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.