International Trade Committee on March 12th, 2008

[Guy André, Bloc, Berthier—Maskinongé, QC]

Thank you very much.

[Cyndee Todgham Cherniak]

In answer to your question, I don't know of any shipbuilding studies so I can't really be helpful about the contents. I've not come across anything in my research that's publicly available on the industry. I am following the Korea free trade agreement closely. Wherever you have an overlap in industry between the two negotiating countries, you're going to have some friction, with one industry saying it's going to have some difficulties. This is a common occurrence. This is why many free trade agreements are negotiated between countries that have no overlap.

With the Korea agreement, there's a significant overlap and a much louder industry talking about the effects. I think it also is a factor right now that the U.S. has negotiated with Korea. So it really was North American industry coming forward and looking at these issues where you don't have the same thing, because the U.S. has not been negotiating with EFTA and Canada simultaneously.

That being said, even though I don't know of a market study, when I, as an academic, look at the agreement and the fact that it's a 10- or 15-year phase-out period, the fact that the anti-dumping mechanism is mentioned in the agreement and the fact that there is the transitional safeguard mechanism so that a country's specific safeguard can be brought under the CEFTA, someone must have been considering this particular industry in the negotiation.

Again, when I compare it to other free trade agreements, this agreement goes further than I've seen any other agreement go but for the U.S.-Australia agreement on beef. So I think someone does have a study somewhere. Whether it's within the Department of Foreign Affairs or whether it is in Industry, I don't know because I haven't seen it. But when I look at the provisions, I think they were carefully negotiated and longer concessions were drawn out of our EFTA partners in the agreement. As an academic looking at it, that's what I would conclude, not knowing the true background.

[Guy André, Bloc, Berthier—Maskinongé, QC]

Thank you.

[The Chair, Conservative, Lee Richardson]

Mr. Roy.

[Jean-Yves Roy, Bloc, Haute-Gaspésie—La Mitis—Matane—Matapédia, QC]

Thank you, Mr. Chairman.

The Icelandic and Norwegian components of the free trade agreement, particularly the Norwegian one, are of some concern to me, even although Iceland is a very small country. Allow me to give you a few examples. Norway probably invests more in research and development than does any other industrialized country. I do not know whether you have any data on the subject, but I know that Norway currently heavily subsidizes research and development and invests huge amounts of money in the sector. Indeed, its target for research and development is 5 to 6%t of investments, whereas Canada's stands at around 2.2 to 2.3%. Furthermore, our sector receives little in the way of government subsidies. That is my first concern.

My second concern relates to Iceland. Iceland is, of course, a small country. I have been there and seen its ships for myself. Iceland's waters are protected primarily by Norway, as its own ships are too small and larger ones cannot be obtained. Let me give you an example. Iceland has an outstanding climate for manufacturing aluminum. Alcan has premises there. At the moment, Canada cannot compete with Iceland in terms of manufacturing aluminum. That is very clear and everyone here knows it. I do not understand why nobody thought about how this would affect Alcan or other aluminum manufacturing companies, such as Reynolds and Alcoa. Ms. Todgham, you told us that the protection afforded to the sector is second to none and that the only sector with a significantly longer phase-out period is shipbuilding. However, the Norwegians have already started to invest here in Canada, particularly in Quebec. As you know, the Norwegians bought the MIL Davie shipbuilding yard. They have substantial contracts here.

I would like you to tell me whether I understand the situation properly. My understanding is that only the shipbuilding yards have any real protection. You implied that there is no protection for other sectors. Then there is the issue of the forestry sector. Forestry management in Norway cannot be compared to what we do here in Canada. It has to be recognized that there are huge differences in the approaches adopted by the two countries, and that the Norwegians compete fiercely with Canada in the softwood lumber and finished forest products sectors. Those are the key elements of my question.

Would you like to comment, Mr. Haynal? I understand that the agreement might be in Bombardier's interests, as you are already established in Norway and are able to sell your products given that the Norwegians are perhaps a little less advanced in your sector than they are in others. However, that is no guarantee that in 5, 10 or 15 years' time they will not have surpassed you.

[Cyndee Todgham Cherniak]

In answer to your question, I look at article X of the Canada EFTA free trade agreement and it basically says that all duties are removed except as otherwise provided in annex E, and annex E is the shipbuilding annex. Then it says that “duties shall be prohibited” for all “products falling within Chapters 25 through 97 of the Harmonized Commodity Description and Coding System”. So aluminum would fit in that category and I believe the forestry products fit within that category as well, “excluding the products listed in Annex F”. So when I turn to annex F, neither of those products are listed there.

Then we have “products falling within Chapters 1 through 24 of the Harmonized System specified in Annex G”, so if forestry products--I don't have the HS code with me and I don't know forestry products off the top of my head--fell within that category, then they would be as set out in annex G. If a product is listed in annex G, then it will indicate whether or not it's free. There's a schedule for the EFTA countries and there's a schedule for Canada as well.

I haven't gone through it to look, but that's where we would find whether or not there's anything else. What has been said is that for all industrial goods, the tariffs are removed immediately for all goods going from Canada into the EFTA countries, and for EFTA country goods coming into Canada, for the most part, they are removed for industrial goods. There are only a few goods that are listed--certain dextrins and glues for animal feeding. It's a really insignificant list that is common to the EFTA free trade agreements, but neither of those categories that you've mentioned is in that particular list.

I would conclude, without doing a detailed research through each of the annexes, that when it is a good coming from the EFTA countries into Canada, it would be duty free immediately upon entry into force of the agreement, and I haven't heard those industries come forward.

[The Chair, Conservative, Lee Richardson]

Mr. Julian.

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

Thank you, Mr. Chairman, and thank you to our witnesses for being here today.

My first question is for you, Mr. Haynal. If I understood you correctly, you said that the advantages of the agreement for Bombardier were primarily symbolic as there would only be a modest growth in sales. That means that you do not expect the agreement to generate job growth in Canada.

[George Haynal]

I do not have any exact figures, Mr. Julian, but given the size of the markets concerned, I do not foresee any major growth in the immediate future. It is part of our European strategy and will doubtlessly have a positive impact; I could not, however, be more specific at this time.

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

The benefits will primarily be symbolic. The agreement will not drive up employment.

[George Haynal]

Symbolic benefits are always important in this domain. As an investor in the two regions—Canada and the EFTA countries—I believe that the agreement will offer a psychological boost. I have to say, however, that I was not invited here as an expert on the agreement. I was under the impression that I was invited here as a representative of the manufacturing sector.

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

Of course.

[George Haynal]

From the point of view of the manufacturing sector, I expect it will have a positive impact, but it is not a key element of our industrial strategies for the future.

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

Thank you very much.

Ms. Cherniak, I'm very interested in the studies you've done around free trade agreements. Have you analyzed in any way the difference between the promise around free trade agreements and the kinds of results they've actually delivered for working families?

[Cyndee Todgham Cherniak]

I haven't done that research, but the OECD has an excellent paper that came out in the last five years on the service sector. It deals with the exponential benefit that comes from the liberalization of the service sector. They gave certain examples.

The key for the service sector is that sometimes you're able to create a hub within one jurisdiction and then branch into others.

If you went into Norway or Iceland, you might be able to take advantage of the relationship between Norway and Iceland with the EU countries or with the Euro-Mediterranean partnership. The EFTA countries are also entering into free trade agreements with Tunisia, Egypt, Jordan, and a number of the North African and Middle Eastern countries. You might be able to hop, step, and branch out from that jurisdiction. From a service perspective, it can be exponentially beneficial to enter into such a free trade agreement. You see those sorts of studies.

You also see some discussion on technical barriers to trade as well as sanitary and phytosanitary measures that could be pursued when there is agreement between two countries on standards to be adopted. These are ways of increasing trade.

Through free trade agreements, you have a better understanding of each other, a better understanding of the government processes and the standards processes that each country goes through. And with greater understanding of each other, more trade can occur because you've reduced the barriers to trade. There are some studies in those areas.

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

This might be something you'd want to undertake, because this is part of the debate, not so much here but with the public across the country. You mentioned NAFTA in your introduction. The two leading candidates for the Democratic nomination have called for a renegotiation of NAFTA. The PRD, which arguably won the last Mexican election, has called for renegotiation. In Canada, we've seen two-thirds of Canadian families actually earning less in real terms since 1989.

The free trade era certainly looked good in textbooks, but in the practical application on the bottom line, it's been a real failure for working people.

I appreciate the attention you've brought to analyzing the free trade agreements in isolation. I suggest that it would be a real public service if you could move from viewing this in isolation to what actually happens on the ground.

I'd like to come back to this agreement and its possible impacts on jobs. You have read the agricultural protection elements of the agreement. What is your thinking around supply management? According to your analysis, what might the impact be for family farms across the country?

[Cyndee Todgham Cherniak]

I have a legal rather than an economics background, so it's outside my skill-set to talk about economic effects. From an academic perspective, I recognize that the agricultural provisions of the agreement seem to leave our agricultural policies in place. This is in article 3.2: “The Parties declare their readiness to foster, in so far as their agricultural policies allow, harmonious development of trade in agricultural products.” It's kind of a fluff statement, but I think the statement would allow us to continue with whatever agricultural policies we have. There will not be a case like the one brought under NAFTA by the U.S., saying that our agricultural policies needed to be changed.

I think we've covered that off, so this agreement should not have an impact. They might yet bring a case against us, but if I was acting for the Government of Canada, I'd rely on this statement and tell the panel that we didn't have to change our agricultural policies as a result of this agreement. That's what I'd argue.

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

In Norway and Switzerland they've been very good at protecting their family farms. They support their agricultural sectors, of course, much more firmly than we do here in Canada. Do you think that what Switzerland and Norway have managed to negotiate is a substantial protection for their existing agricultural sector?

[Cyndee Todgham Cherniak]

There's nothing I've read suggesting they're any more protected than Canada. I think the provision is reciprocal. So there's equal protection on both sides—as I read the agreement from an academic perspective—because both of the parties declare that insofar as their agricultural policies are concerned.... It's kind of making them off limits.

I don't see the EFTA countries getting a concession out of us. If you point me to something, I'll read it, but that's not what I have concluded from what I've read.

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

I think that's fair—though, of course, their sectors are much more firmly supported than ours are. So in a sense, it's reciprocal, but at different levels. It's an unbalanced playing field, in the sense that Canada's agricultural sector has already been really hard hit by the last 20 years.

I'd like to move on to shipbuilding. You did raise concerns about the length of time for the tariff transition or elimination. The Norwegian shipbuilding industry is much larger than Canada's, and it has been supported by public funds. Its value in 2007, the last year we have information for, was $17.4 billion in total production. They employ 38,000 workers. Canada's shipbuilding industry is much smaller. In the last figures we have, it was $525 million in production in 2005. It employed 3,500 workers. Their sector in terms of production is 34 times bigger.

How do we make sure that our shipbuilding industry, a vital strategic industry, continues if we're eliminating the tariffs and we have a Norwegian industry that is supported by good public investments and is monstrously larger than our own shipbuilding sector?

[Cyndee Todgham Cherniak]

We protect ourselves under the WTO agreement. If this industry continues to be subsidized, we have mechanisms at our disposal to take Norway to task for that. Whether or not we choose to do so will be a political decision. I come back to the Brazilian aircraft cases at the WTO, which didn't go so well. But we have this mechanism at our disposal. So there are these sorts of protections that already exist, plus there is the safeguard mechanism, that if the reductions occur too fast and our industry suffers serious injury.... You know what? It may be that there's no overlap between the industries, or it costs so much to get ships to Canada, or there aren't Canadian buyers.... So we have a lot of factors that will come into play, but if it turns out that there are significant sales to Canada and imports into Canada, then we have mechanisms to redress any serious injury that's caused by that activity under the Canada-EFTA free trade agreement.

There's also the SCM agreement at the WTO, which extends beyond that. If we went to the WTO, we would have to bring the case against all shipbuilding industries in every country. Under this agreement, we're able to do it in a country-specific way. So it would be Canada versus Norway, but at the WTO it's Canada versus everybody.

So there are mechanisms where subsidization creates a competitive advantage, allowing goods to be sold in the international market at a lower price. If the Canada Border Services Agency finds there's been subsidization, they will calculate what the value of it is to the particular exporter of the product that is being subsidized. If the companies participate in the case, there are then company-by-company duty rates, or CVD rates. We all know about this through our softwood lumber experience; it's the same sort of thing. Or if none of the companies participate in the process, it would be some specified rate—and this could go on for a significant period of years.

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

Yes, and that's my point. We've seen with softwood lumber that—

[The Chair, Conservative, Lee Richardson]

I think we're going to have to move on. You're pushing it.

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

I used the magic word.

[The Chair, Conservative, Lee Richardson]

Thank you for that answer.

Could you just explain SCM?