Industry Committee on Oct. 5th, 2006

[Jean Lapierre, Liberal, Outremont, QC]

Thank you, Mr. Chairman. Mr. Burney, lady and gentlemen, welcome to this committee.

I met with people from the automobile industry today, and they do not seem to share your optimism about the damage that a free trade agreement with Korea could cause. One of the aspects they talked about was the fact that Canada and most countries have a penetration rate for foreign vehicles that is up to 40%.

In the case of Korea, this rate is about 2%. The Koreans, especially because of non-tariff measures, are extremely protectionist, and as a result almost no foreign cars are sold in their market.

So, would this agreement deal with all of the non-tariff measures that have made this such a protectionist country?

[Ian Burney]

Thank you for your questions. I would say yes.

As I said in my presentation, one of the main priorities of the government is to eliminate non-tariff measures in the Korean market. That is a high priority for us in the automobile industry. We know full well that the Korean market is not very open and that there are problems with the 8% tariff. But the more important issue is the issue of non-tariff measures. That is why we would like to see an appendix in the agreement that would focus exclusively on provisions for the automobile industry to address non-tariff measures.

We are in regular discussions with the Canadian industry to ensure that these measures will meet their needs.

[Jean Lapierre, Liberal, Outremont, QC]

I understand why Canada wants to negotiate with Korea. However, it is the agreement with the U.S. that counts and, in that respect, we shall be like the tail on the dog, the agreement with U.S.being the dog.

Do the Americans have the same concerns? I imagine that you are in constant contact with them. There is no doubt that they will not be willing to give you anymore than they are willing to give to the Americans.

Are the Americans facing the same difficulty in terms of these shocking protectionist non tariff measures?

[Ian Burney]

Yes, the U.S. automobile sector is facing exactly the same problem and, you are right, I have regular contact with the U.S. chief negotiator. We have had meetings with the U.S. government and the U.S. and Canadian automobile sectors to coordinate our efforts.

We began negotiations with the Koreans at least six months before the Americans did. However, as regards the automobile sector, our objectives are similar and we have a common approach when it comes to putting pressure on the Koreans.

[Jean Lapierre, Liberal, Outremont, QC]

One sector that you have not mentioned is shipbuilding. What effects would a free trade agreement have on the shipbuilding industry We know that the Koreans have different methods and prices. Do you think that an agreement would sound the death knell for the Canadian shipbuilding industry?

[Ian Burney]

I do not think that it will sound the death knell for the Canadian industry. The shipbuilding industry is concerned about this initiative, but I do not think that Korea constitutes a real threat as its industry is concentrated in a different market sector. The Korean industry is primarily involved in building very large vessels, while the Canadian industry is more focused on small and medium-size vessels.

In addition, what really counts for the Canadian industry is access to government procurement contracts. We have no intention of including anything in the free trade agreement that would limit access for Canadian businesses to government procurement contracts.

Government contracts have driven most shipbuilding in Canada over the past few years. I therefore do not think that the FTA agreement would have a negative impact on Canada's shipbuilding industry.

[Jean Lapierre, Liberal, Outremont, QC]

Mr. Chairman, just a brief question to satisfy my own curiosity.

When you spoke about potential exports, you mentioned fish. I was wondering which fish stocks are abundant enough for us to export to Korea.

[Ian Burney]

There are many, but...

[Jean Lapierre, Liberal, Outremont, QC]

It goes without saying that you are not referring to cod.

[Ian Burney]

It would be lobster, shrimp and mackerel. Those are the three types that would be most valuable to us in the Korean market.

[The Chair, Conservative, James Rajotte]

You have six minutes, Mr. Crête.

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

Thank you, Mr. Chairman. Thank you to our witnesses for being here this afternoon.

Regarding the Automotive Consultative Group you provided us with an analysis of the automobile sector; would it be possible to provide us with similar studies on other manufacturing sectors with overviews of how the different Canadian regions are affected?

If a free trade agreement were to be implemented, many sectors, not just the automobile sector, would be affected. Do you have any such studies that you could share with us?

[Ian Burney]

Not at the moment. We have focussed our efforts on the automobile sector, as it is the most important one in terms of our relationship with Korea. It is also what is concerning the Canadian industry.

That being said, we are in the process of carrying out an environmental assessment, in the context of which we will be studying the impact that a free trade agreement would have on all industries in Canada.

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

When you say that it is not possible at the moment, do you have a timeframe in mind? I find it somewhat strange that you have carried out a study on the automobile sector, but are unable to say whether an FTA would be advantageous or problematic for Quebec or Canada.

[Ian Burney]

Allow me to address this issue. We have undertaken many qualitative studies, but they have not been as detailed as Industry Canada study on the automobile sector.

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

What do you mean by “qualitative”?

[Ian Burney]

Prior to entry into the negotiations, we carried out comprehensive consultations with domestic stakeholders here in Canada. We also did extensive analysis and qualitative analysis to determine what the potential would be in an FTA with Korea. We also carried out exploratory discussions with the Korean government.

On the basis of those three processes, we came to the conclusion that there would be a considerable upside for Canada in pursuing the FTA initiative. In my presentation I went through where we saw the primary benefits. They were certainly in agriculture, fish, and forestry, but there were a wide range of manufacturing industries in Canada that also expressed support.

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

Let us take the automobile sector by way of example, although what I am going to say applies equally to other sectors. Québec has an automobile parts industry. We are able to evaluate the number of cars that are going to be sold, but not the number that are going to be imported or exported. I want to know whether you have studied the impact that an FTA would have on the car parts market, which is a very integrated market. At the moment, car parts for General Motors are produced all around Québec. These parts are then sold all over the world. How would an FTA affect this type of market? I have used the automobile sector as an example, but I could have chosen any other manufacturing sector. I am referring to the automobile parts market, not car sales as such.

[Marvin Hildebrand, Director, Bilateral Market Access Division, Department of Foreign Affairs and International Trade (International Trade)]

Thank you very much.

Mr. Chairman, auto parts has been the subject of some analysis. Professor Van Biesebroeck, in his study, projected that there would be export gains of 8% to 10% for Canada in the event of an FTA with Korea.

With respect to movements the other way, the huge portion of the parts industry that comprises what we call OE, or original equipment, parts already enters Canada duty free. In terms of our tariffs, what that leaves is the after-market parts segment. In that area, our tariffs average about 8%.

As in many other sectors, we anticipate gains in terms of Canada's exports. Certainly there may be an increase in parts from Korea, but as in many cases, the tariffs will be phased out on a gradual basis over a transition period. Again, I would emphasize that in the case of parts and original equipment parts, they're already entering Canada duty free.

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

Mr. Burney, I would like to come back to the matter of the qualitative evaluation. Would it be possible for us to have a copy of the documents that you used in your initial negotiations, something that would give us an overview of the situation in Canada? Would it be possible for us to see them?

[Ian Burney]

As I said, we are currently preparing an environmental assessment. In the context of this study, we will see...

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

But I am talking about a document that you already have. Do you have something that would provide us with an overview of the situation? Surely you carried out some sort of a general evaluation of the impact the agreement would have on the different sectors of the Canadian economy before you sat down at the negotiating table with the Koreans? Do you have any such document that you could make publicly available?

[Ian Burney]

I do not have a document to give you, but I would be happy to discuss what we have learned in the context of our environmental assessment. As I said, we expect to make significant gains in the forestry sector and the agricultural sector, among others.

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

I understand that, but you carried out a specific study on the automobile sector. Are you saying that, regarding the other sectors, you have no document?

[Ian Burney]

Yes, exactly. We have not produced a study on the other sectors. We produced a study on the automobile sector and we are in the process of carrying out an environmental assessment, which will cover all of the other sectors. It will be tabled at a later date, once it has been completed.