International Trade Committee on Dec. 6th, 2007

[Some hon. members]

Agreed.

[The Vice-Chair, Liberal, John Maloney]

Thank you very much, officials from the department. We appreciate it.

Thank you, members of the committee.

I think we'll just suspend for a few minutes and we'll have our next witnesses come forward.

We'll come back now.

We very much appreciate having the witnesses from the Department of Foreign Affairs and International Trade, as well as Mr. Landreville, from the Department of Agriculture and Agri-Food.

We apologize for the delay. We have approximately half an hour to deal with this panel at this time.

Are there presentations someone would like to open with? Would it be possible to perhaps abbreviate those to five minutes and then we'll open up to questions and answers? If there are more fulsome presentations, perhaps they could be e-mailed to the clerk and the clerk can distribute them to the committee members.

Mr. Burney, you look like you're anxious to start.

[Ian Burney, Chief Trade Negotiator, Bilateral and Regional, Department of Foreign Affairs and International Trade]

Thank you very much, Mr. Chairman.

Indeed we did come prepared with a statement. It was going to run about ten minutes. I'll try to abbreviate it to keep it to within five minutes.

I'll dispense with the introductions. The team can be introduced as called upon to answer questions.

I do appreciate this opportunity to come again before the committee to provide an update on the Canada-Korea FTA negotiations, following my appearance in June of last year.

On Tuesday Minister Emerson spoke before this committee to the importance of our bilateral FTA agenda and the steps we were taking on this front. He stressed, in particular, the aggressive bilateral activity of our competitors and the need for Canada to maintain a level playing field. Nowhere is this more clear than in the case of South Korea, a point that was implicitly acknowledged by the Standing Committee on International Trade when it recommended in April of this year that the government should, among other things, complete the FTA negotiations with South Korea.

Indeed, South Korea has already implemented FTAs with Chile, Singapore, EFTA, and the countries of ASEAN. In June this year the United States and Korea signed their bilateral FTA known as KORUS. The agreement is politically controversial in both countries, but most observers believe that it will be ratified, given its importance in each country.

Meanwhile, Korea is in the advanced stages of negotiating an FTA with the European Union, Korea's second-largest trading partner after China. There are indications that this could wrap up early in 2008.

Korea is also negotiating FTAs with Mexico and India. It may soon revive its talks with Japan and China, the Gulf Cooperation Council, and others waiting in the wings.

Clearly, if Canada were not also pursuing an FTA with Korea, we would be running the risk of Canadian companies finding themselves, over time, at a greater and greater competitive disadvantage in this market.

Consequently, Mr. Chair, we are trying to reach an exhaustive, high-quality free trade agreement with Korea that is ideally of a scope similar to that reached between Korea and the United States, that is to say Korus.

The purpose of this initiative is essentially to maintain and reinforce opportunities for Canadian businesses to face the competition on an equal footing in one of the most dynamic markets in the world. Korea has a socially upwardly mobile population of nearly 50 million inhabitants and an economy in the order of $1 billion. Not only does Korea rank second among the most prosperous economies, it is also strategically located among the regions experiencing the strongest economic growth in the world.

Korea is already Canada’s seventh largest trading partner. Canada exports $3.3 billion worth of goods to Korea every year, more than all Canadian exports to Brazil and India together.

Korea is also becoming a big market for Canada's service sector, which exported more than $650 million worth of services in 2005. In addition, bilateral investment between the two countries now exceeds $1.1 billion.

An FTA with Korea could generate much more two-way business by dismantling the tariff, regulatory, and other barriers to commerce that limit opportunities. Preliminary macroeconomic modelling results, which are available on our website, indicate that on the basis of tariff elimination alone, our exports to Korea could have been nearly 60% higher in 2005--the reference year of the study--and that our GDP could have been $1.6 billion larger the same year, had we had an FTA in place. The reason is that Korea maintains relatively high tariffs--13% on average versus about 4% for us. The elimination of tariffs in an FTA would therefore generate substantial opportunities for Canada.

The Korean market is particularly important for the agricultural and resource-based segments of our economy, with FTA gains expected in areas like agrifood, fisheries, metals and metal products, a wide range of forestry and wood products, coal, and other minerals.

We also expect gains in a variety of industrial and manufacturing sectors that provide high-value jobs in Canada, including chemicals, aerospace, and urban transportation equipment, fertilizers, auto parts, pharmaceuticals, cosmetics, prefab buildings, environmental goods, and machinery and equipment, to name a few.

We see ample opportunities in the service sector of the economy, as well, where 80% of new jobs are created today in Canada. Some examples include financial services, high-tech and environmental services. An FTA would also provide a more secure and stable climate for Canadian investors in Korea and assist in attracting Korean investment to Canada.

Let me now turn to the auto sector, the area of the negotiation that has attracted the most attention in Canada. To improve the Canadian auto industry's access to the Korean market, Canada is seeking to eliminate Korea's 8% tariff on autos and auto parts and to establish the most extensive, robust, state-of-the-art provisions Canada has ever sought in an FTA with respect to Korea's non-tariff barriers in the auto sector. Canada has also proposed an innovative dispute settlement mechanism for autos.

At the same time, Canada's auto industry has expressed concerns regarding the potential impact of eliminating Canada's automotive tariff. Members of this committee may be aware that in September 2006 the government released two studies that concluded that any negative impact on the automotive sector from an FTA with Korea would be very limited.

The first study, by Industry Canada, estimates a decrease in Canadian production of fewer than 1,000 units per year on average, which represents 0.04% of the 2.6 million vehicles we produce each year. That assessment was supported by a second study commissioned by this department and carried out by Dr. Van Biesebroeck of the University of Toronto, a respected academic who specializes in economic analysis of the automotive industry.

Professor Van Biesebroeck also concluded that a Canada-Korea FTA would only have a modest impact in terms of additional imports from Korea--less than 10%--and that this would come largely at the expense of other imports. The expected result was only a fractional decrease in Canadian vehicle production of about 2,000 vehicles, or 0.08% of production. Among the reasons is the high level of imports already in the Canadian market, about 75%, and the very high percentage of Canadian production, about 85%, that is exported to the United States, which would not be affected by an FTA between Canada and Korea.

At the same time, the study projects that Canadian automotive parts exports to Korea stand to benefit from tariff elimination, and forecasts increased Canadian exports of between 8% and 12%. Both studies are available online.

Where do we stand now?

Since negotiations began in July 2005, we have held 12 negotiation sessions with Korea. Our most recent meeting was last week in Seoul. In principle, the next meeting should be held in Canada in March.

Presidential elections will be held in Korea later on this month, and the new president will enter office in late February. We have made major progress to date, but as the end of negotiations approaches, we are definitely facing the toughest issues. Among other things, Canada is seeking greater access to Korea's agricultural, fishing and forest industries, which are highly protected sectors.

Korea, for its part, is seeking faster reductions in Canadian tariffs in the sensitive manufacturing sectors, such as the automotive sector.

These issues are very difficult, and Minister Emerson has clearly made it known that we prefer a satisfactory agreement with Korea over a quick end to negotiations.

To conclude, the government's view is that there are compelling commercial reasons to pursue an FTA with Korea, both to protect our current business in the face of Korea's other negotiations, and to strengthen our position in this vital economic region of the world.

At the same time, while we know that all FTAs inevitably result in some economic adjustment, the best available economic analysis indicates that the overall impact of this FTA in Canada would be positive and that the negative effects in our areas of sensitivity would be very modest.

Of course, in the event negotiators are able to reach an agreement, it will be up to ministers in the first instance to pass judgment on its merits before any agreement could be signed, and then parliamentarians would ultimately need to decide whether or not to pass the implementing legislation required to allow for ratification and entry into force of the agreement.

[The Vice-Chair, Liberal, John Maloney]

I believe we're going to have to go to five-minute rounds because of the time constraints.

Mr. Bains.

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

Five minutes?

[The Vice-Chair, Liberal, John Maloney]

Yes, five minutes. Clear questions and short clear answers, please.

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

Thank you very much, Chair. I will do my best. I have a tendency to ramble on.

Thank you very much for coming, I appreciate that. Thanks for your patience today. It's unfortunate we don't have more time to discuss this. I hope we might ask you to come back again, if some of the questions go unanswered today.

In your opening remarks you talk about on balance this trade will be good for Canada and you've cited some reasons. Currently we have a negative trade balance with South Korea. In your analysis, in your forecast, do you ever project a positive trade balance with South Korea?

[Ian Burney]

No. The forecast has to do with the impact on the changes in the level of exports and the changes in GDP.

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

But not a net analysis of the imports and exports and in seeing if we're going to be in a positive or negative position? Because currently we have a trade imbalance.

[Ian Burney]

Yes, that's correct.

On the question of trade balances, the reality is that Canada has a trade surplus with about a hundred countries of the world, and we have a trade deficit with about a hundred countries in the world and we have an overall surplus that works out to about $40 billion. The idea of our trade policy is not to establish a balance with every country or with every--

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

I'm not saying that's an overarching objective; I just want to know if that analysis was done. Because you talk about the growth in exports, but you don't necessarily indicate the imports.

[Dan Ciuriak, Acting Director and Deputy Chief Economist, Policy Research and Modelling Division, Department of Foreign Affairs and International Trade]

We analyze the impact of the free trade agreement on both Canadian imports from Korea and from the world and on our exports to Korea and to the world.

In terms of the bilateral trade balance with Korea, there is an improvement in this particular analysis largely because, as Ian mentioned, Korean tariffs are higher than Canadian tariffs. So the impetus to Canadian exports from tariff elimination in the Korean market is greater than vice versa.

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

You also indicated in your analysis that you've looked at the impact on jobs. You've indicated and the minister was here a few days ago indicating that according to the analysis done by the department and the individual from U of T, Johannes Van Biesebroeck, the job losses will range between 5,000 and 23,000. Then we have the CAW report saying 33,000 job losses. That's a fairly large discrepancy. Can you comment on why the discrepancy? Because that's not even remotely close: we're talking about 5,000 to 23,000 jobs versus 33,000 jobs.

[Ian Burney]

I'd be happy to comment on that.

First of all, the job figure that was referred to was from the study by Industry Canada. I believe the range of jobs was 5,000 to 35,000 and it was specific to the auto sector. This was the detailed drill-down we did on the auto sector.

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

Sorry, all sectors.

[Ian Burney]

It covers all sectors, that's correct.

We have fundamental misgivings about the methodology used in the CAW report. The minister spoke to it the other day when he was here. I think the primary difference is that our study is focused on the realities of Canada-Korea trade. The CAW report looked at the trade patterns with our existing five FTA partners extrapolated over ten years and attached those numbers to current Canada-Korea trade.

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

Have you done any analysis on the quality of jobs versus the number of jobs being lost in manufacturing? Based on the study, you only project between 5,000 and 35,000. What are they being replaced by? Where do the additional job opportunities come from that will offset some of the job losses?

[Ian Burney]

I think I went through a long list in my identification of the sectors where we see the jobs.

I just want to address the point about value because there seems to be a perception that in this FTA we're going to be trading high-value manufacturing jobs for low-value jobs in agriculture and resources. I think that's an unfair characterization. Based on the number of statistics I've seen, jobs in the oil and gas and mineral sectors can often be higher-paying and of higher value than in many manufacturing sectors. It's useful to avoid making judgments about the quality of jobs on the basis of sector.

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

You mention the dispute settlement mechanism. One question I had is with respect to snapback tariffs. Is that something that's currently being discussed in the negotiations?

[Ian Burney]

I have to be careful about getting too specific in terms of things that are under negotiation. What I can say is that we are looking for a comprehensive package of non-tariff provisions in the FTA pertaining to the auto sector, and what we're looking for is an overall package that's commensurate with what the U.S. got in the KORUS agreement.

[The Vice-Chair, Liberal, John Maloney]

Thank you, Mr. Bains.

Mr. Cardin.

[Serge Cardin, Bloc, Sherbrooke, QC]

It's my colleague's turn.

[Guy André, Bloc, Berthier—Maskinongé, QC]

Good afternoon.

I'm going to continue along somewhat the same lines as my colleague. Of course, as you know, this Canada-Korea trade is a concern for a lot of people, particularly those working in the manufacturing and automotive industries.

In 2005, the automotive industry produced statistics showing that Korea had sold 130,000 vehicles in Canada, whereas Canada had sold 400 vehicles in Korea. That's a very different profitability ratio.

There are also other elements. They managed to conduct quite a detailed assessment of the impact of the bilateral agreement with Korea. But I didn't see any documents in your report clearly showing our gains and losses on balance. You gave some figures on the subject—I heard them—but we're lacking details and perspective to reassure the public.

Our manufacturing sector is currently in crisis. We mustn't enter into an agreement that would put that sector at an even greater disadvantage. So there's major concern in that regard.

In addition, Minister Emerson told us that, if there were an agreement between Korea and the United States, we'd have trouble subsequently securing an agreement with Korea. The agreement would be less warranted, less useful or less important, because the needs would already have been met.

I would like to hear your comments on that subject.

[Ian Burney]

We think we have a number of studies on the impact of an initiative with Korea. We have the results I talked about in my presentation, with the economic models. We've also conducted two extremely detailed studies in the automotive industry. There is a lot of information on our Web site on each sector that will be concerned.

[Guy André, Bloc, Berthier—Maskinongé, QC]

But do you approve the figures I stated concerning the automotive industry, or do you dispute them?