Industry Committee on Oct. 5th, 2006

[Ian Burney]

All provinces and territories, including Québec and Ontario, supported the decision to initiate negotiations. Recently, because of its concerns about the automobile sector, the Ontario government have adopted a slightly more nuanced position. We received a letter reflecting this shift from the new Ontarian minister.

[Jean Lapierre, Liberal, Outremont, QC]

You said that, at 6.1%, the Canadian tariff is really very low. Have you any idea what dealers' profit margins would be?

I have been told that, in the automobile sector, a 6.1% tariff is actually highly advantageous. Have you heard that view being expressed?

[Ian Burney]

Yes. People involved in the Canadian industry believe that maintaining this rate is important. Given that other industry costs, such as, for example, the exchange rate and energy costs, fluctuate, it is felt that the current tariff is manageable. While it is not negligeable, it cannot be said to be too high.

[Jean Lapierre, Liberal, Outremont, QC]

Based on studies that you have consulted—I know that you do not have a document before you, but that you have all of the data in mind—can you tell us what the regional breakdown is? In the case of Québec, for example, is this agreement a good thing or a bad thing?

[Ian Burney]

We think that the agreement is a good thing for all regions and all provinces. Indeed, all of this country's industries, except for the automobile and shipbuilding sectors, has said that they support this initiative, and do not take any issue with it. For reasons already explained, we believe that the two industries I just mentioned will not bear a negative impact. We believe that the repercussions will be positive in all regions of the country.

[Jean Lapierre, Liberal, Outremont, QC]

Thank you.

[The Chair, Conservative, James Rajotte]

I will go to Mr. Van Kesteren for five minutes.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Thank you, Mr. Chair.

Thank you, gentlemen, for coming here today.

Mr. Carrie asked a question about the 30,000 jobs lost, and I think you answered that sufficiently. I want to take it in another direction. I want to ask simply this. Is there a possibility that if we reach an agreement with the Koreans we could see plant openings here in Canada? It's incredible how many Japanese have set up shop here, and yet the Koreans have gone to, as you said, Alabama. I've been in the plant in Alabama. It's a fabulous plant. They've also set a plan for Kia.

Is there a possibility that this would encourage them to set up shop here in Canada? Is that something we've looked at?

[Ian Burney]

I'm not sure that the direct impact of an FTA would be necessarily to encourage the investment, other than perhaps through the investment chapter, which would provide for greater investment protections in both directions. So to the extent that that provides a higher comfort level to companies seeking to invest either way, it could have an effect in terms of encouraging investment.

I'm not currently aware of any plans on the part of the Korean manufacturers to invest in Canada. Hyundai, of course, did have an experience in Canada in the 1990s. I think their plans involve locating in the United States for the time being. I'm not aware of any current plans to invest--

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

I know they built their SUVs there and their mid-size car, but they have a lot of labour unrest in Korea. Is there a possibility that they're looking at Canada and seeing this as a stable market in which they can set up shop? You really can't say that this type of a deal would lead to the possibility of them looking at us favourably?

[Ian Burney]

I certainly can say that one of our objectives in having an FTA is to encourage two-way investment.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

So there is that possibility.

[Ian Burney]

That is absolutely one of our objectives. I'm just not in the minds of the corporate players who make decisions about where they invest.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

I understand. But this would make it easier for them.

[Ian Burney]

I think yes, on balance.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

We heard amazing statistics here. I didn't know there were 44 million South Koreans. Where's the statistic by the Prime Minister of Australia? I think he said 40 million new people enter the middle class in Asia every year. That's an incredible statistic.

First of all, do you know how many people are newly entering the middle class in Korea, and will this type of deal help us to tap into that, the possibilities?

[Ian Burney]

There's no question that Korea is a rapidly developing country. In fact, it is by most measures a fully developed country already. So we're talking about 40 million consumers, who present a tremendous growth opportunity for Canada. But even beyond the Korean market--and I think this is very important--the whole region is integrating at a pace we've never before seen: Korea, Japan, China, the whole northeast Asia region. To the extent that we can give Canadian companies privileged access into the Korean market, that can give them a springboard to pursue opportunities throughout the whole northeast Asian region.

Korean companies, particularly the big chaebols, are all over those markets. They have the contacts, the connections, the investment tie-ups. To the extent that Canadian companies take advantage of an FTA and establish partners in Korea, that could pay dividends throughout the region. I think that's potentially one of the more important aspects of having this FTA.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

We saw with Xstrata that there was a net benefit test that we have to make as a country before we allow that type of transaction.

Is there a litmus test, or some type of test? Obviously there is, but is there something more? Before we sign a deal with Korea, what kind of procedures do you go through? You touched on some. I just need a little bit more assurance, I think, in that area.

[Ian Burney]

There are several stages to the process. In the pre-launch phase, we consult with the stakeholders and we talk with the other government through an exploratory process to find out two things: where is Canadian industry on the idea of having an FTA, and what are the possibilities of negotiating a state-of-the-art agreement with the other country? If we are reasonably satisfied from those two processes that there's a basis for proceeding, we would recommend and the government would decide whether or not to launch negotiations. But that's the first stage, and that's where we are now in the negotiations. Now we have to see whether we can actually reach an agreement with Korea that meets our needs as well as theirs.

If we as negotiators, in following the mandate we've been given by government, are satisfied that we've reached an agreement that's worth bringing back, we'll do so, and then the whole political process will be engaged in terms of deciding whether or not to proceed.

The government would first have to make a decision to sign the agreement, and then once the agreement was signed, it would require implementing legislation. So all members of Parliament would obviously have a vote in deciding whether or not the agreement should be ratified.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

I have one quick question. Maybe you've answered this too, but we're talking about the deal itself and the desire for us to move in that direction. What about the Koreans? Are the Koreans as excited about this as we are, or at the same stage of excitement, let's say?

[Ian Burney]

Another reason this is so important for us is that the Koreans historically have not been big players in the FTA game. Until a couple of years ago, they had none. In the last two years, they have gone through a sea change, and they are now one of the most active players in terms of bilateral negotiations.

I think I mentioned in my remarks that they've concluded negotiations with fifteen countries already. They're negotiating, as we know, with the United States. They have a process that has been under way for a while with Japan. They're courting the European Union. So they are basically either in negotiations or they have concluded or are contemplating negotiations with all our primary trading partners. That's why it's so important. If all those countries conclude FTAs and we don't, we'll be looking at having a disadvantaged access into the Korean market, never mind a preferential access.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Van Kesteren.

We'll go to Mr. Vincent.

[Robert Vincent, Bloc, Shefford, QC]

Thank you.

I want to take you into another area.

In 2002, Canada has abolished antidumping duties on Chinese imports, imports that are manufactured with less expensive labour. The massive influx of Chinese products significantly harms our industries, particularly the sector that produces affordable, average-grade bicycles. The affordable bicycle sector received a ruling from the Canadian International Trade Tribunal in its favour. The tribunal recommended temporary safeguard measures to help the industry adapt.

First and foremost, I would like to know which criteria were used to consider China as a market economy. We know that the United States and the European Union, among others, do not consider China to be a market economy.

In fact, in all of the recent cases of dumping in Canada, the agency determines that the Chinese government was not fixing domestic prices within the industry concerned. China, was therefore considered as a market economy in each one of these cases. In that particular situation, Canada applied only one single criterion, whereas the European Union and the United States took into account exchange rates, trade barriers, foreign investment, production control, price-fixing control and resource allocation. Why do those countries apply a wide array of criteria whereas we have a single one?

[Ian Burney]

The subject of our briefing today is the Canada-Korea FTA negotiations, so I didn't come prepared to address the issue of safeguard actions and how the government deals with safeguard actions involving imports from China. But as I understand the process, it would essentially be up to the applicants who are seeking the measures to make a case for whether or not the safeguard measures should be imposed, as they did to the CITT.

The CITT looks at the question of injury uniquely, and then the government has to make a decision on what the overall interests of the country will be in terms of whether or not to accept the recommendation from the CITT.

I think you mentioned a case involving bicycles. My recollection is that the decision of the government was that it would not be in the overall interest of the economy of the country to accept the recommendation. But it's a bifurcated process. The CITT looks only at the narrow question of whether the domestic manufacturer has been injured or is at risk of being injured by imports. Then it falls to the government to make the overall judgment as to whether or not imposing remedial measures would be beneficial to the Canadian economy.

[Robert Vincent, Bloc, Shefford, QC]

I would like a real answer to the following question. I believe that decisions are made within your department. I would like to know why countries apply so many criteria and conditions to other exporting countries, whereas Canada applies only one. We are letting things slide. If we believe that there is no impact on the domestic market, and the country concerned does not fix prices within its own domestic market, the country is automatically considered a market economy.

How can we allow ourselves to be so permissive whereas other countries are applying countless criteria? Why are we allowing this type of situation to go on? You are being invaded by foreign markets, particularly the bicycle market.