Evidence of meeting #5 for International Trade in the 39th Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was deal.

A recording is available from Parliament.

On the agenda

MPs speaking

Also speaking

Yuen Pau Woo  President and Co-Chief Executive Officer, Asia Pacific Foundation of Canada
Joan Baron  CEO, Vice-Chair, Canadian Chamber of Commerce in Korea, Global Business Development Canada
Scott Sinclair  Senior Research Fellow, Canadian Centre for Policy Alternatives
Clerk of the Committee  Mr. Chad Mariage

4:20 p.m.

Conservative

Dean Allison Conservative Niagara West—Glanbrook, ON

Thank you, Mr. Chair. Perhaps you could just let me know when I'm at four minutes. Mr. Cannan wants to ask Mr. Woo a question, and we'll share.

4:20 p.m.

Conservative

The Chair Conservative Lee Richardson

You have seven minutes for the questions and the answers.

4:20 p.m.

Conservative

Dean Allison Conservative Niagara West—Glanbrook, ON

Right. Let me know at four, and then Mr. Cannan is going to ask Mr. Woo a question.

Mr. Woo, we talked about what's happened with the U.S. free trade deal with Korea. It hasn't been ratified. Do you think there is any strategic advantage for us to...once again, if we could strike now, or we could make this happen? Would there be a strategic advantage for Canada if we could make this happen before the U.S. finished the ratification process?

4:20 p.m.

President and Co-Chief Executive Officer, Asia Pacific Foundation of Canada

Yuen Pau Woo

There are a couple of calculations here. The first I think has to do with who the demander is, who has the stronger hand in the negotiations, and who is lining up to negotiate with whom.

My own sense is that Korea has a long list of suitors at its door wanting to negotiate agreements. If we aren't able to follow through on 10 or 12 rounds of negotiations, it might be difficult to restart, even if Mr. Sinclair is right, in 2009 or 2010, if and when the U.S. ratifies.

The second issue is this. We're all going on the assumption that if the U.S. ratifies, we can get at least as good a deal as the Americans. Now, that may not be the case. As we've seen from the experience with Singapore, where we started negotiations with them and the Americans started later but concluded before we did, we can't seem to get the same deal that they did. I think delaying will make it even worse.

So on balance--this is simply a political and partly economic call on my part--because we've started a process and have created some good faith with the Korean negotiators, there is a template and a benchmark that the Americans have set, and it would be in our interest to try to follow through and finish it off.

4:25 p.m.

Conservative

Dean Allison Conservative Niagara West—Glanbrook, ON

Thank you very much, Mr. Woo.

Ms. Baron, it always comes up that the manufacturing sector is concerned about job losses, and there could be a lot of reasons for that. I know Mr. Sinclair indicated that maybe a strong dollar, a rising dollar, was a part of that reason.

Would this not be the very reason the Canadian government should be looking at trying to open other markets? We have issues with the dollar rising. This is clearly an issue in manufacturing. Is it not counterintuitive to say we should be hunkering down and not dealing with anybody? Should we not be trying to expand our markets, looking at a service or industries or investments, some of these other things?

The comment was that low-value goods are what we export through resources. You indicated that some seriously higher-value jobs, etc., could be in the mix for us. Could you expand on those two comments, please?

4:25 p.m.

CEO, Vice-Chair, Canadian Chamber of Commerce in Korea, Global Business Development Canada

Joan Baron

I think the Korean dollar has also risen strongly. For Canada, we have an opportunity to participate very well, whereas with the U.S. right now we are at a disadvantage in terms of our dollar. That's why we need to use the “not all the eggs in one basket” approach.

In the IT sector I believe there are large opportunities for us, and these are high-quality jobs. Canada has always excelled in technology transfer--in agricultural areas, in safety and emergency measures, in health, in IT, etc. So there are many areas where I believe we can be successful.

To pick up on Mr. Woo's comment, the Korean negotiators are moving on to engage with China and the EU. We are going to find we're at the end of a long line if we miss our chance here.

4:25 p.m.

Conservative

Dean Allison Conservative Niagara West—Glanbrook, ON

Thank you very much.

4:25 p.m.

Conservative

The Chair Conservative Lee Richardson

Mr. Cannan.

4:25 p.m.

Conservative

Ron Cannan Conservative Kelowna—Lake Country, BC

Thanks, Mr. Chair.

Thanks to our witnesses for sharing this with us this afternoon.

I agree that it's important we have this kind of discussion to emphasize the fact that Canada is the seventh-largest trading partner in the world with Korea. Our economy is heavily reliant on the service sector. Almost 70% of our GDP is based on the service sector.

To Mr. Woo, I come from the interior of British Columbia—I represent the riding of Kelowna--Lake Country—and two of my colleagues from the opposition are from British Columbia. Before you leave, perhaps you could share a bit about the importance of this free trade agreement, specifically for British Columbians. I know that Premier Campbell met with Prime Minister Harper and our caucus a few weeks ago. Of course he's very bullish on the Asian market with the Pacific gateway, with Minister Emerson announcing that...and over $490 million invested in that, to Pacific gateway. And I was in Prince Rupert in August for the port there.

But we have our challenges in the forest sector. With the high dollar, and the downturn in the U.S. economy, and the pine beetle, we have to find solutions to help our manufacturing and our value-added sectors. South Korea is important to British Columbia's economy. It's the fourth-largest export market.

I see some real opportunities for the housing sector. In my research, I've been reading that South Korea is heavily reliant on imported wood, about 90% is imported. In my previous life I was a businessman. I had some dealings with the Canadian–Korean business association, learning about the prefabricated housing market.

In the short time you have, could you maybe expand on the benefits for British Columbia, to its forest sector and manufacturing sector, that this specific free trade would have, and the implications of delaying, as we heard that some people want to procrastinate and I think time is of the essence.

Thank you.

4:25 p.m.

President and Co-Chief Executive Officer, Asia Pacific Foundation of Canada

Yuen Pau Woo

Thank you for your question.

Let me stress first that I think this deal is good for all of Canada. There are special benefits to B.C. and the west, because of the potential advantages for the resource sector. You've already mentioned forestry. Wheat, certainly, and seafood products would be another area where Korean tariffs are very high, and the elimination of those tariffs will give greater access for Canadian companies.

Of course, if they don't get the deal, they will be disadvantaged, vis-à-vis not just Americans, who may have the privileged access, but other countries that have negotiated free trade agreements with Korea, including Chile and ASEAN countries.

But I want to stress also that the long-term benefits of a free trade agreement with Korea, and the gains for Canada, will accrue mostly not to the resource sector but to the financial services sector and to the other service industries, such as cultural industries and IT and technology sectors, which are very important in B.C. and in the west but also in Ontario and Quebec.

So whether you keep your eye on the short term or on the long term, I think this is a good deal for Canada.

4:30 p.m.

Conservative

Ron Cannan Conservative Kelowna—Lake Country, BC

Thank you very much.

I agree on the fact that we're looking at this national-territorial plan that the federal government has established in Korea, and they're looking for new cities and towns on a massive scale over the next 20 years. That's why I'm really bullish for our forest sector.

4:30 p.m.

Conservative

The Chair Conservative Lee Richardson

We're at seven minutes.

4:30 p.m.

Conservative

Ron Cannan Conservative Kelowna—Lake Country, BC

Thank you very much.

If you look outside the window there, you see sunshine. If we look out here, we see snow. So I look forward to being in Vancouver tomorrow.

Thanks.

4:30 p.m.

Conservative

The Chair Conservative Lee Richardson

There we go.

We're going to move on.

Mr. Julian, for seven minutes.

4:30 p.m.

NDP

Peter Julian NDP Burnaby—New Westminster, BC

Thank you very much, Mr. Chair. I'll only take nine minutes....

Thanks to all three witnesses for being here today. I have three questions I am going to ask Mr. Sinclair, and I have one question for Mr. Woo and Ms. Baron.

Mr. Sinclair, you raised real concerns around TRIPS. I know that you are somebody who has followed with a great deal of expertise the whole issue of intellectual property. We had concerns raised in Canada about extended patent protection and intellectual property rights and how that adds additional costs to the health care system, while fueling what is essentially the most profitable industry sector in North America, which is the drug industry.

I would like you to come back to the issue of what this could mean for access to drugs and to costs in our health care system and other health care systems outside of Canada. I would like you to come back and comment in a little more detail there.

Secondly, the only reputable study we have on job loss shows about 33,000 net jobs lost in Canada, particularly in the electronics industry, machinery, transport equipment, metal products, plastics, and rubber--in British Columbia, a net job loss of 1,000 jobs. I would like you to comment on that particular study, which is taken from StatsCan figures and Industry Canada figures. Is that credible? Should we be concerned about any deal that would lead to tens of thousands of net jobs? What country would sign an agreement that would lead to net job loss?

Thirdly, on the whole structure of our current free trade agreement, we know that since 1989, two-thirds of Canadian families have lost in real terms. They are earning less now than they were in 1989, which is a failure rate that only the Conservatives would find interesting. What are we doing wrong on our whole approach on trade if we are signing these agreements that have implications far beyond trade and where, in the bottom line, we failed for two-thirds of Canadian families?

Then, for Mr. Woo and Ms. Baron, what are the alternatives to this trade agreement? If this trade agreement is so problematic and we've had some concerns raised even here today, should we not be investing more in publicizing Canadian products and services? Should we not be looking at other alternatives to build on our relationship with Korea, given that this agreement seems to be well off track?

I'll start with Mr. Sinclair.

4:30 p.m.

Senior Research Fellow, Canadian Centre for Policy Alternatives

Scott Sinclair

Thank you for those excellent questions.

On the intellectual property rights issue, this is something very much under the radar and it has not been getting nearly enough attention in the deal. This is a serious break from Canadian past practice. We have not negotiated TRIPS-plus provisions in our bilaterals. And why are our negotiators pursuing that in this deal? These will lock in policies that have contributed to drugs being the main driver of costs in the health care system within Canada, as you mentioned, and will have a very deleterious impact in countries like Korea, but particularly in developing countries like Colombia and Peru, where they will give more opportunities for the brand name drug companies to wring out excessive profits.

On the job loss study, I hope you will be bringing the authors of that study before the committee--I think next week--and they will be able to speak more to it. What is very interesting and credible about that study by the Canadian Auto Workers is that it is not based on computer-generated equilibrium models or attempts to predict the future. It is based on extrapolations from the historical experience of Canada under its existing bilateral free trade agreements.

In each case--although, say, in the case of Chile, two-way trade has grown--Canada's import share of the partner country has fallen in every instance except the United States, where it's maintained the same share.

On the general issue, again, this is a very important point. We have gone through a period of very strong economic growth for the last 15 years. There has been a very strong productivity growth. Yet real wages in this country have stagnated. That's a very important issue. What are we doing wrong? In terms of trade issues, we have to look at the quality of trade. We can't put all our eggs in the resource basket. Manufacturing is a very critical component of a healthy economy that creates a value and jobs in other sectors as well. So we have to look for government policies that support that sector.

Services are important, but if you look, for example, at two-way trade in services between Canada and Korea, it's less than a billion dollars annually, and most of that is travel and tourism currently. There is obviously enormous potential for growth, but it is not going to replace manufacturing as the motor of Canadian trade.

4:35 p.m.

Conservative

The Chair Conservative Lee Richardson

Thank you, Mr. Sinclair. I hate to cut you off, but Mr. Woo has to leave and I think he wanted to get in quickly on a question.

4:35 p.m.

President and Co-Chief Executive Officer, Asia Pacific Foundation of Canada

Yuen Pau Woo

If I could, I'd like to just make final comments in response to the question.

First, quickly picking up on the study that the CAW put out, I'm not as convinced that's a good study. There are all kinds of problems with it, which we don't really have time to go into.

First of all, it assumes that deficits are bad, that trade deficits necessarily are a negative thing for Canada. I think that's a very old-fashioned way of thinking.

Secondly, it assumes low or non-sensitivity of response of Canadian exports to Korea as a result of the reduction of tariffs. That is an ad hoc imputation into the model, which really cannot be defended, or at least one can put in a variety of other assumptions.

And thirdly, it does not take into account the benefits of consumer welfare. The fact that there are more imports suggests that consumers want to buy more imports, they are getting better value for the products that are brought in from other countries, and the consumer welfare that is generated is an economic benefit for the country. That is not built into the model that has been quoted a number of times. In short, that model uses what we call partial equilibrium. It creates a problem that is known as the fallacy of composition.

If I could get to the specific question to me from Mr. Julian, I'm not sure that the deal is out of the question at the moment, but he raises a very good point. If we don't have a deal, what else can we do? I hope that we can continue to work on bilateral issues on a sectoral basis, particularly on the issue of people-to-people flows, visas, travel arrangements, trade facilitation, trade promotion.

The only problem, of course, is that it's not possible to advance trade liberalization on a sectoral basis and to still stay within the rules of the WTO. If you want to have an FTA, you have to have a comprehensive FTA, according to article XXIV of the WTO, and that would mean the type of free trade agreement that is being contemplated at the moment.

Chairman and committee members, I thank you very much for inviting me to participate. I'm sorry that I can't stay for the rest of the meeting.

I would be delighted, and the foundation would be delighted, to continue to contribute to this process in any way that we can be of help.

4:35 p.m.

Conservative

The Chair Conservative Lee Richardson

Thank you very much, Mr. Woo, on behalf of the committee. I wish you could have stayed a little longer, but perhaps we'll have you back. Thank you again.

That completes round one of our questioning. We have two witnesses remaining to answer questions in the second round. The second round will be five minutes for questions and answers.

Mr. Maloney is going to lead off.

4:40 p.m.

Liberal

John Maloney Liberal Welland, ON

Ms. Baron, you made the comment that it's not that Koreans don't want to buy our cars, but there are other issues at play.

What are those other issues?

4:40 p.m.

CEO, Vice-Chair, Canadian Chamber of Commerce in Korea, Global Business Development Canada

Joan Baron

Basically, in Korea you have to have a distribution network and provide after-service. The Korean is a sophisticated consumer, not unlike the Japanese in terms of their requirements, so it's not surprising that the car that is selling the best in Korea is the BMW right now.

That's what my reference was. The cars don't have to have the driving wheel on the other side of the car or anything like that, but there is a high level of care and feeding for the Korean consumer.

4:40 p.m.

Liberal

John Maloney Liberal Welland, ON

Mr. Sinclair, do you have any comments on what other issues are at play that account for the significant difference in Canadian cars sold?

4:40 p.m.

Senior Research Fellow, Canadian Centre for Policy Alternatives

Scott Sinclair

I'm not an expert on the details. I would just simply reiterate that Korea has a history of a very active industrial policy, and even after the 1997 Asian financial crisis, they adopted a very deliberate export-led growth strategy and very successfully pulled themselves up by the bootstraps.

But that policy was based on, and very successful in, promoting exports and limiting imports through a whole range of non-tariff and informal measures and close connections between business and government elites and perhaps even a sense of national and societal solidarity, a preference to support local industry.

4:40 p.m.

Liberal

John Maloney Liberal Welland, ON

Ms. Baron, are you suggesting that the way the North American car industry can get over this obvious problem is to implement a huge distribution service network to service their vehicles?

4:40 p.m.

CEO, Vice-Chair, Canadian Chamber of Commerce in Korea, Global Business Development Canada

Joan Baron

No, I am merely saying that the Korean consumer wants confidence that they will get care and attention. I believe it is the same in terms of selling your product anywhere. It is not clear to me that the Korean consumer has any kind of bias anymore. They want good value, and they want good service. And if we look at other sectors, if we look at the sale of Italian and French fashion goods in Korea, they are doing extremely well.

So there isn't an inherent bias to Korean goods, there's merely a very sophisticated approach that we need to address. I believe there is a big market opportunity for us there because of the million-car market and because we have cars that are reasonably well priced and that could be quite attractive there.