Debates of the Senate (Hansard)
1st Session, 41st Parliament,
Tuesday, December 11, 2012

Hon. Percy E. Downe: Honourable senators, I would like to thank Senator Finley for his speech. He is always interesting. We all agree on the main principle and importance of trade for the prosperity of Canada. I am reminded of that radio show that used to be on a number of years ago where they always started, "And now for the rest of the story."

Bill C-24 has been before Parliament, in one form or another, since September of 2010. In the meetings that the Standing Senate Committee on Foreign Affairs and International Trade has held on this bill, we heard much about the economy of Panama and the promise that it holds. I am sure there is both promise and progress to be seen in that country, but let us not distract from some very real problems in locking ourselves into a trade agreement with this country.

There are aspects of this trade deal that give me pause: items it contains, items it does not contain, and even what the deal itself represents.

Honourable senators, I must once again ask the question: What do we hope to gain from this and all the other trade deals this government is signing with minor trading partners? As we know, high expectations for these free trade agreements have, in the past, not been borne out. Indeed, more often than not, our balance of trade with our partners has worsened, not improved.

This is not some academic discussion. Trade is a root cause of our prosperity, and international trade is a vital element of our economy. Exports account for 31 per cent of this country's GDP, and one job in five in this country is directly or indirectly dependent upon exports.

Given the importance of trade, the value of free trade agreements would seem to be self-evident, but, as we have seen, honourable senators, if you look at the facts, the benefits of these minor agreements are far from obvious. These are familiar statistics, but they bear repeating. Of the seven free trade agreements for which we have data, five have seen an increase in our trade deficit with those countries. It is part of a disturbing trend.

This government has presided over a 7.5 per cent decline in the value of goods and services exported to other countries, while our trade deficit increased from $37 billion in 2006 to over $143 billion in 2011.

Exports as a proportion of the GDP are at the 31 per cent mark currently. When this government came to power, it was 38 per cent. This decline is a very serious problem. On November 30 of this year, Statistics Canada announced that real GDP growth was only 0.1 per cent for the third quarter this year, down from 0.4 per cent in the second quarter. Statistics Canada attributed this to decline in exports, which fell by 2 per cent in the third quarter, the largest decline since the second quarter of 2009. Put simply, if exports are vital to our economy and exports are declining, then this country is facing some major problems.

To those who suggest more free trade agreements with minor countries with small economies as a solution, I would remind honourable senators that if those trade agreements solved the problem, then the problem would not have existed in the first place.

The question remains, why free trade agreements and why with Panama? We know the idea originated with the Government of Panama. They have been trying to sign as many deals with as many countries as they can. Many of these countries insisted, as a pre-condition for such a deal, that Panama enter into agreements regarding the sharing of tax information. The United States, for example, was insistent that Panama would not get one without the other. They refused to consider ratification of their free trade agreement with Panama until they got a tax information exchange agreement dedicated to the investigation and enforcement of national tax laws. Even then, as U.S. trade representative Ron Kirk said last year, ratification was not automatic:

We will not be left behind as others open markets and take our market share. But . . . we will not sign agreements for agreements' sake. They must be enforceable and of the highest standard, in the interests of our workers, farmers, and businesses.

In contrast, it was only last July, two years after negotiations for a free trade agreement began and a full year after it was signed, that the Canadian finance department wrote to the Government of Panama suggesting such a measure, and negotiations only started this March. Given that negotiations for a similar agreement with Liechtenstein began over two years ago and are still ongoing, this could be a lengthy process indeed.

The lack of foresight does not end there. In response to my question last week, the government stated:

. . . we have continued, and intensified, our pursuit of new and deeper trading relationships. Our Government clearly understand that our standard of living and Canadians' future prosperity depend on such efforts.

Hearing that, one would think that if all these newer and deeper relationships are so important to the current government they would have conducted a thorough economic analysis of the relationship with Panama, examining such matters as the jobs to be gained for Canada, the costs to be incurred, and the overall effect of the deal on Canadians' standard of living and future prosperity.

Instead, at the Foreign Affairs and International Trade Committee, we heard testimony from federal government officials that the decision to proceed with the deal was not based on any economic analysis of the prospect for trade because, by their own admission, Canada-Panama trade is so small as to make such analysis meaningless. Instead, they just asked around. They called unnamed businesses and organizations and asked if they would be interested in a free trade deal with Panama.

I asked the president of the Canadian Council for the Americas about the deal when he appeared before the committee. He said, "It is just an additional element that helps, I think is the best way to say it."

Perhaps, honourable senators, the resources of our Department of Foreign Affairs and International Trade could, in the future, be dedicated toward something more than additional helpful elements.

Regarding the bill before us today, my other concern relates to overseas tax evasion and money laundering. To say that Canada and Panama's tax systems are different is something of an understatement. Historically, Panama has dedicated considerable effort to aid those wishing to avoid paying taxes, including Canadian taxes.

The fact is that, beginning in the 1970s, Panama constructed a financial regime designed to attract the business or, more specifically, the money of individuals and corporations who do not wish to be bound by the kind of financial rules and tax rates they may face at home. In this respect, they have certainly succeeded, to the point that in 2007 one commentator called Panama the "complete package." It has everything one wants in a tax haven.

Honourable senators, if you build it and promise not to ask too many questions, they will come — or they will at least have their lawyers and accountants set up the paperwork necessary. In the last few decades, Panama parlayed its attitude toward taxation into a thriving financial services sector.

Let us not shy away from the obvious: when a country of fewer than 3.5 million people has over 400,000 registered corporations, something more than free enterprise is at work. All these methods require the cooperation of a willing government. Unfortunately, our proposed free trade partner, Panama, has demonstrated a willingness to please money launderers, drug dealers and other crooks. What a strange partner for this government to hitch their wagon to.

Follow the money, as the line goes, and you solve the mystery, but when a country designs its system so that money cannot be followed, that country becomes very attractive to those who want to do more than hide their money from the tax man. Such is the case with Panama.

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As the U.S. Department of State's International Narcotics Control Strategy Report stated earlier this year:

Panama's strategic geographic location and status as a regional financial center make it an attractive jurisdiction for money launderers. Panama's success in establishing itself as a regional business and logistics hub, based on the success of its ports, airport and the Colon Free Zone — the second largest free trade zone in the world — have enhanced its attractiveness for organizations engaged in illicit financial activities. Money laundering in Panama is believed to be primarily related to the laundering of the proceeds of drug trafficking, and the country sits along major drug trafficking routes. The work of launderers is facilitated by weaknesses in the regulatory framework . . . [and] by uneven enforcement of anti-money laundering measures and the weak judicial system, which is susceptible to corruption and favoritism.

That is a description of our new trading partner from the U.S. Department of State. Regardless of the purpose for which these corporations in Panama were founded, a particular concern raised over this deal is whether they will have new rights to seek recourse from the Canadian government.

Chapter 9 of the agreement deals with the rights of investors, and while it is important that these rights be respected, the wording contained in Chapter 9 adds a whole new level of protection to investors, including those for whom "investing" money means hiding it or those involved in laundering money.

By allowing private firms to launch dispute settlement proceedings against governments, Chapter 9 enables those who benefit from Panama's tax haven status to fight efforts by the Government of Canada to recover its rightful tax revenues.

To quote testimony before the Standing Senate Committee on Foreign Affairs and International Trade:

. . . the Canada-Panama Trade Agreement would make it more difficult for Canadian policy-makers to curb Panama-based tax evasion. Should Canada, for example, try to limit Canadian firms from transferring money to Panama-based subsidiaries deemed to be shell corporations established for tax evasion, the policy could be challenged as a violation of Article 9.10 of the pact, which says, "Each party shall permit transfers related to a covered investment to be made freely and without delay into and out of its territory."

Anti-tax evasion policies could also be challenged as a violation of the indirect expropriation or national treatment provisions of the deal.

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. There are untold United States, Chinese, Cayman and even Canadian corporations that can attack Canadian regulations by using aggressive national planning through their shell company in Panama.

With all these issues, honourable senators, why should we rush into this agreement? The potential gains are modest. Panama currently ranks seventy-fifth among our export markets. On the other hand, the potential pitfalls could be quite serious. Why would the government not conduct an economic analysis of the potential financial effects of this deal? Given the failure of other minor trade deals to actually expand our trade, why was there not more careful consideration of this bill?

In the committee studies, we heard about Panama's transfer from the Organisation for Economic Co-operation and Development's "grey list" of uncooperative tax countries to the "white list" — and Senator Finley spoke about this as well — on the basis that Panama sign a number of tax information sharing agreements. However, in many ways these agreements are like free trade agreements; they are the start of a solution, not its conclusion.

In fact, the OECD recently conducted a study of the measures that member countries have in place to enable them to live up to these agreements. Of the nine criteria the OECD examined, dealing with everything from ensuring proper account information is available to respect for the rights of taxpayers, Panama failed on five of the nine. That simply means "full stop" to any more improvements to Panama's status as one of the most corrupt tax havens in the world.

The prospect of a free trade agreement — featuring full investor protection — with a country with a record like Panama's is a potential financial time bomb waiting to explode, and I feel the government should have looked more carefully before we signed this deal. If this government is serious about ensuring that all Canadians pay their fair share of taxes and that we not incur future liabilities by exposing Canada to massive lawsuits, let us take this opportunity to demonstrate that by hammering out a better agreement that guarantees that Canadians and Canadian corporations will not be able to hide their money with impunity.

This government makes much of the progress made by Panama. However, in every area I have cited in this speech, my views match those of the Government of the United States of America.

The best time to improve a deal is before it is finalized; indeed, sometimes it is the only time to do so. When it comes to negotiating free trade agreements, the Government of Canada might want to follow the example of the Senate of Canada and apply a measure of sober second thought to its efforts.

The actions of the United States government should cause us to pause and ask why our American friends refused to ratify their agreement until Panama made its tax regime more transparent to them.

Speaking of Americans and transparency, material I received earlier this year from the United States Trade Representative documents the degree to which the United States government is committed to openness with their population when it comes to trade negotiations.

In the United States, representatives from business, labour and civil society are all welcome to participate in public forums related to ongoing trade negotiations, where the negotiators and delegates are also present. There are also trade advisory committees, comprised of "representatives from industry, agriculture, services, labor, state and local governments, and public interest groups" that work throughout the negotiating process to provide "policy advice, technical advice and information, and other advice on, negotiating objectives and bargaining positions, the operation of any trade agreement, and other matters arising in connection with the implementation of U.S. trade policy."

Of particular interest to parliamentarians is the U.S. government's commitment to working with Congress.

Since its creation, USTR has worked closely with Congress on negotiation of trade agreements and on other trade-related issues. As a matter of longstanding policy and practice, USTR has provided any Member of Congress access to classified negotiating documents and texts on request . . .

Let me repeat that. It is very important.

. . . USTR has provided any Member of Congress access to classified negotiating documents and texts on request, and works with the respective security offices in each chamber to accommodate the Members appropriately.

In addition, Congress has an oversight group that works on proposed trade deals while they are being negotiated with a view to preventing problems before they arise, rather than being faced with a fait accompli at the end of the process.

Compare that transparency to Canada, where even MPs and senators on the government side, let alone opposition parliamentarians, are kept in the dark about negotiations. Honourable senators might agree that the American model is a measure worth considering for Canada.

Honourable senators, is something wrong with our international trade? We all want Canada to prosper, and for that to happen we have to export; it is as simple as that. However, the message is clear and the numbers do not lie: What we are doing is not working as well as it used to. These minor trade deals would be understandable if they actually paid dividends, however modest, but they do not. We would do well to take a serious look at what we are doing wrong and how to fix it.

To conclude, honourable senators, this bill is the latest effort from a government that claims they are "committed to protecting and strengthening the long-term financial security of hard-working Canadians," that "Canada's prosperity is directly linked to reaching beyond our borders for economic opportunities that serve to grow Canada's trade and investment" and that they "clearly understand that our standard of living and Canadians' future prosperity depend on such efforts." If this is truly the case, then they should reconsider a free trade policy that has clearly not lived up to expectations and instead dedicate themselves to understanding — and solving — the problems afflicting our balance of trade and our economy as whole.

We in the Senate should support them in this effort, because this is an effort that crosses party boundaries and is important to all Canadians.

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Strong exports mean a strong economy and more jobs, and if free trade deals with minor trading partners do not lead to strong exports, we need to find a policy that does.

The Hon. the Speaker: Are honourable senators ready for the question?

An Hon. Senator: Question.

The Hon. the Speaker: Is it your pleasure, honourable senators, to adopt the motion?

Some Hon. Senators: Agreed.

Some Hon. Senators: On division.

(Motion agreed to and bill read third time and passed, on division.)