International Trade Committee on March 12th, 2008

[Cyndee Todgham Cherniak]

SCM agreement means subsidies and countervailing measures.

[The Chair, Conservative, Lee Richardson]

Great. Thank you.

Mr. Miller.

[Larry Miller, Conservative, Bruce—Grey—Owen Sound, ON]

Thank you, Mr. Chairman.

Thanks to Ms. Cherniak and Mr. Haynal for coming here today. I've enjoyed some of the questions and answers. Some of my questions have been partially answered, but I'd like to go a little further on some of them.

Ms. Cherniak, you mentioned in general terms the job the negotiators had done. Basically, we've heard—not necessarily in this room—from a couple of misinformed people, and from Mr. Julian, though I won't name him as one of them, that the negotiators basically did not do a good job. You threw that tub of dirty water right out the window. I'm glad to hear you do that. For the most part, our negotiators do a good job. You confirmed that, which is great to hear.

Something I would like you to talk a little bit about is phase-out periods. I call them “phase-outs”, which I hope is the proper term. You said they were much longer than they were in any other agreement with any other country, basically, or what have you—and we learned a bit about that the other day. But you mentioned something else, and I just want to be clear about it, that if something isn't going right in a certain industry or sector, there could be a moratorium or a three-year freeze, or something.

Did I hear that right? Maybe you could elaborate a little on it.

[Cyndee Todgham Cherniak]

Yes, Mr. Miller, what you're asking about is a country-specific safeguard mechanism. When we entered into the GATT, there was a safeguard mechanism under the safeguard agreement. Because we have agreed to tariff concessions in the agreement, and the tariffs are going down, and because the negotiators can't think of everybody and every industry when they're at the WTO, and can't take into account every unique circumstance, if it turns out there is an industry that suffers serious injury as a result of the tariff reductions that take place in the phase-out schedule, they can bring forward a case. It can be initiated either by the Department of Finance without the industry or the industry can bring a complaint to the Canadian International Trade Tribunal for a safeguard proceeding to take place.

So under the Canada–EFTA free trade agreement, if a particular industry is suffering serious injury as a result of the tariff reductions under that agreement.... If the shipbuilding industry finds it can't adjust quickly enough, what they're able to do is bring forward this safeguard measure. And if the Canadian International Trade Tribunal finds there has been serious injury and there's been a surge as a result of the tariff reductions, then they're able to put a special surtax in place.

Under the agreement, it's limited to a three-year period, and the duties can go back up to the rate they were, either immediately before the agreement came into place.... Let's just say we get through the Doha Round and cut our 25% MFN rates down to 15%; then the rate would be increased and the duty rate would go up to 15%, because that's where it would have been in any event.

So we have a mechanism to have this three-year period, where the duties go back up to the higher level, and the industry is given an opportunity to adjust to the fact that the reductions are taking place; they're going to need to modernize and somehow become more competitive as a result.

[Larry Miller, Conservative, Bruce—Grey—Owen Sound, ON]

Just on that, my understanding of this phase-out is that it's done over 15 years, and in the first three years basically nothing happens. Then the entire 15 years are prorated, I suppose, each year, and it's done over 12 years.

So could the three-year example you're talking about happen at any time in those 12 years of phase-in, or could it also happen at some point outside or after those 15 years?

[Cyndee Todgham Cherniak]

In answer to your question, under the Canada–EFTA free trade agreement, there is a deadline, so you can't bring a case forward after that phase-out period has expired. So once the 15 years are up.... Now the agreement says that for everything other than shipbuilding, it's a seven-year limitation period, and after seven years you can't have it country-specific. But for the goods that are in annex E, the shipbuilding annex, that requirement goes to the expiry of that particular annex. If you think back to the WTO and clothing and textiles, as soon as the safeguard phase-out period was about to expire, we had a series of cases that came to the fore.

So let's just say we're in year 14, part way through, and the industry is suffering its injury at that point in time. They would be able to bring the case forward and bring the duties all the way back up to the MFN rate for a three-year period. So it can extend beyond the 15-year period.

[Larry Miller, Conservative, Bruce—Grey—Owen Sound, ON]

Okay. That's good. I thought it would be too good to be true, to go beyond the 15%, but it still sounds like a great measure in there to protect Canadian business.

Mr. Haynal, you mentioned a number of things for your business. You welcomed the agreement, for starters. You mentioned something about finding common ground with some of the...I think you used the word “higher-end” European markets. Maybe you could elaborate on exactly what you meant by that. Did you just mean when it comes to aeronautical or in other industries as well, or everything in general?

[George Haynal]

I meant that really as a general comment to indicate that there is a sufficient commonality of view to allow us to reach a broad agreement, even though the agreement itself is reasonably narrow in scope.

[Larry Miller, Conservative, Bruce—Grey—Owen Sound, ON]

Okay.

Also, Mr. Bains did touch on this, but I wrote it down. You said this could open the door to further trade, and I was a little confused by the answer you gave to Mr. Bains. Maybe it was just my hearing.

You indicated you weren't really sure it would get us more into what we call the EU countries, but on the other side of it.... It just seemed a little contradictory, so maybe you could talk about that a little more. Could this agreement open up some other doors for your industry or any other ones possibly into some EU countries?

[George Haynal]

Let me go back over a couple of points I made. The EFTA group, with which we are negotiating now, is a smaller group of countries--

[Larry Miller, Conservative, Bruce—Grey—Owen Sound, ON]

Yes, I realize that.

[George Haynal]

--than EFTA had in the beginning. A number of EFTA members have joined the EU since we started negotiating with them. That was my fundamental point.

These countries have their own reasons for not joining the EU, but none of those reasons precludes an agreement with us, at least on these narrower tariff barrier issues that sometimes pose difficulties in some sectors.

In our sectors, the tariffs are not an issue. There are other issues that you approach through other means. For instance, we're established as manufacturers, as I mentioned, in Norway and Switzerland, and that is because it helps us to be present in order to be able to sell in that market, not necessarily because of tariff reasons, but because of the way the market is organized.

From a narrow, Bombardier point of view, I would say that this agreement is positive in that it allows a higher level of certainty that if there are issues that concern us as investors, there will be an intergovernmental agreement to which we can appeal and a custom of dealing with these issues between governments that is now in place. So that is a help.

Insofar as this is an agreement that perhaps contributes to progress on an agreement with the EU, I meant to indicate two advantages. One is that it indicates to the members of the EU that Canada is now competing with them in these EFTA countries on a more level playing field, if you like. We are in a free trade relationship with these countries that are physically part of Europe. This is a stimulant to them to regard us as a more serious trading partner than they might have otherwise. The fact that we have a free trade agreement with the United States should also be a stimulant in that respect, but let's leave that aside for the moment.

The second advantage I would think this has in terms of facilitating the process--and I'm not talking about opening doors or breakthroughs or anything dramatic of that kind--is the simple demonstration that it's possible for European countries with highly developed economies to reach a free trade agreement with Canada. This is simply an example, and examples are very helpful to governments when they try to make decisions.

Those were really the two main points I tried to indicate. I hope that was clearer than my first answer.

[Larry Miller, Conservative, Bruce—Grey—Owen Sound, ON]

Sure.

I know it takes time to build markets and what have you. But with this agreement, what are the potentials for your company, for example, for Bombardier or for the aeronautical industry in general in Canada? Do you have a rough figure there? Has your company been doing any projections as to what it might mean 10 years down the road?

[George Haynal]

I do have to put these markets into perspective, Mr. Miller, and I think I tried to answer in that spirit earlier, when Mr. Julian was asking me about this.

These are not very large markets--not for what we make. They're not by any means insignificant, but they're not the enormous markets that some others are. Nonetheless, they are definitely important to us. We are manufacturers in Norway of railway equipment, and we produce and export from Norway. We are manufacturers in Switzerland. In fact we are the most important manufacturer, period, of rail equipment in Switzerland.

So we count on these markets as important partners for us. Having an agreement that in a sense recognizes the special place of Canada and Canadian enterprise in their economies will be a help as these markets develop. It will help in terms of their domestic demand and as platforms for exports further on, exports to which our Canadian operations would obviously also contribute, and exporters, which would then contribute also to our Canadian operations. They have specialized skills that they bring to it.

In terms of aerospace, we have been successful in these markets. Most recently, I should note, we made a very significant sale of turboprop aircraft to a Norwegian regional company, a subsidiary of SAS. You may have heard about this.

That's interesting for two reasons--one, because we made this sale despite some earlier difficulties with that company; and two, because we've actually had a 50-year relationship, unbroken, with this particular carrier. For 50 years they've been buying de Havilland and Bombardier products.

So I would expect that an agreement like this will simply make that kind of relationship tighter, closer, and more productive.

[Larry Miller, Conservative, Bruce—Grey—Owen Sound, ON]

Very good.

Ms. Cherniak, you were talking about agricultural products and what have you. You mentioned in there that this agreement could create more competitiveness. And you know, competitiveness is always a good thing, but maybe you could elaborate a little bit on exactly what you meant by that. Maybe you could give me some examples of where and what you were referring to when you said that.

I believe it might have been in a comment to Mr. Julian.

[Cyndee Todgham Cherniak]

I'm not sure if it wasn't in the context of the safeguard mechanism, that you're able to adjust and become more competitive during that adjustment period.

I don't know of anything in this particular agreement that says the agricultural sector is going to be more competitive as a result of this agreement, so I maybe misspoke. The agreement doesn't affect our agricultural policies. To the extent that our agricultural policies positively impact the competitiveness of the Canadian agricultural sector, this particular agreement isn't going to negatively impact on that due to the fact that our agricultural policies get to stay in place.

[Larry Miller, Conservative, Bruce—Grey—Owen Sound, ON]

Yes, okay, you're more on the policy side of it. But in your opinion--if you do have an opinion on it--do you feel this is a good agreement for Canadian agriculture?

[Cyndee Todgham Cherniak]

From what I've read in the past, I don't see agriculture playing a big part in the free trade agreements due to the cost to transport goods from a distance. When you have the Canada-U.S. Free Trade Agreement or NAFTA, we're neighbours, so it's easy to ship back and forth across the border. When you have to put goods on a boat or a plane and send them over halfway around the world, with the cost of transportation and fuel nowadays, it's not as competitive as it used to be.

So where there is overlap in agricultural sectors, I don't see there being a lot of trade--but I certainly hope we get more Swiss chocolate into Canada as a result.

[Larry Miller, Conservative, Bruce—Grey—Owen Sound, ON]

I understand we might. Thanks.

Thank you, Mr. Chairman.

[The Chair, Conservative, Lee Richardson]

Thank you, Mr. Miller.

John, could you be really brief?

[John Maloney, Liberal, Welland, ON]

I will be very brief.

Ms. Cherniak, the shipbuilding sector was a real concern. Certainly the three-year holiday and the reduction of tariffs over seven to twelve years alleviated some of the concerns for the shipbuilders.

Is there anything else they should be wary of, in your opinion? Or is there anything in the agreement, perhaps, that we should be wary of?

[Cyndee Todgham Cherniak]

To be honest with you, I don't see anything else in the agreement. In trade in goods agreements, you usually don't have much that's of concern besides the lowering of the tariffs. Canada is following the SPS agreement, not that it affects ships. It affects agriculture more. It's following the technical barriers to trade agreement. Maybe if we had a TBT-plus agreement, but I can't....

There's nothing in there that concerns me. We're following our WTO obligations. To be honest, there's nothing that jumps off the page besides the phase-out schedule. From an academic perspective, it's a good phase-out schedule for an industry that is concerned.

[John Maloney, Liberal, Welland, ON]

Intellectual property services and financial sectors were left out. Is this a flaw? Is this something we should consider for another time, in your opinion?

[Cyndee Todgham Cherniak]

That's a really good question.

There are always two ways of looking at it. I will give you my opinion. Strategically, it was a good move to leave them out. As a practitioner, I normally like to have everything neatly in one agreement so that I don't have to go looking for the various pieces and parts.

We are currently in a WTO negotiation. The Doha Round is still alive--maybe it's not so well, but it's still alive. Rather than putting all the services on the table right now, it was a good move strategically to keep that back, in my opinion. They said they will negotiate it over the next two or three years. I think that is the provision. When you go the GATT, which is the General Agreement on Tariffs and Trade, and GATT article V, that's what you have to do when you enter into a services free trade agreement.

There are other countries that have divided up goods and services. What we've done isn't unique. There are many agreements. The EU-Mexico agreement is a perfect example of where it's been done in the past.

What we have to do, under GATT article V, is liberalize in substantially all sectors. Under the WTO, we've divided services between 150 and 160 sectors. So substantially all, whatever that means--90% or more--need to be liberalized. And then within those sectors we need to, again, liberalize substantially all the services within the subsector.

Rather than putting it all on the table right now, while we're in the middle of a negotiation, holding it back and saying that within the next three years we'll know what's happening at the WTO on the services negotiation.... It's a very unique time. Normally, I probably wouldn't be saying this as an academic and as a practitioner. I normally would be saying that I wish it was all one nice, neat little package. But given the unique circumstances, it's not an unwise move to have this delayed.

[John Maloney, Liberal, Welland, ON]

Very good. Thank you.

Thank you for the courtesy, Mr. Chair.