International Trade Committee on April 28th, 2008

[Denis Landreville, Lead Negotiator, Regional Negotiations, Market and Industry Services Branch, Department of Agriculture and Agri-Food]

Dean has spoken to some of the specifics, touching on wheat, barley, and peas and lentils. There are also products such as pork. We've been a consistent supplier of pork to Colombia, accounting for about one-third of their imports. We compete in that market with potentially preferential suppliers such as Chile and the U.S. We would be one-third of the market, but the only one without preferential access.

Dean mentioned that the average tariffs are around 15% to 20%. Roughly 93% of our agricultural exports to Colombia are in that tariff range, which, in the case of their preferential suppliers, would give us that type of price margin.

Also, 60% of our trade to Colombia faces what is called a price band, which allows them in times of low world prices to increase their applied rates above the 15% to 20% range to their bound rates, which are much higher than their applied rates. The 15% to 20% is day in, day out, but in the case of low world prices, if that ever happens again, such agricultural products as wheat, barley, pork, and canola would see an increase above those tariffs in the case of those price bands being applied.

Those are the kinds of situations that, even without a U.S.-Colombia agreement, put us in an uncompetitive position in that market, with some of the other preferential suppliers they already have.

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

You touched on something that Dean did in his opening remarks, the ability of Colombia to raise those tariffs.

Can you tell me what you think the financial impact of that could possibly be for the agricultural sector? I think you mentioned lentils, wheat, and pork.

[Denis Landreville]

If we're all competing on the same footing as other suppliers, the impact is certainly an increase in the tariff across all suppliers. But for example in the case of the U.S., in their agreement Colombia has undertaken to eliminate the use of that price band. Were it to be applied in the case of Canada, it could significantly increase those tariffs, certainly into the upper double digits and at times into the triple-digit tariff range. It can be quite significant. If we were to find ourselves alone in that situation, it would clearly mark a significant reduction in our ability to supply that market on a competitive basis.

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

Do you have any idea, in a dollar amount, what it might be? I don't want to put you on the spot, I just wonder if you might have that.

[Denis Landreville]

If the wheat tariff, as an example, were to double from the 15%, it would be a $30-million tariff increase. It would be doubling the current duties that we pay. And that, again, would have an impact on the $100-million business we do there, which isn't accounted for. So you'd lose the trade and you'd have to pay a lot more in terms of--

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

I didn't realize.

Along the same lines, you talked a bit more about textiles and the effect there. What would be the financial impact in our textile industries? Do you have any figures, or ideas? Or maybe somebody else does.

[Dean Beyea]

We're not exporting a lot to the area--about $5 million or $6 million. But they see it really as a growth area. Particularly with the U.S. already giving duty-free access to the market, they see it as a means to have goods transformed there and entered back into Canada. They see it as a real growth potential. With fewer and fewer clothing manufacturers in North America, it's an obvious market for them.

I think our exports to the area have averaged about $6 million over the past three years. The exports in agriculture are probably about $250 million, and it's about $660 million overall. But it's certainly seen as a growth area for a number of niche players in that industry.

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

Could I get your comments on production as well? Machinery is one of the things down there. Is that farm machinery? Is it manufacturing machinery? Could you enlighten me a little on that?

[Dean Beyea]

Sure.

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

Maybe you could provide the value of that, as well, if you happen to have that.

[Dean Beyea]

Sure.

Overall on machinery and equipment, if you look at the last three years, we've gone from $40 million of exports to almost $90 million. It was $41 million in 2005, $57 million in 2006, and almost $90 million in 2007. I assume a lot of them are linked to the investments in the region. There are gas compressors and parts, boring and sinking machinery. There's a lot of telephony that we export to the area, and pumps, gas turbines, transmission apparatus. It's pretty well spread out across the board. There's even cooking machinery, data processing equipment, pipes and valves, hydraulic power engines, and printing machinery. These are our top exports in the machinery and equipment sector to the region.

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

You also mentioned that exports have grown; I think you said 30% in the last year alone. What has been driving that mainly? What would you estimate is the potential growth with an FTA agreement? I know you can't etch it in stone. Is that growth going to continue? Basically, are there limits on it? What's driving all of that?

[Dean Beyea]

I think if you look at the IMF articles in The Economist and Financial Times, they point to positive developments in security--good macro-economic conditions, which have allowed.... The country was really closed to investment for a number of years.

There are great resources in the area. It's a relatively advanced economy, with an educated workforce. The IMF predicts 5% growth over the next few years, and that's up from 10 years ago at a very low level. They have inflation under control. It's down to 4% from the high teens--17%, 18%--less than a decade ago. A lot of it seemed to be linked to the president. And there has been a change in economic opportunities. The security has led to increased investment and increasing economic opportunities.

Certainly the investment drives the exports; we've seen that connection in this market.

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

Thank you very much, Mr. Chair.

[The Chair, Conservative, Lee Richardson]

Thank you, Mr. Miller, and I thank you for keeping your questions on the topic of the day, which is the commercial aspect of this trade agreement, with particular reference to agriculture and agrifood.

I'm now going to welcome Mr. Julian.

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

Thank you, Mr. Chair.

Thank you very much for coming before us today.

I want to come to the issue of dispute settlement in this proposed agreement. We had testimony last week from the Department of Foreign Affairs and International Trade on how the dispute resolution process would work. Essentially, quoting from one of the witnesses who spoke last Wednesday, “An investigation is made and a report is written that can lead to ministerial consultation.” If the problem is not solved, a dispute resolution panel is formed. They study the cases. If there is non-compliance, the panel “...can then report and then impose financial penalties of substantial amounts to be deposited into a cooperation fund. Then that money can be used to resolve the matter at hand.”

As far as we understand from that testimony last week, the dispute settlement mechanism would function exactly the same way for commercial disputes and non-commercial disputes, such as human rights, for example. Human rights is a major concern in Colombia, given the fact that another trade unionist has disappeared, even since last Wednesday. The head of the public servants union of Bogota has disappeared.

So is it correct to say that the dispute settlement mechanism functions exactly the same way for commercial disputes and non-commercial disputes, such as gross violations of human rights?

[Dean Beyea]

I think the specifics you've referred to were in Pierre Bouchard's testimony with respect to the labour agreements. Maybe I would ask Cam to speak broadly to the dispute settlement mechanisms within a free trade agreement, because I think we're blurring the line there a bit.

[Cameron MacKay]

When Pierre Bouchard was here last week I think he spoke about the dispute settlement mechanism for the labour side agreement. The dispute settlement mechanism for the FTA itself is a separate mechanism. There are some similarities and some differences. I'm not an expert on either of them. We could certainly get you some more information about that if you're interested.

The overall dispute settlement mechanism for the FTA itself would be very broadly similar to the North American Free Trade Agreement or WTO dispute settlement mechanisms, which are some years old now. We've made some minor improvements in what we're seeking in our newer FTAs. My understanding is that the labour side agreement would have its own dispute settlement mechanism. That's what the HRSDC representative, Pierre Bouchard, spoke to when he was here last week. If there are further questions on how that works we would have to refer those questions to him.

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

Essentially, you're saying that this is a NAFTA template agreement, so it would include chapter 11 provisions, such as investor state rights. They would allow companies that feel their profit is being infringed upon by local authorities setting human rights standards or environmental standards, for example, to sue those local authorities in Colombia.

[Cameron MacKay]

Now we're talking about a third kind of dispute settlement, which is the investment dispute settlement. The investment dispute settlement mechanisms are a bit different, again, from the main FTA dispute settlement mechanism on the labour side agreement.

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

You're saying that they're different from the labour side agreement and they're different in chapter 11, but you don't have any specifics. Obviously you have some knowledge as to what is in the dispute settlement mechanism for the Canada–Colombia FTA and how it would be similar to the labour side agreement. In fact, it would appear, at least on the surface, to be exactly the same. In testimony last week it wasn't said definitively, but there was an inference that the chapter 11 provisions, the NAFTA template, is part and parcel of this agreement.

[The Chair, Conservative, Lee Richardson]

Mr. MacKay, if I might, just before you begin, and I appreciate the position you're in....

Mr. Julian, I think we did discuss that, as you say, at the last meeting, and I don't think it was expected that these particular witnesses would need to comment on the details of negotiation. I simply want to remind you that it is an ongoing negotiation. These meetings are not private. We are in a negotiation, and I think in the interests of our country's position, there are things they may not want to discuss.

I don't mean to put words in your mouth, Mr. MacKay. I just don't want you to feel that all the details of the ongoing negotiations need to be discussed at this meeting.

Thank you.

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

Thank you, Mr. Chair.

But the question was directed and the answer did come back. I'm asking for more details—not being told it's different, but being given specific details as to how it might be different. Otherwise one can assume it is very much like what we heard last Wednesday, which is, in the case of human rights issues, kill a trade unionist and pay a fine. I don't think that would be acceptable to most Canadians.

I'll move on to another commercial aspect of the agreement, and that is the impact on the Colombian economy. As you know, under NAFTA there's been a meltdown in the Mexican rural economy, with over one million jobs lost. The last tariffs were taken off goods into the Mexican market on January 1 of this year, which has led to demonstrations and more lost jobs across Mexico. There are major concerns about the impact of NAFTA on the rural economy in Mexico.

So I'd like to know from the ministry's point of view what studies you may have done as to the impact of Canadian exports on the Colombian rural economy, particularly when we talk about foodstuffs, such as beans, going into the Colombian economy. Of course this has been a major concern to people in the Colombian rural economy, who could well see the same impact of Canadian goods in Colombia that we've seen from U.S. goods in Mexico, which has been a horrific meltdown in their rural economy. Have you done any studies to indicate what the impact would be?

[Dean Beyea]

I must say that from the beginning of these negotiations, Colombia's primary interests have been in agricultural exports to Canada. Perhaps that addresses some of your questions.

Correct me if I'm wrong, Denis, but in the areas in which we have an export interest, Colombia is almost entirely import dependent on pulses and wheat; it's a large importer. In fact Colombia is often in a position to waive tariffs as a net food importer in a lot of those areas. In general, Colombia's market access opportunities into Canada are certainly focused on the agricultural sector here.

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

But currently over 80% of Colombian goods come into Canada duty-free.