Thank you, Mr. Chairman and members of the committee, for giving us the opportunity, my colleagues and I, to come here today to discuss the potential commercial benefits of the Canada-Colombia free trade agreement. We look forward to answering questions you may have on this issue.
Prior to answering questions, however, it would perhaps be best for me to start with some introductory remarks outlining where we see the main commercial benefits for the Canadian economy -- both from an agricultural and industrial/manufacturing perspective.
The Colombia FTA negotiation was launched together with the Peru FTA negotiation in June of last year with the twofold objective of creating new market opportunities for Canadian business and preventing Canada from being shut out of markets where our trade competitors are active negotiating FTAs.
As members of this committee know, Canada's main competitor in the Colombian market, the United States, has already completed an FTA with Colombia. As well, Colombia is also pursuing ambitious an free trade agenda with others, including the European Union, the EFTA countries, Chile, Mexico, and others.
In the case of the U.S.-Colombia agreement, the administration has recently sent the FTA implementing legislation to Congress for approval. It's now up to U.S. legislators to decide when they want to hold the vote on the passing of the U.S.-Colombia FTA.
The possibility that the U.S.-Colombia FTA enters into force, however--this is something I keep hearing in my discussions with our industry--continues to be an important concern for a number of Canadian exporters. What I'm often being told in this regard is that it would be difficult for Canadian companies to maintain their current share in the Colombian market if they were to face significant tariff disadvantage with their U.S. counterparts.
The reality is that Canadian exports, particularly commodity-type exports, are already at some disadvantage vis-à-vis the U.S. for geographic reasons, which translates into higher transportation costs to Colombia. If you add a significant tariff disadvantage to this, you risk seeing Canadian exporters being shut out of the Colombian market.
One of the best examples of this is wheat. Given its high quality, importers in Colombia are willing to pay some premium for Canadian wheat even if it means greater transportation costs than importing U.S. wheat. That said, with a 15% tariff advantage for U.S. wheat, importers may not be willing to pay an even higher premium for Canadian wheat, and Canada's $100 million of annual wheat exports to Colombia could be at risk. This is something we heard directly from Colombian importers when we were last there.
The same type of concern is also true for other products. Colombia is an important market for Canadian goods of traditional export interest such as barley, peas, lentils, fertilizers, paper products, and more advanced manufactured products such as mining machinery and equipment.
The bulk of these products are covered by significant tariffs and other trade barriers that would be eliminated for U.S. exports. For example, Colombia maintains tariffs averaging 11% on industrial goods and 17% on agricultural products, with tariffs being as high as 80% for some beef products and 60% for certain beans--two products of Canadian export interest.
On the manufacturing side we're talking about tariffs as high as 15% and 20% applied on Canadian-made cotton yarns and paper products. These are sectors that have experienced difficulties in recent years, due in part to a rising dollar, and they are actively seeking new market opportunities.
It's also worth noting that Colombia's bound tariffs are even higher than those I just mentioned, averaging 35% on industrial goods and 92% on agricultural goods. This means that without an FTA, Colombia can raise its tariffs on Canadian exports to these levels. These high tariffs are indicative of the magnitude to which Canadian exporters risk being disadvantaged in the Colombian market.
In comparison, the majority of what we import from Colombia can enter Canada duty free. In 2007 duty-free imports from Colombia represented roughly 80% of our total imports from that market, consisting primarily of coal, bananas, coffee, oil, and raw sugar. In that sense, an FTA with Colombia would establish a more equitable balance for Canadian exporters. It would provide Canadian enterprises with market access opportunities that are similar to the level of market access already enjoyed by the majority of Colombian exports to Canada.
However, as I said at the beginning of this statement, the commercial benefits of an FTA with Colombia are not only defensive; Colombia is an important market with more than 45 million people, and its economy has high growth potential. Colombia's sound macroeconomic policy and improved security under its current leadership have generated favourable economic conditions. Its GDP growth rate was 7.5% in 2007, and the IMF has forecast annual growth rates of 5% for the next five years. This has resulted, and we expect will continue to result, in stronger demand for imported goods, representing valuable opportunities for Canadian exporters.
Canadian total exports to Colombia are now valued at some $660 million, which is more than double their value five years ago. In the last year alone, our exports have grown by 30%, which has involved over 1,000 Canadian companies, many of which are SMEs. An FTA would clearly put these companies in an even better position to do business in Colombia and benefit from this dynamic and growing economy.
With enhanced security and important needs for investment in areas of well-known Canadian enterprise, Colombia is also a key destination for Canadian investments. Canadian investments in Colombia's extractive sector are already estimated by our embassy at more than $2 billion, and they are expected to increase in the coming years.
Investments by Canadian companies are associated with growing export potential for Canadian goods, services, and technologies. An example of the linkage between investment and trade is the strong increase in our exports of capital equipment to Colombia, which are now valued at more than $165 million, compared to only $50 million five years ago. Canadian investment in Colombia's extractive sectors have indeed led the way to growing exports of Canadian-made machinery, including mining equipment and heavy transportation equipment.
Sectors where import demand is also expected to grow in the coming years, based on strategic purchasing priorities identified by Colombia, include steel products such as pipelines and valves, chemicals, oil drilling services, civil works, and information technologies. These are all sectors where Canadian companies, including SMEs, have developed a world-renowned expertise.
An FTA with Colombia would obviously allow Canadian companies a better chance to bid successfully on various contracts that will follow the large investments that are planned for the coming years. Providing better market access conditions for Canadian goods and services is probably the best thing the government can do to assist Canadian companies in this fast-growing market.
I think that provides a quick overview on the commercial market access issues.
Thank you, Mr. Chairman.
My team and I are ready to answer any questions you may have, but perhaps before we begin with questions, I should note that the negotiation in the market access area with Colombia is still ongoing. We must be respectful of the confidentiality of the negotiating process, as well as not saying anything that could undermine Canada's interests in the negotiations.
That said, I think we can try to answer as best we can any questions you have.