With quorum, we're going to begin.
I have a couple of quick housekeeping items to take care of before we begin. I'll beg the indulgence of our witnesses. They're both used to this, in this case, so that's good.
First, I will ask the committee to consider an operational budget request. This would be for Bill , an act to amend the free trade agreement between Canada and Panama. In the event we have witnesses from across the country, there will be requests for recovery of expenses. I think the clerk has circulated a budget that will contain any need for financing, so we don't have to go back each time.
May I ask someone to move that motion?
Mr. Cannis moves that the committee adopt the motion to provide expenses for witnesses on Bill C-46 to the tune of about $33,000.
(Motion agreed to)
The Chair: Thank you.
The other one is a quick one. I need authorization for the clerk to purchase gifts for those we will visit in Europe. That is:
||That the Standing Committee on International Trade be authorized to purchase up to $600 in gifts to be presented to foreign hosts during the trip to London, United Kingdom; Strasbourg, France; Budapest, Hungary; and Rome, Italy.
Perfect. I think it's unanimous.
(Motion agreed to)
The Chair: Thank you.
We will continue with Bill C-46. We have two sets of witnesses coming today.
I'm going to wrap it up at about 5:15 to return to EU business. I hope by that time to have briefing books for everybody. I think by now you should have all received your tickets, travel arrangements, etc. We can discuss that further at 5:15, for those who have any questions.
Now let us proceed to the matters of the day, that is, to Bill C-46, an act to amend the free trade agreement between Canada and the Republic of Panama. This was a reference to the committee from the House of Commons.
We have, as our first witnesses today, returning to the committee, Andrew Casey, who is the vice-president of public affairs and international trade for the Forest Products Association of Canada; and my old friend, Robert Blackburn, who's now senior vice-president, SNC-Lavalin International.
Welcome back. I've asked that you both begin with brief statements, and then we'll proceed to questions. I think we'll go for about 40 minutes today.
Mr. Casey, would you like to begin?
Thank you, Mr. Chairman.
I see a number of new faces around the table at this meeting, so by way of a brief introduction, Forest Products Association of Canada is the national voice for Canada's wood, pulp, and paper producers. It's an industry in Canada that accounts for about 12% of Canada's manufacturing GDP. We directly employ 230,000 Canadians and we are the economic lifeblood for over 200 communities from coast to coast in this country.
I almost have to check myself now. This is the third or fourth time I've been invited to appear before this committee, and I have to make sure that my ego doesn't get too out of control and realize that it's not about me. I may be an interesting witness, but as I'm sure the committee has been finding out, every time one of these free trade deals gets signed or is sort of in the process of being negotiated, Forest Products pop up. The reason for that is that an enormous portion of what we produce in Canada is sent abroad. In fact, we're the number one forest products exporting nation in the world. We send about $24 billion worth of our product annually to markets outside of this country. Obviously, the lion's share of that goes to the U.S., but we're also very active in other markets around the world, specifically in Europe and Asia.
That's sort of a brief introduction. I've also bored this committee before, but maybe I'll spend a little bit of time saying that this industry, as many parliamentarians are more than familiar with, has faced some very challenging times over the past couple of years. We're emerging from those challenges, and one of the keys, as we look forward to ensuring a strong, stable industry in this country that will continue to support the jobs that we support, is to expand and diversify existing and new markets around the world. It's in that context that these types of free trade agreements are extremely important to the industry.
I'm sure you've already been given some sense of the numbers involved here, and they're not big. If you look at a $24 billion export industry, in our case, we are looking at a marketplace in Panama of only about $120 million worth of imports. Of that, we only have about $8 million, and that's broken down into two primary products: paper, which is the bulk of it, about $6 million; and about $2 million worth of wood products. That's a fairly insignificant number when you put it up against the $24 billion, but it's a very significant number for probably two mills in this country. I don't know which ones they are, but I do know that wood products come out of B.C. and the paper products that we ship to Panama come out of Quebec. I would guess, without knowing it, that they probably come from one or two mills. For those particular mills, this is a very important deal. And I'd like to remind parliamentarians that this is an important part of all these free trade deals. While they may not seem big on the surface, they are very important to a number of specific regions and specific mills.
This deal will get rid of up to about a 15% tariff on our products. It'll make us competitive with our main competitor, which happens to be, in this particular case, the U.S. They tend to supply the rest of the products to the Panama market. They've recently signed a free trade agreement with Panama, so this at least keeps our pace with them and allows us to compete with them. For that, we are very supportive of this deal. We were very supportive of the government continuing to sign and look for new free trade agreements in other markets, and it certainly will help to solidify our export potential going forward, and an important part of the industry going forward.
I thank you, Mr. Chairman, and thanks to the committee for the time.
As always, I am prepared to answer your questions in French, if you wish. Thank you.
Thank you for inviting us to this committee. I think Andrew has made the case for why free trade agreements like this are important to Canadian business. I would say they're particularly important at a time like this, when we're seeing the vulnerability of our uni-market south of the border. With the intensified security and the border thickening and economic slowdown, we can see the importance of other markets.
There are some new people whom I haven't seen around this table before, so let me say that SNC-Lavalin doesn't have as many employees as Andrew spoke about in his industry. We have about 22,000 people worldwide. We're currently implementing—getting actually paid for now—about 9,500 projects in 100 countries. We are an engineering and construction company; 15% of our total revenues last year were in Africa, 10% in the Middle East, 9% in Europe, 5% in Latin America, and 4% in the United States. As you can see, we're already well diversified internationally.
When I looked at your bill, I was interested to see that it looked as though it was all goods being dealt with. So I went to the agreement itself, and it covers services quite thoroughly and provides for the temporary entry of business people, which is a very important factor. It's a thorny problem for us constantly, getting business people with whom we're negotiating--and to whom we want to show something we've done in Canada--a Canadian visa. It's a time-consuming and burdensome process. This isn't going to help that, but I can't help mentioning it.
We've worked in Panama since 1975 and have completed 18 projects there in a number of areas, mostly in the power sector and mostly supported by the development banks or—really, the most interesting project—by CIDA, which was working with the six Central American countries to build a regional power grid to get the most efficiency out of their power assets. This is something we're working on in east Africa and have done in the Middle East, in former Yugoslavia, and now we're working in Central Asia as well; that is, a way of maximizing efficiency of power grids.
We see a lot of opportunities in Panama: in the power sector, obviously, where we've been working, and in all kinds of infrastructure—roads, water, sanitation—and in institutional strengthening, notably in the mining sector.
I don't know whether you noticed, but about two weeks ago it was announced that we would lead a consortium—we have 70% of it—to build a $4 billion copper mine in Panama, owned by Inmet, a Canadian mining company. We're going to build it and all of the surrounding facilities. It's about half mine and half surrounding infrastructure, including ports and roads and things. There will be a second phase too, building the concentrator, which is almost another billion dollars.
We succeeded in doing that without the free trade agreement, but the free trade agreement will provide a good framework for further business.
Basically, in Latin America, a region of government concentration, a number of these free trade deals are emerging. We have one in Peru; there's now one in Colombia, in Panama, and Chile. This really facilitates Canadian businesses, including ours. It provides an increasingly secure framework for doing business in Latin America, so we welcome it.
One thing I'll mention is that we have a business approach whose initials are LRDI, which is for “local resources development initiative”. When we go in on a project like this, we use local labour and train thousands of workers and work to develop and mentor local businesses also. This is something that's part of this contract as well. We're doing it now in Madagascar on the Ambatovy project, and it's what we've done in South Africa and Mozambique on our smelters, which we built there for BHP, the famous BHP Billiton that didn't buy Potash. This is a local development. We don't take a lot of our own people in; we use local partners and develop local partners, labour, and suppliers as an intricate part of the project.
Thanks very much. I'm happy to take questions in any language except Spanish.
We're going to start with questions.
It's not that it's an entirely new committee; it's just coincidental today that we have a few absences. I want to welcome the Honourable Gurbax Malhi to the committee today, who's replacing the Liberal critic, Martha Hall Findlay; and my old friend Louis Plamondon, the dean of the House, representing today his colleague Claude Guimond for the Bloc Québécois. And—oh my gosh—we have Malcolm Allen here representing Mr. Julian, which will be to the delight, no doubt, of Mr. Casey; and Lois Brown, representing our own Ron Cannan.
We're going to start off today with Mr. Silva for the Liberal Party.
I've been pushing for that, so I ask the question.
I want to get back to the issue of Panama and overall free trade agreements. Both you and Mr. Casey have made some good arguments, and I think overall we have, from our party's perspective, been very supportive of these trade agreements, because we see that there is a framework for further business, as you said, and I think it's a very positive thing as well.
But we also want to know—and maybe you could explain to members of the committee—whether, where there have already been free trade agreements, it has been easier for you as SNC or as the forestry products industry to go into those particular countries. I'm speaking of the agreements with Chile and Israel and all the other agreements there have been in the last little while. Have these actually helped overall in terms of getting further access?
Thank you, Mr. Chair, and thank you, gentlemen.
The chair said earlier, Mr. Casey, that perhaps I wouldn't be as forthright as other members who have been here before, but from our perspective, free trade has not been kind to your industry when it comes to the American market. It seems to me you're facing another battle that has just raised its head in the last couple of weeks, when it comes to the pine beetle, cutting that timber down, and trying to find a market when the U.S. is resisting once again--albeit for me to remember how many times it is...quite frankly, it's been too many to remember.
From the perspective of folks I know who work in that industry, through my association with the union, they've not done well when it comes to workers in this country and softwood lumber. I hear you say that free trade is a good thing for the forest products industry; I'm not so sure that workers on the ground.... You pointed to two mills, one in B.C. and one in Quebec, and I'm not sure which one makes paper to send to Panama. I think you would find the majority of mill workers across this country are not in step with you in believing that the free trade system has done them a great deal of good. I think a lot of them say it's done them a great deal of harm, and a lot of communities would probably say the same thing.
I've made the statement and I'll let you make a quick comment. Where do you think the free trade agreement will have an impact, specifically with the latest irritant that's come up between the softwood lumber companies and what we see? It leads to a bigger question about whether free trade really works or not, in the sense of where you see this going when it comes to this most recent irritant you have with the U.S. market.
I think the latest irritant.... Let me rewind the clock a little bit. We ship $24 billion worth of our product outside of our borders. About 70% of that goes to the U.S.; the U.S. remains our most important marketplace. However, it's also one of great dependence, and as the softwood lumber dispute highlights, sometimes it's a little dangerous to be too dependent on one marketplace.
There are a number of factors that go into the softwood lumber dispute, and I don't think we need to go into that. I would also note that softwood lumber was exempted from NAFTA, so it's not really part of the free trade agreement. But let's just move on from that for a second.
The deals we sign outside of this country and the markets we open up outside of this country—even if we forget about free trade agreements and we look at markets like China and India—alleviate the pressure or the need for the industry to depend so heavily on the U.S. marketplace. It's all a function of supply and demand, and that's what's driving the dispute between ourselves and the U.S.
When the market prices go up to a certain level, there is no dispute anymore. Once they reach $350 per thousand board feet, there is no dispute anymore. The only way to do that is to broaden the market, so that the supply is going elsewhere and we're less dependent on that U.S. marketplace. These types of agreements help us to broaden our marketplace in that regard.
I know you were being accurate. I know you knew that. We all do that from time to time; it doesn't get wholly accurate. I just wanted to make sure it's on the record.
Mr. Blackburn, I was interested when you talked about LRDIs, which are local resource development initiatives, where you're actually training workers in the host country where you're developing projects.
This leads me back to the free trade agreements, where there are two side agreements, one on environment and one on labour. As both of you are well aware, as you both quite ably pointed out in the beginning—and you've been here many times—you've heard it over and over again. I'm certainly not pointing fingers at any one particular company. Your company has a great reputation, by the way, and I would be the first to acknowledge that.
That doesn't mean that all companies have great reputations in countries where they go. It is one of the things that I have been very clear about, based on my background as a trade union leader. When you develop contracts, which is basically what we do in collective bargaining, we have a contract...that it be in the body of the contract. When things are set aside beyond the contract, and the time comes to actually sit down and resolve those disputes, they tend to have less weight.
We can argue yes or no, but the bottom line is that that actually happens in a lot of cases around the world. Seeing that you've taken the initiative independent of this—because we don't have a free trade agreement and you're doing this now—can you see a sense of why we shouldn't just simply adopt the labour agreement and put it inside the main body rather than having it outside the text? Would you agree that perhaps if it's equally important to mention it outside, we should just simply put it inside, as the U.S. is now doing? It's not like they're not.
I appreciate the answer, but I guess I'm going to push this.
You asked for other specific things in the agreements that are helpful to your company. What I'm saying to you, sir, is since you have a company that is, I would say, ethically minded when it comes to its workers around the world, I would ask you to then push back on that as well and say that as part of your push to have a free trade agreement. You're here to actually ask for that, so you should simply say, “You know what, we're going to do well as a company. We want to ensure that workers we hire do equally well as well, so why not, as part of that deal, insert it into the contract?”
That's really what I'm asking you to now ask the government to do.
Thank you, Mr. Chairman. Welcome to our witnesses.
My first question is to Mr. Casey. It was an interesting discussion on the potential to increase dimensional lumber sales and paper sales, certainly. It's also interesting, our market share vis-à-vis the Americans. On paper, in particular, we know that the Americans have subsidized their industry to a much greater extent than we have. That's really the imbalance in the export there.
I want to look at another part of it. That was your point about seeking foreign markets. Traditionally, in eastern Canada we used to export, prior to NAFTA, about $900 million worth of dimensional lumber to Europe. That dried up overnight because of pine bore nematode, which I'm sure you're familiar with, and some poor practices on behalf of the mills, quite frankly. Because of the dollar and because of a whole bunch of issues, that dimensional lumber that was going east overnight went south, and the mills became dependent on that. Since softwood lumber, as you correctly pointed out, is not under the NAFTA agreement--it's a separate agreement totally--I think we've suffered from that. Every one of these free trade agreements that we sign worldwide opens another door to lessen our dependency on a sole market that occupies 70% of our exports. We've seen that with our increased paper sales to China, increased paper sales to India, and the ability to export dimensional lumber.
Would you like to expand on that a bit? Ms. Brown, who is sharing my time, has a question, so perhaps you could be brief. The ability for that new market to help the industry is critical for our future.
There's not much more I can add. You're exactly right. It goes to the point I was making with Mr. Allen before, which is that we've got to grow the pie, and it's a global pie.
The other factor that came into the equation of your story of how the product shifted south of the east coast is that over the years a significant number of new players came onto the market. We used to be kind of unique out there and we were able to dominate the marketplace and dictate the terms of where we were going to send our product and at what cost. Certainly, when the dollar was low, we were able to do that, and energy prices were low. The world has changed. We now have countries like Chile, Brazil, and of course Russia, which is a lot closer to Europe. They're sending a lot of product around the world, so we're competing with those countries.
One of the things we're finding as we seek out these new marketplaces is that we need some sort of competitive advantage. If we're going to avoid subsidizing the industry--as you pointed out, that did happen in the U.S., and we don't want to get into that game. The only other way to do it is to knock down the trade barriers that are out there. Most of them are in the form of tariffs in other countries, and that's what these deals do.
Thank you, and thank you, Mr. Chair. Thank you, gentlemen.
I am a new face here, just filling in for my colleague, so thank you for obliging me. I appreciate it.
Just so you know, my riding is called Newmarket—Aurora. I am pleased to be here, because I think it aptly says what we need to do for our corporations.
I just have a question for you, Mr. Blackburn, if I may.
And, Mr. Casey, if I may say, prior to my election, my company had a very large contract with one of the members of your association who worked in the softwood lumber area, and we had a great rapport with them. It was a great contract. We got to know a lot about the softwood lumber industry, and I have great respect for the people in your industry.
Mr. Blackburn, if I might ask you, last year I had the opportunity to be in Africa and I visited Zambia, Botswana, Benin, and Burkina Faso. When I was in Zambia and Burkina Faso, I met with people who were in the mining industries, Canadian companies working in the extractive industries there. One of the things they talked to us about was the incredible number of infrastructure projects that went on as subsidiaries to the mining industry. What I saw in Burkina Faso with IAMGOLD up at the Essakane mine was an enormous project to provide roads, hospitals, and schools for many of the people around there. So we're talking about the corporate social responsibility that goes along with these industries.
I wonder if you can speak to your experience specifically in Panama with the projects you've done, and just about your experience globally. Will a free trade agreement enhance what Canadian companies are doing in these other areas?
Thank you very much. I'd like to thank our guests for being here today. Both of your sets of comments and responses were very insightful.
Mr. Blackburn, you talked about your local development focus, specifically in Panama, and I presume you take this approach when you deal in other countries as well, where you use local firms, local people, and you provide skills.
Certainly, from my perspective, it's important that whatever we do has to be good for Canada and it also has to be good for the other country we're involved with. Could you define a bit more clearly how that works? How would you provide such an undertaking to involve people in some form of mentoring, whether it be business, creation of industry? It wasn't really clear to me. Could you just elaborate a little bit, for my purpose?
Okay. I'll tell you about the project that I saw in great detail on the ground in Mozambique.
First of all, we do this, in good part, to be competitive, because we couldn't possibly be competitive if we took thousands of workers from Canada to go and build an aluminum smelter in Mozambique. So we trained 9,000 workers. I visited the training site. We were training them to be welders, bricklayers, crane operators, and this was done under contract with our client in that case, which was BHP Billiton. We also set an objective in that case--this was phase two that I saw--of 25 good local supply contracts, and we divided the project into five sections,. The manager of each section had to find five good real contracts, and the deal was if they couldn't find a local supplier for one of them, they could go internationally, but then they had to find something else.
In the end, we had 28 specific local contracts. We taught people to do an internationally competitive bid, and we then mentored them through the delivery of what it was, whether it was concrete or whatever, and it was enormously successful. I visited that project the week they had poured first metal, six months ahead of schedule and tens of millions of dollars under budget. The World Bank used the project as an example of good resource development in the developing world, of what could be done. The BHP side of that project was going off to the World Bank the week after I was there, to explain how it had been done.
In Ambatovy, similarly, we have trained workforces. One of the pictures that sticks in my mind is a local company of women that was set up specifically to provide mats that they use for blasting and for putting on a muddy site in order to be able to work on it. A whole industry like that has grown up to supply us with those things, and also, in the area of agriculture, to provide food supplies to the site.
I appreciate your comments, and I appreciate your corporate social responsibility. I'd like to make that as a broad comment.
Finally, I think to Mr. Casey, you made some very compelling comments that I thought, again, from this seat, bear repeating. We talk about the challenges we have with our U.S. neighbours as they relate to softwood lumber. The thing you said, though, was that as we increase our exports—and currently we have some $24 billion of forestry exports, most of it going to the United States. But to the extent that we broaden our base beyond the States, the impact of that is that the increase of lumber goes higher, and as a result of that, when the price of lumber goes higher, the disputes tend to go away. Did I understand that correctly?
Of the $24 billion, as I say, 70% or so of that goes to the U.S., and I think we have to be realistic that for the foreseeable future, the lion's share of our product will continue to go to the U.S. It's an easy market to access; it makes sense. They build their houses out of wood, they need our wood, they don't have enough of their own wood, so it makes sense for us to access that market.
However, growing our markets in other places, such as China, where their market and their economy are booming, that makes huge sense if we can get a part of that. Right now, we're sort of supplying them with wood forms for the concrete, but if we can get them to build with wood, like we do here in North America, that will hugely reduce our dependence on markets like the U.S. It will send our product elsewhere, it'll sort of drop the supply in North America, and it will basically drive the price up. And there goes the dispute, gone.
Thank you, ladies and gentlemen.
We're continuing our consideration of Bill , 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.
To that end we are welcoming witnesses today from the Canada Revenue Agency. Brian McCauley is assistant commissioner, legislative policy and regulatory affairs branch. Richard Montroy is deputy assistant commissioner, compliance programs branch. François Ranger is acting director general, international and large business directorate, compliance programs branch.
From the Public Citizen's Global Trade Watch, we have Todd Tucker, research director.
I'm pleased that Canada Pork International is meeting in Ottawa today. We have the president, Edouard Asnong, with us, and speaking to us today is the assistant executive director, Martin Lavoie.
We'll begin with Monsieur Lavoie from Canada Pork International. We will hear brief opening comments from each of our witnesses and then proceed to questions.
Thank you very much, Mr. Chairman and honourable members. Thank you for having our president here at the table today.
First, let me introduce Canada Pork International. We're the export promotion and development agency of the Canadian pork industry. We are an association of hog producers, packers, and trading companies.
The Canadian pork sector exports $2.5 billion every year to over 100 different countries.
We have been supportive of the FTA with Panama from the beginning. Generally speaking, Canada Pork International is in favour of all free trade agreements. This one was of particular interest because Panama has been a steady market for Canadian pork exports.
Exports are extremely important for the development of the Canadian pork industry. Our strategy is based on diversification, and any opportunity that we have to increase our access and our competitiveness in any given market is truly needed at this point in time. As you know, the Canadian pork industry has been facing difficult times, with currency exchange issues and oversupply in some producing markets. So any opportunity is extremely welcome.
In the case of Panama, it's a market that we are exporting around $5 million every year to. It's a top 15 market for us, and we can say that we've achieved our negotiating objectives. Basically, the bulk of the products that we're shipping right now to Panama consists of pigs' feet, tails, and by-product. So out of the $5 million, around $3.8 million of the current trade is going be duty-free upon implementation of the agreement. So I think we've achieved what we wanted out of this agreement.
I see some reaction to the types of products that could be sent to this market, in terms of feet and tails, but we're also shipping shoulders and hams to this market. We have to understand that to be successful, we cannot only have markets taking tenderloins, loins, and the noble cuts. These markets are extremely important for maximizing the value of a whole pig carcass. Outside of China, I would say that Panama has probably been the best market for pigs' feet and these products, which are actually value-added, because they are in-brine products that are not frozen. So they're fairly expensive products for this kind of export.
It's really important for us to move ahead with the FTA with Panama, because we have a window of opportunity to be there ahead of the U.S. They have signed an agreement with Panama, but as you know, it has not been implemented yet, so I think we're going to have a great window of opportunity to be more competitive in this market. Also, once the U.S. has their agreement, there are clauses in it that are going to improve our access. So in this situation, I think we are going to be advantaged by the FTA with Panama.
This is a very interesting market for us, as I mentioned. It's a top 15 market for Canadian pork exports. Whether this market is as critical as our other priorities, such as South Korea or Europe, I wouldn't say. This is a great break in a market that we need, but as for the other markets, like South Korea and Europe, obviously we're looking forward to the opportunity to come back before this group to discuss those free trade agreements, because we are extremely worried, especially in the case of South Korea, about the potential impact of not having a free trade agreement with Korea, when our competitors--Chile, the EU, and potentially the U.S., in upcoming months--will have an FTA. This is a $150 million market, and we are extremely concerned about this.
So we're really hoping.... I think I can say that for us Panama has been a smooth ride, and we have achieved our objectives. We've worked really closely with our chief negotiator in agriculture. I don't know if you have seen the details, but there's been a lot of work around the different cuts, and we really had a good working relationship on that. So we're really looking forward to this agreement moving ahead, for one thing so that we can take advantage of it ahead of the Americans, which is our biggest competition for this market. For another thing, we also want to move the priority and the resources to other FTAs that are extremely critical for the future success of our industry, such as, again, those with South Korea, the European Union, and Ukraine, which will also be very critical for the Canadian pork industry.
So on behalf of Canada Pork International and our chairman, I would really like to thank you for inviting us here today, for the support of the House of Commons and the various parties for listening to our issues, and for the dialogue and the various free trade agreements we've been involved with.
Thank you to the committee for the invitation to testify on this important issue.
Canada has been a global leader in ensuring that greater trade in financial services does not undermine wise prudential regulations. But this admirable record is at risk with the current investment text of the Canada-Panama trade agreement.
I have two central points. First, Panama is one of the world's worst tax havens. It is home to an estimated 400,000 corporations, including offshore corporations and multinational subsidiaries. This is almost four times the number of corporations registered in Canada. So Panama is not just any developing country.
Second, the Canada-Panama trade agreement should not be thought of primarily in the traditional terms, or solely in the traditional terms, of cutting tariffs. Instead, it should be seen for what it is, which is hundreds of pages of text that commit Canada and Panama to follow certain domestic policies. The pact would give new rights to the Government of Panama, and to the hundreds of thousands of offshore corporations located there, to challenge Canadian anti-tax-haven initiatives outside of the Canadian judicial system.
Let me elaborate on the first point. What makes Panama a particularly attractive location for tax dodgers and offshore corporations? Well, for decades, the Panamanian government has pursued an intentional tax haven strategy. It offers foreign banks and firms a special offshore licence to conduct business there. Not only are these businesses not taxed, but they're subject to little to no reporting requirements or regulations.
According to the OECD, the Panamanian government has little to no legal authority to ascertain key information about these offshore corporations, such as their ownership. Panama's financial secrecy practices also make it a major site for money laundering from places throughout the world. According to the U.S. State Department, major Colombian and Mexican drug cartels, as well as Colombian illegal armed groups, use Panama for drug trafficking and money laundering purposes. The funds generated from illegal activity are susceptible to being laundered through Panamanian banks, real estate developments, and more.
Panama's domestic legal regime is supplemented by a steadfast refusal, thus far, to engage in far-reaching tax information exchange agreements with its key trading partners. Up until last year, Panama had no international tax treaties of any kind. Now it is on track to have up to a dozen or more double-taxation treaties signed this year.
As a technical matter, these actions ensure that the country will be removed from the OECD grey list. But the OECD has recently recognized the inadequacy of its own listing protocols, and, with the support of the G-20, has implemented a more comprehensive peer review process to see how tax transparency is actually working on the ground. Although the OECD has released several of its three-stage peer review reports over the last few months, Panama's latest treaties did not help it meet all of the OECD's requirements. And these treaties place many restrictive conditions on the exchange of information.
Panama was the only country in the western hemisphere the OECD did not allow to graduate from the first to the second stage, a dubious distinction not accorded to even the famous Cayman Islands tax haven.
This takes me to the second major point. The Canada-Panama trade deal would worsen the tax haven problem. As the OECD has noted, having a trade agreement without first tackling Panama's financial secrecy practices could incentivize even more offshore tax dodging. But there's a reason to believe that the trade deal will not only increase tax haven abuses but will also make fighting them that much harder.
Chapter 9 of the Panama agreement expands the investor-state system under NAFTA, under which Canada has paid out hundreds of millions of dollars in legal fees and compensation to U.S. investors. Canada's defensive interests are many in the case of the Panama pact, because there are hundreds of thousands of U.S., Chinese, Cayman, and even Canadian corporations that can attack Canadian regulations by using aggressive nationality planning through their Panamanian subsidiaries. I can explain that more in the question session if people are interested.
What threat would this pose in practice? Let me give one example, and we can pursue others if there's interest. Let's say that after the Canada-Panama trade deal is ratified, Panama continues to be a bad actor on the tax haven front and Parliament puts in place legislation to give Panama a deadline to clean up its act or face sanctions. Canadian banks could be restricted from transferring money to their Panamanian affiliates. These could include Panama-registered banks operating in Canada, which could easily include a U.S. or third-country bank that has structured its Canadian investment through a Panamanian subsidiary.
But article 9.10 of the Canada-Panama trade act says that “[e]ach Party shall permit transfers relating to a covered investment to be made freely and without delay, into and out of its territory”. Moreover, both chapters 9 and 12 of the FTA have non-discrimination clauses that protect Panama-registered investors. Article 12.06 states that Canada will always allow Canadians to purchase financial services from banks operating in Panama.
Under the trade pact, either the Government of Panama or an investor registered there could challenge the Canadian measure. These are not speculative threats. Panama has actually threatened WTO cases against other countries' anti-tax-haven measures. Incorporations are increasingly being advised by the international trade law bar to structure their parent-subsidiary relationships in a way that allows them to take advantage of investor-state arbitration.
In sum, getting the current text of the Panama-Canada trade deal without getting Panama to first clean up its financial secrecy practices could make Canada's fight to establish a cautious and prudential standard for global financial services regulation even more of an uphill climb.
Thank you for inviting the Canada Revenue Agency to appear before this committee on the subject of Bill .
My name is Richard Montroy. I am the deputy assistant commissioner for the compliance programs branch in the Canada Revenue Agency. With me today are Mr. Brian McCauley, the assistant commissioner of the legislative policy and regulatory affairs branch, and Monsieur François Ranger, acting director general of the international tax directorate in my branch.
In the interest of time, I will keep my opening remarks very brief.
On the legislation that is before you for consideration, the role of the Canada Revenue Agency is to administer the policy and legal framework established by the Department of Finance. We do this by employing a balanced approach to compliance that includes service, outreach, and enforcement activities.
We undertake examinations, audits, and investigations at the domestic and international level. We also administer the provisions of international tax agreements. The CRA collaborates with other tax administrations to address areas of common interest.
We work with the Organisation for Economic Co-operation and Development and Canada's tax treaty partners to advance common understanding and approach to tax issues. The exchange of information through tax treaties or tax information exchange agreements is paramount in detecting and deterring international tax evasion and avoidance.
My colleagues and I will be pleased to answer any questions you have today.
Thank you, Mr. Chairman.
Let me welcome all our witnesses today. We appreciate your comments, your views, your input, and your willingness to allow an open line of communication when we have many questions.
We've heard from witnesses. I think you were in the audience when we had previous witnesses, SNC-Lavalin, for example. You heard some of the comments they made on the importance of these free trade agreements. I was impressed with the comments. Mr. Casey was before us earlier. It was the first time I'd met Mr. Blackburn from SNC-Lavalin.
I read between the lines the positive impact it makes on the Canadian household when we go out and attempt to get our fair share of the pie in the right way, and I know corporate and social responsibility was brought into the exchange. Personally, I've never hidden my colours. I always believed we should go out to get our fair share of the pie. If we don't, we're going to miss the boat. And when we miss the boat, as elected representatives, we're also depriving each and every Canadian of trying to improve their lives.
At the same time--I've said it in the past and I'll say it again before I ask my question--if we don't go there, we won't be giving the opportunity to those people, wherever the country may be, to change. I used an example. I said the China of today is different from what it was 40 years ago. Had we not gone there, we would not have made the positive changes that I believe have been made.
People will say, “Why aren't you doing it now?” We are debating legislation in the House today to address pensions for people who are incarcerated. One might say, “Why didn't we do it five or ten years ago?” Well, maybe we just didn't think about it. But now this thought has come forward. I'm not trying to condemn the current Conservative government. They've been in government for four years. One might ask why they didn't think of it four years ago. Why didn't we think about it when we were in government? The fact remains, we are thinking about it now, and we're taking a positive step to address it.
You talked about tax treaties, Mr. Ranger. I appreciate that, because we just saw in June, before we rose, that we concluded tax treaties with Colombia, Turkey, and Greece, specifically to address tax evasion and tax avoidance. As Canadians, we're trying to address those concerns.
Do you agree that this is the right direction to take in addressing the problem? It is now is being discussed by various organizations, the Public Citizen's Global Trade Watch, for example, which is harping on this issue, the tax situation, the avoidance, etc. Are these tax treaties a parallel of addressing this issue? Is this the right way to go, so that we can promote economic trade, which Mr. Lavoie talked about, and what it's going to do to your industry, in a positive way specifically? Or do we just sit back and say we're not going to go there? We'll allow every other country to go, but we want to be Boy Scouts and we're going to stay home.
Can you add to that, if you will, on tax treaties?
Good afternoon to everyone.
My first question is for Mr. Montroy and the representatives from the Canada Revenue Agency who are accompanying him.
The last time that we met with officials from Foreign Affairs and International Trade Canada, we talked at great length about tax havens and the fact that Panama was on the OECD grey list. We also asked questions about the fact that the Minister of International Trade had sent a letter to his Panamanian counterpart in order to establish a tax information exchange convention and that he had not yet received a response.
During the same time period, the government signed, in June 2010, tax information exchange agreements with eight countries. According to my information, two other countries have reportedly been added to the list. These countries include the Bahamas, Bermuda, Dominica, the Cayman Islands, the Turks and Caicos Islands, Saint Lucia, Saint Vincent and the Grenadines, etc.
In the July 6, 2010 edition of the newspaper La Presse, a reporter wrote the following:
||In exchange for these agreements, Canada appears to give an advantage to these jurisdictions. The subsidiaries of active Canadian businesses established in these islands could repatriate, tax free, their foreign profits to Canada. Hence Bermuda, like the Bahamas and the other islands, will obtain a status that is similar to that of Barbados, the only tax haven to have such a privilege. [Translation]
Could you comment on this issue and tell us whether or not this will be the same situation with Panama should we enter into a tax information exchange agreement with this country.
It was the Department of Finance that wrote the letter to Panama. If my memory is correct, this occurred last July. The purpose of this letter was to invite Panama to negotiate a tax information exchange agreement. I do not believe that it is unusual for a country to take some time to examine the matter. We are expecting to receive a response from this government shortly.
With respect to the article that was published in La Presse, I believe that you are referring to the 2008 budget, if my memory serves me correctly. The government established incentives to encourage certain countries to enter into tax information exchange agreements with Canada.
The budget indicated that a country would have five years in which to sign such an agreement starting from the date that Canada sent an official letter proposing such a measure. Otherwise, dividends repatriated to Canada would be given a different tax treatment.
Fair enough. Thank you.
I want to get back to Mr. Tucker because you had laid out in your opening remarks—understanding, of course, that when we have so many folks, there's not a lot of time.
Let me first say to Mr. Asnong and Mr. Lavoie that I'm not going to ask you any questions today, but let me just put on the record that I understand, coming from a rural component. I have pork producers in my riding. I understand the grief you folks have suffered over the last couple of years, and believe you me, we want to find a way to make sure we can help in every possible way we can with the producers to ensure that happens. So there are ways to do that and we're going to continue to do that.
But getting back to Mr. Tucker, because really this tax treaty and this tax-saving piece that Panama has is of critical importance. I agree with you, Mr. Tucker, in a sense—and I'd like you to articulate it in a fashion and use some examples—especially when it comes to, as we call it through the NAFTA agreement, the chapter 11 style of language that allows folks to sue when they feel they're being either abused or their ability to make money...etc. I know you wanted to use some examples and I'm going to give you the opportunity to do that with your answer.
The first example I used was of course the instance of actually creating a mechanism to apply meaningful sanctions against Panama and transactions with Panama if Panama continues to refuse to clean up its act.
Under the FTA, that would be seen as a restriction on transfers, which then the Panamanian government or a company incorporated in Panama, which could include a Canadian company that had a Panamanian subsidiary, attacking then a Canadian regulation.... That's one of the examples.
Another example that is also common to the chapter 11 language from NAFTA is the minimum standard of treatment from article 9.06 of the Panama deal, which accords a customary international law minimum standard for the treatment of aliens. This sounds fine, but investor-state tribunals have been willing to consider the decisions of other investor-state tribunals when they articulate what the content of that standard means.
So you have runaway tribunals that are deciding that a regulation that a company was not expecting to come down the pipe could be a surprise and could interfere with the investor's expectations. Then you have other tribunals citing that decision as an example of the practice of governments. This is a very broad standard that could paralyze a wide range of regulatory actions, and it's one concern.
Another aspect of the agreement is article 9.15, which has a provision that allows Canada to deny the benefits of the agreement to a company that does not have substantial business presence in Panama. So a Panama-registered firm attacks a Canadian public interest regulation, and Canada has the ability to say that company does not have substantial business interest in Panama—it's a pure shell company—and we don't have to accord it the FTA treatment. However, the definition of substantial business activities has been interpreted in a very minimal way in past tribunals. So you've had investor-state tribunals decide that having as few as two employees and a bit of a paper trail in the country is enough to constitute a substantial business presence.
There are a lot of rules here. It's not a question of being for trade or against trade, or for trade agreements or against trade agreements. But there are provisions in this text--some of which are based on the NAFTA chapter 11 model--that could use some improving. I think that would go a long way towards alleviating some of the tax haven concerns that perhaps constituents are raising.
It seems to me this is one of the times when we look at a free trade agreement and quite often the arguments are about access to market and fair treatment and all the rest of it. Now what we have is a government, the Panamanian government specifically, that has set up a tax haven and has done so for a long time. It's ingrained in their system. We are willing at this point, it seems, if we don't get a favourable response to your letter of July...and the OECD is now saying they are not quite greylisted, but they're not quite where they need to be.
We're not sure why we're rushing in, in the sense of making sure these folks aren't at the point of complying with what the OECD is clearly asking, because at the end of the day, Panama was notorious for flying flags of convenience, as it used to be called, on ships, and we know what that led to when it came to what happened with folks who worked on those ships and what happened with money. I don't want to get into the narcotics money and all the rest of it.
From your perspective, what is the U.S. going to do to protect itself? You said earlier that you are from the States. What are they doing, and what do you see them demanding to protect themselves from this particular aspect of tax haven protectionism vis-à-vis trade?
My question to the gentleman from Revenue Canada is fairly basic. I do my own income tax, but other than that I don't consider myself a financial whiz or expert.
Fundamentally, what is going to change with this treaty as far as the ability for you gentlemen and your department to enforce Canadian law and taxation down there, and also for the police to go after drug traffickers, etc., who launder their money in Panama? From your perspective, what will change? Will this treaty make it easier, harder? Will it have no effect?