International Trade Committee on June 2nd, 2008

[The Chair, Conservative, Lee Richardson]

I'd ask the committee to come together for the 32nd meeting of this session of the Standing Committee on International Trade. Today we continue our study of the ongoing free trade negotiations between Canada and Colombia.

In the first round we have as witnesses the Canadian Chamber of Commerce and the Canadian Sugar Institute.

Mr. Julian.

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

Mr. Chair, just so I understand, are we hearing both French and English live broadcasts in Spanish?

[The Chair, Conservative, Lee Richardson]

That's a good place to start.

Because we will have three languages to deal with in the second half, we're not using the translation booth. I'm asking everybody to pick up this device that's in front of you. The conventional translation is not going to be working. We'll be using these headphones. We'll have English on channel one, French on channel two, and Spanish on three.

Thank you for that, Peter. I should have mentioned that right off the top. I don't think we'll need the Spanish for this portion, but we will in the second half of today's meeting.

I was just about to introduce our first round of witnesses from the Canadian Chamber of Commerce and the Canadian Sugar Institute.

From the Canadian Chamber of Commerce, we have Shirley-Ann George, who's been with us before. She's the vice-president of international policy. Brian Zeiler-Kligman is with Ms. George today. He's also from the Canadian Chamber of Commerce.

From the Canadian Sugar Institute, we have Sandra Marsden, the president, and Daniel Lafrance, senior vice-president of finance and procurement for Lantic Sugar Limited and Rogers Sugar Ltd.

There's a plug for you.

We have split the day, and we're going to have a little difficulty trying to get everybody in, so we're going to have to have some kind of accord on that. When we divide it up this way, not everyone has an opportunity to ask questions of each witness. I think what we'll do is start off with five-minute rounds. That's the only way to do it fairly for everybody. It gets a little closer to fairness anyway.

Before we even begin, I'm going to ask our witnesses to be cognizant of that as well. That will mean that for each of the questioners, the question and answer will be completed in five minutes.

With that, I'm going to start. I'm going to ask Shirley-Ann George to begin with a short address.

[Shirley-Ann George, Vice-President, International, Canadian Chamber of Commerce]

Thank you very much, and good afternoon.

As introduced, my name is Shirley-Ann George. I'm the vice-president of international policy at the Canadian Chamber of Commerce. With me today is Brian Zeiler-Kligman. We appreciate the invitation to come and discuss with you Canada's free trade negotiations with Colombia.

The Canadian Chamber of Commerce supports the federal government's commitment to re-engage our relationship with the Americas. Many Canadian companies are active in these markets, presenting a great upside potential for Canadian exporters and investors and for Canadian jobs. To that end, our members have been very supportive of the negotiations with both Peru and Colombia. Since the hearings today are on Colombia, I'll only address that side of the negotiations.

We support the government's decision to pursue a free trade agreement with Colombia. Although a separate agreement, we also support and strongly urge the government to finalize the double taxation treaty with Colombia. There are important trade policy and foreign policy arguments in favour of both agreements.

Looking first at trade policy, Canada's economic relationship with Colombia is a modest one, although most suspect that it is larger than the official statistics suggest. Canadian foreign direct investment in Colombia is driving most of this economic relationship. Canadian companies in the extractive sector are particularly active in Colombia, as well as all the Canadian service providers that specialize in the ancillary services that go along with this. Canadian manufacturers are also selling some of their products into Colombia, providing important Canadian manufacturing jobs.

Indeed, Colombia is an important market for those Canadian companies investing in South America, Latin America, and the Caribbean, as Colombia is influential in the region and many Canadian companies view Colombia as key to their South American strategy.

We understand that the agreement being negotiated with Colombia is a NAFTA-like agreement, covering issues such as services and investment, in addition to the traditional market access. This means there will be strong environmental and labour provisions as components of the agreement.

The Canadian chamber and our members support responsible business conduct and government's effort to build capacity in these areas for both companies and host governments, and Canadian companies are recognized global leaders in socially responsible business practices, commonly referred to as CSR. They lead by example and help the normative standard for all companies to be raised wherever they operate.

Canadian companies present in Colombia are contributing to the progress being made there by their operations, and the passage of a Canada-Colombia FTA will make it easier for Canadian companies to access the Colombian market and, through their voluntary contributions, will contribute to the human rights situation there.

For our members, the key to an agreement with Colombia is one that ensures a free, open, and fair trade and investment relationship between our two countries.

[The Chair, Conservative, Lee Richardson]

Ms. George, could I ask you to slow it down just a touch? I rarely ask people to do that, but in this case it's just a little easier for the translation.

[Shirley-Ann George]

I apologize. I was trying to make sure I didn't take more than my ten minutes. I'll slow it down.

It is critically important that the protection of investment stability agreements is negotiated into the FTA, including existing agreements being afforded the same protection as new investments.

With respect to the specific investment provisions that Canada negotiates as part of the FIPPAs—the foreign investment promotion and protection agreements—and the investment chapters in our bilateral FTAs, some of our members have serious concerns about the protection that these agreements afford. Our standard provisions include a number of carve-outs meant to protect Canadian defensive interests here at home that result in Canadian companies investing abroad enjoying less protection than their competitors from some other countries. In some instances, these weaker protections have led Canadian companies to actually route their investment abroad through non-Canadian companies, which means that the taxable income from these investments is outside of Canada.

We have raised this issue and continue to work with our officials at International Trade Canada, and we urge the Government of Canada to move quickly on the needed changes so that they can be incorporated into the FTA negotiations.

Beyond investment protection, a free trade agreement with Colombia offers many benefits to Canadian exporters. While most of the products we import from Colombia actually enter Canada already duty-free, Canadian products entering Colombian markets can face significant tariffs. For example, one of our main exports to Colombia—cereal, such as wheat and barley for the very important agricultural community—faces duties of around 15%.

Other leading exports to Colombia include agricultural products, potash, paper, machinery, and equipment. As the Colombian economy expands, there will also be additional opportunities in some areas in which Canada has true strength, such as financial services.

Concluding and ratifying an FTA with Colombia is important to ensure a level playing field is afforded for Canadian companies.

As I am sure you are aware, the U.S. has negotiated an FTA with Colombia. Although not yet passed, the implementing legislation has been sent to Congress, and while it is unclear when this agreement will be voted on, many commentators and our contacts in the United States have stated quite clearly that they expect this to pass. In addition, the EU is in intensive negotiations with Colombia, with three negotiating rounds planned between now and October.

Canadian industry has been harmed again and again as other countries sign and implement FTAs ahead of us. Here is an opportunity for Canada and Canadian jobs to get an early move or advantage. Canada's FTA with Colombia can also be seen as part of a defensive FTA to prevent Canada from being shut out of this market. This is consistent with the recommendation made by this very committee in its report on trade policy in the last session.

Concluding and ratifying an FTA with Colombia is also important for Canada's credibility as an FTA negotiating partner. Our recent FTAs with the EFTA and Peru are the first we have concluded in more than six years, and they have yet to be implemented. By contrast, the United States has completed and implemented ten FTAs since 2004.

Now that we are seeking to negotiate and complete FTAs in a more timely fashion, we are having significant difficulties getting other countries to take us seriously and show interest in negotiating with us. Even some small countries are reluctant to engage. So we must not forget that how we approach the FTA with Colombia can have real consequences on our ability to negotiate FTAs with other larger partners, including, for example, the very important European Union.

I would now like to briefly address the foreign policy grounds for the FTA with Colombia. The federal government has committed to re-engage with the Americas to advance security, prosperity, and democracy. These are lofty and important goals. An FTA with Colombia is one of the pieces that will help achieve this objective.

While it is true that Colombia can be a very violent and dangerous place, unfortunately, for far too many of its citizens, President Uribe and the Colombian people desperately want to achieve peace, stability, and prosperity. Significant progress has been made. Since 2002, murders have dropped by 40%, kidnappings by 83%, and terrorist attacks by 76%.

As a result, trade and investment is increasing, the economy is rebounding, and the number of people living in poverty has fallen by 20%. These are truly remarkable achievements for a short five-year period.

As well, working conditions are improving, and the International Labour Organization has recognized that union legal rights in Colombia meet its highest standards. Indeed, Canadian companies operating on the ground in Colombia report that they see real progress first-hand.

In my recent visit to Colombia in June 2007, I saw first-hand the positive attitude that Colombians had towards the dramatic turnaround by their president. The common view of Colombia held in Canada is very outdated. While we understand why some parties would use the opportunity that's been afforded by these negotiations to highlight some of the challenges remaining in Colombia, we draw your attention to the amazing progress that has been made in recent years and the significant support the Colombian people have given to their government.

In short, by quickly signing an FTA with Colombia, we can be true to our word and support the causes of peace, stability, and prosperity while ensuring our own commercial interests. This will contribute to the new-found stability of a progressive government. A stronger government will be in an even better position to do more for its people, including strengthening human rights--on which they freely admit there's more to be done, and they're willing to work on it--or we can just let this agreement flounder for reasons that will only strengthen those who actually commit the human rights abuses, and in turn deal a severe blow to the progress being made in Colombia.

The Canadian Chamber of Commerce and our members believe it makes sense to support our friends, our allies, and our bottom line.

I will close with those comments.

Thank you very much. Merci beaucoup.

[The Chair, Conservative, Lee Richardson]

Thank you, Ms. George.

We'll move on to the Canadian Sugar Institute.

Ms. Marsden, would you give us a brief opening?

[Sandra Marsden, President, Canadian Sugar Institute]

Thank you very much, members of the committee. I'll speak for a few moments and then ask my colleague, Dan Lafrance, to say a few words about the perspective of Lantic and Rogers Sugar.

I'm president of the Canadian Sugar Institute, which is the national trade association for the refined sugar industry in Canada—that is, sugar produced from sugar beets in Alberta and from imports of raw cane sugar from developing countries, including Colombia.

We've appeared before the international trade committee a number of times on similar issues, such as with the Costa Rica FTA and the Central American four free trade negotiations. Unfortunately, our message today is the same. These agreements pose substantially more of a threat than an opportunity to our industry. We're an industry that really has embraced open trade, because we operate in an open sugar market, so I'd like to explain the difficulties we face with these negotiations.

The sugar sector is one of the most politicized and subsidized worldwide. With few exceptions, almost all governments intervene in their sugar sectors to support prices above international levels, to protect producers from import competition, and to subsidize or otherwise facilitate exports. In contrast, in Canada, sugar beet producers and cane refiners operate on the world market without subsidies, without prohibitive tariff walls, and we've been forced to adjust to the distortions on that world market. We've been reduced to just three cane refining operations in three provinces and one sugar beet producing plant in Alberta. So we're highly efficient and competitive. That forced rationalization has made us competitive in North America and globally.

The only request we have in advance of global WTO trade negotiations, the liberalization of sugar, I should say, is that the Canadian government protect the very small tariff that helps insulate our industry from world market distortions. The tariff on raw sugar is zero; the tariff on refined sugar is $30 per tonne--that's about 8%. So we're not talking about protecting a very high tariff wall, and it's certainly not a tariff that is prohibitive to importers. That tariff is very small in relation to those markets that we would like to access but cannot. The U.S. tariff, for example, is about 150%; the Colombia tariff, for example, in this context is about 20%.

We have been strong advocates of WTO trade liberalization in cooperation with a number of global developing countries, recognizing that this represents the only real opportunity for sugar reform and the only real potential for us to export, at least to get us on equal footing to those who import into our country.

Unfortunately, bilateral trade agreements are much more limited in their scope. They strive for reciprocal gains in market access but don't address the underlying market distortions in terms of domestic subsidies and export supports. For us, that paves the way for further inequity in our market.

Our logical export market is the United States, but we're confined to a minimal quota of about 10,000 tonnes. That's just 0.1% of the U.S. 10-million-tonne market. There is no opportunity to increase that quota outside a trade liberalizing agreement at the WTO. Even then, the current Doha Round is looking at protecting sensitive products, with the outcome that it's very unlikely we'll have any opportunity to increase even under an agreement that may be negotiated. So we're confined to our market. That's why any additional pressures on our market make us very sensitive.

Unfortunately, Colombia is not a logical export market for us. Certainly from a negotiating perspective it is logical that negotiators would love to seek reciprocal gains in market access, tonne for tonne. The problem is that we're not operating on a level playing field. Colombia's access to Canada is supported by subsidized credit for production, government programs that support exports. They can tap into a price stabilization fund.

Colombia is already actively competing in Canada. We're not asking to put up new tariff walls or additional barriers. They don't need the additional $30-per-tonne incentive to be competitive in Canada. They are one of our largest suppliers of raw sugar for refining, and they are one of the main refined sugar competitors in Canada, second to the United States. Colombia is one of the four most efficient sugar producers in the world and one of the largest refined sugar producers in the region.

The combination of the high efficiencies, consolidated marketing and exports, and government financial supports provides the competitive advantage for Colombia in Canada. It's also because the U.S. market is not open. Even the proposed FTA with the United States will not increase Colombia's access to the U.S. in a sufficient way. Canada becomes a market because other markets are closed.

Imports from Colombia and other more distant suppliers tend to target the more profitable retail market in Canada. Our sugar market is about 1.2 million tonnes, and about 150,000 tonnes of that is on the retail side--packaged sugar and the food service markets. Imports tend to come into that market because it's accessible and they don't have to supply industrial customers on a just-in-time daily basis.

The Costa Rica free trade agreement demonstrated the impact, and I'll let Mr. Lafrance talk to that issue. We've had no success in accessing the Costa Rica market under that agreement.

The government's own studies have shown the economic impact these FTAs will have--for example, the Central American four. Detailed studies were undertaken that predicted the closure of at least one refining operation in Canada. Exports of refined sugar from the CA-4 are about 300,000 tonnes, compared to Colombia's exports of about 700,000 tonnes.

As I've stated, Colombia is already an active competitor in Canada. The $30-per-tonne tariff is not a barrier. Since 2003, Colombian exports to Canada have ranged from $2 million to $8 million, representing about 10% of our retail sugar market. They're the second most active competitor in Canada after the United States. Colombia is more competitive than Costa Rica, which has a 6,000-tonne duty-free quota.

So we are efficient and cost-effective in the North American context, actively competing with imports, and we have nowhere else to go. In advance of a more liberalized sugar world in the North American world, and particularly the United States, we're vulnerable in these negotiations. We are urging the Canadian government to recognize this in a negotiating context with Colombia, and to ensure that this agreement protects that small tariff to continue to enable our industry to supply Canadian consumers and food processors.

Thank you.

[Daniel L. Lafrance, Senior Vice-President of Finance and Procurement, Lantic Sugar Limited and Rogers Sugar Ltd, Canadian Sugar Institute]

Mr. Chair, members of the committee, thank you for giving the Canadian sugar industry the opportunity to express its fears about the bilateral agreement with Colombia.

I'll just give you a small description of what Lantic and Rogers are. We have three plants across Canada: two Canadian refineries, one in Montreal—a world-class facility—and one in Vancouver; and also a sugar beet plant in Taber, Alberta. We are the only sugar beet plant producers in Canada.

When we look at Canada itself, over the last number of years it has been a shrinking market. We had some growth in early 2000, but since 2005, we've seen more and more industries moving out of Canada, going to countries such as Mexico and in Central America to produce sugar-refining products. It is a shrinking market. It's getting harder and harder to keep our volume level and our competitiveness in this marketplace.

When we look at western Canada itself, in the last two years we were blessed with record crops in Taber, Alberta. By the way, when we have record crops, it would seem to be very good. On the other hand, because it's a limited market, we have no choice but to store sugar. We store over 28,000 tonnes of sugar each year for the next season. What that does really is limit the amount of acreage we are able to allow to our sugar beet growers the following year.

In order to mitigate this, we did export some sugar in the last two years to Mexico. This is not a solution. We did that just to avoid the warehousing costs and to sell these products at cost. We basically made no money on these sales. It was only an opportunity to get rid of some of these products instead of warehousing them.

Another result was that Vancouver, being the swing capacity for western Canada, produced less sugar, and more sugar was being produced in Taber. In the last two years, our Vancouver facility has operated approximately 28 or 29 weeks a year. For a manufacturing plant, this is horrible, as you well know.

So when we're looking at the future with Colombia.... Colombia is a western port. The big thing with a western port is that they ship first to western Canada, similar to what occurred with Costa Rica back in 2004-05 when Costa Rica tried to sell into Canada. We're the most vulnerable; there is no doubt about it.

As I said, we have two locations in western Canada. The Taber plant operates four or four and a half months a year, depending on the size of the crop. This year, because it will be a smaller crop as we have so much sugar stored, they'll operate probably only three months. In Vancouver, we're estimating again probably operating between 20 and 30 weeks this year.

So if more sugar is coming into western Canada, we will have to make a major decision. We cannot continue operating these plants at half level. That's the reality we'll have to face.

When we look at what Colombia has done over the last number of years, it is really shipping refined sugar into Canada and competing with us on the retail level. As Ms. Marsden mentioned before, retail is not a very large part of our total sales. It could be about 20% of our total volume, but it represents a major part of our profitability. It is an added value product. So the more we lose on this side, the more it will hurt our industry in Canada.

Colombia is a raw sugar exporter today, but it's becoming harder and harder to get raw sugar from Colombia. We are negotiating some sugar availability in Vancouver as we speak, and Colombia has just said, “No. We are producing more and more ethanol. We are producing more and more white sugar. You are welcome. If you want white sugar, there's no problem, but we will not sell raw sugar at this time.” So they are converting their industry more and more from raw into white sugar, and that's clearly what they want to do. They want to sell white sugar into the market in the future.

Having access to Colombia, just like Costa Rica, is impossible. First, it will have to follow the rules of origin. We would have to sell sugar that was produced in Taber. To move Taber products first to the port in Vancouver to ship to Colombia is very expensive. It's over $80 or $90 a tonne, and it's not in Colombia yet. You have to put it into containers and you have to ship it to Colombia.

First, Colombia's cost of energy is much lower than the cost in Taber, Alberta, because they use their own bagasse. They don't have to buy natural gas. You know what natural gas has been doing in the last number of weeks or months. It has been increasing a whole lot, so our cost keeps increasing in Taber, Alberta.

Our labour costs, our fringe benefit costs, are much, much higher than those of any Colombian producers. Therefore, we're just not competitive.

To think that gaining access to Colombia will give us an opportunity to make some export sales is impossible. It was impossible in Costa Rica. We tried to sell some of our value-added products, our cubes, our brown sugar, but there again, we were not competitive. It was impossible.

So Colombia is not an access market for us. We will not be able to ship Taber products from Taber, Alberta, to Colombia and be competitive with them. It is impossible; it will not happen. You can rest assured.

That is why we see no opportunity for gain for us in Canada. We see only the negative side, them coming and establishing themselves even more than they are today.

They are here today. They are competing even with the small duty we have of $30 a tonne, but that $30 a tonne is important for us because it gives us, on the volume we have of about 7,000 or 8,000 tonnes, a small profit margin at the end of the day, such that we can compete with them. So that's what we'd like to maintain.

Thank you for your attention.

[The Chair, Conservative, Lee Richardson]

Thank you, Mr. Lafrance and Ms. Marsden.

We are going to have to stick rigidly to a five-minute round here. I'll ask Mr. Maloney to begin, and I would remind our witnesses that the questions and answers are to be concluded in five minutes.

Mr. Maloney.

[John Maloney, Liberal, Welland, ON]

Ms. Marsden and Mr. Lafrance, when we entered the deal with Costa Rica, you said one refinery went down.

[Daniel L. Lafrance]

No, we didn't shut down a refinery. We invested heavily in our marketing programs. Rogers' results, within our public results...it probably cost us between $5 million and $10 million less in margins to compete with them. Over 2004, 2005, and 2006, and then when the U.S. had their disaster with Hurricane Katrina, they moved some of the sugar there and exited the Canadian market at that time. So that gave us some reprieve.

[John Maloney, Liberal, Welland, ON]

So if we enter this deal without protecting you with the status quo, what will happen to your industry?

[Daniel L. Lafrance]

Our industry?

[John Maloney, Liberal, Welland, ON]

Yes.

[Daniel L. Lafrance]

With the status quo with Colombia?

[John Maloney, Liberal, Welland, ON]

If we don't maintain the status quo, what would be the impact on your industry?

[John Maloney, Liberal, Welland, ON]

What does “major” mean?

[Sandra Marsden]

Costa Rica was producing about 20,000 tonnes of white sugar. Colombia produces 700,000 tonnes.

[John Maloney, Liberal, Welland, ON]

How many employees do you have?

[Daniel L. Lafrance]

With Lantic and Rogers full-time employees, we have approximately 800 employees.

[John Maloney, Liberal, Welland, ON]

What are your gross revenues?

[Daniel L. Lafrance]

Our gross revenues last year were about $425 million.

[John Maloney, Liberal, Welland, ON]

What I'm trying to get at is, will this agreement put you out of business?

[Daniel L. Lafrance]

Well, it will not put the whole company out of business, but it will more than likely force us to make a decision as to how many plants we will operate in the future.

As I said, right now, with limited volume opportunity, especially in western Canada as it is today, and with them more than likely being more competitive on the western side than on the eastern side because of the freight going across the Panama Canal, we would have to make a very tough decision as to what to do with our Vancouver or our Taber facility.