Industry Committee on Oct. 5th, 2006

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

When will that be?

[Ian Burney]

Probably before the end of the year. It will be a preliminary environmental assessment. It is mandatory under the government environmental policy.

[The Chair, Conservative, James Rajotte]

We'll go to Mr. Carrie for six minutes.

[Colin Carrie, Conservative, Oshawa, ON]

Thank you very much, Mr. Chair.

Being the member of Parliament from Oshawa, I've had a lot of lobbying by the CAW in the last little while. I was wondering if you could comment on the Van Biesebroeck study in comparison with the CAW study. I'm sure you've had the chance to look at it.

The CAW is saying we're going to lose 30,000 jobs. Have you had an opportunity to figure out where they came up with their numbers? Have you done a critique? Their study is totally different from yours. I'm wondering, is this just fear-mongering? Where does the credibility issue stand between your study and theirs? It seems to be quite vocal.

[Ian Burney]

Thank you very much. Yes, we would note that the conclusions of the CAW study were diametrically opposed not only to our study but to the study that was carried out by Professor Van Biesebroeck.

I will say that our economists have had a chance to take a look at it and have identified quite a large number of methodological weaknesses with the study that was carried out by the CAW. I'll just mention a few.

The CAW assessment excluded agriculture. It's the sector where we would expect to see some of the greatest gains in an FTA, so obviously this skews the results.

The CAW assessment assumes, in effect, that Canada isn't trading with anybody else; that every dollar in increased imports from Korea necessarily comes at the expense of Canadian production. Well, we know that isn't so. In fact, in the automobile sector in particular, where three-quarters of the domestic market is from imports, one would expect that incremental imports from Korea would largely displace other imports, not domestic production. But that whole aspect was not covered in the CAW study.

Getting to the very high job loss figures they got to, which captured all the headlines, was not based on an analysis of Canada-Korea trade at all; it was basically an extrapolation of the total change in our trade with all of the countries with whom we've had FTAs since the beginning of those FTAs, and that number was grafted on to our current trade with Korea. This assumes there are no factors involving the increase of trade other than the FTA—growth in the economy, currency changes, terms of trade, technological improvements, and so forth.

So, for example, our imports from Chile, with whom we have an FTA, are up significantly, but more than half of that is because of the rise in the price of copper. Well, in their analysis, that immediately gets grafted on to a presumed increase in imports from Korea.

I could go on. The whole premise, though, is based on an essentially mercantilist view of the world, where exports are good and imports are bad, and that's not a perspective I think we would share. What most economists would say is that the economic efficiency gains that should arise from an FTA are the result of increased exports and imports.

[Colin Carrie, Conservative, Oshawa, ON]

Would you be able to provide us with that analysis of the difference between the two studies, please?

[Ian Burney]

There's not a written document that exists; I'm giving you my perspectives. I can certainly take note of your questions and see whether we can put some kind of written piece of paper together.

[Colin Carrie, Conservative, Oshawa, ON]

Well, it's very important, because the whole idea of this study is to take a look at the Canadian manufacturing sector to see the challenges that are facing it right now and what government's role is there. I know it would help us out if you had some analysis there.

Did your department carry out public consultations with the business community to determine whether there was any interest in pursuing an FTA with Korea? And what were the results there? Did Korea come to us, or did we go to them, or how did that come about?

[Ian Burney]

Actually, Korea was initially the demander. For the six to eight months prior to the launch of negotiations in July 2005 we carried out comprehensive consultations with Canadian stakeholders, as I mentioned. We published a Gazette notice. The minister wrote to hundreds and hundreds of stakeholders across the country. We had consultations with the provinces.

We had one-on-one consultations with the key sectors involved in Canada-Korea trade, and we had a very high response to our request for written submissions. I think we received something in the neighbourhood of 100 written submissions.

There was overwhelming support from across the country for pursuing an FTA with Korea, with the two notable exceptions of the automotive and shipbuilding sectors. From every other quarter of the country there was very strong support.

Agriculture and fish and forestry I've mentioned a few times. They were particularly supportive, but so were a wide range of manufacturing sectors and the services sectors of the economy. The financial services sector I think sees a considerable amount of upside in this agreement, and there are opportunities in environmental and high-tech services as well. Investors see, in the prospect of an FTA, comprehensive investment protection, which they see to be of benefit.

So there was extensive consultation. The conclusions were overwhelmingly positive, except in the two sectors I noted.

[Colin Carrie, Conservative, Oshawa, ON]

How many different countries are we negotiating with for free trade agreements? I've spoken to the Japanese auto manufacturers, for example, and they commented that they've spent billions of dollars building plants here in Canada. The Koreans don't have one plant in Canada. If this went through, they'd be allowed to ship their vehicles into this country tariff free, but the Japanese, on the other hand, would still have a 6.1% tariff.

Are we negotiating a number of free trade agreements right now? Korea gets all the headlines, but what is the thinking on the other ones?

[Ian Burney]

At the moment we have four live negotiations. We have the Korea initiative we've been talking about, and we have three negotiations, which have been ongoing for many, many years, that we haven't been able to conclude. We have what we call the Central America four: Guatemala, Honduras, El Salvador, and Nicaragua; EFTA, the European Free Trade Association; and Singapore. Those are the three others beyond Korea that we're actively negotiating now, but there are many other commitments in the pipeline, commitments that have been made in years past to pursue negotiations, primarily in this hemisphere. But those are the four that are ongoing now.

Pursuant to an economic framework agreement concluded a year ago, we've been pursuing a joint study with Japan, which has been looking at modelling and other aspects of trade globalization between Canada and Japan.

From our perspective, we would very much like to take a closer look at the possibility of an FTA with Japan, but I would only note that Japan has some fairly serious sensitivities in agriculture, fish, and forestry that make the prospect of an FTA with Canada problematic.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Carrie.

We'll go to Mr. Angus.

[Charlie Angus, NDP, Timmins—James Bay, ON]

I'm seeing a real disconnect between the impression we're getting of the positive benefits of this, but I'm not hearing anything about what it's going to do to our domestic market, because with our two big ones, you can't open the business press without seeing speculation about where they're going and their shaky legs. It's so bad, even this cheap Scotsman had to go out and buy another Pontiac to make sure I was keeping our domestic industry nice and stable.

I'd like to know what you've done in terms of studying the impacts on our domestic industry right now if we open our trade with Korea.

[Ian Burney]

Again, in the pre-launch period we did carry out comprehensive consultations with stakeholders. We had widespread support from everyone except the automotive and shipbuilding sectors. That's why we spent so much time taking a hard look at the auto sector in particular, which accounts for such a large part of our trade.

The studies go into extensive detail as to why they don't anticipate a significant negative impact in Canada because of trade liberalization with Korea. I went through those reasons. It's a low tariff; 84% of our production is to the U.S., which won't be affected. Of the production in Canada, at least 30% doesn't face any direct competition.

Of the three Korean manufacturers, two of them, Hyundai and Kia, are manufacturing or will be manufacturing in North America, and the third, Daewoo, is owned by GM.

When you look at all that, the conclusion we come to is that the incremental impact on Canadian production from removing the 6.1% tariff that remains will be minimal. Against that you have all these other sectors that say they have enormous opportunities in the Korean market because they're facing high tariffs. So there is the prospect of considerable gains in all of those sectors versus the best analysis we can bring together telling us there won't be much of a downside in the auto sector.

[Charlie Angus, NDP, Timmins—James Bay, ON]

I'd like to go to that, because it's pretty clear that you think the CAW study is bunk. Yet we're hearing about a study of 1,000 units per year being lost? That's a pretty paltry, anemic penetration of our market. I'd have to question why we'd even be pursuing this if the best they're going to do is impact us that little. I find it very hard to believe that number is as low as it is.

[Ian Burney]

If I could just clarify, the 1,000 figure is the estimate of the loss of production in Canada. Studies estimate there will be an increase in imports from Korea, but the studies conclude those imports will largely displace other imports, not so much domestic production.

[Charlie Angus, NDP, Timmins—James Bay, ON]

Do you have a strategy in place to work with our domestic automakers? Clearly they've come up with some very strong objections to this. We've heard those objections. They're making sure every member of Parliament is hearing them. Yet you're saying we're not going to have any impact, and our other sectors--for example, agriculture--are going to do wonders from this.

What strategy is in place to ensure you're going to work with our domestic sector?

[Ian Burney]

I'm not sure I would characterize the position of the Canadian auto industry as being opposed to this initiative. Even this morning, at a meeting with the minister, they made it clear that they were not opposed to this initiative. They just have serious concerns about our ability to penetrate what they perceive to be non-tariff measures in the Korean market. So we're on exactly the same wavelength as the Canadian industry on this. We have exactly the same objective. We want to remove not just the tariff measures but the non-tariff measures in the Korean market.

Our views on how best to achieve that have been different from those of industry, but there's no doubt that we're on the same page in terms of the objective, and we're working with them very closely. We meet with them on a regular basis, at all levels, to explore different ideas. What's really important for us is to have the industry come forward and give us chapter and verse--which they're doing--of the problems they're encountering so that we can translate the problems into obligations in the FTA and hold the Koreans accountable.

[Charlie Angus, NDP, Timmins—James Bay, ON]

You've mentioned the two studies. Have you done internal studies other than that to confirm the conclusions that were drawn by these studies?

[Ian Burney]

Those are the only two studies in the auto sector, and those are the only two written studies we have at the moment. We did a lot of qualitative analysis, as I said in response to an earlier question, in the run-up to the decision to launch the negotiations. We have consultations with the stakeholders; we have government-to-government talks; and we do assessments looking at the tariff structures in the two countries to try to determine the likely impacts in each sector. These inform the analysis that we provided to the government of the day, which made a decision in cabinet to proceed.

There isn't a document per se that could be made public, but there is, as I said in response to an earlier question, some updated economic modelling that's been done in the context of the initial environmental assessment that we're doing.

[Charlie Angus, NDP, Timmins—James Bay, ON]

So there is some modelling, but there are no studies.

[Ian Burney]

There is no written document.

[Charlie Angus, NDP, Timmins—James Bay, ON]

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Angus.

We'll go back to Mr. Lapierre.

[Jean Lapierre, Liberal, Outremont, QC]

I will only ask one or two questions so that others have a chance to speak.

You said that you held consultations with the provinces. Could you tell us what Ontario and Québec's positions were?