International Trade Committee on Dec. 6th, 2007

[Ian Burney]

That's a projection. You must know that we don't have an agreement at this time. We're negotiating something. So it's difficult to—

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

So you're not questioning the figures I gave you. Do you agree with those figures?

[Ian Burney]

The figures I stated in my presentation?

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

No, the figures obtained by the automotive industry following the study it did of the Canada-Korea agreement.

[Ian Burney]

The union's study?

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

Yes. I thought you agreed.

[Ian Burney]

No. I entirely disagree with those figures.

I began to speak to that in my answer to the previous question. That study took the changes in our trade with our existing trading partners we have FTAs with, projected those onto our current trade with Korea, came up with an enormous trade deficit figure, and then from that assumed that there would be enormous job losses in Canada.

Let me go through some of the big problems with that.

First of all, there are many reasons for changes in our trade with countries like the United States that are not related to the FTA. That study assumed that all of the trade changes over ten years with the United States were based solely on the FTA--not the currency, not changes in terms of trade, not autonomous growth, not the rise of China and India--all because of the FTA. Moreover, it assumed that Canada is not trading with any other country. It assumes that every additional import that comes in from Korea would be necessarily at the expense of domestic production, whereas the reality, if you take the automotive sector, is that about 85% of what we produce is exported. So clearly, every additional vehicle that comes in from Korea is not going to displace domestic production; it's more than likely going to displace other imports.

Thirdly, it didn't look at the reality of Canada-Korea trade at all. It assumed that 12,000 of those jobs would be lost in the electronics and computer sector, which is already largely tariff-free between Canada and Korea. So it's illogical to assume that there would be 12,000 job losses in those sectors.

It also excluded agriculture, by the way, which is an area where we would expect to see some of the biggest gains for Canada.

I could go on and on, but the point is that from our perspective, the methodological flaws are so fundamental that the result has no bearing on the reality of Canada-Korea trade.

[The Vice-Chair, Liberal, John Maloney]

Thank you, Mr. André.

Mr. Miller.

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

Thank you, Mr. Chair. I'm going to split my time with Mr. Allison.

Thank you for coming, gentlemen and lady.

In your view, would a Canada-Korea free trade agreement basically allow Canadian companies to be able to better participate in that global supply chain?

Carrying that further, with Korea, what potential does it have, in your opinion, to basically start as a gateway or an avenue to bigger and better things to come in Asia? Could you comment on that?

[Ian Burney]

Sure. I think that's a very important dimension to it, because what we're trying to achieve with the agreement with Korea is not only an enhanced relationship with Korea, but we want to leverage a better relationship with Korea to pursue neighbouring markets in Japan and China. This is one of the most dynamic economic regions of the world.

There are a number of ways that can happen. Through the investment provisions of the agreement, we hope to make it more attractive for Canadian companies to invest in Korea and therefore use Korea as a platform to pursue opportunities throughout northeast Asia.

But it often doesn't happen through a specific provision in a trade agreement. What you see when you establish a close partnership through an FTA with another country is a lot of commercial interaction forming, and it's basically the contacts that are generated. So when you see Canadian companies teaming up with some of the big chaebols and other big companies in Korea, these companies know very well how business is carried out in China, in Japan, and elsewhere, and they have business relationships throughout. To the extent that we can have Canadian companies team up with them to pursue opportunities in the region, I think there'd be enormous advantages for Canada, and that comes directly back to your point about making better use of the gateways in Canada.

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

Okay, thank you.

[Dean Allison, Conservative, Niagara West—Glanbrook, ON]

Thank you, Mr. Burney and all your officials, for coming again today. We apologize for keeping you waiting. We know your time is valuable, and we thank you for taking the time out this afternoon.

My thought is, along with what my colleague talked about in terms of supply chains and value chains globally, that when one enters into a free trade agreement, sometimes people just talk about what are the benefits dollar for dollar, import and export. I think one of the things this ignores is the whole notion of value chains and how they fit in, and what type of value-added we could get.

You touched on it before. You touched on it in your comments, and I know my friend from the NDP is always concerned about trading for lower-paying jobs. Their perception with any free trade agreement is that we get a bunch of hourly workers versus high-tech workers, or as you talked about, mining or oil and gas.

Talk to us a bit about that. I believe it's going to help to create more prosperity through higher-value type of work that we can get into. So could you talk about the value chain and how it fits in and how we could actually benefit as Canadians from this type of agreement?

[Ian Burney]

Sure. I think you're exactly right that there tends to be a lot of focus only on the tariffs, but the reality is that what we're negotiating is a comprehensive trade agreement. So there will be provisions on goods, on services, financial services, investment, temporary entry, and electronic commerce. This is going to cover a lot of ground.

The result that we talked about earlier on the modelling is focused only on the impact of tariff elimination, because that's all we really have the capability to model. We know from past experience that actually the benefits to the economy are substantially greater, because they get into all those other non-tariff areas that are virtually impossible to model; and a lot of it happens during the points I was making earlier about developing commercial partnerships in areas where that then gets leveraged into wider opportunities, breaking into value chains. So all of that happens through the closer economic integration that an FTA is designed to bring about.

Generally, the theory of trade liberalization, of course, is that you specialize in your areas of comparative advantage. So, all else being equal, that moves you up the value chain into higher-paid jobs and out of the areas in which you're relatively less competitive internationally. So that's exactly part of the aim of the FTA.

[Dean Allison, Conservative, Niagara West—Glanbrook, ON]

Could you also comment a bit on IP, intellectual property? I know there were some concerns raised about that. It would make sense that we start talking about intellectual property, certainly as we move forward with other trade agreements. I realize this may be relatively new in the last five to ten years, but do you have any quick comments on that?

[Ian Burney]

Yes, I am aware of some concerns that were expressed the other day on this, and I can provide some assurance to committee members. I think the concern was that Canada was pursuing a U.S.-style intellectual property chapter in our negotiations with Korea. We are not. We are pursuing an intellectual property chapter, but we are not seeking so-called TRIPS-plus provisions. These are obligations that would go beyond the intellectual property obligations that we have at the WTO.

What we're looking for is basically a chapter that would enhance the cooperation that we have with South Korea, expand dialogue and cooperate on enforcement and acquisition issues as they relate to intellectual property, but we are not looking to build in additional obligations along the lines of what's in the U.S.-model FTA.

[The Vice-Chair, Liberal, John Maloney]

Thank you, Mr. Allison.

Go ahead, Mr. Julian.

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

Thank you, Mr. Chair.

Thank you very much for coming before us today.

How many of you were in Korea last week? Were there any members?

[Ian Burney]

All of us were there except for Mr. Chiuriak, who is our deputy chief economist.

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

How close would you say we are to signing a Canada-Korea trade deal?

[Ian Burney]

As I mentioned, this was our twelfth meeting, and the thirteenth is not scheduled until March. Korea is going through a period of political transition now with presidential elections, and won't have a new government until...well, the president in February, and the cabinet will probably come in about a month or so later, so it's not imminent.

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

Thank you for that.

I'd like to come back to the five existing FTAs. I'd like to know if the department has done an analysis of the difference between the actual impacts of those bilateral agreements and what the department projected the impacts would be.

I'm raising that question because you're criticizing the one study that has gone into detail about the job impacts. It's based on the actual results from our five existing FTAs, so I'm wondering if the department itself has done an analysis of the differential between what the department estimated the economic results and the job results would be from each of those bilateral agreements and what the actual results have been.

[Ian Burney]

The basis of my criticism is that other agreements were used to project what would happen with this agreement, and the two have very little in common.

To answer your specific question, no, I'm not aware of an analysis specifically done on the difference between what we projected on the five existing FTAs and what the reality is. However, my guess is that we would have projected positive trade impacts from all of those FTAs, and certainly the result has been positive.

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

You realize why I'm raising that question, of course. The CAW has a good track record in terms of projecting economic impacts in a variety of areas, and I think it's important for the department to do the same exercise and bring forward what was projected and what the net results have been.

That brings me to the CAW report, because it does raise valid concerns. As Mr. Bains mentioned, there were 33,000 net jobs lost in Canada: in electronics, it was over 12,000; in machinery, 5,000; in transport equipment, over 4,000. There were more in metal products, plastics, and rubber. They've detailed the job losses across the country as well: 1,000 in British Columbia, 3,000 in the prairies, over 17,000 in Ontario, 8,000 in Quebec, 500 in Atlantic Canada, and then a number they weren't able to allocate. The problem, of course, is that we export to Korea essentially unfinished products, and as a result very little job creation comes with that, while the imports we would expect from Korea would be from the high-value-added manufacturing jobs.

I'd like to ask you what our top exports are now. Also, the scope of the CAW study and the wide variety of its sources, including the Canadian Vehicle Manufacturers' Association, have given credibility to potential job losses around this deal. Does that not make you want to go back and re-evaluate the impact studies that Industry Canada has done or to conduct your own impact studies?

[Ian Burney]

Taking your last question first, no. We found so many flaws in the approach taken in that study that we would certainly not want to replicate it.

That study was one of four put out by the CAW last year. Basically it just reissued that study. It was the worst-case scenario of the four and provided a provincial breakdown. This was the same study we had seen a year before; the same methodology problems we had with it then still pertained, and I went through those. It's not grounded in any analysis of Canada-Korea trade. It doesn't allow for the fact that Canada trades with anybody else. You yourself mentioned the 12,000 jobs lost in the computer and electronics sector, in which there currently aren't tariffs between Canada and Korea; how would an FTA bring about 12,000 jobs lost in that sector?

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

I have two final quick questions, because I only have about 30 seconds, I believe, Mr. Chair.

Are there chapter 11 investor-state provisions anticipated with this proposed agreement? Second, what alternatives to stimulating trade with Korea has the department looked at? If this trade agreement is problematic, what are the other ways? For example, trade promotion is much more on the ground in supporting Korea. What are the other ways that we can actually further our economic relationship with Korea?