Thank you for the invitation to be here before you on this important topic of the Canada-Korea free trade agreement.
The Canadian beef industry is highly export dependent. Nearly 90,000 Canadian cattle producers collectively produce approximately 1.6 million tonnes of beef and live cattle beef equivalents each year, but the size of our domestic Canadian beef market is less than 1 million tonnes per year.
Furthermore, Canadians mostly like to eat steaks, roasts, and hamburgers that come from beef muscle cuts and ground beef trim. Canadians are not as keen on eating tongues, livers, stomachs, and those sorts of products. So we end up importing a small portion of our demand for steaks and ground beef, especially during the summer barbecue season, and we rely on exports to direct all parts of the animal to customers who value them the most. On balance, about 50% to 60% of Canada's beef production is available for export, so Canadian cattle producers are generally supportive of initiatives to further open export markets for Canadian beef.
Korea has long been an important market for Canadian beef exports. From 1994 through 2002, Korea and Mexico kind of traded ranks as Canada's third and fourth largest export markets for beef. Beef exports to Korea grew strongly during this period, reaching l7,300 tonnes in 2002. This success was achieved despite the existence of a 40% import tariff.
At first glance it would seem obvious that the elimination of such a tariff would be a very positive development for Canadian beef producers. Unfortunately, Korea has not allowed the importation of a single pound of Canadian beef since May 2003. Korea remains one of the few and certainly the most important beef export market to not allow the resumption of trade for any Canadian beef product. Korea maintains this prohibition despite Canada's designation last year as a controlled risk country for BSE by the World Organisation for Animal Health, also known as the OIE.
Controlled risk status means that all countries should accept all beef from all Canadian cattle of all ages. To be fair, since spring 2007 the Koreans have shown a greater willingness to examine lifting the beef prohibition, as reported by former foreign affairs minister MacKay following a visit to Korea several months ago. We are cautiously optimistic; however, it remains unclear what the timetable for lifting that prohibition will be.
As we look at a Canada-Korea free trade agreement, we have a number of key conditions we would like to see. The first includes terms of access for Canadian beef products to the Korean market that reflect Canada's controlled risk categorization. They need to lift the prohibition on all beef from all cattle of all ages.
Second, we'd like to see tariff-free access or, at a minimum, equivalent terms of access to that achieved by the U.S. in their Korea-U.S. free trade agreement.
Third, we'd like to see a mechanism to resolve SPS--sanitary and phytosanitary--issues associated with trade in beef products. That could potentially be similar to the mechanism that was established under the Korea-U.S. free trade agreement.
Fourth, there should be terms that will not interfere with the continued trade of cattle and beef products between Canada and the United States and the export of those products to Korea. This should include things like rules of origin. If Korea approves certain products from the U.S. and other products from Canada, we don't want to get into a situation where our exports to the U.S. are jeopardized because the U.S. is worried about their exports to Korea or other markets.
Fifth, we would like to see a forward-looking MFN clause. Such a clause would ensure that Canada would not be disadvantaged if terms of access were enhanced for the United States in the future, or if other countries reached free trade agreements with Korea. In other words, if somebody got a better deal in the future, we would automatically get that same deal. So we'd like to see that forward-looking clause.
We will continue to assess the progress of the negotiations. I understand they're still ongoing. If our conditions are met, the Canadian beef industry will be a strong supporter of a Canada-Korea free trade agreement. On the other hand, if our needs are not met, our recommendation would be that Parliament direct the negotiators to continue working towards a resolution of beef access before ratifying an agreement.
The United States senators and congressmen have publicly stated that the Korea-United States free trade agreement will not be approved by Congress until Korean restrictions on U.S. beef are lifted. Canadian beef producers are seeking a similar assurance from their Parliament.
On a separate but related topic, we recently learned that after 10 years of negotiating with the EFTA countries—Switzerland, Norway, Iceland, and Liechtenstein—Canada has reached a free trade agreement with them. That agreement is completely devoid of any benefit to Canadian beef producers. We hope this means that Canadian negotiators expect to achieve significant tariff cuts by all European countries in the WTO. We'll wait and see if that happens.
Also announced a little over a week ago was the conclusion of a free trade agreement with Peru. Canadian beef did not do as well as U.S. beef in a similar U.S.-Peru agreement. Under the Canada-Peru free trade agreement, Canada will get access for some boneless beef cuts and no bone-in cuts. On the other hand, under the U.S.-Peru agreement, the United States beef industry will benefit from a broader range of boneless and bone-in U.S. beef cuts.
One of the government's stated objectives for conducting and reaching these free trade agreements is to ensure that Canadian exporters remain competitive in markets where the United States has reached agreements. The Canada-Peru agreement falls short of this objective for the beef industry. In fact, every time the U.S. gets better access for its beef than Canada, it becomes more difficult to justify slaughtering cattle in Canada, and we increase our reliance on shipping live cattle to the United States.
The competitiveness of our processing industry is a major area of concern that we are discussing with your colleagues at the Standing Committee on Agriculture. The rapid ascent of the Canadian dollar has exposed significant competitive challenges in the Canadian beef processing industry—from government regulation and inspection fees to labour availability, and other issues. I don't mean to go into these issues here, but the point is that if U.S. meat-packing facilities have export opportunities for a broader range of beef cuts than Canadian facilities have, an already challenging competitive situation becomes worse.
I'll conclude by saying that we would ask the committee to do a couple of things as we go forward in these various negotiations.
First, we would like you to instruct the Canadian negotiators to go back to Peru to achieve parity in access for U.S. and Canadian beef before bringing the agreement to Parliament for ratification. The weight of such a parliamentary direction would almost certainly be taken into account by Peru.
Second—and I'm bringing us back to Korea—we would like you to tell the negotiators working on the Canada-Korea agreement to take note of this instruction to Peru, and not to bring an agreement to you that does not achieve equivalent access for Canadian versus U.S. beef in a Canada-Korea free trade agreement.
Thank you. I'd be pleased to answer questions.