International Trade Committee on Oct. 2nd, 2014

[The Chair, Conservative, Randy Hoback]

Good afternoon, everybody. Pursuant to the order of reference of Wednesday, October 1, 2014, we are examining Bill C-41, an act to implement the free trade agreement between Canada and the Republic of Korea.

We have two witnesses in the first hour and we have two witnesses in the second hour. In the first hour it will be a video conference. We have Mr. Stanford, an economist with Unifor. Then we have Mr. John Masswohl, director of government and international relations of the Canadian Cattlemen's Association, who is joining us by teleconference.

Colleagues, when you are addressing Mr. Masswohl in your questions, you'll have to say his name if your question is going to him. Because he is teleconferenced, he is not seeing your body language or your activity, so I'll just remind you if you have a question for him to refer to him.

That being said, we will proceed with Mr. Stanford for 10 minutes.

[Jim Stanford, Economist, Unifor]

Thank you very much, Mr. Chair, for the invitation to meet with all of you today.

I am, as you said, the economist for Unifor, which is Canada's largest trade union in the private sector of Canada's economy. We represent 305,000 members working in at least 20 different definable sectors of the economy, many of which will be affected—some negatively, some positively—by this agreement you're considering.

Indeed, I was a little amused to read the title of your study today, “Positive Effects for Canada of the Canada-Korea Free Trade Agreement”. Usually in economics we do a methodology called “cost-benefit analysis” to inform important decisions. The title of your study implies that we're doing something different called “benefit-benefit analysis”. I will consider some of the benefits of the agreement, but I will also consider some of the costs to Canada. I hope that in doing so I am still in order for your hearings.

I must also apologize. I received this invitation to appear only yesterday. I do have some speaking notes, but in the coming days I'll formalize those notes and have them translated and submitted to your committee.

I've also asked the clerk to enter into the record, if he's able to today, two more formal documents. One is an important study of the likely impacts of trade liberalization with Korea on a number of different sectors of Canada's economy, published by one of our predecessor unions, the Canadian Auto Workers. The second is a shorter briefing document, a briefing kit, with some more up-to-date information on Canada-Korea trade patterns and the likely impacts of the free trade agreement.

I'm concerned about the agreement. I believe it will lock Canada into a bilateral trade relationship that is very unbalanced in both quantitative and qualitative terms. In quantitative terms, we import more than two dollars in merchandise from Korea for every dollar that we sell back. As a result, we have a large and chronic trade deficit with Korea, which reached almost $4 billion last year.

Trade is good. As an economist I'm a big booster of trade if it adds to the net demand for Canadian-made products and hence for the Canadians who make them, but our bilateral imbalance with Korea has done the opposite. It is a significant component of our larger overall trade and balance of payments deficits, which have undermined our macroeconomic and employment performance in recent years. We estimate that the current bilateral deficit with Korea corresponds to the loss of over 10,000 Canadian jobs across a wide range of sectors.

But in addition to the quantitative imbalance, I'm even more concerned with a structural or qualitative mismatch between our exports and our imports. Canada primarily exports unprocessed or barely processed resource-based materials that constitute the large bulk of our exports to Korea. In return, we primarily import sophisticated technology-intensive and value-added products, and that is a losing combination for any country concerned about its long-run development prospects.

For example, Canada's top four exports to Korea in 2013 were, in order: coal, copper, aluminum, and wood pulp. Canada's four top imports from Korea were automobiles, electronic circuits, auto parts, and smart phones. I recognize the importance of resource industries to our prosperity, but in the long run we need to be doing much more to add value to our resources, and not just digging them out, sending them to someone else, and buying back the stuff they make out of our resources.

Moreover, in understanding the implications of a free trade agreement, we have to understand the structural asymmetry in our existing starting point. Canada's exports of resources to Korea will not be significantly impacted by a free trade agreement because they are not at present in the resource sector subject to high tariffs or other trade restrictions. Korea needs those resources and doesn't have them, and it doesn't make sense to be protecting them somehow, or stopping their import. On the other hand, our imports of value-added products do have significant tariffs attached to them, and eliminating them will lead to a significant increase in our imports from Korea.

Making things worse, our resource exports to Korea are relatively non-labour intensive, whereas our imports are more labour intensive. It's a no-brainer that a free trade agreement with liberalization on both sides will stimulate the quantity of imports from Korea much more than our exports to Korea. Then, even more, the number of jobs associated with those imports will be lost out of proportion to new jobs created in relatively non-labour intensive export sectors.

More deeply, a trade agreement like this clearly reinforces Canada's status as a supplier of raw materials and an importer of value-added goods. Like other free trade agreements that we have signed in the past, this one will make matters worse by reinforcing our specialization in resource exports, undermining the domestic market position of value-added industries through cheaper flows of imports and, perhaps most importantly, limiting the policy levers that are available to government to try to promote more diversification.

We will talk a bit about the auto industry. Nearly three-quarters of our bilateral deficit with Korea is due to automotive trade. It is the single most important component of our bilateral trade with Korea. We trade, if you like, in autos a lot, but it's a one-way street. We exported $15 million worth of automotive products to Korea last year and imported almost $3 billion back. For every $1 we sell in Korea in automotive, we import $182 from them, so it really is a one-way street, and clearly it's going to stay that way after a free trade agreement.

In fact, the situation with Korea has gotten much worse over the last 15 years even though Korea—this is important—has reduced its tariff on automotive imports during that period. Our automotive exports to Korea were never large to begin with, but they have fallen by 82% since 1999. Our imports, on the other hand, are up 450% in the same time, and that change is not driven by tariff issues. That's driven by a structural imbalance in the nature of the trade, differences in the two automotive markets and, importantly, a very successful effort by Korea to mobilize a whole slate of policy levers to promote exports in key value-added industries while clearly limiting imports.

The automotive provisions of this agreement—bilateral tariff elimination, acceptance of market access, and national treatment—will lock in the existing imbalance. They'll have no measurable impact on our automotive exports to Korea, and they will make our imports from Korea incrementally larger.

We can verify this by reviewing the situation of the United States and the European Union, both of which have recently signed free trade agreements with Korea, the U.S. in 2012, and the EU in 2011. America's merchandise trade deficit with Korea has actually widened dramatically since the FTA to $23 billion last year from $14.7 billion in 2011. In the auto sector there's been a small uptick in U.S. auto exports to Korea, but those exports remain small. America's imports of automotive products from Korea grew 22 times faster than new U.S. auto sales to Korea did, so the trade imbalance has gotten much worse.

The EU imbalance has gotten worse as well. The number of vehicles imported into Europe has grown by three times as much as the number of new vehicles exported by Europe, again reflecting the structurally closed nature of Korea's market.

Remember, the American and European situations were preferable to ours. Europe has a whole slate of domestically based automakers like Mercedes and BMW that sell high-value products with strong brand names into Korea. Canada has no such feature. In the U.S. case, there were very aggressive measures to try to tackle the imbalance in the auto sector, including a unique snap-back provision. Those provisions are not in existence. Our agreement is clearly inferior to the American one, so the net impacts are going to be worse.

I stress that while I've emphasized the auto sector, the auto sector is not the only sector that will be harmed by this agreement. Other sectors will be affected by the same problem of an initial large imbalance, a structural asymmetry of our bilateral relationship, and technological and competitive weakness among Canadian value-added exporters instead pushing us to reinforce our specialization and resources.

Our analysis, which I mentioned at the beginning, looked at 20 non-agricultural sectors at the two-digit level, including food processing. Fifteen of those sectors will lose employment and output under a free trade agreement with Korea. Four of them will gain new opportunities, and one has no change.

Auto is not the hardest hit sector in our analysis. Computers and electronics is, followed by machinery, then followed by the auto sector. All of those high-value sectors will clearly lose more sales from this agreement than they will gain. Total job losses could total 30,000 across the 20 sectors that we looked at, so it's wrong to assume that this is just a problem of the auto industry. If anything, the sectors that could win under the agreement are more the exception than the rule.

I acknowledge that some sectors will win, including the export of meat and meat products. Every free trade agreement has winners and losers. The task for policy-makers is to make sure the net impact is going to be positive, and I cannot foresee—perhaps we can talk about this more in the questions—any scenario in which the increase in meat through pork and beef exports to Korea offsets anything but a tiny fraction of the growth in the bilateral trade deficit, which is clearly going to occur under this deal.

Finally, the agreement also includes several of the very negative structural features of the NAFTA-style free trade agreements that have nothing to do with trade. In fact, in some ways they restrict trade. These are features like the deregulatory bias of services trade, intellectual property measures, and limits on government procurement. In fact, I don't know if this is known widely, but the Korea FTA would cut by more than half the size of the threshold under which federal contracts for goods and services have to be offered to the competing country. That's a significant change.

Then finally, it does lock in an investor-state dispute settlement mechanism that is being challenged internationally. I find it incredible that the Europeans are very worried about that provision, yet here in Canada, even progressives would sign an agreement that has more of this investor-state dispute settlement kangaroo court system that's been so controversial.

I look forward to your questions. Thank you again for the opportunity to join you today.

[The Chair, Conservative, Randy Hoback]

Thank you, Mr. Stanford.

Colleagues, I'll just say first of all, Mr. Stanford, that I think you'd be pleased to see that the title actually has changed. Since the bill has now come from the House, the title reflects accordingly. Also, the analyst has both of your copies, but unfortunately they're only in English, so I cannot distribute them. The analyst does have them.

We'll go to our next witness, Mr. Masswohl from the Canadian Cattlemen's Association.

[John Masswohl, Director, Government and International Relations, Canadian Cattlemen's Association]

Thank you, Mr. Chairman. Again, it is always an honour to appear before the committee.

I also want to take the opportunity to congratulate you, Mr. Chairman, on your election. We know things are in good hands with someone who understands as well as you do the connection between access to global markets and what it means to farmers and for farm gate prices.

On today's topic, the Canada-Korea free trade agreement, we believe it will be extremely beneficial for Canadian beef cattle producers. The Canadian Cattlemen's Association urges that it be implemented as quickly as possible. Indeed, we need it to come into force no later than January 1, 2015. Earlier than that would be even better.

Currently, Canadian beef, both fresh and frozen, pays a 40% tariff when imported into Korea. That's compared to U.S. beef, which currently pays a 32% tariff. Every year on January 1, the Korean tariff for U.S. beef drops another fifteenth of 40%. That's 2.7% per year. Without the Canada-Korea free trade agreement, the tariff disadvantage for Canadian beef will increase from an 8% differential to 10.7%.

Under the terms of the Canada-Korea free trade agreement, Korea will eliminate the 40% tariff on Canadian fresh and frozen beef in 15 equal annual steps, so that's at the same pace that Korea is eliminating the tariff on U.S. beef. But what we don't know yet is when the Canadian Parliament and the Korean legislature will complete their work to bring the Canada-Korea free trade agreement into force and get the phase-out started.

The agreement itself provides that the annual tariff cut for Canadian beef will occur on the anniversary of the agreement coming into force, so if the agreement comes into force on January 1, we're going to maintain that constant tariff differential of 8% with the U.S. until we eventually catch up and we both get to zero duties going into Korea.

If the parliamentary ratification process drags on and we miss that January 1 date—so let's imagine that maybe it becomes a March 1 implementation—it means that every year through the phase-out period we're going to have a wider tariff differential of 10.7% for the first couple of months of the year. On the other hand, if the House and the Senate work quickly and bring the agreement into force, let's say on December 1, then we'd have a smaller differential of 5.4% every year, just in the month of December.

What the text of the agreement says about coming into force is that the agreement will come into force 30 days after both countries have completed their domestic legislative processes. That means we need royal assent in Canada no later than the end of November. No pressure, we're just looking for some kind of record to be set to get this thing done and implemented expeditiously.

In addition to the beef muscle cuts—we think of the steaks, roasts, and those sorts of things—the Korean market is also important for the organ meats, known as offals. The current Korean tariff for beef offals is 18%. For Canada, that's going to be eliminated in 11 equal annual steps. On the offals, I'd note that the phase-out is faster than the U.S. is getting. Not only will we catch up to the U.S., but we'll actually have a few years' tariff advantage over the U.S. on the offals.

I'm going to wrap up, but before I conclude, I have a few statistics on our beef trade with Korea. In 2002 we exported nearly $50 million worth of beef to Korea. Unfortunately, from May 2003 until February 2012, Canadian beef was prohibited in Korea, so we didn't ship anything. For those 10 months of 2012 after we regained access, we exported 2,247 tonnes of beef, for $10 million, and that was with the 2.7% tariff differential that year, when the U.S. free trade agreement came into effect on March 15, 2012. For 2013, that tariff differential grew to 5.4% and our exports dropped to 1,166 tonnes, for $7.8 million. This year—as I said before, the tariff differential is 8%—from January through July we've exported only 807 tonnes, for $7 million.

What you can see over that time period is that the dollars per kilo of what we are continuing to export has been rising. We were at $4.47 per kilo in 2012. We're at $8.70 per kilo this year. That's partly because there is a global reduction in beef supply and prices are generally rising anyway for beef, but it's also because, with that growing tariff disadvantage, we're not competitive at the low end of the market such as frozen beef and bones, which are a good, important part of what we used to ship to Korea. We have maintained meaningful shipments at the high end.

Our assessment is that by keeping the tariff differential constant at 8% through the transition period, we are going to be able to maintain meaningful trade with Korea. Once that tariff is eliminated, we would expect to be back in the annual $50-million range and probably beyond that.

Thank you, Mr. Chairman. I would be pleased to respond to questions.

[The Chair, Conservative, Randy Hoback]

Thank you. Mr. Masswohl. I appreciate your frank and speedy presentation.

We'll start off with our questions. Mr. Davies with the New Democratic Party, you have seven minutes.

[Don Davies, NDP, Vancouver Kingsway, BC]

Thank you, Mr. Chairman, and thank you to both witnesses for being with us.

Mr. Stanford, you raised the issue, as have others, about the increased trade deficit in the auto sector in the U.S. as a result of the KORUS deal signed in 2012. I put that concern to Ian Burney who negotiated this agreement on behalf of Canada, when he testified on Tuesday this week. He responded that the trade deficit was wholly unrelated to KORUS because U.S. auto tariffs have not actually implemented any reductions yet. The passenger car tariff doesn't actually come down until 2016 and the light truck tariff doesn't begin to fall until seven years after the implementation of KORUS. So, there's been no change in the U.S. tariffs as a result of KORUS yet. I think there has been a reduction on the Korean side.

He also pointed out that the U.S. economy has been in recovery for the past few years, whereas Korea has been suffering a bit of an economic cold over the past two years. In other words, Mr. Burney argued that growing U.S. consumer demand and slowing Korean consumer demand could also be a factor responsible for the fact that American consumers may be purchasing more vehicles, whereas Korean consumers are not. What would you make of that argument?

[Jim Stanford]

I don't accept that America's economy has been stronger in the years since the global financial crisis than Korea's. In fact, Korea along with Germany is one of the countries that have recovered their employment ratio relative to population, their GDP, and certainly their exports, so I don't think a differential macroeconomic phenomenon explains the widening difference. If the trade deficit has gotten that much worse in automotive products despite the fact that U.S. tariffs haven't even started to decline yet and the Korean tariffs have indeed started to decline, that's part of the small uptick in U.S. exports to Korea in the auto sector. That suggests to me that it's going to get even worse once the U.S. tariffs do start to come down.

Trade economists have recognized for years that you can't estimate the effects of a free trade agreement solely by running an elasticity against a proportionate tariff reduction. There is a structural change or a gravity effect of a free trade agreement that causes the expansion of trade flows above and beyond what you would normally expect just from the relative reduction in prices from tariff elimination. I don't find Mr. Burney's argument at all to ease my concern. In fact, if anything, I would be more concerned in light of those facts.

[Don Davies, NDP, Vancouver Kingsway, BC]

Mr. Burney also told this committee that according to their figures nearly 50% of Korean brands that are sold in Canada already enter Canada tariff-free under NAFTA through U.S. plants. We also know that a new Kia plant is scheduled to open in Mexico in the next two years with a yearly production of over 300,000 vehicles.

Given the tariff-free access of Korean product under NAFTA already, do you believe that, in the absence of a trade agreement with Korea, the 6.1% current tariff on Korean-built cars in Canada would have any real effect on keeping Korean product out of Canada?

[Jim Stanford]

Well, it certainly doesn't keep Korean product out of Canada. We import around 100,000 vehicles from Korea. All of my numbers about the imbalance with Korea are not about Korean-branded vehicles. They are about Korean-made vehicles. Yes, there are Korean-branded vehicles made within North America that come into Canada tariff-free. One of the structural imbalances between us and Korea is that the Korean firms have no FDI presence here in Canada at all. They have located in Mexico or the deep south of the United States. It actually makes things worse that they're coming in both from Korea and from other regions of NAFTA. There's no intention on the part of Korean automakers to put any direct investment or direct production into Canada at all and, most disappointingly, there's no effort by Canadian trade negotiators to do so.

In some of our earlier submissions to the federal government regarding the Korean negotiations, we suggested that they deal with the Koreans and make their tariff-free access to Canada's market contingent on Hyundai and Kia getting at least some kind of footprint in place to proportionately reflect their share of the Canadian market. They have a 12% market share now, but of course that was not taken up by our negotiators. Just keeping the 6.1% tariff alone is not a solution to the problem. The problem we have today has arisen in the wake of that tariff. We need, I think, a deeper effort to develop export-oriented capacity in high-value industries, including auto but not just limited to auto. We need the ability to bargain with countries like Korea and say, “Look, this cannot be a one-way street. In strategic industries like auto, like telecommunications equipment, like computers and circuits, we have to have reciprocity. We will not satisfy ourselves with shipping you resources that you transform into very expensive products that you sell back to us.”

That would be the ultimate solution. But eliminating the 6.1% tariff isn't going to make things better. It's going to make them incrementally worse, locking in the current imbalance.

[Don Davies, NDP, Vancouver Kingsway, BC]

Again, focusing just on auto, Mr. Burney, and, I think, others agree that nearly 90% of Canadian-made vehicles are made for export. Mr. Burney also noted that imported auto sales in Korea have been growing at about 30% annually over the past four years. Now, clearly exports are a critical part of the sustainability of the Canadian auto sector, as is taking advantage of opportunities for growing in overseas markets.

Mr. Stanford, what policies do you think are needed from the federal government to promote the growth of North American car brands in foreign markets?

[Jim Stanford]

I think that's an excellent question, Mr. Davies, and I actually I think that's what we should be devoting our attention to. Through our union and through multi-stakeholder bodies like the Canadian Automotive Partnership Council, we have been considering what types of pragmatic measures would be required to facilitate more offshore exports by Canadian-based producers. We export 90% of our output, but almost all of that goes to the United States. Our offshore export capacity other than for a couple of niche vehicles is almost non-existent, and anyone who's taken grade 8 math can tell you that if you start with a very small number and grow at 30%, you still have a very small number. The fact that Korean auto imports have been growing by 30% a year is quite misleading. It is still one of the most closed automotive markets in the world, and the total market share of imports is in the single digits whereas Canada's market imports over 90% of our sales. It takes pragmatic measures like partnering with the companies to design and develop vehicles that are aimed at international markets. Most of our vehicles are actually designed and oriented around the tastes of North American consumers. So, there's very limited demand offshore for those products. Developing an export-oriented infrastructure would make it more feasible to get up to scale on volumes of vehicles going offshore. In fact, negotiating with or pushing the automakers present in Canada to make exported vehicles part of the package when they're coming to government with requests for investment subsidies and other measures like that, even subsidies around some of the refinements and modifications that have to be made to vehicles—

[The Chair, Conservative, Randy Hoback]

Thank you, Mr. Stanford. I'm sorry, but you've gone way past the seven minutes.

Mr. O'Toole.

[Erin O'Toole, Conservative, Durham, ON]

Thank you very much, Mr. Chair.

Thank you to both witnesses. We appreciate you appearing, particularly on relatively short notice. Certainly we tabled the agreement in June, but we appreciate your quick response to appear before the committee.

Mr. Stanford, this is kind of my “Jim Stanford day”. I woke up to you on CBC Radio for Toronto this morning. I listen to it from my apartment here so I can keep up on events there. It was interesting, because the subject was the 1,000 new jobs in Oakville since much of the new Ford Edge product, as you know, is up for export, including under export provisions granted in CETA. You were quite positive, obviously, about those 1,000 new jobs for your union members this morning, but this afternoon you seem a little less positive on trade. Could you explain the difference?

[Jim Stanford]

I think the difference, sir, lies in the difference between being positive on trade and being positive on free trade agreements. I said in my testimony, as an economist I'm a strong supporter of trade when it adds to the net demand for Canadian-made products and the Canadians who build those products.

In Ford's case, they have taken a vehicle, and it's one of the exceptions to the rule, the Ford Edge, and they have designed it in a way, marketed it in a way, and invested in a distribution system and a transportation system to get those vehicles to other markets. They don't sell it in any significant quantity in Europe yet, but they do sell it in Latin America, Asia, and some other markets. That is a very positive thing. We need more of that. I was just answering Mr. Davies' question with some of the pragmatic ways we could support more offshore exports, none of which have to do with signing a free trade agreement and then just hoping for the best.

Tariff reduction alone is not driving any change in the structural imbalance in our automotive relationships with Korea, Japan, and Europe. With every one of those jurisdictions, our auto trade is a one-way street flowing in. I am positive about trade, I do think that stimulating more offshore exports is an important priority for a national auto policy. I think we will need some hands-on, more directive measures to make that happen, rather than just eliminating tariffs on both sides and hoping for the best.

[Erin O'Toole, Conservative, Durham, ON]

Let's pick up on the Ford example, and the Edge in particular.

Certainly, as you know, in the last few years through the automotive innovation fund, and other means, our government has tried to support efficiency and innovation in the auto industry. But specifically to Oakville and Ford, because we're all excited about those 1,000 new jobs, where is the decision made on what vehicle rolls off the plant line in Oakville? Is that made by Ford Canada, or is that made by its parent?

[Jim Stanford]

It's certainly made by the parent. One of the trends that we've seen in global automakers is it's even made on a global basis by the global automaker. They are trying to consolidate their output in facilities around the world into a smaller number of what are called global vehicle platforms. That allows them to develop a sort of common underbody and common engineering framework for vehicles, and then the body and so-called top half are added to the design and produced in different plants around the world.

Even the CEO of Ford Canada would have virtually no influence on a decision like that. It's made by the global planners. They look at what is going to maximize their profits in terms of minimizing production costs, minimizing transportation costs, and minimizing risks to exchange rates and other factors, but taking into account the policy constraints that push their decisions.

Part of our view would be, again, that we need a more active policy framework instead of just liberalizing and hoping that unconstrained business decisions will keep this industry here. We need to get in, roll up our sleeves, and sort of bargain with the automakers using whatever carrots and sticks we can bring to the table.

[Erin O'Toole, Conservative, Durham, ON]

I appreciate that. You've laid the framework, it is a global production phenomenon. I represent, proudly, an area that has many auto workers from GM Oshawa. I know it would be the same in Windsor. In Oshawa we're quite worried about a vehicle being selected for 2016 and beyond for Oshawa, but these decisions are made by the parent company in Detroit.

My question to you is, as legislators in Canada, how could we possibly, in light of the U.S. having free trade with Korea, allow our three plants in Ontario to have less market access than the American plants of the Big Three at a time when these decisions about global production are being made?

[Jim Stanford]

Sir, in all honesty, the fact that American plants have tariff-free access to a tiny market on the other side of the Pacific Ocean is going to have no bearing whatsoever on their decisions about what vehicles to put where. Even with the free trade agreement, as I said, the exports of American-made vehicles to Korea are going to remain insignificant; the sort of scale that you could meet with a few hours of production from any assembly plant.

In cases where you had a more meaningful opportunity to develop an offshore export flow, then I accept that it could play a role in influencing a business case. The more places you can sell the product, the better. That does all depend on the corporate decision about what vehicles they're going to aim for which markets, and it also depends on the policy framework. If we had a more active policy framework that compelled or pushed automakers to have an export plan as part of their package, especially where we have carrots or sticks to influence their decisions, then I'm all in favour of boosting offshore exports wherever we possibly can. I'm just very skeptical that just signing a free trade agreement in and of itself will improve that at all.

[Erin O'Toole, Conservative, Durham, ON]

Is it fair to say, though, that now when GM Oshawa is compared to a GM plant in Michigan, market access is at least at parity into South Korea, so that for decisions made around the global selection, it's parity. We're not putting our plants at a disadvantage even if it's just one market, but a market in a growing part of the world in Asia.

[Jim Stanford]

You're talking about a handful of vehicles. It can't possibly.... When you make a decision about allocating a new model somewhere, you're looking at maximizing a production run over the expected five- or six-year life of that vehicle, and you're talking about production of half a million units. The fact that you might pay the 8% tariff—

[The Chair, Conservative, Randy Hoback]

We're going to stop you there, sir. I'm sorry. We're past the seven minutes.

We'll move on to Mr. Pacetti for five minutes.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Mr. Masswohl, I have a quick question. For the beef industry, on the fact that we're behind by 8% compared to our American competitors, is it not too late to get into the market? You're starting, but with the Americans starting with an 8% advantage, by the time you catch up, it will take years. You said it yourself. What's the plan to catch up to that?

[John Masswohl]

I think our fear is that if we lose any more time, then we're done in that market. If we drop to a 10.7% differential, it's going to be very difficult to maintain any shipments. With an 8%, we can hang on to some really meaningful access. We're still doing in the neighbourhood of $7 billion or $8 billion per year. Like I said, we're moving up the value chain. It's more the higher-value products that we have going.

I think what we also have noticed, since it was announced that the negotiations were concluded and there started to be some expectation in the Korean marketplace by the importers that we will have this free trade agreement, is that it has created some confidence that at least the differential won't get any larger. We've managed to keep those customers, and that's why we're saying that if it stays constant, we'll be good.

I think the other thing to keep in mind is that Australia has also reached an agreement with Korea. Australia is the largest beef supplier into the Korean marketplace, even larger than the Americans are. If Australia were to go ahead also, then we would—

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

But their agreement is not effective yet.

[John Masswohl]

Yes. We'd really be in trouble.