Thank you, Mr. Chairman.
Just to clarify things, Mr. MacLeod is vice-president of Secunda Marine Services and their legal counsel. I didn't think it was necessary for me to provide my own lawyer to appear before this committee.
Thank you very much for coming to Nova Scotia and providing us with this opportunity to address you today.
Very quickly, OTANS is a trade association that represents about 400 member companies in the Maritimes and Newfoundland and Labrador. These companies are involved in the supply of goods and services related to energy--primarily offshore oil and gas--although some do work in the renewable area as well. Approximately 30% of our companies do exporting, and they've successfully competed and won business in such areas as the United States, Europe, and to a lesser degree South America and the Middle East.
As I mentioned, with me today is Mr. MacLeod of Secunda Marine. Secunda is a member of our association and is based in Dartmouth. It has a fleet of offshore supply vessels and associated marine assets, which employ between 300 and 400 Canadians here in Halifax and Dartmouth and operate around the world.
I propose to make a quick introductory statement and then open the floor to your questions and comments for both of us.
Your task is to examine Canadian competitiveness. Our role today is to discuss measures that may seriously impact on our ability to do so, not on a global basis but here in our own front yard. Canada is a trading nation, and we welcome opportunities to open new markets for our member companies and our employees. However, we wish to advise the committee of the dangers to a fledgling industry, namely the offshore oil and gas industry, and the resulting economic benefits to our region and country posed by current attempts to reach a free trade agreement with EFTA, which is the European Free Trade Association.
We'll wrap up our comments with a few words on the Canadian shipbuilding policy.
The European Free Trade Association is made up of four European countries: Norway, Iceland, Switzerland, and Liechtenstein. Canada, if successful, would have a so-called free trade agreement with these four small European countries. From a philosophical standpoint, we're not opposed to free trade. EFTA, however, doesn't constitute an initiative that would liberalize trade or benefit the Canadian economy as far as we can see. This very narrow initiative would in fact cause great harm to certain sectors of the economy, not just the offshore oil and gas industry here in Atlantic Canada but also, in particular, the offshore vessel operators and the shipbuilding industry.
It has been suggested that Canada is falling behind the United States in the signing of bilateral trade agreements with other partners around the world, and that we will lose ground if we don't keep up with our neighbour. We can assure you that any agreement that the United States would ever sign would have a carve-out of the Jones Act that preserves U.S. coasting trade for U.S.-built ships.
Four years ago we, as well as many other parties including several provincial governments, came to the conclusion that an EFTA free trade deal just didn't provide enough benefit to Canada. We were advised that carve-outs for shipbuilding and the 25% tariff on vessel importations would not be palatable to the Norwegians. Without such a carve-out as that provided for U.S operators under NAFTA, an agreement with EFTA would not be acceptable to Canadian vessel operators and shipbuilders.
We'd like to make a couple of points on EFTA, but they are also applicable to some degree to the Singapore and Korea discussions. First of all, what is the benefit of this for the country? FTAs must be mutually beneficial, and they must lead to economic benefits for both parties. When officials in the Government of Canada have been asked for the statistical analysis and data that show some type of a cost-benefit analysis for such an agreement, they've been unable to produce any such information for us. We believe it's because they haven't carried out such studies. Officials also suggest that an agreement with EFTA countries would somehow allow us to gain access to the European Union, but no explanation is forthcoming as to how that would be arrived at. We see no benefit to Canada out of these negotiations as they're constituted. We fail to see how any agreement with this European rump would allow Canadian entry into the European Union.
On the rules of origin, under the proposed rules of origin--I know this is complicated for those of you not in the shipping industry--there would only have to be between 35% and 50% Norwegian content in any vessel exported from Norway to Canada. That would allow the Norwegians to build the hulls of the vessels offshore in low-labour countries such as Romania and then bring them to Norway to be outfitted. Therefore about 50% to 65% of a so-called Norwegian ship could be built outside of that country but would be treated as a Norwegian vessel and allowed to enter Canada without paying duty.
A Canadian owner, on the other hand, would not be able to import a similar hull from a low-cost country and outfit the ship in this country without the attraction of a 25% duty on that hull when it entered service.
Clearly the Norwegians knew what they wanted when they came to the negotiating table, and the Canadian negotiators did not have an appreciation of what they had agreed to with the Norwegians.
For national policy objectives, all free trade arrangements provide for or allow specific exclusions for sensitive industries. Under NAFTA the United States specifically carved out the shipping industry and shipbuilding under the Jones Act, which precludes Canadian vessels or Canadian-built ships from participating in the coastal trade of the United States. The U.S. felt it appropriate to protect these sectors. Under the circumstances through which Norway has developed its offshore oil and gas sector with very strong protectionist policies, we believe Canada would be wise to do the same with EFTA.
When it comes to the offshore on the eastern coast of Canada, and eventually the north and British Columbia, it is an important element that EFTA be considered and that it be stopped. The development of this industry in Atlantic Canada is perhaps the single most important economic impetus to hit this region in the postwar period. Given that the offshore oil and gas industry in Newfoundland and Nova Scotia is at its beginnings, and it is a stated policy of the federal government, both this one and previous governments, to ensure that Newfoundland and Nova Scotia are the primary beneficiaries of offshore oil and gas development under the accords, it is entirely appropriate that this sector should be maintained for Canadian companies.
If Norwegian vessel operators are allowed into this market at this stage, they will bring their various support companies, their service industries, and other elements of the offshore oil and gas industry with them. Atlantic Canadians and all Canadians will be out of luck, and we fear they'll be out of business.
Norway has a very successful offshore, one that we're very envious of. For the last 30 years they've grown into one of the world's largest oil exporters. Foreign competitors have not been able to penetrate the Norwegian market due to non-tariff barriers, including government-regulated tendering processes that essentially preserve the Norwegian offshore for Norwegian companies. In addition, Norwegian vessels have been built under subsidy. As well, Norwegian vessel operators have had very favourable tax regimes and corporate structures that enable them to grow and develop, having had the advantage of a strong protectionist policy and strong government support.
Today they now seek free trade with this country. Obviously the playing field is not level under those circumstances. That country has approximately 400 offshore supply boats. In its fleet they've built more than 200 since 1997. Should the Canadian marketplace become accessible without the requirement to pay a 25% duty on vessels, Norwegian companies could dump their vessels at very low prices. Canadian operators, who have been forced to operate under the existing regime, where they have to pay either expensive Canadian and U.S. vessels or pay the 25% duty on foreign-built vessels, just wouldn't be able to compete. Essentially we'd be sitting on the shore while the Norwegians helped exploit Canadian resources.
On tariff policies, EFTA, should it proceed, would be in direct contradiction of the established federal shipbuilding policy. The Government of Canada views the development of Canada's east coast offshore oil and gas sector as a key development in the growth of that shipbuilding industry. On the one hand, the shipbuilding policy is premised on the fact that there will be an expanding and growing Canadian offshore industry from which Canadians will benefit. On the other hand, through EFTA a very strong foreign competitor would be able to unfairly enter the Canadian market before our industry had a real opportunity to establish itself and set down roots.
We have yet to get an answer from government, particularly from its officials, to several pertinent questions. We are asking you to go back to Ottawa, ask these questions, and please share the answers with us.
First, where is the analysis of the benefits of such an agreement in the type of detail that one would deem necessary when committing a country to such an arrangement? It is not that we merely don't like the answer. The fact is that officials are unwilling or unable to provide us with such an answer and a requisite analysis.
When asked directly what sectors of the Canadian economy could possibly benefit from an EFTA agreement, there is no substantive answer forthcoming. We've asked for five years on this and we still don't have an answer. It is presented merely as a leap of faith. Surely a country does not enter into such a set of negotiations without articulated, accepted objectives and an ability to inform Canadians on the specific benefits and potential downfalls.
As I mentioned before, we believe any trade negotiations with EFTA would be at variance with the federal policy of ensuring that Newfoundland and Nova Scotia are the key beneficiaries from offshore oil and gas development, as stipulated in the federal and provincial legislation known as the accords. Not only would shipyards and vessel owners be severely hurt by this initiative, but all of the emerging offshore service and support companies that supply shipyards and vessel owners in Canada would be hurt as well.
Not only will shipyards and vessel owners be severely hurt by this initiative, but all of the emerging offshore service and support companies that supply shipyards and vessel owners in Canada would also be hurt. It is mainly those people whom I represent today. We represent shipbuilding and shipowners in Atlantic Canada, but we also represent a large supply chain that we think is at risk.
To be blunt, we believed that we had turned the page on this chapter several years ago when this was put on the back burner, but apparently this is not the case. We urge the committee to ask the questions that we have and insist that the government put forward an open articulate case before embarking on their chosen path.
Thank you very much.