International Trade Committee on June 5th, 2006

[Pierre Lemieux, Conservative, Glengarry—Prescott—Russell, ON]

Okay, thank you.

I'll share my time with the parliamentary secretary.

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

Thank you.

I'd like to thank the minister for being before us yet again.

My question will be about softwood lumber. There is an increase of almost $14 million for softwood lumber litigation in 2006-2007. How much has the department spent on litigation in the last five years, and would we be able to save on these if the softwood lumber deal is approved?

[David Emerson, Conservative, Vancouver Kingsway, BC]

By our estimates, the Government of Canada has actually spent about $88 million over the last five years on expenses. International Trade Canada is about $50 million of that, so some part is accounted for by other departments.

I should observe that when you look at the expenses incurred by Canadian industry and provincial governments, and when you look at the expenses incurred on the other side of the border, you're looking at hundreds of millions of dollars. That doesn't even include the managerial resource costs for companies having to comply administratively with these investigations and legal cases.

I would note particularly that the dumping case is extremely expensive, in terms of the company resources required to provide all the information that the Department of Commerce requires. It's a case that can go on for years, and those expenses persist for years. So the costs of litigation are extremely high, in terms of management, companies, and governments, both federal and provincial.

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

Thank you.

You've often spoken about the relationship between Canada and the United States. You did have a NAFTA meeting with Mexico in March. What is it that you think Canada needs to do specifically in order to improve upon and move forward with NAFTA?

[David Emerson, Conservative, Vancouver Kingsway, BC]

As I said in my introductory comments, NAFTA has been in near unanimous agreement among analytical people, which has been a very big benefit to Canada. Over the last few years, I think NAFTA has become a bit of a negative for Canadians, through the media and because of the prominence of issues like softwood lumber. It's been seen by most people as characterized by significant problems. So it's getting a bit of a tarnished image.

As I also said in my introduction, that same attitude is prevalent in the United States and Mexico. NAFTA creates an agreement and a basis—a framework—for free trade, but a framework built on domestic laws. If you have ill will in any or all of the countries, then domestic laws can evolve and be changed in ways that hurt NAFTA and undermine it. Therefore it is very important that we maintain and nurture goodwill among NAFTA participants, in order to avoid the undermining of NAFTA through regulations: through legislation that can be quite compliant with NAFTA, but destructive of it.

The meeting in Acapulco was the first time the NAFTA commission actually met and talked about the future of NAFTA, and how we could work more collaboratively to ensure that it is a healthier, more vibrant instrument. We recognized that North America has an opportunity to create integrated supply chains, which, if they are running smoothly without impediments and disruptions at borders, can make North American industry more competitive against the outside world.

It's my view that if we do not take advantage of NAFTA as a way of making sure our auto industry or our technology industries are participants in efficient supply chains, then we are going to pay the price internationally. Because what you'll find, in terms of the world economy today, is that competitiveness derives much more from clusters of companies and the movement of goods, inputs and people—from capital, ideas, information between a multiple.... Literally thousands of companies in a supply chain are in a cluster.

That's where competition comes from, much more so than just the efficiency of an individual plant, like an auto plant or a lumber mill. Efficiency of factories is important. But in terms of overall competitiveness in the global economy, you're seeing much more efficiency come from the supply chain itself and from the way the supply chain integrates suppliers and integrates down to the marketplace, in terms of logistics, transportation, and so on.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Minister. Thank you, Ms. Guergis.

We'll go now to Ms. Bell for seven minutes, and then to the Liberals for the five-minute round.

[Catherine Bell, NDP, Vancouver Island North, BC]

Thank you.

I would like to thank the minister for coming before this committee. I'm replacing Peter Julian today.

I have a couple of questions about softwood, NAFTA, and free trade. In your opening remarks you talked about a lot of jobs being created and a good climate, but also the effects of the Canadian dollar.

I'm from Vancouver Island north and represent people from forest industry towns. A lot of jobs have unfortunately been lost due to raw log exports. Mill jobs have been lost because of the impacts from the softwood lumber dispute. The rising dollar is also impacting some of our kraft paper mills. They're seeing the effects of that. That's just to give you a bit of sense of where I come from.

On the softwood lumber issue, I see that an independent arbitrator from London, England, has been named. Is that in this budget? Is that person who was named in the agreement? Are those costs projected in this budget? How often would we expect that person to be used, if that's the case? We're just hearing these things. Is there a budget assigned? Why would we have an independent arbitrator if we already have a dispute resolution mechanism under the free trade agreement?

We're also hearing rumblings in B.C. about an alternate version of the deal that the Americans have presented to their government. If that's true, how do we reconcile that? Will there be extra costs in the negotiations of that deal? Will that increase the timelines for the settlement process? What will the financial impacts of that be?

On free trade, you also talked a lot about how NAFTA is not perfect--and we've always known that. I think negotiations have been started to resolve some of the issues there. But when you talk about looking at all areas of public policy under trade agreements, will you commit to looking more at fair trade agreements? Will you have witnesses come in to explore some of the processes under fair trade rules that will be beneficial to the economies in other countries where we have trade dealings, and are also better for the environment and the economy? We've seen a lot of success with fair trade goods. It's in the public mindset, and I think it's something this government needs to explore.

Thank you.

[David Emerson, Conservative, Vancouver Kingsway, BC]

Thank you very much, and welcome to the committee. It's good to have somebody from the north island talking about forestry.

In terms of the independent arbitrator, there is a provision in the framework agreement for an arbitration mechanism outside NAFTA. As you know, chapter 19 of NAFTA is the primary dispute resolution mechanism, but when you go to chapter 19 there are all kinds of problems.

You don't need to have a very persuasive or powerful case if you're on the U.S. side and you want to bring a countervailing duty or an anti-dumping duty. In fact, we've consistently seen that the cases have been flimsy. But you can go through years and years of interim duties, where companies are paying out cash duties, and it takes something like five years, as we have seen, to bring the duties down to even a modest level.

Chapter 19 is a cumbersome way of resolving disputes. It is hoped that by having an agreement, first of all, the disputes would be relatively technical in nature and wouldn't be great neutron-bomb types of attacks or problems. Those would be better dealt with through an arbitration mechanism within the agreement itself. I would think that would be much cheaper than chapter 19, simply because you're not depending so heavily on big Washington or Toronto law firms, and so on, to do a lot of the work.

You referenced that a London arbitrator has been appointed. To my knowledge, there has not been a specific arbitrator and there is not a specific arbitration at this time. But the agreement provides for the arbitrators to be non-North American for the purpose of ensuring there would not be a perception or a reality of bias. That's what is going on there.

You spoke about Canada's position and a counter-position from the United States. That is true. In fact, what one tends to see in these negotiations is that Canada will put a position forward and the United States will then put a position forward. Everybody wants to hold the pen when drafting the agreement, because it's perceived that if you hold the pen, you have an advantage.

Right now we are in the process of trying to merge the U.S. text with the Canadian text. That's where the grinding and the bumping in the negotiations tend to occur. We're working through what the American side would like to see in the detailed agreement and trying to reconcile that with the Canadian side. It will hopefully work out to advantage.

Your concerns about public policy issues and fair trade are well taken. We are certainly cognizant of that. Indeed, when Mexico entered into NAFTA there was some kind of clause or provision included in NAFTA because of concerns about labour and the environment in Mexico. The same would apply with other free trade agreements. We would very much want to try to ensure that another country was not taking advantage of lax environmental practices, labour standards, or intellectual property protection as a way of competing against our companies. It is something that we consider.

[The Chair, Conservative, Leon Benoit]

Thank you.

We'll now go to the Liberal Party, Mr. Maloney. I understand that if there is some time left out of the five minutes, it will go to Mr. Savage.

Go ahead, Mr. Maloney.

[John Maloney, Liberal, Welland, ON]

I'd like to address the Canada-Korea free trade agreement that you're presently negotiating. Following that, there will perhaps be agreements between Canada and China and between Canada and Japan.

We now have a significant trade balance deficiency with Korea of roughly $3 billion to $4 billion a year. This translates into job losses in Canada. Specifically, the auto sector is under stress domestically. On the deficiency, I understand there are roughly 130,000 Korean vehicles imported and 400 vehicles exported; it's roughly 150 to one. A free trade agreement is likely to exacerbate this trade deficiency.

How do you intend to address the situation in light of the huge trade deficiency that we have?

[David Emerson, Conservative, Vancouver Kingsway, BC]

Let me just begin by saying we are not proceeding with Korea with undue haste. We've been working on this for over a year, I think. We've been having consultations with industry.

We are working closely with the automotive industry. The automotive industry, as you know, has been a happy recipient of hundreds of millions of dollars of taxpayer money in Canada. We've worked closely with them on environmental safeguards. We have brought the Canadian automotive industry to a position of competitive leadership in North America, and I think that's widely recognized now.

If you look at the Canada-Korea relationship, you have to observe that Korea is going to be manufacturing a substantial number of vehicles in the United States. Those vehicles will have duty-free access to Canada under NAFTA. Eighty-five percent of Canadian vehicles are actually sold in the U.S. So the amount of competitive threat that the automotive sector faces in Korea is not as dramatic as is being portrayed.

There is no doubt--and we've been working closely with the auto sector on this--that there are non-tariff barriers to trade in Korea that are difficult to deal with. We've been meeting with the industry and with the industry in the United States and the U.S. government to collaborate on how we, Canada and the U.S., can ensure that any free trade agreement that the U.S. or Canada might put in place would be fair and would have adequate protections for the auto sector as well as other sectors.

I should point out, though, that the automotive industry is basically saying “We don't like free trade because the Koreans are going to be unfair and we won't get into the Canadian market; therefore, we want to have some quantitative test put in place. We want there to be a certain level of import penetration in the Korean market before Canadian tariffs come down.”

The reality is that if you were to apply to Canada-U.S. trade that same test, the trade balance test that was referred to by Stanford in his article in the paper this morning, we'd be in serious bloody trouble. The Americans would want all the jobs back that we have brought into Canada, because we have a favourable balance with the Americans. To make that argument with respect to Korea but not want to apply it with other trading partners strikes me as logically inconsistent, but we're working with them and we think we can get through it.

The Canada-Korea potential free trade agreement does have the potential to offer substantial benefits to Canada. We've quantified them and modeled them. They're well in excess of $500 million, perhaps upwards into the range of $1.5 billion to $2 billion a year. So it's not that we're trying to get into a free trade agreement that is going to be harmful to Canada--quite the contrary.

[Michael Savage, Liberal, Dartmouth—Cole Harbour, NS]

Do I have a second for a question?

[The Chair, Conservative, Leon Benoit]

You have about a minute.

[Michael Savage, Liberal, Dartmouth—Cole Harbour, NS]

Okay.

Minister, as a word on shipbuilding with the FTA with Korea, I'm glad to hear we're proceeding cautiously.

Last year it was my view that you had some sensitivity to the shipbuilding industry in Canada. It's not going through the best of times. It's an industry that's not as big as it once was, but in places like Nova Scotia it's important. I know you've met with industry, with unions, with a lot of people who were involved. I would just hope that's something you would continue to be sensitive to: the shipbuilding industry. I wonder if you might give us your thoughts on that.

[David Emerson, Conservative, Vancouver Kingsway, BC]

Let me say right off that Minister Bernier is the minister who has primary responsibility for that.

However, generally speaking, I believe that as we move into trade liberalization and some of these bilaterals in particular, where we have sensitive sectors, there is a role for the development of sector strategies. When I was in industry and we were dealing with the automotive sector, the purpose of sector strategies wasn't to prop up a sector using the taxpayers' money for an indefinite period. The idea is to ensure that our policies and programs in government are such that we can move the industry to a position of global competitiveness, so you don't have to prop it up against foreign competition.

In the shipbuilding industry, I believe there is a potential to do that. I believe that Canadian shipbuilding and the marine machinery industry, or whatever they call themselves, have some significant technological and competitive strengths. We have the opportunity, with procurement, to ensure a long-term viable shipbuilding and machining industry in Canada. We have a program, the structured financing facility, as you know, which has been helpful. I hope it's an area we can focus on, going forward.

I've indicated to Minister Bernier that I'll be prepared to give him help and support to the degree that I can.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Minister.

I'd just like to say, Mr. Maloney, and you may know this, that we're having a meeting on the Canada-Korea trade relationship next Wednesday. That's a bit of a heads-up, in case you don't know.

For five minutes now, Mr. Carrier.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

Good day, Mr. Emerson.

You recently demonstrated to us that international trade was a priority of yours, not just an election campaign issue. Congratulations on taking this position.

However, regardless of how the government, or a department such as yours, performs, the public tends to judge us on the basis of the number of jobs lost in certain sectors. The public tends to be critical of our performance when job losses occur. Regardless of our overall policies, if people lose their jobs, the government gets a negative rating. People wonder why it is not doing more to protect their jobs.

This brings me around to the bicycle manufacturing sector in which many jobs have been lost as a result of bicycle imports. The Canadian International Trade Tribunal did an in-depth review of the situation and found that, as you most likely know, domestic production has declined by 23% and that 259,000 fewer units were produced in this country. The situation is serious indeed. The CITT therefore ruled that Canada should impose safeguard measures of $400, and less in the case of bicycles of lesser value, to protect the bicycle manufacturing sector and to save jobs.

One industry located in the minister's own riding sustained heavy job losses. In response to a question in the House, you stated that you wanted to keep prices as low as possible for consumers. However, that's a difficult choice to make when Canadian workers are losing their jobs.

Could you clarify your position on this matter? Why are you refusing to enforce the CITT's ruling?

[David Emerson, Conservative, Vancouver Kingsway, BC]

As you know, this was a decision that involved extensive public consultation with retailers and with the industry. Not all of the bicycle industry in Canada wanted to have the duties levied that the Canadian International Trade Tribunal were calling for. As you perhaps know, the industry is basically a dichotomous industry. Some parts of it are manufacturing very high-end bicycles. They do not want duties, they don't want protection, they don't want their bicycle parts subject to extra duties and tariffs. Then there's the low-price-point part of the industry, which has asked for the protection.

In reviewing all of the considerations—and Mr. Bernier is quite knowledgeable, because he has a company in his riding—we reached the conclusion that with investments in technology and some upgrading of their capability they could be competitive and we would not have to impose those costs on the consumer.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

These are hypothetical, rather than concrete solutions. I have to wonder why we even need the CITT if, after it proposed some safeguard measures, we then disregard its recommendations. You know very well that the Americans haven't shied away from imposing measures, even after these were found to be illegal. We have a firm ruling that allows us to enforce these measures that would give us quick results and that would be better than hypothetical solutions.

[David Emerson, Conservative, Vancouver Kingsway, BC]

As I say, it was felt that there is a broader public interest to be focused on. The CITT, as you know, focuses only on the narrow issue of the validity of the request for protection; it doesn't consider the broader public interest considerations. When those were considered, the government came to the conclusion that it was in the broader public interest not to impose the duty.

[The Chair, Conservative, Leon Benoit]

Thank you.

We'll go to the Conservatives now, to Mr. Cannan for five minutes.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Thank you, Mr. Chairman.

Thank you, Minister Emerson, for great opening comments and for the answers to these questions; it's very informative.

Coming from British Columbia, I want to focus on some of the opportunities I see coming from the private sector, just being in government here for the last few months. You talked about the lack of competitiveness and our declining productivity. Coming from the business sector, I would say one of the things you always capitalize on is your natural advantages.

What I see is the great geographic advantage we have with the coast of Vancouver. One of the other portions of your portfolio is the Pacific gateway. As you know, we've put $591 million in May's budget. I wonder if you could explain how you see the gateway and the trade portfolios overlapping, and maybe even more importantly, how they complement each other so that we can maximize the value of our geographic location on the coast.

[David Emerson, Conservative, Vancouver Kingsway, BC]

Thank you very much.

I mentioned earlier that competitiveness in today's global economy requires Canadian companies to participate efficiently and effectively in global supply chains. In order to do that, you really must have access to world-scale competitive logistical and transportation systems.

My portfolio includes the Asia Pacific gateway, which is a series of transportation facilities and corridors, primarily in western Canada, which, as we invest in them, and as other stakeholders invest billions of dollars in them, will give Canadian companies the opportunity to participate in just-in-time supply chains, to become suppliers to these supply chains, to manage these supply chains, and to be world-class competitors.

I might also add that the gateway concept has applications across the country. People will recall that when the Vancouver port had a shutdown last summer, the repercussions were felt in central Canada, they were felt in Toronto, they were felt in Montreal, and they were even felt in Halifax. What we have to focus on is the fact that transportation gateways and transportation systems are going to be critical, not just to the west, but to all parts of Canada. And indeed, there is potential for gateways in eastern Canada, just as there is in western Canada.

I might underscore the fact that the transportation gateway concept in western Canada builds on the idea that we can move goods and services between Asia and all of North America, not just Canada. For example, when you ship containers through the port of Prince Rupert, you can then ship them right down the rail system to Chicago for dissemination into the United States market. You can do the same thing through Vancouver. Getting U.S.-bound products coming through our transportation system, and Asia-bound, U.S.-originating traffic going the other way, allows us to develop a transportation system that is far more efficient than if it were dependent on Canadian traffic alone.

So again, you're creating a transportation system and a competitive advantage that could be taken advantage of by Canadian companies. The same can happen in eastern Canada. We have the Windsor-border corridor. In a sense, that's a gateway. Montreal has been positioning itself as a transportation gateway, as has Halifax.

So the opportunities are substantial, and the link to competitiveness is very direct.

[The Chair, Conservative, Leon Benoit]

One minute, please. Is there anybody on the Conservative side?

Okay, we will go next to Ms. Bell, from the New Democrats.

[Catherine Bell, NDP, Vancouver Island North, BC]

Do I get five minutes?