Thank you very much, Mr. Chairman.
Actually, we're only going to be making one presentation. I brought a big group to help me with the tough questions, but we'll limit ourselves to the one presentation.
Thank you, Mr. Chairman, on behalf of the whole delegation, in giving us this opportunity to speak to you about the Canada-Korea initiative, for which I lead Canada's negotiating team.
To set the stage for the discussion of the Korea negotiations, let me start with a little bit of context, picking up on Minister Emerson's comments to you from the committee hearing last week.
As the minister noted, and as was confirmed in the document Annual Report on Canada's State of Trade for 2006, which was released later in the week, Canada is actually in very good shape from an overall economic and trade perspective, with strong growth, record export levels, rising investment, and impressive job creation. However, as he also cautioned, these are not grounds for complacency, given the extent to which this performance is linked to inherently volatile commodity and energy prices, and given our relative trade performance beyond North America, particularly compared to some of our key competitors.
To sustain job growth and prosperity at home, we need to do more to reach out to the world and engage key commercial partners.
In terms of trade policy, Canada's efforts to break into international markets and find its place there are linked to three key areas: maintaining and increasing its access to the US market; participating in the WTO process; and implementing regional and bilateral initiatives.
I will not spend time on the first two areas because they have already been dealt with separately by this committee. I will point out however, that in the past, we have focused our attention almost exclusively on those two areas.
However, the situation is evolving, and it now apparent that we need to place specific emphasis on our bilateral program beyond North America, including initiatives such as a free-trade agreement with Korea.
Some of the main reasons are as follows: continued globalization of the world economy and the increased number of new and important economic players; the uncertainty surrounding the WTO negotiations; and especially, the rapid growth in activities by our trade partners to obtain preferential access to traditional and emerging markets on a bilateral basis.
So how is Canada doing on this front, the bilateral front? Well, apart from the NAFTA, Canada has trade agreements now with Israel, Chile, and most recently, Costa Rica. While we can look back with some satisfaction on those accomplishments, the reality is that we're no longer keeping pace. While Canada, as I mentioned, has four FTAs covering five countries, the U.S. has 12 FTAs covering 18 countries, and Mexico has 13 agreements covering 43 countries. And the vast majority of those deals were concluded in the last five years.
Australia too has been aggressive in pursuing free trade agreements, and even countries that have traditionally been averse to pursuing FTAs, like Korea and Japan, are now increasingly active in this area. So the hard truth is that Canada is the only significant trading nation that has not concluded a single FTA in more than five years. These agreements can and do have a significant impact on Canada's competitiveness in international markets.
Unless we can offer competitive access to global markets from Canada, we risk losing important export markets, putting our investors and service providers at a disadvantage, and over time making Canada a less attractive place for investment, whether foreign or domestic.
This is no academic concern, Mr. Chairman. We are hearing from Canadian companies right now that they are losing sales in foreign markets due to the FTAs of others, and there is a mounting concern that Canada needs to take urgent corrective action to level the playing field for our companies. So looking ahead, we'll continue to strengthen our NAFTA ties, and of course we'll continue to work to secure the successful outcome at the WTO, but at the same time, we have to put a much greater emphasis on our regional bilateral agenda, including initiatives like the free trade agreement initiative with Korea.
Beyond Korea, we have ongoing FTA negotiations with four Central American countries--El Salvador, Guatemala, Honduras, and Nicaragua--which I understand the committee will be looking at next week. We also have an FTA going with the four countries of the European Free Trade Association--Iceland, Liechtenstein, Norway, and Switzerland--and with Singapore. Moving forward on our negotiating agenda and preparing to engage new partners will feature prominently in the government's trade policy in the coming months and years.
Let me now turn to the specifics of Korea--which is the focus of the committee's deliberation today--which we see as an opportunity not only for creating opportunities in Korea, but also from a strategic standpoint in providing an entrée for Canadian countries to the wider Asia-Pacific region.
With a population of 48 million and a GDP approaching $890 billion, Korea is the largest of the four Asian tigers. Following its rapid recovery from the 1997 Asian financial crisis, it has emerged as the world's 11th largest economy and 12th largest trading nation.
In short, this is the most ambitious FTA negotiation that Canada has entered into since the NAFTA was completed more than 10 years ago.
What we are seeking is a comprehensive, high-quality, NAFTA-style agreement. This includes chapters on trading goods, rules of origin, customs procedures, trade facilitation, services, investment, and so forth. Consistent with past practice, Canada is pursuing environmental and labour cooperation agreements in parallel with the free trade agreement. In the core areas of market access for goods, services, and investment, we are seeking comprehensive coverage and a high level of ambition in terms of liberalization commitments.
Given the concerns of our stakeholders, a particular area of emphasis in these negotiations continues to be on non-tariff barriers, such as regulatory and transparency issues. Fundamentally, this initiative is about enhancing opportunities for Canadian business. Korea is already our seventh largest export destination. Our exports last year reached an eight-year high of $2.8 billion. To put that into perspective, that is more than what we exported to Brazil, India, and Russia combined.
Korea is also becoming a major services market for Canada, with about $600 million in services exports in the last year for which we have statistics--2003. Two-way investment now stands at over $1 billion. So trade and investment flows are clearly strong and growing, but an FTA could do much more to generate business by dismantling the still significant tariff, regulatory, and other barriers to commerce that limit opportunities.
Korea continues to maintain relatively high tariffs--12% on average--versus only 3.9% for Canada. So the elimination of tariffs in an FTA would therefore generate substantial opportunities for Canada, and one could argue it would have a disproportionately favourable impact on Canada.
The Korean market is particularly important for the agriculture and resource-based segments of our economy, with an FTA expected to generate gains in areas such as agrifood, fisheries, metal, metal products, forestry and wood products, and coal and other minerals. In the agriculture sector alone, average Korean-applied tariffs are in the range of 53%, which is substantially higher than Canadian tariff levels. In the fisheries sector, average tariffs are 17% versus just over 1% for Canada.
However, I must emphasize that this initiative is not just about resources. We also expect gains in a variety of industrial sectors: chemicals; aerospace; urban transit; power generation; medical devices; cosmetics; prefab buildings; environmental goods; and machinery and equipment, to name a few.
As well, we believe there are opportunities in the service sectors of our economy, wherein 80% of new jobs are created today in Canada. Some examples include financial services, high tech, and environmental services.
A free trade agreement would also foster a safer and more foreseeable environment for Canadian investors in Korea and would in addition help to attract Korean investors to Canada. In turn, that would help to open up neighbouring markets to Canadian businesses, markets such as China and Japan. Indeed, intraregional trade is growing exponentially, and Korea could become a first-rate gateway.
As I indicated earlier, Canada's bilateral free-trade agreements program is also guided by the need to help Canadian businesses deal with competition on an even-playing field.
Korea is perhaps a newcomer in the world of free trade agreements. However, it has already signed agreements with Singapore, Chile, the European Free Trade Association and most of the members of the Association of South East Asian Nations.
Furthermore, Korea is currently in negotiations with Japan, Mexico and India, and I would like to draw the committee's attention to the recent launch of negotiations between Korea and the United States. Clearly, this raises the stakes for us and underlines the importance of maintaining Canada's competitiveness in the Korean market.
So where are we now?
Since launching the negotiations in July 2005, we've had five rounds of talks with Korea at roughly two-month intervals. The next is scheduled for the end of this month in Seoul. We've made good progress to this point, but are now increasingly bumping up against the key sensitivities on each side, which will prove more challenging as we go forward.
I should emphasize that contrary to some claims that the government is fast-tracking these negotiations, we are moving forward at a measured, deliberate pace. Before the government even launched negotiations, we conducted extensive analysis that included government-to-government exploratory talks, as well as comprehensive domestic consultations here in Canada. This consultative process, launched in January 2005, revealed significant and broad-based support for an FTA with Korea from a wide spectrum of economic sectors across the country.
Intensive consultations with stakeholders have been, and continue to be, of central importance to the government as we pursue this initiative. In terms of our timetable, we are not working to a fixed or arbitrary deadline. We are obviously conscious of Korea's other initiatives, but we will take the time necessary to achieve a good deal for Canada. The emphasis is on quality, not speed.
While we are making good progress, as Minister Emerson has indicated in the press, we still have work to do. It is work that will take time to conclude.
Let me now, before concluding, address head-on some of the issues that have been raised with respect to the automotive sector and the prospect for free trade with Korea.
Minister Emerson has repeatedly emphasized the government's recognition of the importance of the auto industry's contribution to the Canadian economy. Given that importance, we have established a dedicated automotive consultative group to support this negotiation. It meets regularly--in fact, most recently here in Ottawa last week--to ensure that industry views are well understood and reflected to the extent possible in our negotiations.
Indeed, the industry's views have played an important role in shaping our approach to this negotiation from the outset. For instance, Canada's auto sector is concerned about barriers to the Korean market, which is why the government has made addressing non-tariff measures a priority in these negotiations and why we created a separate working group dedicated exclusively to automotive issues within the Canada-Korea negotiating structure.
The industry also has concerns about the impact of tariff elimination in Canada on imports from Korea. We are, as I said, consulting closely with industry and are factoring its concerns into the specific positions we bring to the table.
I would add that our analysis suggests that any negative impact on the automotive sector from an FTA with Korea is likely to be very limited, reflecting a variety of factors. These include current trading patterns; the relatively small tariff level, which would decline further in the event of any successful outcome to the Doha negotiations; the fact that the vast majority--about 85%--of Canadian-made vehicles are exported to the United States; and the new Hyundai plant in Alabama, which is expected soon to be supplying vehicles duty free to Canada under the terms of the NAFTA.
While some have suggested that an FTA with Korea is undesirable because of our large deficit in bilateral automotive trade, our view is that it is not realistic to expect that Canada would have a positive trade balance with all countries or in all sectors with every given country.
The reality is that Canada has a significant global trading surplus in automotive products. However, our marketing focus is almost entirely in the United States, with which we had a $26 billion surplus in automotive trade last year. While it is true that our automotive exports to Korea are low, it should be noted that Canada is not a major exporter of motor vehicles to any offshore market. More than 99% of our automotive production is sold in the North American market.
The aim of an FTA is not to eliminate trade surpluses or deficits in specific sectors. It is to expand opportunities for bilateral trade and investment on both sides. With Korea, as I've indicated, we believe there are major opportunities for Canada. This includes the automotive sector, within which we think stronger investment rules and tariff elimination could significantly enhance opportunities for Canada's auto parts companies.
In closing Mr. Chair, free trade negotiations constitute an increasingly important tool for promoting Canada's trade interests throughout the world and for ensuring Canada's prosperity.
Our competitors are negotiating agreements at an unprecedented speed. Canada cannot simply stand by and do nothing. Of all the negotiations currently underway, none are as potentially advantageous as those with Korea.
The government remains determined to reach an agreement that allows the promotion of all Canadian interests in this market. To do that, we will continue to consult closely with all Canadian stakeholders.
With that, Mr. Chairman, my delegation and I would be pleased to take any comments or questions.
Thank you very much.
