Thank you very much, Mr. Chairman.
We are certainly pleased to have this opportunity to brief you on the Canada-Korea free trade agreement negotiations, for which I lead Canada's negotiating team.
Joining me today are some colleagues from the Department of Foreign Affairs and International Trade: David Plunkett, the director general for bilateral and regional trade policy; Marvin Hildebrand, director of the bilateral market access division; Kendal Hembroff, deputy director of the bilateral market access division; and Cam MacKay, deputy director of the regional trade policy division and also the deputy chief negotiator for the Canada-Korea talks.
Before going into greater detail about the Canada-Korea Free Trade Agreement initiative, allow me to give you some background.
Committee members are well aware of the importance of trade for the Canadian economy. In fact, almost one job out of every five in Canada is trade-dependent. To maintain job growth in the country and to ensure prosperity, we must open our markets and create more opportunities for Canadians to do business abroad. Unfortunately, all WTO negotiations were suspended in the summer, and we still do not know when they will resume.
At the same time, Canada's key competitors are now accelerating the already aggressive pace of their bilateral negotiations. They are seeking, and obtaining, preferential access to dynamic markets around the world, putting Canadian firms at a competitive disadvantage.
As Minister Emerson said on a number of occasions, Canada has not been keeping pace on this front. For example, since the WTO negotiating round was launched in late 2001, the United States has concluded FTAs with 15 countries while Canada has concluded none. In fact, we're the only significant trading nation that has not concluded a single FTA in five years.
While some have suggested lately in the media that this does not matter and constitutes a poor rationale for pursuing FTAs, the reality is that our relative performance in negotiating FTAs can and does have a material impact on the competitiveness of our firms in foreign markets. This is not an academic concern to our exporters or investors. Canadian companies are already telling us they're losing markets, and they're losing sales in foreign markets, due to the FTAs of other countries. They're calling on the government to level the playing field.
Looking ahead, while we'll continue to strengthen our NAFTA ties and work to secure a successful outcome to the WTO talks, at the same time we have to put greater emphasis on our regional and bilateral agenda, including initiatives such as the Canada-Korea FTA negotiation, which I'll turn to specifically now.
With a population of 48 million and a GDP approaching $1 trillion, Korea is the largest of the four Asian tigers and already the world's eleventh largest economy. That makes this the most ambitious bilateral FTA negotiation that Canada has launched since NAFTA, more than ten years ago. What we're seeking is a comprehensive, high-quality agreement with Korea, modelled on NAFTA.
In the core area of market access for goods, services, and investment, we're seeking ambitious liberalization and comprehensive coverage. A particular area of emphasis with Korea continues to be on non-tariff barriers, such as regulatory and transparency issues, which have been identified by our stakeholders as important impediments in the Korean market. Fundamentally this initiative is about enhancing opportunities for Canadian business.
Why Korea specifically? For starters, Korea is a large, prosperous, and fast-growing market for Canada, strategically situated in one of the most dynamic economic regions of the world. Korea is already Canada's seventh largest export destination. In fact, we exported more to Korea last year than we did to Brazil, India, and Russia combined.
Korea is also becoming a major services market for Canada, with over $700 million in services exports last year, and two-way investments stand at $1.1 billion. An FTA with Korea could generate much more two-way business by dismantling the tariff, regulatory, and other barriers to commerce that limit opportunities.
Korea continues to maintain relatively high tariffs, 13% on average, versus only 4% for Canada. Therefore, the elimination of tariffs in an FTA would generate substantial opportunities for Canada and, one could argue, would have a disproportionately favourable impact on Canada.
The Korean market is particularly important for the agriculture- and resource-based segments of the economy, with an FTA expected to generate gains in areas such as agrifood, fisheries, metal and metal products, a wide range of forestry and wood products, and coal and other minerals.
In the agriculture sector alone, Korean tariffs average around 53%, substantially higher than Canadian tariff levels. In the fisheries sector, Korean tariffs average 18%, while ours are a little over 1%. So eliminating Korean tariffs would clearly provide major opportunities for Canadian exporters.
We also expect gains in a variety of industrial and manufacturing sectors, including chemicals, aerospace and urban transportation equipment, fertilizers, auto parts, pharmaceuticals, cosmetics, prefab buildings, environmental goods, and machinery and equipment, to name a few.
I believe these are some of the sectors that this committee has been looking at.
As well, we believe there are opportunities in the services sectors of the economy, where 80% of new jobs are created in Canada today. Some examples include financial, high-tech, and environmental services.
An FTA would also provide a more secure and predictable climate for Canadian investors in Korea and would assist in attracting Korean investment to Canada. That in turn would help open doors for Canadian businesses in neighbouring markets, such as China and Japan. Intraregional trade has been growing exponentially, so Korea could become an important entry point for Canadian companies.
As I said earlier, Canada's bilateral FTA program is also guided by the need to ensure that Canadian companies can face competition on an equal footing.
Korea is perhaps a newcomer in the world of free trade agreements, but it has already signed agreements with 15 countries in recent years and is actively attempting to negotiate others with several other countries. The free trade negotiations currently underway between Korea and the United States are of course of specific interest to Canada, given how integrated our industries are in certain sectors, like the automobile industry and our aggressive competition with the United States on world markets in agriculture for instance.
More recently, we have learned that Korea and the European Union are considering the possibility of negotiating a bilateral trade agreement. There is no doubt that that raises the stakes for us and highlights the importance of preserving Canada's competitiveness in this important market.
Where are we now? Since launching negotiations in July 2005, we've held seven rounds of talks with Korea at roughly two-month intervals. The most recent round of negotiations was just last week here in Ottawa and the next is scheduled for the week of November 20 in Seoul.
We've made good progress to this point, but we're now touching on the key sensitivities on each side. Canada is pressing for improved access to Korea's highly protected agriculture, fish, and forestry markets, and Korea is seeking faster cuts to Canada's tariffs in sensitive manufacturing sectors such as autos. There's no deadline for concluding these talks, and Minister Emerson has made it clear that our emphasis is on seeking a good agreement with Korea, not a fast one.
Let me now turn, if I might, to the auto sector, the area of this negotiation that clearly has attracted the most attention here in Canada. Given the importance of the auto sector to the Canadian economy and to our overall trading relationship with Korea, the government has devoted particular attention to issues involving this sector and this negotiation.
We've set up a working group within the negotiating structure with Korea focused exclusively on automotive issues, and to support the negotiations at the table we've established a dedicated automotive consultative group here in Canada. The group meets regularly to ensure that industry views are well understood and reflected to the extent possible in our negotiations. The work of this group has been supplemented with additional meetings with industry at all levels.
Just this morning Minister Emerson had his most recent discussion with auto industry representatives on a range of trade issues, including the Korean FTA. Two weeks ago the minister had what I would characterize as a positive and constructive meeting with a delegation from the Canadian Auto Workers, led by its president, Mr. Buzz Hargrove.
So there's been no shortage of dialogue with the industry, and their views have played an important role in shaping our approach to this negotiation from the outset. For instance, Canada's automotive sector has expressed concerns regarding a range of non-tariff barriers in the Korean automotive market. That's why the government has made addressing non-tariff measures a key priority for us in the negotiations.
At the same time, Canada's domestic automotive industry has expressed concerns regarding the potential impact of eliminating Canada's automotive tariff in the context of a Canada-Korea FTA. Members of the committee may be aware that in September the government released two studies that conclude that any negative impact on the automotive sector from an FTA with Korea would be very limited.
The first study, mentioned by the chairman, was conducted by Industry Canada and estimates a decrease in Canadian production on average of less than 1,000 units per year, which represents 0.04% of the 2.6 million vehicles we produce in Canada each year.
The Industry Canada assessment is supported by a second study commissioned by Foreign Affairs and International Trade Canada and carried out by Dr. Johannes Van Biesebroeck from the University of Toronto, a respected academic who specializes in economic analysis of the automotive industry.
Like the Industry Canada study, Professor Van Biesebroeck concludes that a Canada-Korea FTA would have only a modest impact in terms of additional imports from Korea, less than 10%, and that this would come largely at the expense of other imports. The study therefore concludes that an FTA would result in only a fractional decrease in Canadian vehicle production of 2,137 vehicles, representing 0.08% of production.
At the same time, the study projects that Canadian automotive parts exports to Korea stand to benefit from tariff elimination and forecasts increased Canadian exports of between 8% and 12%. The central conclusion of both studies that there would be little impact on Canadian production reflects a variety of factors: the low tariff, 6.1%; the preponderance of imports in our market, which account for about three-quarters of sales; and the fact that Korea has only 8% of the market by volume.