International Trade Committee on Dec. 11th, 2007

[Mark Nantais]

Perhaps you are referring to the arrangement that General Motors has with their affiliated company in Korea. In order to gain more than just access to that market, they had to basically buy their way in. The key point here is that given the direction that Canadian negotiators are going in at this time, they also have grave concerns about the Korea free trade agreement. They will continue, of course--as the Koreans are right now--to import those vehicles facing the tariff.

[Lui Temelkovski, Liberal, Oak Ridges—Markham, ON]

How would that impact the 165 dealers that are already here?

[Mark Nantais]

In terms of the dealers, these vehicles coming into Canada are faced with the 6.1% tariff. The import numbers have been growing. So whether or not we have an agreement in Canada, the impact would be relatively small.

[Lui Temelkovski, Liberal, Oak Ridges—Markham, ON]

Mr. Stanford.

[Dr. Jim Stanford]

I tend to agree that not signing a free trade agreement is not going to have a negative impact on the volume of vehicles coming into Canada from Hyundai and Kia. I think we should do something about the volume of imports coming into Canada. They are exporting almost $2 billion a year worth of automotive products to Canada, and buying about $10 million a year back from us. That's a huge imbalance--about a 200:1 imbalance.

Remember, there are far more jobs involved in manufacturing automobiles and their parts than in the dealer network. I am concerned about that current inflow, but not signing a free trade agreement is not going to do any damage, in and of itself, to the Hyundai and Kia dealers here.

[Lui Temelkovski, Liberal, Oak Ridges—Markham, ON]

If there's any time, Mr. Chair, maybe my colleague can speak.

[The Chair, Conservative, Lee Richardson]

You have three minutes.

[Sukh Dhaliwal, Liberal, Newton—North Delta, BC]

Thank you, Mr. Chair.

Thanks to the panel and witnesses.

Government should be working with the stakeholders and incorporating their suggestions into this free trade agreement that they can enter into. Can you all tell me whether there have been any talks with you, and how that feedback is put into the system?

[Mark Nantais]

Certainly the CVMA and its member companies have been part of an ad hoc consultation group with DFAIT and their negotiators, which we appreciate very much. We made several recommendations and put forward some very significant proposals on how we thought it would be best to approach tariff reductions, dispute resolution mechanisms, and so forth. Many of them were developed by some of the most reputable trade lawyers in Canada, only to be dismissed on the basis that this is policy that we've never used before in a free trade agreement. That's been very disappointing to us.

We feel that we've given them some very plausible solutions for bringing about what is necessary for both free and fair trade, but they've only incorporated a small portion of them.

[Sukh Dhaliwal, Liberal, Newton—North Delta, BC]

Mr. Stanford.

[Dr. Jim Stanford]

I would make a similar point. We also participated in that ad hoc consultative committee, and we appreciated the information exchange. But it would be completely misleading and wrong for anyone to suggest that as a result of the actions of that consultative committee, the government has been listening, incorporating, and responding to the concerns of the auto industry.

We also made several suggestions through that committee on how these negotiations should be handled. We gave proposals to exclude the auto sector from the free trade agreement, given how unbalanced our trade with Korea already is; establish a commitment to two-way trade in automotive if trade is going to expand with Korea, so they have to buy as much from us as we buy from them in the auto industry and other strategic components; and even just establish quantitative targets, whereby the Koreans have to demonstrate by their purchases from us that they are opening their market before tariffs would fall on our side.

All of those suggestions have gone absolutely nowhere with the government. We appreciate the two-way communications, but I have no indication whatsoever that they're listening to the auto industry's concerns.

[The Chair, Conservative, Lee Richardson]

Thank you, Mr. Temelkovski and Mr. Stanford.

We'll move on now to the second round.

From the Bloc we have Monsieur André for five minutes, please.

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

Good afternoon. Thank you for being here with us at the committee.

First of all, I'd also like to congratulate the Canadian Auto Workers for the study they produced.

I read your study about the repercussions of a bilateral Canada-Korea trade agreement, and it is clear and well quantified. We see very clearly the consequences of this bilateral agreement. Last week we met with Mr. Burney, a government official, and Mr. Emerson, who told us that the Canadian Auto Workers had produced a study that was not valid. They even anticipated that the auto industry could export more vehicles and enter new markets in order to arrive at an agreement, as you have requested.

In general, you're asking for trade agreements that are fairer and more balanced. We would export cars to Korea, we would import the same number, and the exchange would be fair. What you're asking for is completely justifiable.

In your opinion, is that the intention? Is there a possibility that you could sit down with the government and officials and arrive at similar studies or at least, have the same analytical grid of the consequences of this study, the economic repercussions of the Canada-Korea agreement?

I was also pleased to learn that there has been a lot of pressure on the part of the government for our Canada-Korea agreement to be called into question in the event of a Canada-US-Korea agreement. I'd like to hear your views on that subject. You told us, and that is what we believe, that it was not clear that a Canada-US agreement was on the point of being signed, contrary to what the government told us last week.

In your document, you also exposed the fact that there is currently a Harper-Emerson strategy. No free trade agreement has been signed for over five years. They absolutely want to sign a bilateral agreement to make a political statement and demonstrate that something is being done and that Canada is active internationally, without necessarily measuring the effects this could have on the manufacturing industry.

I'd like to hear all three of you on this subject.

[Dr. Jim Stanford]

Thank you for the question. That's very thoughtful.

I wish it were the case that economists could sit around a table, simply agree on the facts, go back and forth with the assumptions and methodologies, and come up with something that was mutually acceptable. I think that shows more optimism in the economics profession than even I have, and I'm optimistic as an economist.

Frankly, I don't think that's possible in this case. The fact that the government had 14 rounds of negotiations with the Koreans before even producing the first economy-wide study of the impacts of this agreement they've been working to reach proves that for them the economic analysis is an afterthought. They were determined to negotiate an agreement with Korea regardless of what their economic study indicated; otherwise they would have done the study first and identified the concrete sectors that could actually gain from this.

I have the sense, as you alluded to, that the thing was driven from the beginning by political considerations and perhaps institutional considerations. The government wanted to sign a free trade agreement because they hadn't signed one for a while. Remember, there's a whole department of officials on Sussex Drive whose job is to sign free trade agreements. That creates an institutional degree of momentum to sign the agreement just for the sake of signing the agreement. I think that's a bad error in strategic judgment.

The government should have conducted a very careful sector-by-sector analysis to identify the sectors that could possibly win, identify the costs and the risks, and then make a judgment that the benefits were greater than the costs.

So far, apart from a very small number of agricultural sectors, particularly the beef industry, it is not clear at all who in Canada can possibly benefit from this. But we have identified many important sectors that are very much at risk.

[Gerald Fedchun]

I just want to add that, back when this thing started, when we had our first meetings with DFAIT, we volunteered to work with them and to do an analysis of the automotive industry. We said, you can do what you want and we'll give you information. That offer was never taken up. They ended up producing their own study without ever talking to us—and we know this industry way better than they do. They said, well, what do you know about it, just because you've been in it for 40 years? We're free trade guys; we know everything, and much more than you do. So they ignored us. We were treated like well-groomed mushrooms.

[Some hon. members]

Oh, oh!

[The Chair, Conservative, Lee Richardson]

That's a great spot to leave it at. I'm going to have to ask you later about grooming mushrooms.

Mr. Miller.

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

I'm going to be trading my time here, or splitting it with Mr. Allison.

There's been talk today, and even before, from some witnesses about details of a document that's out there, a free trade agreement. Unless our witnesses know something that I don't, there is no document out there. If you do have something, I'd ask that you table that agreement today.

We've had witnesses here who have told us, and some of them are chief bilateral trade negotiators, as well as the Minister of International Trade, that the best way to address non-tariff barriers would be within the context of a broad free trade agreement or negotiations. In fact, the minister has even said that any proposed agreement would only be agreed to if it benefited Canada.

Another fact I've heard here is that 85% of all Canadian cars produced in Canada are exported, and I've even seen one report that says it's 96%.

Mr. Nantais, I'll quote a comment you made the week of December 3: “Canada's auto industry, and Canada, as a result, has benefited greatly from free and fair trade, especially with our NAFTA partners”. So I guess some of your comments are contradictory in regard to that.

The question I have for you is, what can you or the CVMA offer as an alternative for the Government of Canada on how to address these non-tariff barriers, and what's your plan to address them? I'd like to hear your comments on that.

[Mark Nantais]

First of all, I don't think my comments are contradictory to those of December 3. We have benefited from free trade agreements, but the free trade agreements that have been negotiated properly, where we have received reciprocal access, and where things have been put in place to actually remove systematically the non-tariff barriers and other barriers that may exist. We don't have that, thus far, in this negotiation, as far as we can see.

We've put forward, as I mentioned, proposals that were developed by some of the most reputable trade lawyers in Canada on solutions and approaches to get rid of these non-tariff barriers to trade, including dispute resolution mechanisms. The key thing here is to avoid what Korea has done so well for so many years, which is that when they get rid of one tariff barrier, they create another one.

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

I want to hear what you're going to do, Mr. Nantais, what you're suggesting.

[Mark Nantais]

What we have suggested, based on proposals developed by some of the most reputable trade lawyers, are dispute resolution mechanisms involving materially significant and proven removal of NTBs; and if those NTBs are not removed, then we would have a complete snap-back provision of the tariff reduction. So if the tariff were reduced to a certain level and a non-tariff barrier then arose, then the tariff would go right back to the total level it was before.

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

So basically what you're saying is, have more negotiations?

[Mark Nantais]

No, I'm not saying negotiations at all. I'm talking about a very specific snap-back provision when non-tariff barriers arise again. There has to be a proven and consistent absence of those non-tariff barriers to trade.

I think we've put forward some very significant proposals that have been ignored by our negotiators.

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

Mr. Allison.

[The Chair, Conservative, Lee Richardson]

You have three minutes, but we'll have another round as well.