Evidence of meeting #36 for International Trade in the 41st Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was industry.

A recording is available from Parliament.

On the agenda

MPs speaking

Also speaking

  • Andrew Casey  Vice-President, Public Affairs and International Trade, Forest Products Association of Canada
  • Bob Kirke  Executive Director, Canadian Apparel Federation
  • David Worts  Executive Director, Japan Automobile Manufacturers Association of Canada
  • Kathleen Sullivan  Executive Director, Canadian Agri-Food Trade Alliance

11 a.m.

Conservative

The Chair Rob Merrifield

I'd like to call the meeting to order. I want to thank everyone for coming. I also want to thank Mr. Davies for filling in for me on Tuesday. I certainly appreciate that. Some members thought it was going to fall apart. No, not so. Good for you.

We certainly want to apologize to our two witnesses, Mr. Kirke, from the Canadian Apparel Federation, and Andrew Casey, from the Forest Products Association, for being bumped from our last meeting. I guess it was last Thursday. Things happen around this place and we had to be called for voting and weren't able to schedule you in, so we certainly appreciate your being here for this meeting. We are studying a comprehensive partnership agreement between Canada and Japan, and we certainly are looking forward to your testimony.

We'll start with Mr. Casey. The floor is yours, sir. You have 10 minutes.

11 a.m.

Andrew Casey Vice-President, Public Affairs and International Trade, Forest Products Association of Canada

Thank you, Mr. Chairman.

It is always a pleasure to appear before you to share our views.

It is a pleasure to be here today to present on the Canada-Japan trade partnership.

If you looked at our testimony over the past five years or so, you would see that the industry has gone through some fairly significant economic challenges. If you looked at our numbers five years ago, they would have looked significantly more optimistic than they are today. But I would like to remind all members that despite the bad news about the industry over the past five years or so, the industry still employs directly 240,000 Canadians from coast to coast. It's a more than $54-billion-a-year industry. We are the economic lifeblood of over 200 communities from coast to coast. I know that many members around this table are very familiar with that, as a number of you have constituencies in which our industry is a significant economic player. For that reason, many of you are very familiar with the economic challenges the industry has faced over the past five years or so.

I'm not here today to say that everything is looking entirely rosy, but we are certainly seeing some very encouraging signs out there in the marketplace that the industry is going to be rebounding.

We've been before this committee on a number of the other trade bills or trade agreements that either are being negotiated or have been negotiated. You've heard the story: One of the most important parts of this industry's strategy going forward, as we sort of emerge from this economic downturn, is to continue to diversify and expand our markets beyond Canada.

Right now, of the $56 billion worth that we produce, over half is exported outside of Canada. The lion's share, of course, goes to the U.S., as would make some sense, given the geographic proximity and the ease and the relationship. But increasingly we've been able to diversify away from that marketplace and send more of our product in particular to Asia, which is now the second most important market for the industry. It's in that context that Japan presents a very significant opportunity for the industry going forward.

Somewhat different from other Asian marketplaces, Japan has been a significant client of ours for well over 40 years. They're a wood-building culture, so they have a tradition of building with wood. For that reason it's not surprising to see the numbers that we do have in terms of our shipments to Japan. There is about a $12-billion market overall in Japan in terms of what they import from abroad from the forest products sector.

About $1.4 billion worth of our products go to Japan. The bulk of that, around $935 million worth, is in lumber. So we're shipping lumber there.

One of the interesting things about the lumber that we do ship there is that it's a premium grade lumber. It's called J-grade or Japan-grade lumber. To make an agricultural analogy, it's like taking the beef tenderloin and shipping only that. It's the best part of the tree, the straightest part with the fewest knots. They love it, and they pay a premium for it. From that standpoint, it's a very important marketplace.

We also send a fairly significant amount of pulp there. Of the $1.4 billion, the remaining $500 million or so is in the form of pulp.

In terms of other building products, we're not as successful there, and we would like to be more successful. I think that's why this deal presents a very important opportunity.

All of our products, except for the pulp, face a tariff of anywhere between zero and 7.5%. That same tariff is faced by most of our competitors. Our biggest competitors in the lumber market are found in the U.S. and the Scandinavian countries. So a deal of this nature, which will bring us down to zero on those product lines, is extremely important, because it obviously makes us far more competitive vis-à-vis our main competition from other parts of the world. It will also probably make some of our products, like the particle boards, veneers, and plywoods, more competitive against those of the other competitors that are coming from cheaper producers in places like Indonesia, once we get rid of those tariffs.

Obviously the other part of this is that it presents a fairly strategic play in the Trans-Pacific Partnership negotiations that are ongoing. We certainly support the fact that we're trying to get to that table, but in the event that we're not successful, having this as a bilateral, certainly from a strategic standpoint, puts some pressure on those who are trying to prevent us from getting to the TPP table.

On a final note, one of the reasons we are so successful in Japan is that we have had ongoing government support. Certainly the government has been very helpful in growing the marketplace and supporting not only rebuilding following a disaster like the tsunami, but also rebuilding their economy, as well as helping us share expertise in wood building. We're very grateful for the government support on that front.

On all that, this represents a very important opportunity for the industry. We look forward to growing our market share there as a result of this deal.

I look forward to answering any questions that you may have going forward.

Thank you very much.

11:05 a.m.

Conservative

The Chair Rob Merrifield

Thank you very much. I'm sure there will be a question or two.

But before that we have, from the Canadian Apparel Federation, Bob Kirke.

The floor is yours, sir.

11:05 a.m.

Bob Kirke Executive Director, Canadian Apparel Federation

Mr. Chair, honourable members, I'd like to thank you for this opportunity to speak to you regarding a Canada-Japan bilateral trade agreement.

My name is Bob Kirke. I'm the executive director of the Canadian Apparel Federation. Our association is made up of several hundred firms throughout the apparel industry. Members of our association import and export apparel throughout the world. They make it in Canada and abroad. We also count as our members industry suppliers and vertical retailers.

I recently had the pleasure to appear before the committee on Bill C-23. I'm happy you were able to report to the House regarding the Canada-Jordan Free Trade Agreement, and I'm happy to speak to you today about a very different agreement, with a much different trading partner.

Before I address the merits of free trade with Japan, perhaps I could provide a little background on the specific rules of origin that apply to apparel in our bilateral trade agreements. I'd like to outline how we view these rules and mention a few of our industry's international trade priorities.

Before the Canada-U.S. Free Trade Agreement, Canadian exports of apparel were minimal. After the FTA we grew as an industry almost exclusively on the basis of exports to the United States. Canadian apparel manufacturers prospered under the Canada-U.S. FTA and NAFTA, and we became far more market oriented within the North American marketplace.

Once import quotas on imports from lower-cost countries were fully removed at the end of 2004, many companies reoriented their production to take advantage of trade liberalization, both for the domestic market and the U.S. In basic terms that meant moving production to other regions of the world, particularly Asia.

We have had and we continue to have good success under NAFTA, but I want to underline for you that the success has come despite the product specific rules of origin, and not because of them. For that reason I would like to mention a few things about the standard apparel rule of origin that Canada has incorporated into many of its bilateral agreements—pretty much everything since NAFTA.

Under the Canada-U.S. FTA, we had a specific rule of origin established for Canadian manufactured garments. To qualify for free trade they had to be manufactured in Canada from fabric produced in ether Canada or the United States. This is what's called a fabric forward rule of origin.

NAFTA, which came into force 18 years ago now, imposed a significantly more stringent rule. Under NAFTA, for apparel to qualify for free trade, the yarn had to be produced in North America, the fabric had to be manufactured within North America, and the garment had to be cut and sown in one of the NAFTA countries. This is a yarn-forward rule of origin.

The challenge created by the rule of origin is that it establishes the unlikely scenario where the origin of a garment, similar to what I'm wearing now, and its tariff treatment are determined by the origin of the yarns woven into the fabrics, which are then designed and cut and sown and made into a garment. Since NAFTA, virtually every free trade agreement Canada has negotiated has been based on these rules of origin.

For the record, the Canadian apparel industry never supported this rule of origin, for apparel in NAFTA or any other agreement. These rules are cumbersome and serve as a barrier to trade. I would be happy to give the committee numerous examples of how this complicates trade.

With respect to Japan, our message to the committee and the government regarding any agreement with Japan is very simple: we support this initiative. The Japanese market is challenging, but it has great potential for all our industry. But free trade with Japan should be undertaken with the most straightforward rule of origin for our products.

The Canadian government has recently implemented agreements with less burdensome rules, for example, the FTA between Canada and the European Free Trade Association, EFTA, which was implemented in 2009. Under the Canada-EFTA accord, there's a simple rule of origin for apparel. To qualify for free trade, apparel need only be cut and sown in the territory of one of the parties to qualify for free trade. There's no restriction on the raw material origin.

These are precisely the type of rules our industry needs when we are trading with another developed country such as Japan. For both Canada and Japan, their mainly domestic production of apparel is focused on niche markets, the higher value-added goods. There is potential to grow this trade between the two countries, but only if we adopt simple rules of origin.

We would also add that we urge the government to proceed on a bilateral basis with Japan, and not wait for the Trans-Pacific Partnership deal to be negotiated or for us to be able to join. Those are both up in the air, I would suspect, if for no other reason than that the American government, we believe, is looking essentially for NAFTA rules of origin for apparel under the Trans-Pacific Partnership.

This brings us to a few other priorities in international trade, which echo some of our comments about Japan and will also give you a little more background. First, we encourage the government to establish what we call commercially viable bilateral trade agreements. We need to ensure that agreements offer reasonable opportunities for companies both in Canada and our trading partners. Extraordinarily complex rules of origin and other regulations defeat this purpose.

Our second priority is that we should be improving existing agreements. We should be looking to review and improve existing FTAs and other trade arrangements, and in particular to move from a yarn-forward rule of origin, which we have negotiated for the last 18 years, to a fabric forward rule wherever possible.

Our third point is very basic: don't forget the United States. I would never come before this committee without saying that. Even now, our exports to Japan per year are basically equivalent to about three days of exports to the United States. So please remember that the regulatory barriers between Canada and the U.S. remain the most important issue.

I guess the last point I would say is that we are committed, and we hope the government remains committed, to a rules-based trading system. As I mentioned, the Canadian apparel industry shifted a lot of its production from domestic manufacturing to other producing countries. We make it here; we make it in Asia; we buy foreign fabric; we bring it here. It's a very complicated mix. The best expression of this was formulated by Export Development Canada, which calls this process “integrative trade”. The World Trade Organization calls this "made in the world". It's very indicative of our industry.

In reality, Canadian firms design and manage the production of literally billions of dollars in apparel, which is assembled in other countries, such as China, for sale in third markets. For this to operate we need strong multilateral trade rules, and it is in Canada's interest to support such a trading system.

Those are my remarks. I'd be happy to answer any questions the committee has.

11:15 a.m.

Conservative

The Chair Rob Merrifield

Certainly, thank you very much for those remarks.

We'll start with Mr. Davies. The floor is yours for seven minutes, please.

11:15 a.m.

NDP

Don Davies Vancouver Kingsway, BC

Thank you, Mr. Chair.

Thank you, Mr. Casey, and Mr. Kirke, for being with us today.

Maybe, Mr. Kirke, I'll start with you and follow up on your recent comment. You said you hope that as a policy we proceed with a rules-based trading system. I'm wondering if you could explain a bit more what you mean by that. Is there anything specific about the way our negotiations are being conducted that would cause you to have concern in that regard?

11:15 a.m.

Executive Director, Canadian Apparel Federation

Bob Kirke

We work very closely with Export Development Canada. And again, I would never come before this committee without praising EDC and saying how important it is to the exporting community. With it we did a survey of opportunities in BRIC countries, especially South America. The basic problem is that Brazil and Argentina are erecting barriers to trade at every turn. Their primary concern is China, but in essence they're putting in labelling requirements and product safety requirements that are entirely spurious.

The Argentinians have recently lost GSP, general system of preferences, access into the United States because they're marauders. They are not acting according to normal trade. The WTO has sanctioned them recently as well.

That's the sort of thing we're looking for. We recognize that the opportunities are in bilateral trading agreements now. I have no criticism of that whatsoever; it is about taking advantage of the opportunities that present themselves. But you shouldn't underestimate the impact this has. When we surveyed our companies, we found that the major impediment to growing in BRIC countries was new barriers to trade being erected by those countries. So in point of fact, if you're going to develop a product here, the fact of the matter is that you will be producing a lot of it in China, and you can't really access Brazil.

Those are my remarks.

11:15 a.m.

NDP

Don Davies Vancouver Kingsway, BC

Thank you.

In terms of forestry exports, Mr. Casey, the general assertion is that forestry exports are expected to rise as a result of an EPA with Japan. What are the primary forest products we're currently exporting to Japan? I'm particularly interested in the percentage that might be raw logs or unprocessed lumber versus finished or value-added products.

11:15 a.m.

Vice-President, Public Affairs and International Trade, Forest Products Association of Canada

Andrew Casey

We ship $1.4 billion worth of product to Japan every year, and $935 million of that is wood products. There may be some small amounts of raw stuff going there, but certainly none of our members, and I'm not aware of any... It's primarily a lumber market, so even of that $935 million, there are some small parts of it that are panels, and plywoods and veneers, but the bulk of that is two-by-fours, a traditional kind of lumber play.

It's a growing market albeit I don't think it's going to grow much more. They've obviously had an economic downturn, so we're not expecting the market to increase that significantly over the next little while. But I think this type of an agreement allows us to get a greater piece of the market share than we already have. So on the lumber side, we're about one-third of their market. We could get a bit more of that.

Certainly, on the structural stuff, the panels and the plywoods, there's a lot of market out there for us to grab. I think once you get rid of the tariffs that are in place on our products, that will really open up the marketplace. That's where we see the growth as opposed to a growing market.

11:20 a.m.

NDP

Don Davies Vancouver Kingsway, BC

Just parenthetically, I'm from British Columbia and I hear that our raw log exports have gone up over the last 10 or 15 years. Where are our raw logs going? It sounds like they're not going to Japan primarily. Where are they going?

11:20 a.m.

Vice-President, Public Affairs and International Trade, Forest Products Association of Canada

Andrew Casey

I don't know. The raw log debate has got a number of nuances to it. It's a provincial policy, so I can't really speak to it.

Obviously, what's happening is that some of the provinces are deciding they'd rather keep a mill running and people hauling logs, and if that means they have to send some of those trees over in their raw state, that's what they're going to do.

That was a provincial decision made at a time when the economy and the industry were at their lowest. It was designed to address some of the challenges. Whether or not that changes going forward, I don't know. But again, it is a provincial policy. We don't have a play there.

11:20 a.m.

NDP

Don Davies Vancouver Kingsway, BC

Fair enough.

On May 1, the committee was told that a Canada-Japan joint study report concluded that an agreement between both countries would deliver trade opportunities both in food and forestry products. I'm wondering if you've had a chance to look at the methodology used in that assumption. Have you?

11:20 a.m.

Vice-President, Public Affairs and International Trade, Forest Products Association of Canada

Andrew Casey

I have not, no, but I would concur with the conclusion.

11:20 a.m.

NDP

Don Davies Vancouver Kingsway, BC

Has your organization done a study of the economic benefits of an EPA with Japan, Mr. Casey?

11:20 a.m.

Vice-President, Public Affairs and International Trade, Forest Products Association of Canada

Andrew Casey

No. We have not done a study. When we look at the marketplace, we've been there for over 40 years. It's a very important marketplace to us. For many years, it's been the second most important marketplace for us, aside from the U.S. market. The softwood lumber dispute shows how important it is for us to grow our markets in other places. We're already there. We know they like to build with wood. They like to build with premium wood, as I said, so it is an important market.

There is a tariff on our products. We know that if that tariff comes down, not only does it make us more competitive vis-à-vis our competition but we also estimate that it would result in about a $20 million savings on just the products we're sending there right now. Obviously, that will increase—