Mr. Chairman and Honourable Members of the Committee, thank you very much for allowing me the opportunity to provide you with an overview of our free trade agreement with the member states of the European Free Trade Association — Iceland, Liechtenstein, Norway and Switzerland.
On January 26, 2008, Minister Emerson signed Canada's first free trade agreement in over six years, and the first such agreement with European countries. The Canada-EFTA free trade agreement, which I'll hereafter refer to as EFTA or the CEFTA, is also the first treaty to be tabled in Parliament for 21 sitting days under the new treaties in Parliament process. The government will be able to introduce implementing legislation once these 21 sitting days have elapsed. The intention is to implement the agreement by January 1, 2009.
Canadian exporters and producers are expected to benefit considerably through the reduction and elimination of tariffs under CEFTA. Specific benefits include the elimination of duties on all non-agricultural goods, the elimination or reduction of tariffs on selected agricultural products, the elimination of the EFTA countries' agricultural export subsidies for products covered by the free trade agreement, and a level playing field with the European Union exporters in EFTA markets with respect to tariffs on a significant number of agrifood products. These are set out in annex G.
Iceland, Liechtenstein, Norway, and Switzerland are sophisticated and wealthy economies driven by technological innovation. Together, they offer huge market potential for Canadian firms. In fact, our economic links to these four countries are already well entrenched. CEFTA will build on this success. It will provide Canadian business and investors with access to some of the wealthiest and most sophisticated economies in the world, as well as a platform to tap into European value change.
The free trade agreement with the European Free Trade Association (EFTA) is the outcome of lengthy negotiations that proceeded in tandem with extensive stakeholder consultations, and thus delivers benefits reflective of the interests of Canadians. Notably, several Canadian agriculture exports will enter EFTA markets duty free while others will receive a margin of preference, with immediate benefits of 5 million dollars in annual duty savings on Canadian agricultural exports. Furthermore, the free-trade agreement provides for the immediate elimination of duties on all non-agricultural goods, the only exception being Canadian ship tariffs.
The CEFTA will give Canada advantages in EFTA markets ahead of the United States and will put us on an equal footing with countries that already have free trade agreements with the EFTA states, including the European Union, Mexico, Chile, and Korea. The EFTA states are already a significant economic partner and include some of the wealthiest and most sophisticated markets in the world, ranking among countries with the highest GDP per capita in the world.
Taken as one, the EFTA countries are the world's fourteenth largest merchandise trader and were Canada's fifth-largest merchandise export destination in 2007. They're closely integrated into EU markets through their membership in the European Economic Area; thus CEFTA will allow Canadian companies to expand commercial ties both with the EFTA countries themselves and with the European Union more broadly.
Two-way non-agricultural merchandise trade in 2007 was valued at $12.6 billion, with Canadian non-agricultural exports at $5.1 billion. Canada exported agrifood products worth more than $101 million to EFTA countries, while importing approximately $121 million. In addition, two-way investment stocks reached $24 billion in 2006.
Norway saw the second largest growth globally in Canadian exports last year in dollar terms. Also in 2007, Canadian merchandise exports to Switzerland grew by 35.6%. In fact, Canada exported more to the EFTA countries than to the so-called South America 10—which is Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Paraguay, Peru, Uruguay, and Venezuela—combined. The implementation of CEFTA will build significantly on these already impressive numbers.
Negotiations began in 1998. Canadian negotiators consulted extensively with both industry and provincial and territorial stakeholders to ensure that their concerns and interests were fully understood and taken into consideration during the negotiations. This initiative was supported by a broad cross-section of Canadian stakeholders.
In particular, government officials consulted extensively with Canadian marine industry stakeholders throughout the negotiations and explored with industry representatives how shipbuilding sensitivities could best be addressed in the negotiations.
CEFTA is a first-generation agreement that is primarily focused on the liberalization of trade in goods: non-agricultural goods and various agricultural products. Its coverage could be expanded later to other areas, including services and investment.
It consists of four linked agreements: a main free trade agreement and three bilateral agreements on agriculture signed with Norway, Iceland, and Switzerland respectively. Switzerland and Liechtenstein have a customs union, and therefore the agreement with Switzerland covers both. These four agreements together operate to establish a free trade area.
In the preamble, parties commit to sustainable development, the mutual supportiveness of trade and the environment, and respect for labour rights. And they reaffirm their commitment to existing international obligations such as the WTO, the Universal Declaration of Human Rights, and the ILO Fundamental Principles and Rights at Work.
Other important provisions, such as regular safeguards, anti-dumping, countervail, and so on, continue to be addressed under the WTO.
Our cultural exemption is maintained under this agreement.
Several agricultural exports will enter EFTA duty free, while others will receive a margin of preference. Exports of processed agricultural products from Canada covered by the agreement will now face the same tariffs as those benefiting the European Union.
As I've said, it's estimated that the immediate benefits accruing from the tariff reductions will result in over $5 million in annual duty savings on Canadian agricultural exports. The FTA will also create new market opportunities for Canadian products not yet being exported to these countries.
I should note that Canadian supply-managed programs are maintained under this EFTA and were exempted. Mr. Seppey could respond to any detailed questions on agriculture, as the committee wishes.
With respect to non-agricultural products, CEFTA provides for the immediate elimination of duties on almost all non-agricultural goods, the only exception being Canadian ship tariffs.
Canadian business will also benefit from more competitively priced production inputs resulting from the elimination of Canadian tariffs.
While the benefits of tariff reduction under CEFTA will likely be less evident on the industrial side, given that the average tariffs are already quite low, there will be new opportunities arising from this agreement for Canadian exporters in a number of industrial sectors. For example, for Canadian exports to Iceland, which currently face relatively high tariff rates, benefits are expected in the areas of prefabricated buildings, cathode ray tubes, steel structures, aluminum structures, and doors and windows.
For Canadian exports to Switzerland, export products that currently face relatively high tariffs include cosmetics, aluminum bars, tufted carpets, and some apparel items.
It's also notable that 39% of all non-agricultural tariff lines in the Swiss customs union have tariff rates of 2% or less. While not a significant financial burden, these numerous small tariffs impose an administrative burden on Canadian exporters that will be eliminated under the FTA.
For exports to Norway, apparel is the only dutiable industrial sector. However, Canadian firms also have the capacity to export a number of non-agricultural products that would face a tariff in Norway, such as fish fats and oils for use in animal feed.
Let me turn to ships, because I know there have been some concerns raised on this particular file. In response to the concerns expressed by Canada's shipbuilding industry, the CEFTA includes the following ship-specific provisions.
First, there will be a 15-year phase-out for Canada's most sensitive shipbuilding products, which is, I would note, the longest phase-out Canada has ever negotiated in an FTA. Second, there will be a 10-year phase-out on top of that for other sensitive shipbuilding products. Third, there will be a bridge period of three years, as part of both these phase-out periods, during which tariffs will be maintained at the MFN level. Finally, there will be special provisions on vessels repaired and altered in EFTA countries such that tariffs will apply upon their re-entry into Canada in accordance with the tariff phase-out schedule.
The agreement also includes rules of origin for ships that were renegotiated in Canada's favour. And there is no obligation to modify the government's buy-Canada procurement policy for ships.
Some stakeholders and others have claimed that Norway's shipbuilding industry benefits from direct government support. This is no longer the case. Norway advised the WTO that as of March 2005, they no longer provide such subsidies, and we are not aware of any evidence to the contrary.
In addition, Canadian officials worked throughout the negotiations to ensure that to the greatest extent possible, stakeholder interests and concerns were taken into consideration in developing Canadian negotiating positions. We obviously will continue to monitor the subsidy situation in Norway.
The free trade agreement establishes a joint committee, consisting of representatives of Canada and the EFTA states, and a subcommittee on rules of origin and trade in goods. The joint committee may establish additional subcommittees and working groups.
The mandate of the joint committee includes the supervision of the implementation of the free trade agreement, overseeing the further elaboration of the agreement and the supervision of the work of all subcommittees and working groups established under the agreement. The joint committee may also serve as a forum to try to resolve disputes before the dispute settlement mechanisms of Chapter VIII are employed.
Finally, the dispute settlement chapter applies to all provisions of the FTA except those that have been explicitly excluded. It has been incorporated and made part of the bilateral agreements on agriculture. This means that the bilateral agreements are equally subject to the binding dispute settlement. The dispute settlement chapter follows the usual sequence of consultations between the parties that have a disagreement; the establishment of an arbitral tribunal to adjudicate any dispute that was not resolved through consultations; and proceedings before the arbitral tribunal, resulting in a report by the tribunal containing conclusions regarding the consistency or inconsistency of a proposed or actual measure with the FTA.
Mr. Chairman, I will end my comments here. Thank you for allowing us to provide a brief overview of the CEFTA. I welcome questions from you or honourable members of this committee. Either I or my colleagues will do our best to answer the questions that are posed.