International Trade Committee on June 14th, 2006

[Dr. Jim Stanford]

On the auto industry question, Monsieur, I want to clarify first of all that it's not just the auto industry that is concerned. Many manufacturing sectors have expressed their deep concern—aerospace, for example. Korea has a strong export-oriented aerospace sector. I would view that as a downside risk, not an upside risk. And there are several other manufacturing industries with a base in different regions of Canada.

Our current deficit occurs under WTO rules, and in our view the current deficit is not acceptable. We should be thinking about ways to narrow that deficit. At any rate, we certainly shouldn't do something that will obviously make the automotive deficit worse. The way a Korea free trade agreement would do that is by giving a preferential 6.1% price reduction to further imports from Korea against either domestic production within NAFTA or other imports from other regions. That, for example, is why Toyota and Honda, who have a strong presence in Canada, are also completely opposed to this: they view it as giving the Korean auto makers a head start against their own products, whether they're imported or produced in NAFTA.

By virtue of Canada's open market, the 6% tariff reduction will lead to a substantial increase in our net imports from Korea.

[The Vice-Chair, Liberal, Lui Temelkovski]

Mr. Menzies and Madam Guergis will share their time.

[Helena Guergis, Conservative, Simcoe—Grey, ON]

Thank you, Mr. Chair.

We're going to give you our questions straight off the top, and then you can answer. If we run out of time, we really would appreciate the answers in writing, if that's possible.

First, I want to reiterate our minister's position on this. He has said many times very clearly that these negotiations are in very early stages, contrary to what one of you—I'm not sure which one—said in the comment about its being so far down the path. It is still early in negotiations; that perhaps is why we don't have a lot of the analysis we're still looking for.

I wanted to talk a little about several Canadian companies that have already started to do business in Korea. We have parts maker Linamar in Guelph, which now has an assembly plant there. At least one member of the Forest Products Association of Canada already has a joint venture in Korea, and they believe this proposed free trade agreement offers an opportunity to ensure the best protection for Canadian investment in Korea. I also met with a separate forestry stakeholder yesterday who has a plant in Korea. They raised the same benefit from the potential FTA. Potato growers are also looking to get into the Far East markets. There is a huge market for potatoes there, but there seem to be a lot of barriers that include tariffs and red tape.

Mr. McCreery, who was here on Monday, talked a lot about...and I think, Alanna, you may have even said something about 91% of our agriculture being involved in exports. If a deal were to be struck that allows our agriculture producers full access under FTA, what would that mean for Canadian agriculture?

[Ted Menzies, Conservative, Macleod, AB]

I would like to thank all of our witnesses. Once again, I apologize for the delay at the beginning; hopefully we'll be able to add enough time at the end to make your trip worthwhile.

I would like to start by making a comment. I think if we went back to the blues from committees prior to the 1988 election or to Hansard from the House of Commons, we would hear all of the same arguments and fears read off from all of those notes—all of the doom and gloom that would happen to us if we actually started to trade with the rest of the world.

I realize there are some concerns, but I hope everyone can look at this as a glass half full. We doomed the wine industry to failure and it was one of the best success stories following the free trade agreement with the United States.

Going back to Mr. Nantais' comment about being excluded from any discussions, the previous witness said they've established a dedicated automotive consultative group to support these negotiations. We're getting conflicting comments. We recently met in Ottawa with this group, and we're getting conflicting reports.

Alanna, you've stressed the value of multilateral versus bilateral, and that's something this committee is looking at. Could you share some comments? I know there are concerns about bilateral arrangements, but we're also concerned about potential failure in multilateral agreements such as in the WTO.

[Alanna Koch]

As to your question about concerns at the multilateral level, CAFTA is very much focused on the amount of opportunity that will be provided to Canadian agrifood products if we do get more sanity in the international marketplace. We clearly need to see discipline occur with respect to subsidies and with respect to all the trade distortion that goes on with respect to access barriers.

We in CAFTA truly believe that's where we'll get maximum benefit, to see a positive and very ambitious conclusion to this round of negotiations at the WTO. Quite frankly, we're somewhat concerned about the position that Canada is now taking at the WTO with respect to the market access issue. In fact, Canada has become quite isolated. Just three weeks ago, Canada took a very bad turn, we believe, with respect to access issues in that we were very isolated.

We've been cited twice in the agriculture chair's papers, that Canada is alone in trying to stop progress with respect to the access movement, and that's clearly of concern to our organization and of concern to the 91% of agriculture and food producers in this country who are clearly dependent on the international marketplace.

We are an exporting nation. Canada is the fourth largest exporter of agrifood products in the world. Therefore, Canada should not only be participating very fully at the WTO, but in fact should be providing leadership with respect to all three pillars of the WTO: reduction of domestic subsidies; reduction of trade-distorting export competition; as well as improvements in market access.

We do believe there are benefits for our bilateral and regional trade agreements, but it must be very clearly emphasized that it can only be built on a very strong foundation of international trading practices, which must clearly come through and be signalled through the WTO.

[The Vice-Chair, Liberal, Lui Temelkovski]

Mr. Nantais.

[Mark Nantais]

Thank you, Mr. Chairman.

Two things are in play here. Perhaps I need to clarify that.

My reference was to the participation and consultation as it related to the economic analysis work. We are not part of that.

The other part of it is the ongoing consultations with the negotiating team, which we are a part of and which we value very much.

But clearly, as to the economic report and the impact analysis that was done, we've been invited to make no contribution to that study. So we're in the dark here as to what all these benefits are and what these impacts are.

Hopefully, I've cleared it up.

[Ted Menzies, Conservative, Macleod, AB]

I would just make a comment that we are in the preliminary stages, so I'm sure that's still a fact-finding mission, even within the department. It's not like we're going to sign the thing next week. We're some distance away.

[Mark Nantais]

And we certainly appreciate that. Certainly the auto side of it is something that requires a lot more work, but we are part of the general goods and services section, and there's been a lot of language exchanged on that.

[The Vice-Chair, Liberal, Lui Temelkovski]

Thank you.

Before we continue with Mr. Julian, I would just like to announce that you can submit questions, written questions, to the clerk, because of the rearrangement of our meeting today. You can submit the questions, and we will forward them to our witnesses and get some written answers for all of us, if you have further questions.

Mr. Julian.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

Thank you, Mr. Chair. I certainly will.

I appreciate each of you coming here today.

I'd love to ask each of you a question, but because of time, I'll restrict my questions to Mr. Buckley or Mr. Stanford and Mr. Nantais.

To start with, Mr. Watson and I asked the previous round of presenters--you may have been in the room--about the issue around the automotive consultative group. Because CAW and the manufacturers were mentioned as being part of that group, I'd like to know to what extent you feel your concerns are being heard.

Secondly, because it was mentioned very specifically that the figures, the impact studies on the automotive sector and the auto parts sector, have been shared with people in that group, have you received those figures? If not, have you done any studies of your own that may indicate what the loss of jobs might be?

[Dr. Jim Stanford]

CAW has participated in the automotive consultative group, and I think it has been useful to do that. I will be frank, though, and say I'm not happy with how that consultative group has proceeded. The industry has been consulted; I would not say the industry has been listened to.

As to the key messages, I can't speak for everyone at the table, but certainly the dominant view would be, number one, from the auto industry's perspective, don't go into these talks; number two, if you do go into them, try to exclude the auto industry from the agreement; and number three, if the auto industry must be part of the agreement, then you have to attach some kind of binding, performance-related conditions to the agreement, whether it's in the form of a contingent tariff reduction, as Mr. Nantais indicated, or in the form of some kind of explicit condition, that the growth of automotive sales from Korea to Canada has to be offset by absolute, visible, measured progress in our automotive exports back to Korea.

In every case, the government officials at the committee said, “That's not a free trade agreement.” I'm not sure whether that's the case or not. It looks an awful lot like the Canada-U.S. softwood lumber deal, to be frank.

At any rate, I'm not happy with the progress of that committee, and I'm going to be very concerned if I start to hear the argument that the auto industry was consulted and therefore they're fine with it. The auto industry retains its unanimous opposition to this direction. Again, that includes the big three, Honda, Toyota, the parts industry, the CAW, and other sectors.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

Is it true that the impact studies were shared with you?

[Dr. Jim Stanford]

No. The impact study in question, which I understand was performed by Industry Canada for the negotiators, was not shared. We have requested it. We were told initially it was confidential. Now I hear that perhaps it will be shared with us at a later date. But we haven't seen that study.

They have told us that it does imply job losses, just not major job losses, but until we see the methodology that was used, we can't judge the robustness of that. We are, at the same time, working on our own analyses that we'll be sharing with officials and with the public later on.

[Mark Nantais]

As I've just mentioned, we were also part of the consultation process. We continue to work through that process and hope that we will be heard, but thus far, we've seen no change in direction as it relates to the automotive sector. We're hoping we can be convincing enough that we will be able to do that. We certainly put a solution on the table, but we continue to hear, “Well, we've never done that before and it's not something we usually put in an FTA.” But as I said, we've looked at this in the context of a legal perspective and in the context of the WTO. We think it can be done.

One area we are making some headway on is the need, I believe, to coordinate our negotiations with the U.S. as it relates to the auto sector. We are a highly integrated sector. We believe the auto sector should be dealt with as kind of a region, a North American region, Canada and the U.S., so hopefully we'll make some progress there. But right now, we don't see any change in direction, which is very disturbing.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

Thank you for that.

I'll come back, for my next question, to Mr. Stanford. It has been mentioned that there were concerns raised in 1988. As Statistics Canada's figures very clearly show, we've actually seen, for most Canadian families, a drop in real income since 1989, which means that the doom and gloom sayers actually should have been listened to, to mitigate the problems around NAFTA.

What can we learn from what has happened to the manufacturing sector over the past 15 years, and what can we learn from Korea?

[Dr. Jim Stanford]

I actually think there's a lot to be learned if we study the history of our existing free trade agreements, including those that were not with the United States, because there is an asymmetry involved when you're negotiating free trade with a smaller country versus with the United States.

The interesting experience is that with Mexico, Israel, Chile, and Costa Rica, four countries much smaller than Canada, the bilateral agreements resulted in a relatively small stimulus to Canadian exports to those regions but a huge inflow of imports from those regions. I referred earlier to the Chilean experience as the extreme case.

In terms of the 1989 free trade agreement, there are a lot of predictions that haven't come true, including many on the proponent side, that it would lead to a convergence in productivity levels between Canada and the U.S. and a big inflow of foreign direct investment to Canada to take advantage of it. Those two predictions have been unequivocally proven false.

The Koreans have taken a very different approach to industrial development strategy than we have. Instead of saying we're going to throw the market open and let business do what it likes, they have a very conscious, directed state strategy involving a range of tools, including financial market tools, activist foreign trade policy, macroeconomic measures, and labour market policies, all focused on building and creating competitive advantage in high-value industries, rather than, as we seem to be doing these days, looking at what we happen to have in the ground beneath our feet, digging it out, and selling it to the world market. It's a very activist strategy, and it has worked big time in Korea, as it did in Japan before and as it is doing in China today.

The implications of that approach for us are that those formidable competitors are not allowing the rule of markets to dictate outcomes. They have a very active state-directed strategy, and we can't assume that simple free trade is going to allow us to succeed in a mutual way with those trading partners.

[The Vice-Chair, Liberal, Lui Temelkovski]

Thank you very much, Mr. Stanford.

I'd like to thank all the witnesses for appearing.

As I mentioned earlier, we will submit any questions that come through the clerk back to you for written answers. We appreciate your attendance, and I thank you for the committee.

I call the meeting to an end.