Industry Committee on Oct. 5th, 2006

[The Chair, Conservative, James Rajotte]

Just to clarify, perhaps we can invite the witnesses back, but we did invite them specifically on the Canada-Korea free trade agreement.

Mr. Burney, feel free to answer, but we can also invite witnesses back if we want to discuss International Trade's reaction to these other cases.

[Robert Vincent, Bloc, Shefford, QC]

Mr. Chair, I believe that it would be interesting to have those people appear again. To my mind, this issue also affects us. We could have the opportunity to ask relevant questions once again,such as the questions I have already asked, in order to receive answers.

We could also address the issues mentioned by Mr. Crête. There was talk of trade with Korea as well for fish, lobster and shrimp. We were curious to know what the impact of those markets have on other products.

On the one hand, we are negotiating, but on the other hand, we do not know what we are negotiating. Therefore, we would like to know what is going on in the fisheries industry in Canada and in Québec and if those industries are able to export domestic products. I have the sense that we do not know what was negotiated. Overall, their appearance would allow us to ask questions on Korea, other products, the bicycle industry, and on the criteria that are applied when qualifying a country as a market economy.

[Ian Burney]

To respond with respect to trade remedy law, that is the responsibility of the Minister of Finance in Canada, so if follow-up is required in terms of how trade remedy laws are applied in Canada, I would suggest that the lead contact be with the Department of Finance.

With respect to the impact of the Korean FTA on the fisheries sector, this is an area of great opportunity for Canada, and there is absolutely no downside. This is a sensitivity in Korea, not Canada, and there is overwhelming support from the Canadian seafood sector in Quebec and Atlantic Canada to pursue this FTA because it's a heavily protected sector of the Korean economy and it's already an important export for us. The growth potential is considered by them to be substantial.

I'd be happy to provide more detail in some follow-up context, but I think the story in the fish sector is all positive for Canada.

[The Chair, Conservative, James Rajotte]

Thank you.

We have one more member who wants to ask questions, and I have a few at the end. Then we have a motion from Monsieur Crête. We have about four minutes here.

Monsieur Arthur is next.

[André Arthur, Independent, Portneuf—Jacques-Cartier, QC]

Merci, monsieur le président.

Mr. Burney, please allow me a question that is kind of hypothetical and at the grassroots level. Let us assume that your best friend is a Honda or a Ford dealer in Canada and tonight you have to explain to him what is going to happen to him when you have succeeded in your enterprise of negotiating an FTA with the Koreans. How will you put it to him?

He is not shipping lobster or shrimp on the side. He is only a car dealer.

[Ian Burney]

It's important to keep in mind that we are midway through a negotiation. It's hypothetical at this stage to speculate about what the outcome will be.

When a negotiation is concluded, the government will have to make a decision about whether it's in the interests of the country to proceed. If the government decides to proceed, it will go to Parliament for a vote. That's the political process.

It will not be a bureaucrat in my shoes making a decision about whether a free trade agreement should be adopted in Canada. I would have no hesitation in sharing my personal views on the merits of the agreement with any colleague in any sector at any time, but ultimately it's a political responsibility as to whether or not to accept an agreement of that nature.

[André Arthur, Independent, Portneuf—Jacques-Cartier, QC]

You told us that imports will probably displace other imports, so Hyundai will sell more cars and Toyota or Honda will sell fewer. How fair is it to the Honda people who have invested in Canada?

[Ian Burney]

The other aspect, though, of free trade is that through the reduced tariffs, you actually cause greater competition and lower prices in the market, leading to an increase in demand, so there's also a positive income effect that results in greater purchases of vehicles overall. Dealers who are selling more than one brand may actually see a lot of benefit from it.

[André Arthur, Independent, Portneuf—Jacques-Cartier, QC]

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Arthur.

I have a few wrap-up questions. I want to preface them by saying I'm a big supporter of free trade agreements philosophically and intellectually.

I do have some concerns about this agreement; they are mainly related to the automotive sector. In what range would the imports from Korea to Canada be?

[Ian Burney]

Imports from Korea into Canada at the moment are around $5 billion.

[The Chair, Conservative, James Rajotte]

What are the total exports to Korea from Canada?

[Ian Burney]

That is $2.8 billion.

[The Chair, Conservative, James Rajotte]

Is it fair to say that the imports from Korea have been increasing over the past number of years, while the exports to Korea have been decreasing over the last number of years?

[Ian Burney]

No. On the contrary, our exports were up significantly more last year, and Korean imports to Canada were either flat or down.

[The Chair, Conservative, James Rajotte]

In terms of the goods that you identified--agrifood, fisheries, coal, forestry, wood products, metals, chemicals, aerospace, auto parts, financial services, high tech--one concern is that there are a lot of primary products on that list. Again, the perennial concern in Canada is that we're relying more on primary products and as a result putting in danger some of our manufacturing sector, which is obviously the study of this committee.

In terms of the access for the goods above, you said you have qualitative studies. Is there something you can give us that would assure committee members we will be making some real gains, especially in areas like aerospace, auto parts, financial services, and high tech? The reason I ask is that a lot of people in those sectors have at least anecdotally expressed to me concern about this agreement.

Is there something you can provide to us that says we will be making some real gains if we sign an FTA with Korea?

[Ian Burney]

There are several ways to answer that. One is that all the stakeholders who wrote to us were positive, except for those from the two sectors we discussed. So we have supportive messages from stakeholders in all of those sectors—aerospace and chemicals and—

[The Chair, Conservative, James Rajotte]

Are those public documents? Can we have access to them?

[Ian Burney]

No, they're covered by privacy considerations. When people are responding to a government appeal for input, they do it under cover of privacy.

If you look at the tariff structure, you'll see that Korean tariffs average 13%. Canada's average is less than 4%. If you eliminate those, it stands to reason that there's going to be more benefit to our side than theirs.

I can give you details about the tariff levels. Korea imposes a 5% duty on flight simulators, 3% on engines, 8% on industrial machinery. Canadian tariffs, especially in those areas, tend to be either zero or very close to it.

[The Chair, Conservative, James Rajotte]

Especially in the automotive sector, there are concerns about the non-tariff barriers, the regulations and such. If we sign an FTA with Korea, and Korea puts in force a regulation or a non-tariff barrier, how will we be able to react fast enough to make sure that the barrier's not in place for a long time?

[Ian Burney]

That's exactly the dialogue we're having with the auto industry. We're looking for them to identify the specific problems they have. If there's a problem with a measure that exists now, we'll try to write an obligation directly into the FTA itself.

Perhaps more important, we're also trying to come up with some procedures for solving the regulatory problem. We want to make sure that Canadian and Korean companies have equal access to the Korean regulatory process.

Right now, by the time Canadian firms find out about a measure, it's too late. So we're trying to open up the entire regulatory process. How is it enforceable? Ultimately, through dispute settlement provisions. To the extent that you can write obligations into the agreement, you can make it subject to dispute settlement. Ultimately, you can enforce it in that way. If measures are not complied with, you can withdraw measures of equivalent commercial effect.

[The Chair, Conservative, James Rajotte]

Over the past few days, representatives of the automotive sector have met with many members of this committee. They have expressed a concern about being consulted by the government. They certainly expressed it to me. I would like to relay this to you, because we'd like to encourage as much consultation as possible.

Tell me, are we negotiating in conjunction with the United States as a North American market to Korea, or are we still on a dual-track approach, negotiating separately from the U.S.?

[Ian Burney]

We are not negotiating in conjunction. We are negotiating separate, stand-alone, bilateral FTAs. That said, we are in communication with our American counterparts, and we have a pretty good sense of what's going on in each other's negotiations. Obviously, given the nature of our industries, including the auto sector, we'll take a keen interest in what's going on at their table and vice versa.

[The Chair, Conservative, James Rajotte]

I appreciate you all coming in today on such short notice. I thank you for your questions. If there's anything further you'd like members of the committee to see in this area, or if there is something further, we may invite members, whether it's you or someone else from Trade, back to discuss other issues. But thank you very much for coming to committee.

Mr. Crête has a motion to present and we need seven members. So we all of us need to stay to hear the motion.

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

There were previous consultations.