International Trade Committee on Dec. 11th, 2007

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

To continue, I would certainly agree that non-tariff barriers are a concern. There's no question about that.

Mr. Stanford, do you want to comment on this as well? What are some of the things that could be done to deal with those issues? What I'm hoping will happen is that we develop dispute resolution mechanisms while we negotiate and that we look at snap-back provisions. You don't sound very confident that this is something we're working on as a government. So are there any other things in terms of NTBs that you'd suggest we look at?

[Dr. Jim Stanford]

The fundamental problem with the non-tariff barriers on the Korean side is that they're very flexible and very opaque. It's very hard to identify what precise non-tariff barriers are limiting your market sales at any point in time. Therefore, it's going to be impossible to determine, on the basis of a promise the Koreans make when they sign the free trade agreement--and I can assure you they will make the promise that non-tariff barriers are going to be removed--whether they are still there or not or whether alternative non-tariff barriers have been erected in their place.

For us, if you like, the proof is in the pudding. We will know that the Korean market has been effectively opened when they're buying stuff from us. That's why the main thrust of our recommendations to the negotiators has been to argue that any expansion in Korean imports of automotive products or other strategically identified commodities must be offset by Korean purchases from us. They have to be buying from us, it has to be a two-way street; otherwise the quantitative access to our market has to be limited.

We will try to skip the whole issue of whether the NTB is there or not and cut straight to the chase. Are they buying from us? If so, we'll expand trade. If not, we'll limit trade.

[Mark Nantais]

Mr. Chairman, may I add to that?

[The Chair, Conservative, Lee Richardson]

Perhaps in the next round.

I'm sorry, we're going to have to cut it off and go to the next round. This will be our third round, five minutes again.

We're beginning with Mr. Maloney.

[John Maloney, Liberal, Welland, ON]

On the non-tariff barriers, we seem to be very caught up in this. Have you discussed your suggestion of how to deal them, the snap-back provisions, with our negotiators? Are they receptive to that idea, or something similar?

Are there any communications between those who are opposed? You three gentlemen seem to represent interests that are very much opposed to the agreement. Is there any communication with our government negotiators?

[Mark Nantais]

Well, sure. Part of our ad hoc consultation group have had ongoing discussions with them. This is the point. Those discussions have led to virtually no inclusion of what the auto industry has put forward.

As I mentioned, we've put forward some solutions based on some of the most reputable trade lawyers. I'm willing to make those legal opinions fully available to this committee as to what an appropriate approach would be in the context of global trade law, in terms of what is acceptable and what is legal, as a way to approach these negotiations.

I'd be certainly glad to provide those to this committee.

[John Maloney, Liberal, Welland, ON]

I wonder, Mr. Chair, whether we could have those opinions.

[The Chair, Conservative, Lee Richardson]

Yes, sure.

[John Maloney, Liberal, Welland, ON]

Thank you, Mr. Nantais.

[Gerald Fedchun]

I just want to say he's absolutely right. We've put things forward and we've been ignored.

[John Maloney, Liberal, Welland, ON]

What would the Koreans want to buy from us other than our natural resources? What does Canada have that they would like, as far as a two-way trading situation is concerned?

[Gerald Fedchun]

Nothing that I know of--that's honest. There are not many things they want from Canada. I guess you'd have to ask them what they have, but natural resource access appears to be what they're really after.

Do you have any other ideas, Mark?

[Mark Nantais]

Other than autos, no.

[John Maloney, Liberal, Welland, ON]

Mr. Fedchun, you've referenced the remarks of the head of Ford Motor Company about how they'd have to reconsider investments within Canada if we proceed with a deal that doesn't give market access. The U.S. is negotiating a deal, as you know, but all three of you feel that this agreement will never be signed, at least perhaps not in its current form. In fact, if it were, where's the....? Are they trying to intimidate Canada to enter into an agreement that's more favourable to the auto industry? What is the motive?

If the U.S. were to in fact sign an agreement, they'd be in the same position--Canada and the U.S.

[Gerald Fedchun]

No, I think he was just telling the Canadian public the truth. If I were the CEO, I'd say, gee, if I'm going to lose my shirt here, maybe it's not a good place to be. A little bit of reality is good for all of us to understand.

But the U.S. is in an entirely different position. They do have one assembly plant in the southeastern U.S. and they're about to build another one. So their situation is a whole lot different from ours. A lot of U.S. parts people in the southeastern U.S. will benefit by those parts plants.

We don't have that opportunity. We do not, in the foreseeable future, see any Korean investment in Canada in the auto industry. So it's a whole different ball game with completely different results and completely different wins for the U.S.

[Dr. Jim Stanford]

If I could jump in on that very point, there are a couple of other important differences between the Canada-Korea talks and the U.S.-Korea talks. The first is, as Gerry just mentioned, that the U.S. is getting two assembly plants out of the deal, and that's very important.

Secondly, the American dollar has depreciated substantially against the Korea currency, by about 30% over the last few years, while these negotiations were occurring. That greatly reinforces the ability of American companies to stay in business. For us, it's the opposite. Our currency has appreciated against the Korean by 20% to 25%. So on top of the 5% or 6% or 7% tariff headstart that we're going to give Korean producers, we've also given them a 20% to 25% currency headstart that will compound the problem.

The third big difference is that the American tariff on vehicle imports is much smaller than ours, 2.5% versus 6.1%. So they had much less to lose in the auto case as well.

The Americans had less at risk than we do, yet the Americans negotiated a better deal than it looks like we possibly can. That's an incredible irony.

[John Maloney, Liberal, Welland, ON]

Both the government and you have done economic studies. Both parties have panned the other's objectivity or their methodology. Have you ever gotten together and tried to look at where there may be commonalities? It's just incredible that educated people can study the same situation and come up with different positions. Is there a common ground somewhere that we could strive for?

[Gerald Fedchun]

We're ready, willing, and able, and we have been for a number of years, and we have not been consulted. We said we would. So we're still ready, willing, and able right now, and we could get together and do it, I think, pretty quickly. But people have to ask us.

[John Maloney, Liberal, Welland, ON]

I want to go back to non-tariff barriers. It seems to be a moving target, that they always throw something up that wasn't anticipated before. Are they asking for things that they don't exact from their own manufacturers, such as emission standards? Are they asking from North American vehicles something that they don't have themselves for their own vehicles?

[Mark Nantais]

In some cases, yes. These are vehicles that are being produced for their domestic market, so they would design for that domestic market.

When you look to manufacturers from around the world, you need to understand what's going on in terms of different trade blocs and as it relates to vehicle regulations, as an example. You have basically three regimes, if you will. You have Europe, North America, and Asia Pacific. What they seem to have been doing is cherry-picking, as I mentioned earlier, on these specific standards.

So it makes it much more difficult from a manufacturer's perspective from abroad going into Korea. That's really the issue here. It's like a game of whack a mole, where one pops up, you whack it, and another one pops up somewhere else and you whack that, just like you do at the summer fair. It's something that has been very elusive.

And just to comment on the question Mr. Allison had earlier, take for instance the United States; they signed two memoranda of understanding with Korea in 1995 and 1998, both very specifically designed to deal with the removal of non-tariff barriers, and very minimal progress was made on both of those agreements. They've showed basically only face-value changes in terms of removing those non-tariff barriers, but in turn they've created many more non-tariff barriers. That's the name of the game in Korea. It makes it very difficult from any global manufacturer's perspective.

[The Chair, Conservative, Lee Richardson]

Thank you, Mr. Nantais. Thank you, Mr. Maloney.

We'll go now to Mr. Allison.

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

Thank you, Mr. Chair.

Once again I appreciate the fact that we started looking, as all you gentlemen articulated today, at the issue with NTBs. We have an issue in which we continue to have autos decline in terms of surplus and what we export, and we have an opportunity to try to do something. I realize America is doing this.

Part of what you're saying is that we just need to negotiate a better deal. Are you gentlemen fundamentally opposed to a free trade agreement, or is it just making sure we get the best deal possible? I appreciate that. The target's moving, and we're trying to do these kinds of things. Is a free trade agreement not one way we can try to at least start to address some of these issues?

[Gerald Fedchun]

I think it's pretty straightforward. I said this three years ago. If you can prove to us that they are not using non-tariff barriers, then we can sign an agreement. But they have to prove--I'm from Missouri. They have to prove to us first, because they've been doing it for years. They're very good at it. They're one of the best in the world at using non-tariff barriers, and it's a question of, because you're so expert at that, I don't trust you anymore. It's that simple.

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

Mark, and then Jim.

[Mark Nantais]

The memorandum of understanding that was signed with the United States is proof of that. They showed no significant removal of non-tariff barriers, despite those two--not one, but two--agreements. The proof is in the pudding there. They have no real interest of opening to the market. They simply want to capitalize on our market.

In answer to your specific question, do we support free trade? Yes, absolutely, but it has to be fair. And fair means full two-way trade and fairness in that regard. We don't see that as it currently stands. We would support the right deal, but we don't have a right deal yet, as far as I can see.