuk (Chair) in the chair.

[English]

The Chair: Honourable senators, we have three items of business for the Standing Senate Committee on Foreign Affairs and International Trade. The first item is to elect a deputy chair, as Senator Stollery has retired; the second item is to continue our study on Brazil; and the third item is to go in camera for the consideration of a draft report, if members are agreed. It can be set over to another day if members are not ready. As senators recall, we had the report before us and made suggestions for changes. The committee asked that it be returned with those changes.

I understand that you received copies of the amended report yesterday. I have looked at it and have a few changes to recommend, but they are more editorial in nature than substantive. If you are prepared, we will go to the first item, the election of a deputy chair; second we will proceed with our study; and third, we will go in camera to consider the draft report.

Senator Fortin-Duplessis: Madam Chair, may I nominate someone?

The Chair: We have a proposer.

I do not hear disagreement with the third item on the agenda, so we will follow that order.

The first item of business is the election of a deputy chair. I am looking for a nomination.

Senator Di Nino: Chair, it is my pleasure to nominate the Honourable Percy E. Downe as deputy chair of this committee.

[Translation]

Senator Fortin-Duplessis: I also wanted to nominate Senator Downe.

[English]

The Chair: Are there other nominations?

The Chair: I declare Senator Downe Deputy Chair of the Standing Senate Committee on Foreign Affairs and International Trade.

Senator Fortin-Duplessis: Congratulations.

Senator Di Nino: Is it congratulations or condolences?

Senator Downe: Yes, congratulations.

The Chair: It depends on what day. At the moment, it is "congratulations.'' Senator Downe has worked with the committee, has been on the steering committee and knows his way around the issues that we have been studying and continue to study. Welcome to the position of deputy chair. I look forward to working with you.

Senator Downe: I look forward to working with you and whoever sits as the third member of the steering committee.

The Chair: Senator Finley is the third member of the steering committee. He has been absent due to illness. We anticipate his return when we recommence in the new year.

Until I hear otherwise from either Senator Finley or the leadership, we will continue as we are. The chair and the deputy chair will struggle without the third member for this short number of weeks.

We will turn to the continuation of our study on the political and economic developments in Brazil and the implications for Canadian policy and interests in the region, and other related matters. Before us we have, as a individual, Jean Daudelin, Assistant Professor, The Norman Paterson School of International Affairs at Carleton University. Welcome to the committee.

I understand that your current research focuses on property rights and conflict, on the development and conflict implications of the government revenue composition and on the comparative foreign policy of Canada and Brazil.

I assume then that you have been looking at rights, taxes and foreign policy, and the implications for Canada. I understand that, previously, you researched religious movements in Brazil, indigenous politics, urban violence, economic integration and regional politics. You come before us well qualified to present your expert evidence. Welcome, Mr. Daudelin, please proceed.

[Translation]

Jean Daudelin, Assistant Professor, Norman Paterson School of International Affairs, Carleton University, as an individual: Thank you, Madam Chair, for having me and especially for reminding me that I should have my résumé translated to make it legible and understandable, even for my colleagues.

In the next five minutes, I will go over the most important elements of a short document that I prepared for you and that I am told will be sent to you soon. I will try to briefly describe Brazil's rise in power: the foundations of the rise, the constraints Brazil faces and what it will all mean for Canada. I will conclude with how these changes will affect Canadian foreign policy.

What is Brazil's place in the world today? There is a lot of talk about Brazil being an emerging power, a major power of the future, and so on. For all intents and purposes, the question has been answered: Brazil is one of the few major world powers that are involved in almost all international issues, be they issues regarding trade, global governance or the environment.

Several years ago, Brazil showed that it was more than capable of forming very effective coalitions that have enabled it to, among other things, impede the negotiation of the Free Trade Area of the Americas and to play a central role, if you will, by curtailing the multilateral negotiations process at the World Trade Organization. Recently, Brazil has shown that not inviting it to participate in discussions on nuclear issues could be very embarrassing for the major powers, as was the case with the discussions on Iran, which I can come back to if you wish.

What are the reasons for Brazil's rise in power? The first is an amazing amount of natural resources and a great geographic location, literally. Brazil is a huge country with a population of 190 million that is growing slowly but steadily. It is younger than Western countries. It is a mining, energy and agricultural power, and, to a lesser extent, but still significantly, an industrial power. This is certainly the first reason for Brazil's rise in power.

The second reason is its development policy. Since 1994, or thereabouts, Brazil has had extremely effective economic and development policies, especially in terms of their effect on the poor. Brazil's poverty rate has declined significantly over the last 10 years. The growth rate in Brazil's poorest population classes is comparable to China's. However, in contrast to China and most other rapidly growing countries, most of Brazil's growth is focused in its poorest population sectors.

The third element of great importance in the Brazilian rise to power is its relative insulation from economic and political tribulations, if you will. Brazil is lucky to be in a region that it dominates completely. The country accounts for about half the territory, the GDP and the population of South America. It has no outside enemies.

There has been a lot of talk about Brazil's mining and agricultural exports. Brazil is not a major trade player. It is a major player in trade negotiations, but it exports and imports relatively little. In contrast to China, its growth does not depend on export markets. We are talking about a growth that is mainly inward-oriented.

Finally, Brazil has an exceptional diplomatic capability. Brazil's diplomatic service has long been on par with that of Canada or certain European countries.

What are Brazil's priorities? First, there is the matter of regional stability, as much in the relations between countries of the region as within the countries. We could be talking about potential political crises in Bolivia, Columbia or Venezuela. Regional stability is sought strictly in terms of the actual region. One of Brazil's priorities is to avoid the involvement of non-regional players in this region, especially the United States, but also the Organization of American States and the UN.

Brazil is doing its utmost to manage the prevailing regional instability on its own. The crucial dimension of its foreign policy is gaining prestige and influence in the global arena.

A new government was elected a few weeks ago. Dilma Rousseff, Brazil's first female president, will take office on January 1. Generally speaking, her election should not signal a shift in Brazil's foreign or domestic policy. I would be happy to discuss this more in depth later on.

Where does Canada fit? Generally speaking, I think that Canada should view Brazil's rise in power as an asset to our economic, strategic and political interests, and to the values we promote globally. This being said, Canada is not a priority for Brazil. There is no reason for Brazil to be a priority for Canada. There is very little interdependence, a little bit of trade, some interest, but not enough to justify a very deep relationship.

The main issue in terms of hemispheric policy is that Canada is an important player in the Organization of American States. This body plays an important role in Canada's foreign policy, while Brazil has systematically been trying to limit the effectiveness and, more importantly, the scope of the organization, especially when it comes to South America.

I feel that three minor issues could result in disagreement, but things should not be blown out of proportion. The first issue regards the G20. For Canada, the G20 is very important, since it is the only remaining international body on which we wield significant influence. For Brazil, the group is too large. It is more interested in getting a seat on the UN Security Council and being involved in multilateral negotiations with groups of three or four, most likely China, the United States and India. From this point of view, Canadian and Brazilian interests are diverging.

Second, nuclear issues are key for Brazil. Brazil has signed the Non-Proliferation Treaty, but it has been criticizing it heavily, especially since it believes that the treaty somewhat weakens its attempts to get a seat on the UN Security Council. In other words, the UN's five permanent members are nuclear powers, and Brazil has committed to not developing nuclear weapons. Consequently, Brazil's policy toward Iran is tainted.

Third — and I will keep it short — Canadian companies are major competitors in the areas of natural resources, energy and financial services, especially in the Andean countries that are very open to Canadian and American investments. Brazil's financial institutions and large multinationals also have a strong interest in those countries.

That being said, I do not believe that Brazil is a threat. On the contrary, I believe that Brazil's rise in power is very good for Canada and the pursuit of our general foreign policy objectives.

Senator Fortin-Duplessis: Welcome to our committee, Mr. Daudelin. We have been eagerly awaiting your presentation. Here is my first question. Mr. Daudelin, in March 2010, you wrote that Canada has no strategic interest whatsoever in South America and the Caribbean. However, Brazil is one of the 13 priority markets identified as part of the Canadian government's global trade strategy.

In your opinion, to what extent has the Canadian government's global trade strategy been favourable to the development of ties between Canada and Brazil?

Mr. Daudelin: Brazil is currently the world's sixth, seventh or eighth economy, depending on how the ranking is determined. Consequently, it goes without saying that an export-oriented country like Canada cannot just dismiss such a market. This being said, you are familiar with markets and trade relations figures. Brazil accounts for a very small portion of our exports and imports. In addition, Brazil is more of a competitor on international markets.

Obviously, we are talking about an important market. There are products we could export to Brazil. I think the Canadian government would be justified in making an effort to promote Canadian exports. I do not think that the fate of the Canadian economy is being decided by Brazil or the rest of South America. That is why I said that there is no strategic interest for us there. There are some interesting considerations that would justify an effort, but there is no important strategic interest involved.

Senator Fortin-Duplessis: That is your opinion. I have an unrelated question for you. The various media have been reporting that the Brazilian police have been organizing attacks, over the last few days, in Rio de Janeiro's slums, which are dominated by gangs. The confrontations brought on by the attacks have resulted in several deaths. One of the possible reasons for the recent rise in confrontations is retaliation against the establishing of police pacification units. Police units began setting up at all strategic points almost two years ago, in an attempt to rid the favelas of drug dealers and to bring peace to the residents.

A large portion of the population believes that the police pacification units help to control the problem, but others are wondering about where the criminals are settling once they have been kicked out of a given area.

What is your take on these events? At first glance, it all seems to signal the government's willingness to clean up and stop crime and drug dealers. The situation is a bit peculiar because the government has been trying to establish a police presence throughout the slums for two years, but, as if by coincidence, the pacification units were finally set up right after the election of the new president. What do you think about this?

Mr. Daudelin: First of all, violence in Brazil has been declining for about ten years, especially in the southeastern part of the country. There are areas where crime is spiking, but in the industrial and financial centre of Brazil, in the states of São Paulo and Rio de Janeiro, we can say that homicide rates are dropping and have been at 30 per cent, 40 per cent and 50 per cent since the beginning of the 21st century.

The events currently taking place are part of a dynamic the government is using to gain control of an area it has never controlled before, as urban outskirts were never regularly patrolled by the Brazilian police. People living there had been left to their own devices. It is a fact that the middle classes living in the southern parts of Rio de Janeiro, São Paulo and most large Brazilian cities represent an important drug market. Drug dealers set up right next to these areas because the police left them alone there.

To answer your question, the situation is not a simple one, and I don't think that the solution could be simple either. The police pacification units were introduced very progressively, and we already know that drug dealers from Complexo do Alemão, where the latest attacks took place, have by now moved to other slums. However, the number of police- controlled shantytowns is growing.

Let us now talk about the link between the recent events and the election of the new president. In Brazil, police units patrolling the streets and maintaining law and order fall under provincial jurisdiction. The police pacification units are an initiative of the Rio de Janeiro state governor, who introduced the units a few years ago, a move that helped him get re- elected last month. However, this is completely unrelated to the election of the new president.

The federal government supports the initiative introduced by the Rio de Janeiro state government. In addition, the new president has announced that she would like the units to remain in the slums, possibly until 2014, when the FIFA World Cup will be held in Brazil.

Senator Segal: I want to welcome our witness. I am glad to learn that people speak French at the Norman Paterson School of International Affairs. I have two or three questions about the major improvements Brazil has made in terms of poverty-related issues you talked about in your presentation.

There has been a lot of talk about the Bolsa Familia program. Could you tell us what part this or other programs have played in reducing the level of poverty in the population?

Mr. Daudelin: Bolsa Familia is a program that development policy experts refer to as a conditional cash transfer. Under the program, the poorest families are eligible to receive a government transfer if they commit to sending their children to school and to visiting clinics on a regular basis.

The amount they receive is not necessarily high. Currently, it is set at BRL 200, which is about $150 a month. However, in the poorest communities, this amount is very important because it has helped very poor families to rise above the poverty line.

The program is expanding rapidly. In addition, it is one of the main reasons for President Lula's popularity and Ms. Rousseff's election because Lula merged various cash transfer programs that existed under Fernando Henrique Cardoso and expanded on them greatly.

Currently, we are talking about something a little below 3 per cent of the GDP, which is quite significant. This being said, the program is not the only reason why poverty rates and inequality are declining in Brazil, as other measures have also been taken. For instance, the minimum wage has increased dramatically in real terms, and that affects people who do not necessarily receive cash transfers.

It should be noted that, while fund transfers are very important in the poorest rural areas, they are much less so in the cities, where $160 is less than what a family can get by sending one of its children to work.

However, under the Fernando Henrique Cardoso regime, almost universal education rates had been reached in the cities. It was not causing actual problems, but poor workers remained left out. Certain measures have been adopted, such as the pension reform, but also, more importantly, the minimum wage increase.

In addition, there is something of a mystery that is hard to understand in Brazil's case. The fallout from the liberalization process in the1990s seems to have resulted in a drop in performance or education. In other words, in the past, going to school — especially university — allowed people to increase their earnings tremendously. However, events that transpired in the 1990s and are still not completely understood seem to have played an important role in decreasing the importance of education.

Currently, working and living conditions of unskilled workers are improving more quickly than those of skilled and educated workers. There has also been a shift in inequality. Bolsa Familia and other programs are somewhat more structural initiatives that we are still having trouble understanding.

Senator Segal: Do you think that the fact that Brazil is not necessarily interested in becoming an American ally, like Canada, will result in problems or conflicts in terms of the positions Canada holds on democracy and the progress of trade liberalization as far as South America is concerned? The fact is that our Brazilians friends are adopting initiatives to align themselves with countries that are not Canadian allies, such as Cuba and Argentina. Do you think this will cause problems, or is it something that can be sorted out between Canada and Brazil?

Mr. Daudelin: I do not think that Canada can influence in any way Brazil's relationship with South America. I do not think that Brazil's attitude will cause problems for Canada in that sense.

The biggest threat is not Cuba, which is a small, derelict island, with growing political problems and very serious economic woes. Currently, the real source of instability is Venezuela, which is a problem for the U.S. and for its South American neighbours. The U.S. happens to have very few tools for influencing Venezuela, while Brazil is better equipped to do that. Brazil, especially under Lula's rule, had substantial leftist legitimacy that enabled it to keep Venezuela in check. From that point of view, on the contrary, I think that Brazil is a stabilizing factor, even when it comes to regimes like those in Venezuela and Cuba, to a lesser extent.

That being said, there is something important I should point out. Brazil has been setting itself apart for a while through its somewhat dubious positions on human rights at the UN. Recently, Brazil refused to condemn Iran, Sudan and so on. In a way, this contributes to the country's attempts to set itself apart in order to get an invitation to help deal with Iran. Brazil wants to be involved in the discussions with Iran, and the fact that it was initially kept out of those discussions was perceived as a snub in Brasilia.

Despite that, the new president has stated that she does not necessarily agree with Brazil's recently adopted positions at the UN. There could possibly be a slight shift in terms of the country's positions on human rights. Basically, I believe that, when it comes to major issues like regional stability, protecting economic interests and protecting property rights in the region, Brazilian companies are just as interested in reaching those goals as Canadian companies are.

Senator Segal: People have told us that the regulations for Canadian companies that want to invest in Brazil are more complex than Canadian regulations are. For instance, Val Inco, a major investor, had no problem with Canadian regulations. Do you think this will always be the case? Could Brazil relax its regulations, so that Canadian companies can invest more there? Or do you believe that Brazilian regulations are fairly standard and are in line with a position that is completely justified for a country like Brazil?

Mr. Daudelin: First, we should discuss whether Brazil's attitude is a protectionist one. Are they selective in terms of foreign investments? Have they facilitated foreign investments? I think it is clear that is not the case. Brazil's system is not closed to foreign investors, but we are talking about a country where it is difficult to invest. I have heard the MIN people say that investing there is incredibly complicated, but worth the effort. Is this likely to change? I do not think so.

Regardless of its economic validity, Brazil's policy is incredibly legitimate. People agree on that. For instance, imagine if a large Brazilian company started buying airplanes like Air Canada buys Embraer jets. It is hard to believe that no one would speak out if a Brazilian company was buying Bombardier planes with Embraer being so close. Politically, their approach works very well and is sustainable.

Regardless of what we think from an economic theory standpoint, Brazil is growing at 4 per cent, 5 per cent, 6 per cent, even with its restrictions on foreign capital. Brazil is a major destination for foreign capital. Among the obstacles involved in investing in Brazil is what they call a "Brazil cost,'' which stems from the regulatory process. There is a tremendous amount of work to be done, but I do not see this as a very serious obstacle. Consequently, there is no pressure to change things.

[English]

Senator Jaffer: Welcome, Mr. Daudelin. I found your presentation very interesting. President Lula had an influential role in Brazil and outside its borders. He was much respected. What happens now?

Mr. Daudelin: That is a huge question. There is no doubt that Dilma Rousseff does not have, in any meaningful way, any degree of international legitimacy. Also, her personal history is not as appealing globally. She was a guerrilla student, we learn, as her file comes out.

Some may find this appealing, but it is not the rags-to-power story that was behind Mr. Lula. As well, Mr. Lula has proven to be an extremely effective player globally, using that legitimacy in a way that was unassailable. Who else could go to the World Economic Forum at Davos and say that the crisis was caused by a bunch of blond, blue-eyed bankers? He was sitting in Davos and everybody simply said, yes, okay. Nobody said anything. What he said was accepted.

Where it is most significant is regionally. Mr. Lula was able to organize a meeting and dismantle regional tensions in a way that Dilma Rousseff is unlikely to do. Mr. Lula was able to ease the tensions between Venezuela and Colombia and Venezuela and Ecuador. He would organize a meeting, at the end of which everybody would grumble a bit and agree to stop the confrontation. Especially in the management of Mr. Chávez, the change will be significant.

In terms of Brazil's prestige, it is difficult for me to see how Dilma Rousseff could better Mr. Lula. It is possible that Brazil's presence will be in the form of its diplomats in the coming years. I cannot see the President of the United States coming to Dilma Rousseff as he came to Mr. Lula and say, he is my man. This will not happen. The kind of easy populist appeal that Mr. Lula could command is unlikely to be found again. As a result, Brazil's image and international presence may suffer a bit. That being said, as I was trying to explain in my opening presentation, the foundations of Brazil's rise to power are so sound that it will not be significant.

Senator Jaffer: A world leader has been lost when it comes to negotiations. There will not be another President Lula.

Mr. Daudelin: Exactly.

Senator Jaffer: I was interested in what you said about the Organization of American States and how Brazil wants to limit its power. With the change in leadership, what will happen?

Mr. Daudelin: The OAS is not set up in a way that is favourable to Brazil. It is an extremely decentralized organization where the majority of votes are in the hands of small countries, most of whom are in the Caribbean and Central America and are dependent on trade, migration, remittances, investments and aid from the United States and Canada.

If you play that game from the standpoint of Brazil, you almost always lose. Brazil has tried systematically to build up alternative institutions, especially in South America where they have the Union of South American Nations, UNASUR, and now they have this Community of Latin America and Caribbean States that excludes the U.S. but this one is a bit too big for them. They like small organizations that are poorly institutionalized where their first-rate diplomats can basically, not necessarily, control the process and wield an overwhelming influence. From that standpoint, the OAS does not register.

This goes for Mexico and most large countries in the Americas. I have never liked the OAS, really, for historical reasons. I assume that you have been to Washington. The OAS is literally in the shade of the White House, which is symbolical. It has a problematic history, and it is not seen as a significant player except by some countries. Chile is one of them, Central America and the Caribbean countries as well as Canada.

There is potential for Canada to play the OAS, but it is not the kind of place where Canada will find much support from Brazil. However, there is a meeting in Brazil to talk about social policy, organized by the OAS. They will go through the moves, but if the OAS were to collapse tomorrow there would be a discreet party in Brasilia or, at best, no one would notice or mention it.

Senator Di Nino: Welcome. I want to continue where Senator Segal commenced about the trade and investment environment in Brazil.

There was a recent description of the relations between Canada and Brazil in those areas using words like, "neglect,'' "misunderstanding,'' "recurrent trade'' and "political irritants.'' Would you agree that has been the case until recently?

Mr. Daudelin: It is true. There was a period in the 1990s where everything was going badly. There was the fight between the two big companies, Bombardier, which, as you know, is a significant political player in this country, and Embraer, which is worse. It is a creation of the Brazilian military. It was built as proof that Brazil could play in the big leagues technologically. The symbolic investment in Embraer was even more important than with Bombardier.

Then there were these Canadians who were caught kidnapping a supermarket owner in São Paulo. It was just piling up.

I think there has been an effort on both sides to calm things down. It has been effective. The political irritants you mentioned have mostly disappeared. The other thing that has been happening is that Brazil's multinationals have become global. Embraer is thinking of building military transport planes, and I was reading that one of the suppliers would be a company based at Mirabel. They have global value chains and they buy what they need everywhere. Canadian companies in some areas are globally competitive.

There is a degree of interdependence that has come into play and effective diplomacy to calm things down. The other issue I forgot to mention was the mad cow affair, which was poorly managed on our side, exploited for nationalist purposes on their side and blown into something that had no sense from the standpoint of two large, serious countries. These issues are largely out of the picture.

The disagreements that we are likely to have will have to do with Brazil's growing assertiveness globally in the face of Canada's attempt to keep a role and influence in some institutions. What I mentioned about the OAS, the OAS is a key tenet of Canada's policies in the Americas. Brazil does not like the OAS.

The G20 is a central tenet of our foreign policy. The G20 is a compromise for Brazil. For Canada, it is the best we can get; for them it is a compromise, and so on.

In global multilateral talks on trade, the quad used to be the United States, the European Union, Japan and Canada. The last quad was the U.S., the EU, India and Brazil, and Canada is out. All these things are the relative marginalization of our country, and Brazil's growing power and influence can create real disagreements that will have to be managed. I think our people are aware of this at "Fort Pearson,'' and they have been managing it well in recent years.

Senator Di Nino: Regarding foreign ownership, due process and a fair, level playing field, does that exist for investors and those who wish to trade with Brazil, or are there impediments?

Mr. Daudelin: As a rule, it may be difficult to find. It probably varies from field to field, but it is probably better to find a field where a large Brazilian company is absent. This concerns the legitimacy of industrial policy, something that we no longer talk about in this country. There, however, people talk about this all the time.

When they have all those private companies and look at the ownership structure, we discover that almost invariably the government has a golden share, and much of the equity is in the hands of pension funds. What are those pension funds? They are the pension funds of the employees of the Bank of Brazil, the pension funds of this, that, and so on. These pension funds are not run like the Ontario Teachers Pension Plan, they are run like La Caisse de dépôt et placement du Québec. Also, they are managed by the government. It is the caisse model, or maybe the caisse is the Brazilian model unknowingly.

Senator Segal: It is the French model.

Mr. Daudelin: These funds played a central role in the privatization process that took place in the 1990s. It was privatization by half. On top of that, they have massive government investment. They have Brazil's National Bank for Economic and Social Development, BNDES. It is a larger player in South America than the World Bank and the Inter- American Development Bank. They have billions of dollars that they use for development projects, and the SNC- Lavalins of Brazil, there is a series of them, they get the contracts.

For dam building, they have state companies on both sides. The latest project, Belo Monte, is a huge dam that they are building in the Amazon right now. The two consortia that were competing included, on both sides, large state companies and large engineering companies, most of whose major projects are funded by the government. It is within the state's purview. The industrial policy is central and it will not change. The consequence is that it makes for a tricky field in which to step.

Research in Motion is becoming involved in Brazil, so they made their sums. It is a huge, fast-growing market. It may be worth it now, but it is not easy.

Senator Di Nino: The role that the Canadian government plays in all of this, is it adequate, from your standpoint? Has it improved? Is it becoming worse?

Mr. Daudelin: I do not know enough about that role. I would ask people from the private sector.

The people I have seen working on Brazil, our current ambassador and the previous one, some of their staff is first rate. They know Brazil well, which is unusual because Brazil is not the kind of country that many people know much about. They understand the game.

How good they are at helping Canadian corporations manoeuvre, I cannot comment on.

Senator Di Nino: Thank you. Perhaps I can have an opportunity on the second round.

Senator Mahovlich: Your views on Brazil's plans to develop submarine capabilities and the potential implication for the country's non-nuclear status, can you extrapolate a bit on that area for me?

Mr. Daudelin: Brazil announced a few days ago that they are launching a large submarine-building program, including six nuclear-powered submarines whose technology is imported from France.

Senator Mahovlich: From France?

Mr. Daudelin: Yes, it is French technology. There will be 20 submarines; 6 from France and 14 non-nuclear, some of which will be refurbished. That is what was announced. The program extends to 2043, and this touches on Senator Di Nino's question.

There are two sides to this question. One concerns Brazil's attempt to challenge the current global nuclear proliferation regime. Brazil has signed the agreement but is uncomfortable because they feel it constrains their ability to claim a permanent seat at the United Nations Security Council. As I said, the permanent five is a nuclear club. Therefore, Brazil is a bit awkward with this situation. They know they have the nuclear technology, and they are unhappy about the situation.

That is why the P5-plus-1, the six countries that were chosen to negotiate with Brazil, when it was announced that Germany was added to the permanent five but nobody else, especially not Brazil, it was seen as a slight for Brazil. They felt they should be there because they are sacrificing a lot by not having nuclear weapons. At least, they wanted them to admit it was not a pre-condition for Brazil not being involved with the governance of the Nuclear Non-Proliferation Treaty, NPT.

Second, Brazil is unhappy with what they perceive to be the lack of commitment of the nuclear powers to disarmament. As you know, the NPT is a deal. The nuclear powers were committed to disarm and the non-nuclear powers, in exchange, committed not to arm themselves. There is a feeling in Brazil — there was a feeling in India and they acted on it — that part of the deal, disarmament, was not complied with. There is a certain frustration there. That is one part of the issue.

They are also questioning the International Atomic Energy Agency, IAEA, and its ability to inspect. They are always making a bit of a fuss. In substance, I do not think the Brazilians are developing a nuclear program or will do so. The reason they want to do so has nothing to do with security or strategic interests; it is strictly related to global status. I think that is why they make a fuss around it.

The other dimension of the submarines is that part of the rationale is a military rationale. Brazil's oil and gas reserves are offshore. Hugo Chávez is buying his own submarines and that bothers Brazilians.

What Brazil is buying in those submarines is technology. The first submarine will cost them two fortunes, but then the technology will be theirs to build the others. Those are the kind of deals they are negotiating regarding war craft right now. They are willing to buy an aircraft, the French Rafale, which is not as good as the aircraft Hugo Chávez has in Venezuela. They do not care because they want the technology and the ability to produce them on their own. It is military procurement as industrial policy.

In the case of the submarines, it is the same thing. It is extremely high technology that they will control. They want to do the same thing with the aircraft. They want to be a country in the world that has nuclear submarines without going as far as reneging on their commitment to the non-proliferation treaty, which would be poorly received in South America and would create problems for Brazil.

Senator Mahovlich: Might I have another question?

The Chair: Yes.

Senator Mahovlich: You mentioned that many people do not know a lot about Brazil, and I agree with you. I had a question the other day for some witnesses, and they were unable to answer it. Maybe you can.

Mr. Daudelin: Maybe.

Senator Mahovlich: Concerning immigration to Brazil, where do the people come from? Do they come from China?

Mr. Daudelin: Immigration is not significant. There is not much immigration into Brazil right now.

Senator Mahovlich: Not like Canada?

Mr. Daudelin: No: There is no active immigration policy in Brazil. They are not seeking immigrants. There is no such strategy.

Senator Mahovlich: What if the boat people pull up?

Mr. Daudelin: Geographically, they have been insulated from them. There is some immigration from Bolivia and Paraguay, from neighbouring countries in part because Brazil is growing so fast, but it is not significant. The big immigration movement was at the turn of the century from Japan, Italy, Portugal and Germany. If you go to São Paulo, you can find fantastic sushi and great Italian food. However, that stopped when Brazil went through its economic problems.

People may decide to go to Brazil now, but it is not on the policy map, it is not on the political map and it is not significant in demographic terms. What is more, they are not confronting the kind of problems that Canada is confronting. Educating their own people will provide everything they need for technical and industrial development.

Senator Downe: Following up on that point, what has happened to military spending in Brazil over the last number of years? Is it increasing dramatically like China, or is it on an even keel?

Mr. Daudelin: It has been increasing. Again, I do not have the numbers on hand. They have announced significant programs. The submarines are one and the war craft is another one. There is a new military transport plane as well. It is part of what I described as an industrial policy.

Right now, with respect to the Brazilian military, it is one of the weaknesses of the country from the standpoint of its claim to global status; its military is not that impressive, especially when we look at its level of equipment. Given that they are surrounded by neighbours who are arming quickly, it has encouraged them to invest. They are not, however, the driver of whatever arms race is taking place in Latin America. They are more playing catch-up, and they play catch-up less with a preoccupation to catch up than with a preoccupation to obtain the technology, become an exporter of aircraft and submarines and be self-sufficient.

Senator Downe: That is where they part company with their South American neighbours who are buying everything but not producing anything. As you explain it, Brazil wants to grow their industry and be a producer?

Mr. Daudelin: Yes: If Embraer were Boeing, half of its budget would come from military contracts that are not submitted to the rules of the World Trade Organization. That is a big advantage. Also, they need engineers and it represents good jobs. That is the main preoccupation. That is why they are not being aggressive in terms of what they are buying.

For instance, one of the planes being considered was the Saab Gripen war craft. By global standards, that plane is not leading edge, especially compared to what Venezuela is buying, but they do not care. They want the technology and the ability to produce it, and they are willing to pay more for the French Rafale than they would pay the Americans. Why: Because the Saab has an engine that is produced in the United States, which means that the U.S. Congress could block the sale of the technology, which is a technology they want. Therefore, they are willing to pay much more for a plane from France that is not leading edge, with a guarantee that they will have the technology.

Senator Downe: I understand the argument on the procurement and industrial policy, but I am unclear how the military spending fits in with the priority you identified of regional stability. Do they intend to grow their military after they acquire all of this technology or do they intend to export?

Mr. Daudelin: No: The way in which they have managed the region has never involved the use of the military, except in centuries past. The outlook of Brazil has never been to use its troops for offensive purposes in the region. That purpose is absent. Their strategy, which has been focused on Argentina since the post-war era, is now focused on the Amazon. The idea to wage a war in South America against their neighbour is far-fetched. There is no aggressive component to that policy by any means. I have never seen any indication of that purpose.

Senator Downe: My last question is on corruption. We have heard from a number of countries about high levels of corruption. What is your view of corruption levels, if at all, in Brazil?

Mr. Daudelin: Corruption levels are quite high in Brazil. The chief of staff of Dilma Rousseff, when she was head of political affairs, and she was the right-hand person of the president before, her chief of staff has been accused and lots of proof is emerging that she has been hiring lots of her relatives and contracts, et cetera. It is not only that. The likely president of the Senate, the former president José Sarney, has been proven to be extremely corrupt and to have diverted funds and so on. He is protected because he is influential in the Congress.

One thing that is significant is the way in which the Brazilian Congress works. It is a bit like the U.S. but try to imagine the U.S. Congress with 20 parties. When you are talking about pork, for example, you need a pork farm. That is what they do. There is something that involves what they call political articulation, which means giving some ministries to parties, giving some contracts to some companies related to one minister, and so on. Right now, if you read the Brazilian press the whole discussion is around who gets what ministry, and the ministries being sought do not include not the Ministry of Foreign Affairs. They are the ministries of transportation, Brazil Post, communications and so on, and everyone knows what is involved.

Let me be clear. I think they have been extremely effective in spite of all this because the U.S. Congress is paralyzed with two parties and one faction in each one of them. In Brazil, they have managed to govern that extremely complex country by using all the means available. I do not think that it is as problematic as it appears at face value. I will only say that.

Senator Downe: Is there much media coverage of the corruption and public pressure on the government to introduce reforms?

Mr. Daudelin: The Brazilian press is fantastic. The coverage is detailed. The level of detail and the level of analysis in Brazilian papers puts ours to shame. Even the coverage of international affairs, I am always amazed at that. When I have my press review every day, I read my Brazilian papers, and their coverage of international affairs has no comparison in our country. It is fantastic. They are keen. The large newspapers, of which there are three, and I am thinking especially of the two São Paulo ones, will dig up anything and everything.

When I say that José Sarney, the former president, has clearly been shown to have been involved in corruption, this was all in the newspapers. There was tremendous pressure and President Lula had to save him; otherwise his party would not have supported Dilma Rousseff and he might have lost the election, so he saved him. It was clearly described and analyzed in the newspaper.

I wrote a piece a while back called, "The good news scandal.'' I wanted to emphasize that all these things come out. There is a degree of public control, although its impact is limited.

The Chair: Following up on that point, there is less coverage, understanding and more control at the state level and that control filters in. Can you comment on that? It seems to me if one is in the state of Rio de Janeiro, it is different from being in the Brazilian government.

Mr. Daudelin: That is a good point. The central government is well covered but Brazil has 27 states, some of which are countries on their own. The state of São Paulo is probably among the top 25 economies in the world. Some states are poorer and in some states the corruption levels are much higher.

One thing I forgot to mention is that the judicial system is also effective in dealing with this corruption. People are arrested, including governors, candidates, and so on. It does not always lead to where it should. Brazilians say it ends up in a pizza, which means with everything on the plate and nothing really happens. However, it is public and people know it.

At the state level, yes, it is a bit trickier, although, again, in São Paulo, the coverage is excellent. Also, it is the same in Rio. However, when one moves out a bit, things can become problematic, with regional newspapers that are owned by big families that also control the governor's mansions. Brazil is a country of countries.

[Translation]

Senator Robichaud: Are there any movements in Brazil aimed at mobilizing the population, or the people who benefit less from the country's natural resources, in order to encourage them to claim their share of the resulting profits?

Mr. Daudelin: Yes. There are some fairly powerful unions. In addition, President Lula's political trajectory is primarily based on steelworkers' unions from São Paulo's industrial suburbs, but those unions are mainly concentrated in the public sector and the major automobile, high-tech, airplane and other related industries. Things are less organized in the rest of the country's society.

That being said, there is a very well-known movement, the Landless Workers' Movement, MST, which mobilizes people in favour of land reform, and whose positions are very radical. The movement organizes occasionally violent protests where people occupy lands in order to force the government to deal with land-related issues.

Land distribution is still an issue in Brazil. Poverty in rural suburbs is still staggering, so the movement is relevant. However, it is clear that this is a very radical movement, which has ties to Dilma Rousseff's and President Lula's Workers' Party, and which the government sympathizes with, but which does not have much influence on the government.

Its influence on politics in general is rather marginal. There is also a very small movement, the Homeless Workers' Movement, which is trying to mimic the MST's actions, but in the cities. The movement fights for access to housing and similar issues, but its work is not very significant.

Senator Robichaud: Could those movements come to the fore and gain more power, or are they limited?

Mr. Daudelin: These movements have been somewhat repressed, but the main result of their work is a significant improvement in the living conditions of Brazil's poor classes over the last 10 years, which means that the actual basis of the mobilization movement is crumbling. So, I do not think so. If we want to talk about relative destabilization factors, but without exaggerating, we could talk about drug networks, which have a more considerable effect. A few years ago, these networks brought activities in São Paulo to a halt for almost a week, and they caused very serious problems in Rio. Their effect is more significant, but once again, considering how Brazilian social policy is managed generally, the government is more than capable of handling all the tensions.

Senator Robichaud: Regarding corruption, you say that people more or less accept that this is the way things are done. Do you believe that it will continue this way?

Mr. Daudelin: No, there is much resistance to corruption. However, people seem to accept this reality. There is increasing pressure, especially in some southeastern states, to minimize these problems. The cases I brought up are mostly found in the suburbs, either in the north or the northeast of the country, where politics are more traditional and where people resort to protectionism or patronage. These cases can also be found in other states. São Paulo, for its part, cannot afford to function in this way. There is very little corruption, so some progress can be noted. The Brazilian law society has a lot of influence in this matter, and the media are being rather helpful too. So, while it is not legally condoned, corruption is an accepted practice that the country is not fighting as much as it could.

Senator Robichaud: It is nonetheless tolerated.

Mr. Daudelin: Yes, in the sense that the options for getting rid of it have not been looked into.

[English]

Senator Stratton: I want to talk about drugs. As you know, Mexico is undergoing a big battle with the drug warlords, especially along the Texas-Mexico border. They have viewed it as a serious problem to the degree that the candidates lining up for the next election, because President Calderón cannot run again, are all behind continuing this war. If they do not, they feel they will slip back into a narco-state, which would be serious.

Given what is happening in Mexico, where are the drug lords in Brazilian society? One always fears that it is a strong society. To what extent do they influence corruption in government? What is the government doing? In the short term they are going after it for the gains, but one worries that in the long term there might be an ongoing battle to rid the country of that problem?

Mr. Daudelin: First, if I may, I want to discuss the premise. I am not sure that the Mexican situation is as bad as it is painted in the media here or in the United States. Even in terms of violence, Mexico is less violent today than it was 10 years ago.

However, what matters in Mexico is that they are located beside the largest drug market in the world. The rent at stake is absolutely huge. That kind of rent is not present in Brazil. There is a drug market and one can buy cocaine or anything one wants in the large cities of Brazil, and marijuana in rural areas. It is similar to Canada.

I have never seen indications of large-scale drug cartels in Brazil. Lots of drugs come in, some from Europe. There are connections with Nigerian cartels for exports from Colombia and so forth. The distribution is low-level, in particular in richer states with the wealthiest cites where the markets for drugs are more significant.

The websites of Brazilian newspapers and TV stations display photographs of the houses of the drug barons of Rio de Janeiro; they are rather pathetic. Their mansions are in the shanty towns. They build the walls on which they paint the Corcovado and famous landscapes of Brazil so that they look nice. They have small pools with their names on the bottom, and they have a few guns and so on. There is nothing like what we have seen in Colombia and Mexico for the simple reason that the drug market is local, whereas in Mexico and Colombia it is all linked to the U.S. market, hence the opportunity to build huge organizations.

Are drugs a problem in Brazil? Yes, but precisely because the gangs do not have access to a large pot of drug rent. As far as I know, their influence on politics is marginal. They do not have the kind of situation like they had under Carlos Salinas; it does not register. There is much more money in other things.

Senator Stratton: It is interesting because if they have done battle with drugs and the drug lords in Colombia, the battle has moved north. I thought it might have impacted Brazil in the same way, although not to the same degree, as it has in Mexico.

Mr. Daudelin: Brazil is not in the right location.

Senator Stratton: I appreciate that.

Mr. Daudelin: If you want to send drugs from Colombia to the U.S. and you go through Brazil, you are looking for trouble.

The Chair: I will put a few questions.

Can you comment on the middle class? Brazil is even more disproportionate of poor with a small layer of extremely wealthy families, including the 13 families that moved from Portugal 200 years ago. The dynamics in Brazil have taken off because there is more than moving up only from abject poverty but a real middle class has been created. São Paulo is the centre of much of the business that has come from that change.

Mr. Daudelin: Yes, the middle class is expanding quickly throughout the country. It is interesting that there is an explosion of universities, not all of which are great. There are hundreds of universities. People whose parents did not even finish high school are going to university. It is the standard thing to do.

A friend of mine and somebody that you might want to talk to, Ted Hewitt, Vice-President, Research and International Relations, of the University of Western Ontario, has been studying the shanty towns of São Paulo for 30 years. He said that life has changed so much. I was talking to people who had problems making ends meet. Now, they are putting money aside to pay for the university education of their kids. That is how much it has changed. I will not defend this kind of public policy because my reading of this explosion of universities is not positive. People are more educated than ever before. A recent biography of Mr. Lula mentions that he took a professional program for a year to learn how to be a machinist. The program had been set up by someone long before. He said that when he received his diploma, his mother was as happy as he was when he sent his kids to university. He was a kid who did not go to high school.

It is not the exception. There is a huge expansion, especially from the bottom. Brazil has always had a large middle class, and that is why they have high-quality newspapers and a rich elite culture. Now, a lower middle class is expanding from the bottom, more quickly than ever in the history of the country; and not only in São Paulo.

The Chair: I want to explore that expansion, because strategically that has been underpinned by many government policies, some of which are not sustainable. The government raises expectations, and then if the next generation, or people in 10 years, cannot go to the universities, cannot obtain the diplomas, they will have pent-up frustration.

My question, in light of the time, is, you say that strategically we do not have much, Canada and Brazil, in a trading opportunity or in a political opportunity. We are interested in OAS. They are less interested.

However, Canada has always reinvented itself; the honest broker or something else. Strategically, the shifts, multilaterally and strategically, in this hemisphere are changing. There are a lot of new players and avenues. Surely it will depend on the creativity of developing a new relationship with Brazil that takes into account where they want to go internationally and where we want to go internationally.

I see Europe being part of that shift because Europe now strategically is becoming a bloc, under the Lisbon Treaty, becoming closer and more powerful that way, which is positioning us differently in the multilateral shift, and Brazil is noting that. It was always through somewhere, Spain or something, that they made their comments.

They are looking for space. We are looking for new opportunities. You simply say that the existing mechanisms will not create much for us. However, is there room to create a new relationship strategically with Brazil?

Mr. Daudelin: I will start with your first point. To be honest, of the main tenets of Brazilian economic and social policy, I see none that are not sustainable. Much of the expansion of the universities is private universities. Poor families spend a fortune for what I would call poor-quality university for now. The public universities are good in Brazil and hard to get into. They have financial problems, but the country is generating lots of resources, so I am not sure about that. I think it is sustainable. The foundation, as I said, is robust.

What can that mean for Canada? On the issue of creativity, I have been following Canada's policy towards Latin America for a while now, and we have been creative. In 1989, we had a new strategy for the Americas that involved our joining the OAS. After that, we entered aggressively into the hemispheric trade integration model. We pushed for it strongly, and it did not work well. That is, at the OAS we remain influential, but the organization is marginal.

For the rest, it is not significant. I think the big problem with our creative foreign policy is that much of it was not based on strong interests. I am not saying it is a bad idea to have a disinterested policy. I am saying that when the policy is not based on strong interest, they can change their mind from one day to the next and nothing happens. They are not disciplined by their interests, and that has been the problem.

If you are asking me where the opportunities are in Latin America for Canada, I would say they are not in Brazil. They are in Andean countries: Colombia, Peru and Chile. They are big mining countries, countries with a financial sector that is under-developed, by our standards. There is strong interest among Canadian corporations in those sectors to become involved.

However, Brazil is not in the same situation. It is extremely difficult for me to think creatively about joint initiatives based on strong interests, precisely because there is little interdependence between the two countries.

Lastly, regarding your point about Europe, Brazil's huge advantage in recent years has been that its development and growth is based essentially on the development of its domestic market. The fact that the poor are integrated in the consumption is the big driver of their growth, and this integration insulates them from the crises that we are seeing in Europe that will have reverberations in North America.

For instance, Brazil's trade policy is anaemic. They have not signed a serious trade agreement since the Southern Common Market, MERCOSUR, with their neighbours, which they did not really need. They are not pushing aggressively with Europe, although they have been talking with them forever. They are talking with India, with whom they do not trade. They are talking with South Africa, with whom they do not trade. They go to the meetings of the BRIC countries — Brazil, Russia, India and China — with whom they do not trade. China is perceived as a threat to the industrial sector, but they will protect it. It is difficult.

In contrast, Canada is involved totally in the world. We need those trade agreements. We need to develop markets. From that standpoint, it is hard for me to see a common agenda emerging.

I am in favour of good relations with Brazil. It is my business. However, I do not see strong foundations for a stable and serious policy towards the region.

The Chair: You have pointed out the economic side, but we also have foreign policy interests that are strategically in political spheres. The world is changing dynamically, and how we can influence the multilateral systems, the United Nations, the blocs. We used to be close with our like-minded, and that would be Northern Europe. Now, of course, Europe is more inward looking, and Brazil is searching out a role for itself. That is the point I am looking at.

Politically, is there room to look at their interests and our interests, and either create new institutions or work differently in the existing institutions, G20 being one recent development?

Mr. Daudelin: I think global governance is, in part, kind of a zero-sum game. The influence that is gained by one is likely to be lost by somebody else. I think you are right. The global governance is in flux, but that flux means that Brazil is moving ever closer to the centre, and we are moving ever closer to the periphery. This is a fact that we need to deal with. We need to deal with relative marginalization.

In that process, for that purpose, I am not sure that Brazil is a reliable ally because the gains they make, Canada pays for. As I said, the G20 is too big for Brazil and it is just right for Canada.

At the UN it is the same thing. They want a permanent seat at the UN Security Council. You will remember that in the case of Brazil, they have been at the Security Council half of the time. They missed one mandate. They are re- elected every second election. They have done that for 20 years now.

Japan is the country that is present most regularly at the UN Security Council. They are not happy with this situation. They want a permanent seat. In that sense, it is difficult for me to see some kind of substantive agenda between the two countries except on specific issues, perhaps.

Even with the environment, Brazil can play hardball because they have an energy matrix that is unmatched in the world. They have hydroelectricity, gas, oil, alcohol, and now nuclear power. Soon they will join the Organization of the Petroleum Exporting Countries, OPEC, as an exporter of oil. They find stuff every day. Canada is not in that position. Canada is caught in a dirty energy trap, and they are not.

They go to Copenhagen. Who do they want around the table: Canada? No: Brazil. This is exactly what happened in Copenhagen the last time.

The Chair: I am not sure I want to end on that note.

Senator Robichaud: Any other questions?

The Chair: We have been looking at the BRIC countries Russia, India and China so it is natural to look at Brazil too. I think part of our assessment will be whether there are new opportunities and whether we are overlooking anything in Brazil. Are we focusing more on India and China, and is it more legitimate for Canada to do so because we did find opportunities in India, and certainly China and Russia? You are painting a picture that the opportunities are almost exhausted in Brazil, which is an interesting dynamic.

Mr. Daudelin: As I said, there are opportunities for Canadian companies, but in terms of political projects — because that was the essence of your question — I cannot see many.

Even among the BRIC countries, Brazil is in a privileged position. Brazil does not really need the others. Brazil is not a single-resource exporting country like Russia. It is a democratic country, which China is not. Brazil does not have the same scale of problems that India has. Even among the BRIC countries they look good. They do not need us.

That does not mean that we should have no policy, that we should not keep an eye on them, and that we should not become more knowledgeable about them. That is not to say that they may not need us for some things, but this is more in the realm of small-scale diplomacy, and, I would say, intelligent management of the relationship, rather than some kind of strategic partnership that would never fly in Brasilia.

The Chair: If I can sum up that answer, you are saying they are changing their position and we should be aware of it, and we will not necessarily change our foreign policy or have the opportunities they may have.

Mr. Daudelin: Exactly.

The Chair: Thank you. You have obviously generated a lot of interest, and we are way over our time. Thank you for being patient with us. You have added to our thinking on Canadian policy and interests in the region, and particularly in Brazil.

I think you have given us a lot to think about and reflect on, and it will be perhaps one of the measures as other witnesses come forward. Thank you very much this evening.

Mr. Daudelin: You are very welcome.

The Chair: Senators, we will go in camera.

(The committee continued in camera.)