International Trade Committee on Dec. 13th, 2007

[The Chair, Conservative, Lee Richardson]

This is the ninth meeting of the Standing Committee on International Trade for this session of Parliament. I want to welcome our witnesses.

As per our usual procedure, we'll have opening statements. I'm going to ask you to keep them under ten minutes. We're going to be pretty tough with the first round of questioning. The House has adjourned, so we're technically adjourned here, the House having seen 5:30. That's a technical term for meaning we're all on overtime. We're probably going to do one round of questions following your presentations.

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

I guess I would agree with that, but if we need additional time based on the questions and the responses, I hope we can take up that opportunity.

[The Chair, Conservative, Lee Richardson]

All right. I'm going to aim for 4:30 at this point. If you want to raise the matter at that time to extend, we'll vote on it. At this point we're going to conclude at 4:30, if that's okay with Mr. Stoffer.

[Peter Stoffer, NDP, Sackville—Eastern Shore, NS]

If we had concluded yesterday it would have been better.

[Voices]

Oh, oh!

[The Chair, Conservative, Lee Richardson]

We would have, had we not known that we would have the calibre of witnesses we have today.

I take it we have opening statements from four groups: the Canadian Manufacturers & Exporters, Jean-Michel Laurin; the Forest Products Association of Canada, Marta Morgan; the Réseau des ingénieurs du Québec, Etienne Couture; and the Shipbuilding Association of Canada, Peter Cairns.

I would like to start with Mr. Cairns from the Shipbuilding Association of Canada. Please present a brief opening statement.

[Vice-Admiral, Retired) Peter Cairns (President, Shipbuilding Association of Canada]

Thank you, sir.

Good afternoon, ladies and gentlemen. Thank you very much for giving me the opportunity to speak with you today about the proposed Canada-Korea free trade agreement.

My remarks are based on the assumption that free trade must also be fair trade. This is a key issue for shipbuilders, because up until now we have seen little evidence of that in our sector.

What do shipbuilders do? It's not my intention to talk down to you, but I find that few Canadians realize the depth and breadth of the industry. Not only do we build, convert, and repair ships, but we also build and fabricate components for Canada's offshore oil and gas industry. Canada's shipbuilding industry played a strong role in the Hibernia, Terra Nova, and White Rose projects off our Atlantic coast.

Major companies such as Lockheed Martin, General Dynamics, L-3, Thales Canada, and SNC-Lavalin, to name a few, all have divisions that provide sophisticated equipment for ships, and some are members of the Shipbuilding Association.

Shipbuilding has been cited by some as a smokestack industry. It's not true. The data information systems, computers, and component integration in a Canadian patrol frigate far exceed that of an automobile, an aircraft, or the space shuttle, for that matter.

The North American Free Trade Agreement, NAFTA, was very successful for Canada. U.S. markets were opened up to Canadian companies, and on balance, many Canadians have prospered. But the shipbuilding sector was left out of NAFTA, thus denying us access to our largest and most natural market. Why? The U.S. considers ships, shipping, and shipbuilding essential to the defence and security of their nation. They do not bargain that away. In their just-completed negotiations with Korea, I can find no evidence that U.S. shipbuilding was included in any way.

It is interesting that the success or failure of the negotiations with the European Free Trade Association, EFTA, hinged on an agreement on shipbuilding. Norway, the only shipbuilding nation in EFTA, was adamant about this. Why? They wanted free access to our offshore oil and gas market and the potential finds that analysts say rest in our Arctic.

South Korea is the largest shipbuilding nation in the world. They achieved that position because they had a national strategy to do so. In their fourth five-year plan from 1977 to 1981, they made heavy industry, and particularly shipbuilding, a priority. By their sixth five-year plan, shipbuilding had grown by 51%.

In the early 1990s, Korea expanded its capacity threefold and was one of the prime contributors to the excess capacity that plagued the global industry during the 1990s. In order to use this capacity, they cut prices by 30% and, by so doing, increased their market share to 70%.

It is generally accepted that Korea used International Monetary Fund money to bail out its shipbuilding industry during the Asian monetary crisis in 1996. There is no doubt that Korea has achieved its dominant position in shipbuilding through generous government subsidization and support.

The problem we find ourselves with is, can we or how do we compete in a free trade environment? A comparison of government involvement in the case of Korea—and Norway, for that matter—as opposed to us, is stark indeed. The result is that we are not entering into this situation with anything like a level playing field.

Let me emphasize that we have not been sitting around wringing our hands about the issue. When Minister Emerson wore a different coloured tie and was Minister of Industry, we presented him with a proposed transformation strategy for a duty-free environment.

Unfortunately, before any action could be taken, the government changed. We presented a similar but less complicated version to Minister Bernier. In June of this year, out of the blue and without consultation, Minister MacKay reaffirmed the buy-Canada policy and that the structured financing facility would be introduced for three years but with minimum funding—that's from our point of view.

In terms of size, shipbuilding in Canada is a small industry. Direct employees number about 5,000, but much of what we do is outsourced. If those tradespeople could be counted against the shipbuilding industry, our numbers would approach about 20,000 people, direct employees.

One bright spot is that the forecast for government work over the next 20 years is good, and we need to capture this work. The downside is that the government has not established a reputation as a reliable customer.

Nevertheless, we are worried about the future. We have excellent technicians, good shipyards, but we have never enjoyed the benefits that have made countries like Korea world leaders. We will be starting from a position of distinct inferiority. Our negotiators understand, but they can only defer certain actions in accordance with agreed phase-out periods.

Economists would say that we should let market forces prevail, that there will be winners and losers, but overall, free trade will positively affect the GNP. Consumers will benefit and jobs will be lost but will be replaced by other jobs. That is yet to be proven. And economists are not on the front line. The jobs that will be lost will be manufacturing jobs, and the highly technical skills that go with them. Already we are seeing these jobs disappearing to the Asia Pacific. In my view it is only a matter of time before the high-tech jobs disappear too. Add to this the fact that the gap between rich and poor is widening daily.

What needs to be seriously considered in Canada's free trade policy is a manufacturing industry strategy. No one has been able to tell me how he or she envisages the future of the shipbuilding industry after free trade. There is no strategy. From where I sit, free trade with NAFTA, EFTA, Korea, and Singapore will provide few, if any, benefits to Canada's shipbuilding industry.

More and more learned people are speculating that the Northwest Passage will be ice free sooner rather than later. While aircraft and satellites will play a role in maintaining our sovereignty in this region, the bulk of the work will fall to the navy and coast guard ships. For the most part, these ships will need to be built and maintained in Canada by Canadians. The shipbuilding industry is a support arm for the navy and the coast guard. Shipbuilding is part of the team that defends Canada's maritime frontiers.

I will close with a quote from Joseph Stiglitz, a member of the council of economic advisers to former President Bill Clinton and subsequently chief economist and vice-president of the World Bank. He stated, “Most of the advanced industrial communities--including the United States and Japan--had built up their economies by wisely and selectively protecting some of their industries until they were strong enough to compete with foreign companies.” Canada might want to consider this same strategy.

Thank you.

[The Chair, Conservative, Lee Richardson]

Thank you.

Let's just move down the line to Monsieur Laurin, from the Canadian Manufacturers & Exporters.

[Jean Michel Laurin, Vice-President, Research and Public Affairs - Quebec Division, Canadian Manufacturers & Exporters]

Merci beaucoup. Bonne après midi.

I'm here this afternoon to represent Canadian Manufacturers & Exporters. We're Canada's leading trade and industry association. I'll talk a little about the state of manufacturing and exporting right now in Canada, and then I'll talk about some of the challenges, opportunities, and priorities as they relate to this free trade agreement that's being negotiated with Korea.

The sector we represent is quite significant in Canada, as 16% of Canada's GDP relies on manufacturing and 21% relies on exports. It's the most significant economic sector in Canada. What's also important about manufacturing is that every dollar of output generates $3.05 in total economic activity. You tend to see that when there's a plant closure in a small remote community. Usually that community faces serious economic hardship.

We're a sector that does business in pretty much every country in the world, exporting our products to nearly 200 countries. We account for approximately two-thirds of Canada's goods and services exports. So trade policy is definitely an issue that matters to our members.

As you are well aware, manufacturing and exporting companies in Canada are facing tremendous pressures right now trying to adapt to the high value of the Canadian dollar. The dollar is currently trading at about 99¢ U.S. That's a 60% appreciation in about five years. Just from the beginning of the year we're talking about a 16% increase. That's propelled by a number of factors that are included in my presentation.

You have to understand that right now it's very difficult for manufacturers to make any profit. On the one hand they're faced with this rapid appreciation of the dollar, and it's very hard for them to increase their prices because of competition. In fact, if you look at the statistics, export prices have increased by only 4% over the past five years. So basically manufacturers have taken a hit with the increase in the dollar. For example, if they sold a product to the U.S. that was worth $100 U.S. five years ago, they made $160 Canadian. Now they're making $99. So that's a huge hit, and most of it has been felt by manufacturers.

On the other hand, there's what we call the cost squeeze. The cost of inputs, whether it's raw materials, inputs, or energy, has increased quite significantly over the past few years. We're seeing a lot of companies cutting costs to try to remain in business. That's why you have seen about 300,000 jobs cut in manufacturing in Canada over the past five years.

If we go to the trade agreement being negotiated with Korea, there are some challenges that we've identified specifically. First, you have to understand that manufacturers' current priority is to deal with the high dollar, and they're doing that by controlling costs. That's why you've seen a lot of layoffs. It's one of the reasons, but they're also trying to improve productivity within their plants in order to maintain market share, both here in Canada and in their main export market, which is the United States.

If you talk to manufacturers, they'll say that future growth depends on their ability to invest in plant modernization, employees and upgrading their skills, innovation, and product and market development. That's what they need to do to be successful in the long run, but it's very difficult right now because profit margins are very thin.

I have included some data in the presentation. It was taken from our latest management survey that was issued last October. It shows some of the current challenges and determinants of growth that manufacturers have identified.

One of the issues we have with the trade agreement that's currently being negotiated is timing. The Canadian industry is going through a perfect storm right now. They're already facing increased competition in Canada and the U.S. There are some concerns that this trade deal would lead to even more competition domestically and in our main export market, which is the United States.

On the other hand, there are some potential benefits from this trade agreement if we really get better market access for Canadian exporters into Korea. There are issues associated with that, but many exporters will tell you that it's not a market they're even considering, because of the reputation it has of being closed and protected. Second, a lot of companies are just not looking at expanding in that part of the world right now.

We at CME are very supportive of trade agreements if they offer effective access into foreign markets, and that includes the removal of non-tariff barriers, which is a major issue when you're talking about the Korean market.

Now, if we turn to some of the opportunities that we've identified with this trade agreement, I think there are three main opportunities for us. The first one is for those companies that are already present in the South Korean market. This trade agreement is very important for them in light of the fact that the United States has been negotiating and has signed a deal with Korea. It hasn't been ratified yet, but if it does get ratified, they're worried they'll be priced out of the South Korean market. So they say it's important for Canada to follow suit and come forward with an agreement.

A second opportunity with the trade agreement is that exporters are looking to expand in more export markets. There was a big focus on the United States for the past 15 or 20 years. I think a lot of companies are looking to expand outside North America. If you look at the statistics, our share of exports going to the U.S. has declined from 87% to 81% over the past five years. So that's a good indication that a lot of companies are going global. In our survey, 8% of those companies surveyed said that Korea has a future growth potential for their company. So it is a market that some companies are interested in.

I think the third opportunity that it offers us is that there are some, albeit limited, global sourcing opportunities for companies that are looking to import some parts, some inputs from a lower-cost country.

In conclusion, I think the key priority for us as these trade negotiations are being conducted is the importance of addressing non-tariff barriers. We've consulted our members over the past couple of years to identify these non-tariff barriers, and we've communicated these non-tariff barriers to the government to assist them in their negotiations. It's important to say that they're very nervous.

For some sectors, tariff reductions are on the agenda, especially for raw materials or food products, for example; but for most other economic sectors, if we really want to provide them with effective access into the Korean market, there's a whole series of non-tariff barriers that must be addressed. I've listed some of the categories in the presentation I've given you, dealing with standards, testing, and customs procedures. I know some of the previous witnesses at the committee mentioned, or gave you some indication, what types of hurdles or what types of barriers they're facing in their own economic sectors when they try to do business in Korea.

I'll be glad to pass on the information that we have to your committee if you deem that it will be helpful for your proceedings, but I think it's important to conclude by saying that dealing with non-tariff barriers is the number one priority as we're talking about these free trade negotiations. We at CME certainly hope that those will be addressed.

Thank you.

[The Chair, Conservative, Lee Richardson]

Thank you.

We're doing well for time. I appreciate it.

Now from Réseau des ingénieurs du Québec, we will have Monsieur Couture.

[Etienne Couture, President, Réseau des ingénieurs du Québec]

Good morning Mr. Chairman, ladies and gentlemen.

We are happy to be here today to present the views of the Réseau des ingénieurs du Québec on the proposed Canada-South Korea Free Trade Agreement. We thank you for this invitation.

First of all, allow me to say a few brief words about the Réseau des ingénieurs du Québec. It is a non-profit organization representing 50,000 engineers in Quebec who work in all fields of engineering. The organization's mission is to serve its members' common interests, and to that end, our organization promotes the interests of engineers and engineering students and provides them with career-related services as well as commercial advantages.

As regards public affairs, the Réseau des ingénieurs du Québec is very interested in the pressures of globalization and their impact. We have conducted two very important studies in this area, relating specifically to engineers' work. Our presentation to you today on the possibility of a Canada-South Korea free trade agreement is based on the conclusions and guideposts from these studies.

By way of background, our organization released a previously unpublished study on the relocation of engineering jobs in Quebec in November 2006. Recently, the Réseau des ingénieurs du Québec has released a second study dealing with the future of the Quebec industrial sector, and we would be pleased to discuss it with you at another time.

The Réseau des ingénieurs du Québec agrees with the principle of signing free trade agreements. Engineers believe that Canada and Quebec have more to gain than to lose from globalization. That goes without saying, provided that openness is balanced, in other words, provided that efforts to develop our economy are consistent with efforts to make our companies more competitive. Moreover—and this is what our studies show—if we cannot escape a more globalized economy, then we must attempt to get as much as we can out of it.

Having said that, engineers are practical people who, when doing their jobs, must know where they are going in order to achieve the desired results. That is precisely why we are proposing, among other things, the implementation of a strong and consistent industrial policy in Quebec, with specific objectives, so that the industrial sector can adapt more quickly to the crisis we are currently facing.

As regards the proposed Canada-South Korea free trade agreement, engineers are asking themselves why Canada would want to sign an agreement with this country, at this time. Apart from the principle that market openness through freer trade is beneficial for the economies involved, what is the federal government's overall action plan for increasing foreign market openness for our companies, and is it consistent?

Part of the answer lies in the government's economic plan entitled Advantage Canada. A key component of that plan is the Global Commerce Strategy, and in reading it, we can see that the strategy aims to wrap up free trade negotiations that are currently underway, as well as to conclude regional bilateral trade agreements, ideally with our NAFTA partners.

Last June, Canada signed a free trade agreement with the members of the European Free Trade Association: Iceland, Liechtenstein, Norway and Sweden. It was the first free trade agreement Canada has signed in six years. Canada has also launched negotiations to liberalize trade with Columbia, Peru, and the Dominican Republic. It is undertaking or pursuing similar discussions with Central American countries including El Salvador, Guatemala, Honduras, and Nicaragua, as well as with Caricom countries. Canada hopes to conclude free trade agreements with South Korea and Singapore; it is negotiating investment protection agreements with China and India; and it had begun negotiations along the same lines with Vietnam and Indonesia.

In short, given these facts, the Réseau des ingénieurs du Québec concludes that the government's global vision for opening markets for Canadian companies is to pursue what is already underway and continue to pursue freer trade relations with interested countries, ideally on our continent. Although engineers feel that is a good idea, it is not enough. In our view, it is important to place greater priority on countries or regions where Canada should undertake or pursue free trade agreements, with a view to helping our companies adapt to the current economic context. Might I remind you that over the past five years, one out of every five jobs lost in Quebec has been in the manufacturing sector.

Furthermore, upon completing our study on the future of the industrial sector, the Réseau des ingénieurs du Québec identified two priorities for expanding trade for our companies.

The first involves facilitating trade in Canada, to increase market access for companies in this sector. Too many interprovincial barriers remain today.

Secondly, the Réseau des ingénieurs du Québec believes that Canada should make it a priority to actively pursue negotiations to establish a free trade agreement with the European Union. We fully agree with Premier Charest's request for and action toward achieving such an agreement. The European market is one of the largest and richest in the world. Demand for foreign products is high, and an agreement could lead to a yearly increase in Canadian exports of some $2.4 billion. Moreover, such an agreement could develop high level jobs and better enable our companies to compete in emerging markets. But there again, payroll taxes, environmental costs and wages in the European Union are similar to what they are here.

As we have seen in the past, our companies can compete with others when on a level playing field. To avoid unfair competition, the Réseau des ingénieurs du Québec recommends that the federal government not liberalize trade with countries that gain an undue economic advantage by failing to respect the environment, human rights, workers' rights—including exploiting child labour—freedom of association, intellectual property and the fight against counterfeit goods.

South Korea is considered the 11^th economic power of the world and is no longer associated with developing nations, but with developed ones. What's more, in terms of respect for human and other rights, we cannot accuse it of not respecting basic standards. however, the question remains: Why should Canada still go ahead with a free trade agreement with this country?

On April 2, 2007, the United States and Korea signed a free trade agreement which was the most significant one for the United States since NAFTA. Canada has a free trade agreement with the United States, our largest trading partner. Logic would have it that Canada should proceed with a free trade agreement with South Korea. Canada is currently trailing the United States. If nothing is done, that will eventually give American companies a major economic advantage over Canadian ones in the Korean market. However, this situation is putting considerable pressure on Canadian negotiators, because if Canada were to sign a free trade agreement with South Korea, it would have to be at least as good as the one signed by the United States and Korea.

Economically speaking, several questions linger as to whether Canada should sign a free trade agreement with South Korea. The key is whether such a free trade agreement is in our interest, namely in the interest of the industrial sector. According to Statistics Canada, between 1994 and 2003, Canada had a negative trade balance with South Korea. In proportion to the total value of trade in goods with South Korea, the trade deficit went from 6% in 1994 to 46% in 2003, and the gap continues to widen. It increased by 68% between 1998 and 2006, when it hit $2.5 billion. Even with trade entry barriers, Korean products easily enter the Canadian market. At the same time, however, our products are having difficulty entering the Korean market.

Opening markets at this point would logically lead to an increase in Korean imports. The majority of products shipped to Canada by South Korean companies are high value-added ones like cars, televisions, VCRs, household appliances and semi-conductors. We purchase their highly manufactured products; whereas for the most part, the Koreans buy wood pulp, coal and aluminum from us. These are raw or virtually raw materials with much less value added. We are already losing in the exchange in terms of quality, as we sell less, and in terms of value added, as we sell fewer value-added goods.

That raises important questions. Why are our companies selling less in Korea than the Korean companies are selling here? Why are we not selling higher value-added products? We must change this situation and work with our companies so that they are more present in Korea and elsewhere in the world. To do that, we must increase support for our companies.

Among other things, we must increase the number of exporters, as well as the quality, value, diversity and frequency of their exports. That will require a general increase in productivity in our factories. Our companies also need a common vision for development that includes a consistent and strong industrial policy, the extension of which could ripple through our international trade.

Concluding a free trade agreement with South Korea does not, however, mean that Canada will be able to rest on its laurels. On the contrary, it will have to keep an eye on its Korean partner. At present, Korea does not have a good reputation in terms of openness to foreign products and free trade. If does not want trade to be a one-way street, from Korea to Canada, Canada will have to ensure that Korea changes its current behaviour.

The 2007 Index of Economic Freedom ranks South Korea 89^th in terms of free trade, behind countries like Kenya, Mongolia and Burma. The report makes the following statement about free trade in South Korea:

South Korea's weighted average tariff rate was 7.9 percent in 2005. Prohibitive tariffs, non-transparent and restrictive regulations and standards, import restrictions, import taxes, weak enforcement of intellectual property rights, export subsidies, and services market access barriers add to the cost of trade.

Weak enforcement for intellectual property affects us as engineers, as we are at the heart of developing innovative ideas.

Moreover, comparatively speaking, Canada ranks fifth in free trade out of 157 countries surveyed by the index. Having a free trade agreement that eliminates tariffs is fine and well, but if non-tariff barriers remain, and Korea does not adhere to the spirit of free trade, companies here will not benefit from it.

In conclusion, the Réseau des ingénieurs du Québec is neither opposed to the idea of a free trade area, nor opposed to a free trade agreement with South Korea. However, Quebec engineers believe that a free trade agreement with South Korea should meet certain conditions, including: that it be part of a more specific vision for Canada in terms of liberalizing trade internationally; that it be as advantageous as or more advantageous than the free trade agreement signed by Korea and the United States; that it include commitments from Korea to eliminate trade barriers to ensure that the spirit and letter of the agreement are respected; and that it be accompanied by a formal commitment by the government to provide more support for Canadian companies, particularly ones in the industrial sector, so that they can develop greater international market presence.

Thank you, Mr. Chairman

[The Chair, Conservative, Lee Richardson]

Thank you, Mr. Couture.

Now we will hear from the Forest Products Association of Canada, Marta Morgan.

[Marta Morgan, Vice President, Trade and Competitiveness, Forest Products Association of Canada]

Thank you, Mr. Chair.

Thank you for inviting me here to testify today and for giving me the last word among your panellists today.

By way of introduction, the Forest Products Association of Canada is the voice of the forest products industry nationally and internationally.

Our members operate pulp and paper and forest product companies in all provinces of Canada.

I'd like to make three points today.

First, the forest products industry is one of Canada's most successful export industries, and we believe, in general, in the value for Canada of both multilateral and bilateral trade liberalization. Second, the Korean market, in our view, has upside potential for the forest products industry. Finally, a free trade agreement between Canada and Korea has the potential to offer significant benefits to this industry over time.

Let me take each of these points in turn.

First of all, as a large exporter, we see the benefits of bilateral and multilateral trade liberalization every day. The forest industry exports about $38 billion in products a year. We are not only one of Canada's largest exporters; we are far and away the largest exporter of forest products globally. Just by way of comparison, the next largest exporter of forest products is the United States, and we export almost twice as much in any given year as our American competitors.

We're also the largest Canadian exporter to Korea as well as to other non-U.S. markets, such as India, China, and Japan. As a major player in Canada's trading relationships, we have a broad perspective and a great interest in trade issues.

We believe that as a small export-dependent nation, it's in Canada's interest to pursue trade liberalization. Over time, bilateral and multilateral trade agreements have played a significant role in expanding and protecting market access for Canadian products. Tariff reduction, trade rules, and dispute resolution mechanisms are essential components of the fabric of international trade relations.

We have strongly supported the government's efforts to promote global free trade through the Doha Round discussions of the WTO, and we have taken leadership globally within the forest products industry to aggressively pursue a sectoral agreement to reduce trade barriers for forest products worldwide. But given the uncertainties of the Doha Round and the speed at which other countries are conducting bilateral agreements, we believe that bilateral agreements, such as the agreement the Government of Canada is pursuing with Korea, are critical supplements to multilateral trade talks.

My second point is that we believe the Korean market has promise for the Canadian industry. In 2006, we shipped about $500 million in forest products to Korea. This was a 13% increase over the previous year, and exports are already up another 12% in the first nine months of 2007.

The majority of our current shipments are pulp, but where we see the greatest growth potential in Korea is on the solid wood side. Shipments of solid wood products to Korea have increased by 36% since 2005-06. The reason for this is that Korea has a long culture of building with wood, and our experience in market development in Japan, China, and Korea has taught us that this is a key factor in driving market potential for Canadian products.

The industry is working hard in Korea, supported by the Canada wood program and by provincial governments, to develop this market. We have developed partnerships with Korean wood-producing organizations—the Korea Wood Building Design Association and the Korea Log Builders Association—to address issues such as worker training and co-development.

Another factor that makes us believe that in the medium term this market has solid potential for Canadian wood products is that Korea has recently issued a national economic plan in which they've signalled their intention to move from their current housing situation, in which about 75% of their available housing stock is in high-rise buildings, towards a housing market in which they would have about 50% of their housing in high-rises and 50% in low-rise multi-residential buildings. These are precisely the sorts of buildings that lend themselves to construction with wood.

My final point is that we believe that the Canada-Korea FTA could have a number of benefits for our industry in pursuing further trade with Korea.

First of all, on the tariff side, tariffs on Canadian wood products going into Korea are currently between 5% and 8%. For these products, which we're already shipping from a distance, this can be an important price disadvantage. As our major competitors, such as the U.S. and Chile, negotiate free trade agreements with Korea, it's essential that we have parity with them.

Second, on the non-tariff barrier side, Korea, as do most countries, has its own building codes and standards. If we want to supply their market, we will need to meet these standards. We can substantially reduce the cost of meeting these standards if we can have mutual recognition of test results, for example, for acoustical and fire standards between Korean and Canadian test facilities. This is an area where the Government of Canada has been working closely with the industry to develop a proposed approach to have mutual recognition of test results as part of an eventual Korea-Canada free trade agreement.

Finally, subsidies. We have had concerns in the past with subsidization through the banking system of new capacity, particularly going into the coated free sheet paper industry in Korea. As we operate in global markets, subsidized capacity depresses markets and prices for all participants. Strengthened measures to constrain capacity subsidization would certainly be a welcome feature of a Canada-Korea FTA from our perspective.

In conclusion, there are three points. As a major trader in a small country, we believe that strong trade rules, both bilateral and multilateral, are essential to Canada's continued economic prosperity. We see strong growth potential in the Korean market, and we believe that a Canada-Korea FTA could deliver results for the forest products industry by reducing tariffs, addressing NTBs, and constraining subsidies.

Thank you very much.

[The Chair, Conservative, Lee Richardson]

Thank you very much, Ms. Morgan.

That concludes the presentations, and I thank you all. They're very helpful. We'll commence with our questions.

Mr. Bains.

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

Thank you very much for coming out. Today's the last day we'll be here. I'm glad it worked out that we had an opportunity to hear what you had to say, and also have an opportunity to ask questions.

We all agree, and I think there's recognition in this committee, that we want to promote free trade but also want to make sure it's fair trade. We also recognize the importance of the manufacturing sector and its role in the Canadian economy, and the impact it has on certain sectors that are going through some very difficult times right now. Based on that, we've decided to undertake this study with South Korea.

My first question to all of you is, have any of you been consulted or asked for submissions, or been asked to provide your input by the negotiating team or by the government that's currently pursuing the free trade agreement with South Korea?

[Marta Morgan]

We've been regularly consulted by the federal negotiators on the Canada-Korea free trade agreement as it's gone along.

[VAdm Peter Cairns]

So have we, actually, in shipbuilding. We've been well represented by our negotiators, actually. I think the problem is that we just have a very big gap to bridge.

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

I'm glad that some have been consulted. I think that is a step in the right direction.

The major issue, and all of you have alluded to it in some respect and have expressed concern, is around market access. That seems to be the fundamental issue with this potential free trade agreement. That seems to be the key issue.

Mr. Laurin, you mentioned that you had many members who have had experiences where they've faced non-tariff barrier issues. You said you could provide a more detailed list, because the one you provide in your package is high level...some of the concerns you addressed.

It would be appreciated if you could comment on it, and if you could also provide a detailed list of specific examples of companies or examples of businesses that have encountered non-tariff barriers or other obstacles in terms of being able to access the Korean market. It gives us a better understanding of some of the experiences that companies are going through.

Could you share, and talk about some of those experiences the members have expressed?

[Jean Michel Laurin]

Just to go on the record, we have been consulted, early on and throughout. I think communication with the Department of Foreign Affairs and International Trade has not been a problem on this issue. I think, in terms of some of the non-tariff barriers, it's a long list so I didn't want to--

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

I appreciate that, but perhaps you could submit it to the chair.

[Jean Michel Laurin]

I'm very happy to share the list with members of the committee.

In terms of some of the issues you're facing, some of them are import clearance procedures, for example, where some food producers have said they're encountering four to five times longer delays dealing with Korea than they are with other comparable Asian countries. There are internationally recognized standards when you try to export food products. So they're saying this is one type of non-tariff barrier they're facing.

Another issue is having science-based testing criteria. That's for food products, but other types of products as well. It's an ongoing issue for many different sectors. Sometimes you're dealing with labelling requirements that change, and the process is not transparent.

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

Is this strictly for Canadian companies or is this, in your experience or from what you've heard, applicable to other countries as well?

[Jean Michel Laurin]

I can't tell, but I suspect it's not only for Canadian companies.

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

You made a comment that you felt it was a very protectionist regime, or protectionist environment, so that's why I'm asking you if it's strictly directed at Canadians, or--

[Jean Michel Laurin]

Also, if you look at Korea's economic history, it's developed its own industry around national champions, its chaebols, large conglomerates.