International Trade Committee on April 28th, 2008

[The Chair, Conservative, Lee Richardson]

We're going to commence. We have up-and-comers like Mr. Bains here, so we need to get punctual.

This is the 27th meeting of the Standing Committee on International Trade. We are continuing our discussion of ongoing free trade negotiations between Canada and Colombia, with a focus on environmental impacts and human rights concerns.

Appearing as witnesses from the Department of Finance are Dean Beyea, senior chief, international trade, policy division, international trade and finance branch; and Maxime Lavoie, international economist, tariffs and market access, international trade policy division. From the Department of Agriculture and Agri-Food we have Denis Landreville, lead negotiator, regional negotiations, market and industry services branch. Returning again from the Department of Foreign Affairs and International Trade we have Cameron MacKay, director, regional trade policy division, Americas.

I think you're all familiar with the format. We are going to hear each witness's opening statement for ten minutes, followed by questions from committee members. We'll lead with the Liberal Party and try to keep the first round to seven minutes. Hopefully we'll get through it all.

With that, I thank our witnesses for appearing.

We'll lead off with Mr. Beyea.

[Dean Beyea, Senior Chief, International Trade, Policy Division, International Trade and Finance Branch, Department of Finance]

I'll lead with a statement on behalf of my colleagues, and then we'll be ready for questions.

[The Chair, Conservative, Lee Richardson]

Thank you.

I'm sorry, but I want to advise the committee before we begin that moments ago we received approval for a visit to Colombia and Panama. It received unanimous consent in the House. You'll want to pay specific attention to the witnesses today, because you're going on a trip there.

Please continue, Mr. Beyea.

[Dean Beyea]

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.

[The Chair, Conservative, Lee Richardson]

Thank you.

I think the committee is understanding of your closing remark, and also, we had a brief discussion at a previous meeting, with members of the department and others, that policy questions are best left to the minister. So we'll let you comment on the current negotiations rather than delve into government policy.

With that, we'll begin with Mr. Bains.

[Navdeep Bains, Liberal, Mississauga—Brampton South, ON]

Thank you very much, Chair.

I understand the legitimate point you raised at the end of your remarks about not commenting on the specific negotiations, but I think having these discussions in committee and talking about this does empower negotiators, because it shows the Colombian authorities and the Colombian government that we're very serious about this free trade agreement and that we have specific concerns.

You gave us an overview of the primary purpose of reducing tariffs and market access and how important that is, but we on this trade committee view trade in a holistic approach. Market access is obviously very important, but so are other considerations, depending on the nature of the free trade agreement, and specifically with Colombian human rights coming up time and time again.

So I want to understand from the department's perspective what political direction you've been given or what mandate you've been given to pursue a free trade agreement with Colombia and on dealing with Colombia. But before we do that, I just want to take a more macro-level look.

In dealing with countries, Canada understands with the Doha Round discussions that are taking place that if that doesn't work, we'll have to pursue bilateral free trade agreements. In doing so, we want to essentially look at emerging markets, because as a mature market we see benefit there. On the value chain, we can generally maintain a high quality and standard of life because we can work with those emerging markets to really benefit our local industries here. So we target key emerging markets, and I believe Colombia is one of those emerging markets.

In doing so, we also recognize that we have to address human rights, labour standards, and environmental standards. We can't simply look at just the trade of goods and services. So what mandate do you have when you deal with free trade agreements? Do you have a mandate that clearly gives you authority to examine those other aspects, such as labour, human rights, and the environment, and to what extent?

You didn't mention them at any great length, and I'm not sure if that was done intentionally or you decided to focus just on the tariff reduction side of it.

[Dean Beyea]

I think when Ms. Nelder-Corvari was here last week or the week before, she touched broadly on the entire negotiation. I was asked to come here today to talk about commercial interests and the benefits for Canada, so I don't have anything to say on human rights, labour, and the environment. They are addressed through side agreements, and we had representatives here from the Department of Human Resources and Environment Canada on that.

We are the market access negotiators, and our mandate is to get a deal that's in Canada's economic best interests. The core of that is reducing tariffs over a certain amount of time.

[Navdeep Bains, Liberal, Mississauga—Brampton South, ON]

I just wanted clarification on that. The impression I got--maybe I misunderstood--was that you were also going to answer some of the broader questions outside the market access-related ones.

Specifically on the economic analysis, one of the concerns we've seen in the past is that when we negotiate a free trade agreement there seems to be a lack of economic modelling or analysis done on job creation or how this would impact local jobs--how this would help create jobs or improve our trade relations.

I've asked this question in the past. Do you have any high-level studies or preliminary analysis? Have you outsourced anything you've done to someone to look at, such as an accounting firm or any other agency that has helped you do some sort of analysis? Do you have any internal analysis that you can share with us that won't compromise the negotiations?

[Dean Beyea]

There was an economic analysis done with the entire Andean community when we looked at that. It's available on the Department of Foreign Affairs and International Trade website.

[Navdeep Bains, Liberal, Mississauga—Brampton South, ON]

Is there anything specifically on Colombia?

[Dean Beyea]

It's subdivided by country, if I'm not mistaken. It's available on that website.

[Navdeep Bains, Liberal, Mississauga—Brampton South, ON]

On the free trade agreement, one possible option has been put forth that we need to sign a free trade agreement because the U.S. is currently pursuing one. It's before Congress. You've alluded to that as well. But that argument shouldn't necessarily be the driving force for us to sign free trade agreements. We are an independent country, therefore we need to look at it through an independent lens.

You've definitely raised a legitimate concern about how we compete with the U.S. in certain markets, and I think that's a fair comment. But do you think it would be in Canada's best interests if we were to set an example and say we're not going to sign a free trade agreement just because the U.S. has done so, and essentially set certain prerequisites before we sign a free trade agreement, not only on the tariff reduction but on the other aspects I alluded to earlier?

[Cameron MacKay, Director, Regional Trade Policy Division, Americas, Department of Foreign Affairs and International Trade]

Maybe I can try to address some of that.

On setting prerequisites, when Ms. Nelder-Corvari was here about a week and a half ago, she read a quote from the Prime Minister that I think addressed this question.

On launching and negotiating free trade agreements and why we do it, the fact that the United States may already have a free trade agreement with a trading partner, or has negotiated one and has not yet ratified it, is certainly a consideration when we're considering whether or not to launch or conclude free trade negotiations. It's not necessarily the driving force behind this. There are all kinds of things that go into these considerations as to how we move forward on an FTA. But clearly if our competitors--not just the United States, but the European Union, Japan, Korea, Chile, Mexico, and others--are all negotiating their own preferential agreements with certain key partners, there are commercial considerations we have to take into account with respect to the competitiveness of Canadian businesses in those markets. That's what helps to drive our FTA agenda.

[Navdeep Bains, Liberal, Mississauga—Brampton South, ON]

So that's part of the consideration, because sometimes when I hear department officials or the government give an explanation, they always use a U.S. example as the overarching reason why. Maybe that's not the case, but I just wanted clarification on that.

[Cameron MacKay]

I can certainly confirm that generally speaking, in markets around the world, the principal competitors of Canadian businesses tend to come from the United States.

[The Chair, Conservative, Lee Richardson]

Thank you, Mr. Bains.

Monsieur Cardin.

[Serge Cardin, Bloc, Sherbrooke, QC]

Good day, gentlemen and welcome to the committee. I'm sure some of you are regulars here.

The cautionary note that you sounded at the conclusion of your presentation reminds us, up to a point, that it is somewhat difficult to get an overall picture of the negotiations and especially of the potential repercussions of an FTA. Since parliamentarians will also be called upon to ratify the free trade agreement, the situation almost demands that we take a leap of faith, since we may never be privy to all of the details.

I imagine that you analyse the agreement, from both a quantitative and qualitative standpoint, to determine the positives and negatives. As with all economic agreements, both parties must emerge as winners. Therefore, at some point, they must be prepared to make some sacrifices. Often, it is pretty hard for us to get an overall sense of how the negotiations are going. Perhaps we could get some idea if we looked at the tariffs, although they do not always indicate what impact this is having on our various industries or the advantages and disadvantages of the agreement for other sectors.

Considering all of the work that you will be doing to get the parties to potentially sign an agreement, ratification is also an important step. Since there are some details that negotiators are unwilling to disclose to us, is there some way to bring parliamentarians into the loop so that they can make an enlightened decision when the time comes to ratify this agreement that is currently being negotiated?

[Dean Beyea]

I think when the time comes to ratify the accord, you'll obviously have the accord to fully consider. It's just that we're in a stage of negotiation now where sometimes it's hard to talk about specific sectors or specific industries without saying something that may compromise our position.

But I think I would say overall, if I could, with respect to Colombia, we have very complementary trade. There aren't a lot of problems. We have export interests in some areas where they're particularly import sensitive and vice versa. But they're relatively small compared to what you often see. The trade patterns are relatively low, about $1 billion of trade between the two. It's a very small portion of Canada's export market and import source.

Overall there are not a lot of big problems. Certainly we have interests that we're pursuing, particularly in the area of agriculture and other industrial goods, where we hope to make more progress before we're ready to finish negotiations. But if there was anything specific.... I mean, the trade data that are available show clearly what our interests are in. We have our key exports in the order of—

[Serge Cardin, Bloc, Sherbrooke, QC]

Regarding FTAs, mention was made earlier about human rights and you said that this was not part of your mandate. As you said, human rights issues are addressed through side agreements and that reality has people rather concerned. The thing about side agreements is that clearly, they are ineffective. The problem quite often with side agreements is that they do not necessarily strike a balance between trade interests, social interests and human rights.

If you realize in the course of your negotiations that the FTA will adversely affect an industry, I imagine you have a responsibility to bring that fact to light. I do not imagine that you will encourage a Canadian industry to set up business in a region or location where it may encounter some risks. I do not imagine that all industries are interested in taking these kinds of business risks.

The United States have negotiated an FTA that has yet to be ratified. Last fall, they argued that until such time as improvements were made in certain areas, they would not be ratifying the agreement. Yet, we've been told that 50% of the problems relating to security have been resolved.

What happens in a case like this?

[Dean Beyea]

I think it's difficult for the market access negotiating team to address broadly that question. As I said, our mandate is to get an overall free trade agreement, which is a framework, let's face it, that at the heart of it cuts import taxes. Obviously, for Canada, we include other key elements, and two of those key elements, which you raised, are environment and labour agreements, broadly.

Certainly business decisions are business decisions, and all a free trade agreement is, in fact, is an agreement that will reduce and eliminate customs duties and make other market access and other labour and environmental commitments between governments. Nobody, obviously, is going to force business into a market they don't want to be in. All we can do is set the framework through this free trade agreement.

There certainly is commercial interest from Canadian industries in the area and from Canadian investors, and in fact internationally. I can bring you quotations from The Economist that things are improving overall in Colombia. That's certainly leading to an influx of investment, which is helping to raise standards of living. A commitment to market openness will further enhance this, and that's one of the overall objectives of free trade and committing to open markets.

[The Chair, Conservative, Lee Richardson]

Thank you, Monsieur Cardin and Mr. Beyea.

Mr. Miller, let me interject, just before you begin.

We have had, beginning with the minister's visit in the fall, a pretty general policy outline, a view of free trade negotiations, and where we're going with these various negotiations. I thought our meeting last week covered a lot of the points with regard to human rights and labour matters.

Today, we specifically wanted to talk about some of the financial and the agriculture and agrifood aspects of the agreement. Not to be presumptuous, I wonder whether I could just, as a reminder, ask members to follow that line of questioning with this particular group of witnesses.

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

That's exactly my train of thought, Mr. Chairman.

[The Chair, Conservative, Lee Richardson]

I anticipated that, Mr. Miller. We're usually on the same page. Thank you.

You have seven minutes.

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

Thank you, Mr. Chairman.

I thank the witnesses for being here today.

Mr. Beyea, you mentioned that the U.S. had signed a deal and talked a little about how important it was for Canada to basically have the same access. Could you give some examples of how it would be detrimental to industry here in Canada, whether in manufacturing, agriculture, or whatever it might be, if we weren't to have that same access?

[Dean Beyea]

I'll start off and then ask Denis, my colleague from the Department of Agriculture, to cover anything I've missed.

I think the biggest one is the one I gave in our opening statement. The U.S. has negotiated the immediate elimination of the wheat tariff; that's $100 million of wheat exports. We've talked to the importers in Colombia, who said it's a lot cheaper to buy wheat out of Houston than out of the west coast of Canada, but that they're willing to pay the premium. But 15% is 15%, and they'll stop buying Canadian wheat, they say, the day that comes into effect. That certainly makes you stand up and take notice.

We've also heard from the paper industry, which is facing tariffs of up to 15%, and from machinery and equipment. Another issue is for pulses, where tariffs are 15% on lentils and peas and up to 60% on beans. The U.S. has gotten a good chunk of that free immediately. It puts you at an immediate disadvantage. There's potash, copper wire, barley; these are all our primary exports to the region.

There's another industry, interestingly, that you don't often hear about: we have strong interest in the market from some of our textile and yarn exporters. Like most countries, Colombia maintains high tariffs in this area. The U.S. will be at a significant advantage right away, and they're anxious to get into that market.

Those are a few. I don't know whether Denis can add to that.