International Trade Committee on Dec. 13th, 2007

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

Shipbuilding being one, as mentioned.

[Jean Michel Laurin]

They have very close relationships with their suppliers. It's very hard to penetrate that. It's always been very hard to penetrate that. It's more or less the same thing in Japan with the keiretsu. It's a market structure dynamic. It's very hard to penetrate these markets just because of the structure. When you try to enter that market, there are government regulations in place that make it hard to penetrate.

As I said, I'll be very happy to share the list.

There are also some issues dealing with export subsidies. Some members have been saying that Korea's import-export bank has been subsidizing some of the industry with non-bank guarantees and other types of financial instruments. And there is a whole list of other issues relating, for example, to intellectual property, and our friends at the Réseau des ingénieurs du Québec have outlined some of them.

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

Many of you have indicated that you have been consulted and you've had the opportunity to provide your input. Have you had an opportunity to look at the economic analysis done by the department and their recent environmental and economic assessments?

And if you have had an opportunity to look at those, do you agree with the analysis that's been done--the numbers, for example--by Industry Canada? I think the number given on job losses was that if this potential free trade agreement were to be negotiated and completed, there would only be between the range of five to 32 jobs lost, something along those lines.

[Jean Michel Laurin]

Quite frankly, I find it a little hard to assess. I'm not saying we can't try doing it. I think probably the big problem in trying to assess the impact of that trade agreement is that it's very hard to assess what type of improved market access we'll have into Korea, because we're talking about non-tariff barriers. If you're talking about tariff barriers, you can pretty much fit them into an equation and just do an economic model and figure it out. But you're talking about non-tariff barriers, so it all depends on what type of improved access we really gain.

Some of our members are saying they'd like to see some improvement in that regard before we actually give away some tariff reductions.

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

Would you be in favour of an initial snap-back tariff to ease some of those concerns? For example, if we were to reduce tariffs and sign a free trade agreement, but if we feel they still continue with these practices of non-tariff barriers, we would have some mechanism in place that could automatically reintroduce a tariff to prevent that behaviour.

[Jean Michel Laurin]

I think it's important to ensure that trade--and you said it in your comment--is free but fair as well. And dispute settlement mechanisms.... It's quite important to have something that's efficient and effective in dealing with some of these issues.

There have been precedents before. For example, when China joined the WTO, there were measures put in place because it's a different type of economy.

I think that in dealing with Korea it's not the type of country we're used to signing free trade agreements with, so there should be some measures in place, not to protect the market, but just because you're dealing with--

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

Market access.

[Jean Michel Laurin]

Exactly, for market access, because I think everyone says it, that reducing tariff barriers is really the big issue.

And to come back to your initial question on whether we have had a chance to look at the economic impact assessment, we have. In terms of the impact on Canada, again, we didn't do our own study. I think we would come to different conclusions. I know, for example, the car manufacturers have done their own study and they came to quite radically different conclusions from the government's own studies. And actually, government has done more than one study looking at the issue, and these don't necessarily all come to the same conclusion.

I'm putting myself in your shoes. It's really hard to assess the overall impact of this trade deal. And again, it's hard to assess it because we have different, conflicting reports that have been issued. But on the other hand, it's hard to assess what type of.... We'll have to see the deal before we can actually see if it's a benefit or a cost for the Canadian economy.

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

Okay. Thank you very much.

[The Chair, Conservative, Lee Richardson]

Thank you, Mr. Bains.

Monsieur André.

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

Good afternoon. Thank you for sharing with us some of your knowledge on the various issues related to the bilateral agreement between Canada and Korea.

As you know, we met with union representatives from the automobile sector. They are naturally against this agreement and you made mention of this fact. They did a rather exhaustive assessment and concluded that many jobs would be lost as a result of this agreement between Canada and Korea.

The industry leaders, particularly the Forest Products Association of Canada, contend that this agreement will create jobs and more advantageous trade conditions. The manufacturing association does have some reservations, of course. Indeed, as you said, the manufacturing sector has lost 135,000 jobs in Quebec alone. Rather than lose even more jobs, it would like to create some new ones. At the moment, this would not appear to be the likely outcome of the Canada-South Korea agreement.

My question will be brief. After that, I will ask my colleague to ask a supplementary question.

During a meeting, Minister Emerson told us that it was impossible at this time to assess bilateral trade on the basis of a trade balance surplus or deficit. That is not what is important. At least that's what he said. Having a trade surplus or deficit does not constitute a significant criterion.

I would like to hear your opinion on the matter. When assessing bilateral trade with a country, is this a factor that we should consider?

Furthermore, what other criteria should we consider when deciding whether or not to trade with a country?

[Etienne Couture]

As far as the trade balance is concerned, this is one issue to consider among many. I do not think that we can summarily dismiss it.

However, and this was something our colleague pointed out earlier, since we are running into non-tariff barriers, this liberalization will have a greater impact on us because these non-tariff barriers will be operating in reverse.

It's not only about volume. At the same time, this liberalization will have an impact that we cannot ignore.

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

The issue of the trade balance is significant.

[Jean Michel Laurin]

If I may, I would like to add something.

We need to view the trade balance of Canada or of Quebec in its entirety. Overall, we want to export more than we import. In Canada especially, since we have a small economy, we need to trade with the rest of the world in order to maintain our standard of living. I am convinced that we need to intensify international trade if our nation wants to remain prosperous.

However, when it comes to individual countries, we need to understand what type of trade is involved. Overall, you need to export more than you import. Unfortunately, I believe that Quebec, for the past four years, has been importing more than it exports.

In Canada, we still have a positive trade balance, but it is shrinking year after year. There are nevertheless some business opportunities with respect to certain countries. For example, are we importing components or raw materials to which we add value, which enables us to export products to the United States, Europe or elsewhere in the world? This is the type of trade where we can run up a trade deficit with one country because it enables us to conduct even more significant trade with another country.

This is how we have to analyze or examine the issue.

[Marta Morgan]

I would simply like to add one more thing.

It is very important that agreements also include a process for resolving problems or disputes. Non-tariff barriers are often the most difficult barriers to overcome and they can crop up at any time.

When a barrier occurs, if there is no dispute resolution mechanism in place, if there is no free trade agreement or political support at the highest level of the two countries in order to resolve the issue, we can very quickly find ourselves in a situation where we have no access to a market, without any way of rectifying the situation.

[Richard Nadeau, Bloc, Gatineau, QC]

Thank you, Mr. Chairman.

Since we have very little time, I will be brief. This type of trade with other countries poses problems because Quebec and Canada are exporters of raw materials. We have a lot of raw materials and we export them.

Do you not think that it would be preferable to process the raw goods here so that we can export processed products rather than shipping the raw goods somewhere else and buying them back as finished products here?

In my opinion, there is a disconnect here. I would like to ask Mr. Couture and the other witnesses what they think about this matter.

[Etienne Couture]

Certainly. Indeed, we are well aware of this situation. Clearly, this represents greater value. This should even be one of our priorities, namely, to always ensure that our exported products have as much value added as possible. Updating these products will lead to more innovation. Given the way in which the future is unfolding, we will have no other option but to do this. As for our products here, it is essential that the raw goods be processed here, if we want to maintain some commercial success, with or without a free trade agreement.

However, with respect to innovation, in the case of a country such as South Korea, which we are discussing here, it is clear that the products it ships to us have a higher value added because of the cheaper labour force and so on and so forth. This situation exists in many countries. It is, therefore, crucial that we promote value-added products here, and this is what we are asking. Indeed, we are asking the government for a formal commitment to provide more support to Canadian businesses, because this is a job that needs to be done. We cannot hide our head in the sand by saying that the companies will die; at any rate, some of these companies will die. That being said, support must be provided during the transition process.

[Marta Morgan]

Est-ce que je peux répondre?

We hear this a lot, that we should be exporting and we should be producing value-added as opposed to non-value-added. I think it's a bit of a dead end, in a way. For example, if you look at the forest products industry, it's one of the most capital-intensive industries in the country. It's one of the most productive industries in the country, and it's one of the industries that pay the highest wages in the country. So what's that telling us? It's telling us that while what we are exporting is primary products, we are the best in the world at doing it.

I think that is probably the critical factor. Where are our comparative advantages, and where will those comparative advantages be in the future? I don't think it's a trade-off between value-added or not value-added. It may be a mixture of both, but it's not really on a continuum from positive to negative or negative to positive. We can see right now the value that natural resources are bringing to our economy in terms of investment, ancillary industries, high productivity, high-wage employment. I think we have to build on that as well as building on our value-added sectors.

[The Chair, Conservative, Lee Richardson]

I'll allow you a brief response. We are over time, but go ahead.

[Jean Michel Laurin]

Mr. Chairman, I would just like to answer the question quickly.

First of all, two-thirds of Canada's exports are manufactured goods. So we are already adding a lot of value to the natural resources. The natural resources sector does nevertheless play an important role. Many of the manufacturing industries are in fact located here, in Canada, because of our access to these natural resources. We cannot prevent these companies from exporting their products internationally when they are competitive.

Essentially, we have to ensure that we are competitive here, in Canada or in Quebec, to attract investment and ensure that the natural resources or products are processed here. That is indeed the preferable approach. Nevertheless, the Canadian market often looks small, as was said earlier, compared to the international market in which we operate. If we want to produce sufficient quantities to become competitive in the natural resources sector, we have to be able to export these goods to the four corners of the globe.

[The Chair, Conservative, Lee Richardson]

Thank you.

Mr. Pallister.

[Brian Pallister, Conservative, Portage—Lisgar, MB]

Thank you all for your presentations. The best to all of you and your families for the holiday season as well.

These have been enlightening presentations, and they're appreciated by our committee. There are so many great points that have been made, but I'll just raise a couple of things.

I think there's a pretty clear understanding that we can't ignore the reality that competitors to this country are signing free trade agreements much more rapidly than we are and have been doing so for some time. We can't ignore the reality that Korea's attitude towards international trade has changed remarkably over the last few years and that they are ambitiously pursuing other trading partners. We can't ignore the reality that if we fail to enter into an agreement with Korea, our competitors will. We can't ignore the reality that therefore we'll lose access to a great potential market and a launching pad for a very vital, growing, aggressive part of the world's economic activity. If we fail to ignore any of those preface comments, I think we're going to fall further behind.

I have just one really simple question. I think it's been made pretty clear by your testimony that your major concern--and I don't want to erroneously say this--is the issue of non-tariff barriers. That's come through in each of your comments so far. If you know of a better way to address the non-tariff barriers to trade between Korean and Canada than through this exercise in negotiating a free trade agreement, I am certainly interested in hearing what that better way is.

[Marta Morgan]

I'll just respond quickly to that.

Our industry has years of experience in trying to deal with these issues, particularly in the area of building codes. Our experience is that you have to sell people what they want to buy from you. You have to sell it to them in a way that meets their codes. You have to put in dogged and determined work with regulators and industry in order to understand their requirements and figure out how to meet them. And our view is that a Canada–Korea FTA could accelerate that process. It won't be able, in and of itself, to resolve all of these issues, because they're very complicated and rooted and embedded in specific sectors and requirements. But it should be able to accelerate them and put in place mechanisms that can help move them to a quicker resolution than we'd see otherwise.

I can't think of a better way.

[Brian Pallister, Conservative, Portage—Lisgar, MB]

I think we're growing to understand that these agreements are not by any means, most of the time, a stopping point. Rather, they're more a starting point to opening up further and better opportunities for our country and for others to do trade more fairly. It concerns me when I hear some of the observations of some of our witnesses, that they seem to view this as all or nothing, that if we don't get exactly what we want from these negotiations, we should pull away, as if to suggest that we could somehow become advantaged by that or advantage our negotiating position vis-à-vis future deals by doing that. Frankly, I find that interesting as an observation.

Finally, you alluded to something.

And, Jean Michel, I believe you alluded to it in your comments.

We'll use the U.S. KORUS agreement as an example: the consequence to Canada of our not signing a deal, walking away, and the U.S. proceeding with theirs. I know it's difficult. You're talking about trying to evaluate a loss that hasn't occurred. It's hypothetical. But what kinds of specific disadvantages exist for Canada in the event that this occurs, that the United States establishes a strengthened relationship with Korea and we fail to do so?

[Jean Michel Laurin]

I'd say the impact would be that for those Canadian companies currently exporting products into the Korean market, which are facing a tariff—I understand it's mostly the food products and forest products sectors—there's a chance they might be priced out of the market. I mean, most of the competitors are based in the U.S. That's where they do business, so their competitors can get a 4%, 5%, 6%, 7%, or 8% price advantage going to the market. There's a chance some of the Canadian exporters will be priced out of the markets.

I understand that Canadian exports of manufactured goods in Korea currently approximate $2 billion a year, and that's growing quite rapidly, so the impact is not that major, considering that Canada has over $400 billion of exports, but still it's a significant hit for their business to those companies that.... We have some members for whom it's the third or fourth export market. So you can't neglect the fact that for some companies it's important that Canada not be left out.

But I think, just to take a step back, priority should be given to the WTO negotiations. I know it's a very big priority for our members. I think we'd much rather do this on a multilateral basis, but given the fact that the negotiations are not moving as quickly as we wish they would—you have to understand that some countries are moving very aggressively in negotiating bilateral deals, and Korea is one of those—sometimes you have to take into account the fact that even though the United States is negotiating, the fact that we're doing this simultaneously and maybe just a bit later might not be such a big disadvantage. Time will tell, but it's a complicated issue, as you mentioned.