Evidence of meeting #12 for International Trade in the 39th Parliament, 1st session. (The original version is on Parliament’s site, as are the minutes.) The winning word was products.
Conservative
The Chair Conservative Leon Benoit
Order, please.
Thank you all for coming and for your patience.
Do each of you have a five-minute presentation to give? It looks like it, and I understand that. We will follow the order as listed on the notice here, which is probably the order you're sitting in. We'll start with the Canada Pork International.
Mr. Pomerleau, go ahead, please.
Conservative
The Chair Conservative Leon Benoit
Thank you very much, Mr. Pomerleau, executive director of Canadian Pork International.
Now to the Canadian Auto Workers Union. Go ahead, Mr. Buckley.
Chris Buckley President, Canadian Auto Workers Union
Mr. Chair, members of the committee, thank you for taking the opportunity to meet with us today.
My name is Chris Buckley. I'm the president of CAW Local 222 in Oshawa. I'm also the chairperson of the CAW/GM Master Bargaining Committee, representing all GM members in Canada.
Local 222 in Oshawa represents 15,000 auto workers. If you look at the spin-off jobs created, it amounts to 59,000 jobs created in that region because of the auto workers' jobs.
CAW as a whole represents 265,000 members working in 18 different sectors. Our union is very concerned about the impact of a proposed free trade agreement with South Korea.
Before we get into the specific economics of the deal, I want to provide some concrete local context. The GM facility I come from, where my members work, is recognized by independent experts as the highest quality, highest productivity assembly plant in North America. Last week, once again, they were awarded the J.D. Power Gold Plant Quality Award, and The Harbour Report says it is one of the most efficient and productive plants in the western hemisphere.
Yet incredibly GM plans to close its number two plant in the city of Oshawa. Why? How do we make sense of that irrational result? Only one thing can explain it: a one-way flood of imported vehicles from offshore auto makers.
Mr. Burney mentioned earlier our large trade surplus with the U.S. in auto products. He didn't mention our huge and growing trade deficit with all other countries.
The deficit reached $16 billion last year, the biggest ever. Offshore imports take 25% of our market. We sell virtually nothing back to those offshore markets. Currently in the Polish shipyards they're building vessels capable of carrying 6,100 vehicles at once. Four and a half million imports came into our market last year. Last year, 130,000 Korean vehicles entered our market; we exported 400 vehicles into theirs.
Those imports are significantly harming our industry at a moment when we need to be fighting as hard as we can to save Canadian jobs. My members depend on auto jobs to feed their families. Last year, 145,000 manufacturing jobs left Canada.
Now I'd like to pass to Jim Stanford, our CAW economist to consider some of the economic details.
Thank you.
Conservative
Chief Economist, Canadian Auto Workers Union
That's a fair split, isn't it? This is how we do it at the bargaining table all the time: half for them, half for us.
I'll just refer to two documents, which were distributed in both languages. This is a presentation that provides some of the economic facts and figures. This is a more formal position statement from the CAW on Korea trade.
Let me just highlight a couple of the key findings. On page 3 of the Powerpoint handout you'll see a breakdown of Canada's current trade relationship with Korea. Our total trade is very unbalanced with Korea right now. We import twice as much as we export. In automotive products, we import 150 times as much as we export.
Chief Economist, Canadian Auto Workers Union
Mr. Burney said earlier that we cannot have a surplus everywhere, or in every sector and with every country. Obviously that's true, but from a policy perspective, you don't want to go out and do things that make your deficits worse; that simply makes no sense in terms of Canadian interests. It is inevitable, given the precariously unbalanced position we're starting from with Korea, that a free trade agreement will make those imbalances even worse.
There are also two slides on pages 4 and 6 of the handout illustrating the growth of our imports from and our exports to Korea over the last decade, and they show how we arrived at that imbalance.
It is particularly evident that since the Korean financial crisis, or the broader Asian financial crisis in 1997, they have turned to exports aggressively to promote their economic recovery, while keeping a very firm cap on imports with a variety of techniques, including macroeconomic policy levers; active management of the exchange rate, which is very different from how we do it in Canada; taxation policies to shift consumer spending away from imported products; and of course various non-tariff barriers.
Our exports to Korea today are smaller than they were in 1997, despite a decade of economic recovery in Korea. There is no evidence whatsoever that a free trade agreement along the lines of the NAFTA model will change that.
In the auto industry, in particular, automotive imports from Korea have accounted for 70% of the growth in Korean imports since 1997. It's not just small vehicles any more. It's important to recognize that the Korean products are significant competitors in at least nine distinct segments of our market—not just compact cars, but mid-size cars of increasing quality, cross-over utilities, and minivans. So the impacts will be felt across a range of products that compete directly with what we make in Canada.
Meanwhile, our automotive exports to Korea, which were never big to start with, have fallen by over 90% since 1997. That is despite Korean tariff reduction. Korean tariffs were at 50% in the eighties; they reduced them to 20% later in the eighties, and then to 8% in 1995, yet this has had no visible impact on our exports to Korea—and neither will a free trade agreement.
Let me just quickly conclude by referring to a couple of Mr. Burney's comments earlier. One is in terms of the rationale for doing this. I've heard this several times, and I heard it from him again today: the main reason to do it is that we haven't done one in a while. With all due respect, we need a better reason to go and negotiate an agreement than the fact that we haven't done one for a while.
In particular, if we look at the record of the bilateral free trade agreements that we have negotiated—since the one with the U.S. in particular—every one of them, other than the U.S. agreement, has led to a much larger increase in our imports from the country involved than in our exports. The worst case is the Chilean free trade agreement. We actually export less to Chile today than we did before we signed a free trade agreement, yet our imports from Chile have more than tripled. If that record is replicated in the Korean case, it would be a disaster for the Canadian auto industry and many other sectors.
Conservative
The Chair Conservative Leon Benoit
Mr. Stanford, we've gone more than a minute over our time. Certainly these are comments you can make in response to questions, and I am quite sure you will get the questions.
Mr. Haney, from the Canada Beef Export Federation, you have five minutes. Go ahead, please.
Ted Haney President, Canada Beef Export Federation
Mr. Chair, members, thank you very much for providing the opportunity for me to speak to you today. The Canada Beef Export Federation is an independent, non-profit industry association representing Canada's cattle producers, beef processors, and key suppliers who are pursuing international markets for our products.
To begin with, the Canada Beef Export Federation fully endorses the pursuit of a free trade agreement between Canada and the Republic of Korea. That said, re-establishment of trade in Canadian processed beef products on at least the same terms and time as American beef must be an absolute requirement of continuing free trade agreement negotiations with that government. All exploratory and ongoing discussions regarding a free trade agreement should be suspended until trade is re-established for all processed beef products from Canada, including boneless beef, bone-in beef, offal products, bones and rendered products, and these derived from all ages of cattle.
Once that has been met, we do have a number of requirements for any resulting agreement, and of course they centre on zeroing of import tariffs for our products in Korea. We now face a 50% import tariff, and we believe that zeroing of import tariffs would give us approximately $100 million a year of additional export potential for that market.
We also call, of course, for no continuation of tariffs or tariff escalation for value-added beef products. For example, beef jerky and other traditional Korean-manufactured beef products are virtually impossible to sell because of even higher tariffs. We also require that all restrictions on where the live cattle are procured from, or purchased from, by Canadian beef processing facilities must be removed from any bilateral agreement between our two countries. At times we've been restricted in being able to purchase cattle in the United States, which from time to time is valuable for beef processors across Canada to do.
South Korea must commit to provide access to Canadian beef equal to the most preferential basis offered to any other country that is also a member of the World Trade Organization. It ensures that whatever deal we make with Korea we're not leaving anything on the table, and as a most favoured nation partner with South Korea, that is exactly what we demand.
South Korea must commit that their food safety and animal disease as well as labelling standards must be consistent with recognized international standards and not result in additional trade restrictions. Particularly at this time, we're closed due to an unsubstantiated closure to their market because of our case of BSE--and cases of BSE--in Canada.
Looking forward, South Korea must commit to not using animal welfare or environmental standards as a way of restricting or in any way interfering with the free flow of products from our industry to their consumers. While that is not front and centre today, these are issues that are beginning to arise in various markets. This must be stopped in advance of it becoming a problem for us in Korea, through the negotiation process.
Finally, our industry does recommend very real caution in immediately opening the Canadian market to Korean cattle and beef. This is absolutely consistent with our free trade philosophy and policies. We're concerned that South Korea must first control various animal disease problems that they've not been able to control, and for our industry, foot-and-mouth disease is front and centre. They also have various pig-based diseases that are a concern generally for our industry as well.
So our industry has a goal of increasing beef exports to Korea to 50,000 metric tonnes, over $230 million per year, by the year 2015. If we eliminate tariffs, we'll add another $100 million in beef sales to that market. In 2002, our exports to South Korea were 17,000 tonnes, approximately $70 million. South Korea has been closed to us since May 23, 2003, when we diagnosed our first case of BSE.
We would support the Government of Canada initiating trade remedies with South Korea. We both belong to the World Trade Organization and to the World Organisation for Animal Health, or OIE. We would recommend that the Government of Canada initiate mediation and dispute settlement processes within both of these bodies we both belong to in order to clarify the nature of the trade suspension and identify remedies whereby we can return to profitably exporting Canadian beef to an important market, that being the Republic of Korea.
Thank you.
Conservative
The Chair Conservative Leon Benoit
Thank you, Mr. Haney.
We go now to the Canadian Vehicle Manufacturers' Association and Mr. Nantais, the president. Go ahead, please.
Mark Nantais President, Canadian Vehicle Manufacturers' Association
Mr. Chairman, thank you very much, and thank you to all the committee members. It's a pleasure to be before you, and we certainly appreciate the opportunity.
I want to begin by saying that many of the statistics Mr. Stanford has related to you are statistics we fully support as well. I want to add a couple of things to start my presentation. Really it's a reminder that the auto industry in Canada employs about 570,000 people in jobs direct and indirect. In virtually every community across Canada there's a presence of the automotive industry.
That said, I would like to go to my presentation, which I believe you all have, and commence with slide 6, in the interests of time.
While some free trade agreements might open foreign markets to Canadian-built products, this really is not the case at all with the proposed FTA with the Republic of South Korea. We have built our industry on free trade agreements. We believe in free trade, but that free trade must be also fair trade. Right now, in the approach the Canadian government is taking, we do not see any possibility of fair trade in this case. The flow is always in one direction.
We see a direct harm to Canada's auto industry. We had a $2.6 billion deficit in 2005 with Korea, of which 67% or about $1.7 billion was purely automotive. We have virtually no market access into Korea for Canadian products because of a series of very complex and constantly changing non-tariff barriers. I'll talk more about that in a minute.
Korean products would gain a 6.1% advantage on the hood of every vehicle they shipped into Canada, which really causes some interesting issues for our dealer networks in Canada. Clearly there would be downstream dealer impacts. We just do not see the Korean FTA opening any markets for Canadian-built products, yet we continue to see expansion of or a need or a want to expand their access to the Canadian market.
On slide 7, it's interesting to note when you look at Korea's performance relative to those of other OECD automotive-producing countries that theirs are the lowest of the whole industrial world. It's important to note that these are not just import penetration rates from our members' global operations; this tracks all vehicles sold in a market, including all of North American-, European-, and Japanese-assembled vehicles, none of which has made any progress into that Korean marketplace.
Slide 8 is another that gives you an indication of the makeup of the Korean market: 98% is entirely domestic; only 2% is from vehicle manufacturers around the world. This lack of market penetration by foreign firms has not been from lack of effort. In fact, Korea's market has over one million vehicle sales annually and as such is an important global market that our members and other manufacturers have attempted to penetrate, with no success.
There has been a history of memoranda of understanding, with the U.S. and Korea trying to knock down these non-tariff barriers. When some progress is made on some, others emerge very quickly. In fact, as was pointed out, we're actually trading less with Korea than we were prior to some of these memoranda of understanding.
This takes us to slide 9, which is really the area of recommended action. Certainly the auto industry thinks—and I might add that CVMA members have this position, but the Canadian Automotive Partnership Council, which includes parts makers, assemblers, and Ontario and Quebec parts makers, all have agreed, including Toyota and Honda—that this is not the right thing to do for Canada's auto industry.
We've put forward a solution we believe would work. That solution is based on what we call a real, bankable, and sustained opening of Korea's automotive market to imports. That's a market access approach. We have a legal opinion that says, contrary to what our negotiators say—that it is not legal—that it is legal within the WTO rules. We plan on sharing it with our negotiators.
We have existing trade solutions under the softwood lumber agreement that provide some direction on how to manage trade of a complex nature, which is what this is. We've suggested and we recommended that a tariff reduction should be delayed until our import penetration into Korea achieves at least an acceptable, sustained threshold. If we can't attain those levels, or we fall back on them, then we need snap-back provisions on the tariff reduction. We would snap back to the 6.1% tariff that would apply to them here in Canada.
In conclusion, Mr. Chairman, I would like to say that Canada should really be focusing limited resources on opening new markets for Canada's most important industries, and markets where greater economic synergies exist. Without a positive income for Canada's largest manufacturing sector, which is the automotive sector, any FTA, when you net it all out, will not have a positive impact for Canada's economy.
In closing, I would just like to say that there was reference made by the last presenters on the economic analysis that was done that was shared with the auto industry. I will assure you that we've requested this analysis several times. We've requested this analysis of the minister himself. We have not received this analysis. We were not consulted on the development of this analysis, and unless we see this analysis, it makes it very difficult to respond to some of the assertions that are being made about the little impact it will have on Canada's automotive industry.
It is very important that we see this, but I find it absolutely incredible that we're out there reconstructing the analysis, refining the analysis, when we're so far down the path on the negotiations.
Mr. Chairman, I'll stop at that point and be pleased to receive any questions.
Conservative
The Chair Conservative Leon Benoit
Thank you very much.
Now we go to the last witness today, Alanna Koch, from the Canadian Agri-Food Trade Alliance. Go ahead, for five minutes.
Alanna Koch Vice-President, Canadian Agri-Food Trade Alliance
Thank you, Mr. Chair.
First of all, I would like to say that we apologize for not having our submission translated and therefore circulated. We had very short notice to appear before your committee today. We would like to apologize and just ask that the clerk please take the opportunity to translate it and ensure that it is circulated to committee members. I would like to say that at the outset.
The Canadian Agri-Food Trade Alliance is a coalition of associations, organizations, and companies representing producers, processors, marketers, and exporters of agricultural and food products as well as companies that supply inputs to producers. As such, CAFTA is the only trade advocacy organization that represents the entire agricultural value chain.
CAFTA's members together do about $50 billion worth of business annually, providing over 500,000 jobs in Canada. Our members account for over 80% of Canada's agricultural and food exports and for almost 60% of Canada's total farm cash receipts.
While CAFTA's members are highly dependent on international trade, we continue to be forced to compete in a market that is highly distorted by subsidies, prohibitive tariffs, and non-tariff barriers. If our sector is to make a growing contribution to the Canadian economy, we require an international marketplace that is free of these distortions. A more open trading system would result in increased opportunities for Canadian producers, processors, and exporters. Estimates of the benefits of more open trade for Canada and for the world are as high as U.S. $56 billion annually.
CAFTA's long-term objective is global free trade in agricultural and agrifood products. This will allow Canada's competitive quality food and agricultural producers to capture opportunities worldwide and return the benefits to Canadian producers, processors, and to the economy of Canada. It's important to point out that 91% of Canada's farmers are dependent on the international marketplace, either through prices set internationally or directly as exporters.
The primary focus of CAFTA is on global trade reform and the current round of agriculture negotiations at the World Trade Organization. While we support all efforts to achieve liberalized trade in agriculture, for many of our members, regional and bilateral deals in the absence of effective international trade rules can have limited benefits. Regional and bilateral agreements tend to exclude many sensitive agricultural and food products, with the result that the access deals are not equitable for the entire industry. Regional and bilateral agreements tend only to be market access agreements. They do not address the use of export and trade-distorting subsidies. The international market in agriculture and agrifood is the most distorted of any market. The increased access provided for some products by bilateral agreements forces domestically produced products onto the international market, which, as stated above, is still very distorted by subsidies and access barriers internationally.
Many sectors of our industry will only see real benefits when substantial disciplines and rules are imposed globally on all players in the international market. Therefore, CAFTA supports regional and bilateral market access agreements that build on global trade agreements.
When the international marketplace is more open and fair, bilateral agreements are effective complements. In 2004 Canada exported $2.25 billion worth of goods to Korea. Agricultural and food products accounted for just over 6% of total exports of goods in 2004. The largest export in 2004 was of wheat. Prior to the BSE crisis, beef was Canada's largest agricultural export to Korea.
Korea remains a very protected market when it comes to trade in agriculture and food products. CAFTA's members, all 15 of them, have a long list of the negative effects of this protected market. This ranges from restricted tariff rate quotas, prohibitive tariffs, differential tariffs, as well as sanitary and phytosanitary issues. These must all be dealt with in the course of a bilateral agreement in order for it to be effective.
The Canadian agricultural production, processing, marketing, and exporting systems are among the most efficient and effective in the world. We have developed and grown, even in an environment where production and trade are distorted by subsidies and tariff and non-tariff barriers. This history, combined with the quality of our products and the efficiency with which we produce them, puts Canada in an excellent position to compete and benefit if disciplines can be enforced on unfair trading practices.
CAFTA strongly believes that the best way to enhance trade with Korea and with the rest of the world is to ensure that international trading nations abide by clear and enforceable global rules. Our primary focus is on global trade reform and the current round of agricultural negotiations at the WTO. Many sectors of our industry will only see real benefits when substantial disciplines and rules are imposed globally on all players in the international market.
CAFTA supports efforts to expand trade with individual countries or blocks of countries through regional free trade agreements, but these efforts must not take resources and expertise away from the global negotiations and must build on and complement international trade negotiations and rules.
Thank you very much for the opportunity to be here today.
Conservative
The Chair Conservative Leon Benoit
Thank you very much, all of you.
We have taken time from these witnesses; they've taken the time to come. Out of respect, let's carry on for 10 minutes longer than we normally would. That leaves five minutes for each party, and let's stick to the timeframe.
We'll start with Mr. Temelkovski.
Liberal
Lui Temelkovski Liberal Oak Ridges—Markham, ON
Thank you very much, Mr. Chair, and thank you to all the witnesses.
I have two questions. One is to Mr. Haney with regard to the beef.
Last year we travelled to Taiwan. Taiwan has also placed similar restrictions on Canadian beef. I want to get to the bottom of this. What are they looking at when they stop the import of Canadian beef? Is their science different from ours? Is their analysis of the situation different? Or are they simply protecting their market?
President, Canada Beef Export Federation
Thank you.
Taiwan has virtually no domestic cattle market to protect. It is regulatory hesitation to move in a direction they know--and international organizations recommend--they should move in. It is a fear of political backlash organized primarily by a very well-funded and well-organized consumer association. They just want to go slowly and quietly.
For Korea, it is more direct protection of their domestic industry. Korea, for example, produces approximately 260,000 metric tonnes of beef, which is about a quarter of what we produce in Canada. They don't want to give that up.
The science is quite clear. The international organizations that we all belong to are quite clear. The risks have been mitigated.
I would say that these two countries are unique, but I can't say that they are. Canada, for example, even today, has import restrictions in place. We do not allow the importation of beef from any country that has had even one case of BSE, irrespective of the steps they've taken to make the product safe--except from the United States, because of a ministerial order, a prohibition order.
So even we haven't moved with confidence, and the Taiwanese were very clear in their submission to us that we're asking them to do something that we haven't done ourselves.
Liberal
Lui Temelkovski Liberal Oak Ridges—Markham, ON
With respect to the Koreans, the issue is a little bit different; they do produce their own. Would you guess, then, that this is more of a protectionist issue than a science-based analysis?
President, Canada Beef Export Federation
It is in part protectionism and in part political concern over negative backlash.
The consumers and producers in Korea have a historical ability to generate great political pressure, very public political pressure, and there is concern among regulators and political leaders with that.
The only way through this, we believe, is by inviting Korea to mediation, inviting them to consider dispute settlement processes within OIE and/or WTO, while at the same time putting a great deal of political pressure on that country to end its discrimination of Canadian beef, particularly when they have now made the announcement that they will re-establish trade with the United States, which by international review has a BSE risk status very similar to Canada's. It is pure discrimination.
Liberal
Lui Temelkovski Liberal Oak Ridges—Markham, ON
Thank you.
If I could return to the CAW, in terms of trade, 130,000 cars versus 400 is very lopsided.
I've heard that Daewoo is now owned by GM. Did I hear right?
When those vehicles come in, are they considered imports into Canada? If Daewoo or any Korean company opens in the States, and that vehicle then comes into Canada, is that also considered an import from Korea?
Chief Economist, Canadian Auto Workers Union
Any vehicle that comes from offshore, or outside of NAFTA, has to pay a 6.1% tariff under Canada's bound most favoured nation rate. That would include companies that have large operations in Canada, like General Motors. When a company like Hyundai sets up a plant in Alabama, obviously they are able to export that product to Canada without paying a tariff, as long as it meets the NAFTA North American content restrictions, in which 62.5% of the content has to be produced here in order to get tariff-free access.
The important point here, though, is that experience has shown that these investments in the southern part of the U.S. by companies like Hyundai, or the Japanese automakers, are not a replacement for imports from offshore; in fact they are a complement to them. They'll get production coming from Alabama, and that will not in any way reduce the imports coming from offshore.
So I don't think Mr. Burney's earlier point is quite accurate, that they're going to be producing in Alabama anyway so it doesn't matter. Past experience shows that production coming in from Alabama will be on top of the imports continuing to come from South Korea.
Conservative
The Chair Conservative Leon Benoit
Thank you, Mr. Temelkovski.
We will now go to Mr. André.
I will be vacating the chair, as I have a private member's bill up at 5:30, but I'll ask Mr. Temelkovski to take the chair.
Go ahead, Mr. André
Bloc
Guy André Bloc Berthier—Maskinongé, QC
My questions will deal with the auto industry and pork production.
I hear that the auto industry has concerns about a free trade agreement with Korea. Your figures show that we have a trade deficit with Korea in the automobile sector. Right now, this trade is governed by the WTO, since we do not have a free trade agreement with Korea. The result is a huge deficit.
How could this free trade agreement with Korea be more detrimental to the automobile industry down the road? Since we already have a trade deficit in this industry, how could we prevent an even bigger deficit if we sign a free trade agreement with Korea?
I come from the agricultural sector. In the pork production sector, Mr. Pomerleau, you are probably aware of the movements against mega-hog farms.
Will the agreements signed with Korea and other countries to increase our pork exports change the production system in our industry? Will we promote more the creation of big hog farms to increase our production and exports?
Mr. Haney, you are concerned about a free trade agreement with Korea because of sanitary measures. You raised a few questions about that.
Where do we stand right now? I would like to hear your comments.
Jacques Pomerleau
First, the word mega-hog farm has a lot of connotations. In this context, a free trade agreement will not have any impact on our local, regional, provincial, or national regulations. In fact, it is more a matter of having an agreement with the community.
But we should know that the problems the pork industry is having right now are so severe that not only do producers lose money, but packers and all those involved in this industry lose money too. They are losing market shares. This industry is experiencing all kinds of losses.
What we are focussing on is not losing our competitiveness compared with the United States. If we fall behind them, we will have even more serious troubles.
Bloc