International Trade Committee on May 5th, 2009

[Carol Nelder-Corvari]

On wheat and barley, the U.S. producers can now export their wheat and barley to Peru duty free. Canadian producers now face tariffs as high as 17%—on top of the higher transportation costs to ship their products to Peru. The passage of the Canada-Peru FTA would correct this situation. Canadian exports of grain to Peru were worth $135 million last year and are a good percentage of our total exports to Peru.

On pulses—or lentils and peas—the same story holds true. U.S. exporters do not face any duties on these products, whereas Canadian producers face a 25% tariff. Once again, the passage of this agreement would correct the situation by eliminating these tariffs immediately. Canadian exports of pulses to Peru were worth $16 million last year.

On machinery, Canadian exports of machinery—in particular, mining machinery—are also losing since the entry into force of the U.S.-Peru FTA. While these Canadian manufacturers are still facing tariffs of 20% on some of their exports, the U.S. does not have to experience the same barriers. Canadian exports of machinery and equipment to Peru were worth $120 million last year, or 30% of Canada's total exports to Peru. These could be lost if we don't act quickly.

Canadian exports of paper to Peru were worth $27 million last year and are facing tariffs of up to 12%. Since the entry into force of the U.S.-Peru FTA, these tariffs are being phased out for U.S. paper exporters. The passage of this agreement would again level the playing field for our key exports.

Dean mentioned the Canadian pork producers. They've also indicated an interest in developing the Peruvian market. The FTA will help them to do that by eliminating Peru's 25% tariffs over time, and the FTA will also give them immediate duty-free access on a certain quantity of pork exports—which I think is an important issue given the current problems facing our industry.

The disadvantages are not restricted to the exports of goods. The implementation of the U.S.-Peru deal also means that Canada's exports of services and the access of Canadian companies to Peruvian government procurement purchases would be disadvantaged.

[The Chair, Conservative, Lee Richardson]

Thank you.

Mr. Cannan.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

I'll go in the next round. I'll wait, thanks.

[The Chair, Conservative, Lee Richardson]

Mr. Silva.

[Mario Silva, Liberal, Davenport, ON]

Thank you, Mr. Chair.

I also want to thank the witnesses who came forward.

I must confess that I was in Peru not too long ago; I think it was about a year ago. I had the opportunity to meet with our ambassador there. She was quite gracious and gave us a very good overview of the economic situation in Peru and also our trade relationship with Peru.

A number of business people came forward as well, including people in the mining industry and also the financial sector, specifically Scotiabank. We were very proud to see that our investments are certainly making a big difference both for Canadians and for people in Peru.

I think one of the great things I've seen over the years of monitoring the situation in Latin America, particularly in Peru, is how things have really changed for the people and their lives. Although there's still massive poverty, it's nowhere near where it was 10 or 15 years ago. So that's a really important signal that things are getting better.

I'm proud of the fact that although we are here to protect Canadian jobs or jobs at home, we're making a difference in people's lives and getting them out of poverty. Whatever we can do, certainly we should be there. Aid is important, and providing financial assistance through CIDA is also important, but these trade deals actually have a longer-term positive impact in getting people out of poverty, and that's one of the reasons I'm supportive of this agreement.

I want to understand some things and maybe you can clarify them. That is, in both the agreement Canada has signed.... In the one the U.S. has signed, there are some tariff concessions by the U.S. Are they the same as the ones done by Canada? Are they totally different? Has the U.S. received a better deal than we have, or have we negotiated very similar deals in terms of tariff concessions?

[Carol Nelder-Corvari]

I'll ask Dean Beyea to respond to that. He led the market access negotiations.

[Dean Beyea]

Because there are 8,500 tariff lines in a tariff schedule, the framework's not exact, but I think on what we were exporting to Peru and where we had market access interest by industry, we've done generally as well as the United States, and in some cases slightly better. There are some elements, where we've had traditional exports, where we have a different tariff phase-out, but always going to free.

I don't know if you had a specific question on a specific area, but certainly that's the case in areas such as wheat, barley, lentils, peas, beans, machinery and equipment. And even with respect to refined sugar, where we had sensitivities coming our way, we had a smaller TRQ over a longer period than they had with the United States.

I think generally that answers your question, unless you have a specific interest on a specific tariff line. Certainly our overarching goal in the market access negotiation was to get the same access as the United States where we could, and based on our export patterns and where we had interest from Canadian industry, including the agriculture sector.

[Mario Silva, Liberal, Davenport, ON]

And on the issue of intellectual property, it seems that the U.S. didn't get a much more restrictive provision than Canada. Was there a huge difference on the issue of intellectual property?

[Carol Nelder-Corvari]

On intellectual property, the discussions with Peru focused largely on the reinforcing of WTO rights and obligations.

[Mario Silva, Liberal, Davenport, ON]

Thank you.

[The Chair, Conservative, Lee Richardson]

Thank you.

Mr. Shipley.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

Thank you, Mr. Chair.

Thank you, witnesses, for coming out.

This is an interesting panel. I'm not here on a regular basis, and I'm interested in just listening, actually, to the success story that has come about in terms of the development of this free trade agreement with Peru. Not only that, but particularly as we've moved ahead as a government to recognize the need for Canadians and industry, regardless of what it is.... I can look at different agreements, look at what they do for the Canadian economy, and I see that not all agreements are everything for a country. That's why we have all the bilateral agreements that we have found necessary to take.

I'm always here to give credit where credit is due, and I want to congratulate you as a panel for helping develop a successful free trade agreement.

One thing I've found, when I do have the opportunity to hear from other countries, is that the ambassadors from those countries always say that Canada needs to show up. Countries trust Canada. They trust our safety. Whether it's food or equipment, it's quality, and they like to do business. I think now, in terms of our showing up and wanting to sit down and talk about free trade agreements, that is why we've been able to move ahead. I was glad to hear you say that even though we were kind of late getting in, because previously there was no incentive to move ahead on free trade agreements, in this particular agreement, in fact, portions of it have been strengthened beyond those of the United States. I think that is always a credit to those who are doing the negotiations.

I want to step to the agriculture file. Our Minister of Agriculture has been moving to expand our export markets, particularly in the areas of grains and oilseeds and livestock commodities, beef and pork. In terms of the expansion of that section, how was the agriculture file? I don't know how the discussions happen, quite honestly, but in the fulsome discussion around the free trade agreement, when you got to the agriculture file, how did that file affect how you succeeded in other areas, whether mining or banking? How did that all come together in terms of the agriculture file's impact on those?

[Carol Nelder-Corvari]

In any free trade discussions, as you've probably observed in your hearings here on the World Trade Organization and the Doha Round, the agricultural sector is always the most sensitive and controversial in terms of negotiations. Specifically with Peru, though, we did not have a great deal of sensitivities. We're shipping largely grains that they don't produce in large quantities, and pulses. They're shipping seasonal vegetables here, asparagus in off-season largely. So there was a great deal of complementarity.

There are some sensitive issues, and of course, when Canada has traditionally, as a negotiating mandate, to take all supply-managed products off the table at the outset, that impairs us in negotiations. Obviously, we start that way. Peru did have interests in certain dairy-related areas, so our removal of those items from the negotiating table did have an impact on what we were able to achieve, as they took off their relative sensitivities in terms of the negotiations.

Overall, I think for agriculture--and in fact the strongest supporters for this deal are from the agricultural community in Canada, or some of the strongest supporters--they're very concerned right now. I don't know what the situation is since February 1 in terms of whether they have lost shipments because of the U.S. free trade agreement with Peru in pulses, lentils, barley, or wheat, but certainly this is something we're trying to monitor while we're engaged in this effort.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

I think what you're saying is that it is important, as we take on agreements, that we actually continue to move ahead and not be behind the pack in terms of the development of strong and equitable free trade agreements for our country.

Actually, I have a couple of extras, but I'll come back at another time.

[The Chair, Conservative, Lee Richardson]

Try to save it until the next round.

I'll go to Mr. Guimond.

[Claude Guimond, Bloc, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Thank you, Mr. Chair.

Unfortunately, I am not convinced of the importance of this agreement. And yet the Bloc Québécois is in favour of trade and supports free trade agreements. We firmly believe that they can contribute to the enrichment of communities. The present economic crisis shows that a market economy can only works properly if it is properly controlled. That has been clearly shown on the political and ethical levels.

Instead of negotiating agreements in a piecemeal fashion, why not focus our efforts by working within the WCO in order to come up with a structure or a framework that could ensure that we have appropriate free trade agreements, with the means to verify what is happening in countries such as Peru? Why not work toward multilateral agreements, rather than focusing on single agreements, on a case by case basis?

[Carol Nelder-Corvari]

I think Canada has continually indicated its support for a successful conclusion of the Doha Round. That is obviously a priority for the government. In the meantime, countries around the world are negotiating bilateral agreements and our market access is being eroded, and our competitiveness in these markets is being eroded as a result. When we enter into a bilateral free trade agreement, we are in effect taking our WTO principles to the table and negotiating strong market access deals for our businesses.

So we don't see it as contradictory; it's complementary.

[Claude Guimond, Bloc, Rimouski-Neigette—Témiscouata—Les Basques, QC]

That's fine, thank you.

[The Chair, Conservative, Lee Richardson]

I think we can go back to Mr. Shipley's question.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

I'd like to follow up again on the agricultural file, because I recognize the significance of agriculture in any of the agreements that we do in terms of our economy and the rebuilding in light of the economic times now. When you talk about the sensitive issues around agriculture, particularly around those in dairy and other industry, would you say that when you have those negotiations based around that, they still come out as a balanced economic benefit, or is it a negative economic benefit because you have to work around the supply management issues?

[Dean Beyea]

Thanks very much for the question.

As Carol noted, what you always try to do--I know this as the trading goods market access negotiator--is try to strike a balance in the deal that represents your interests and your sensitivities. It is difficult when you take dairy, poultry, and eggs access off the table--except for the “within access” commitment, where there's a very low tariff already, and a country like Peru would compete with the rest of the world for that closed market. It's then difficult to argue that you need free, immediate access for beef and pork and other things that are somewhat sensitive in those markets.

That said, I think we try our best, given our strong interest in those areas. We look at historical levels of trade and try to get duty-free access greater than that on an immediate basis. Then we look at long-term access for those products. That's generally what we've done. We've done that for pork in this agreement. On the beef side, I must say I'm less happy, but it's the best we could do, given the cards we're dealt in that sector.

But I think overall, and overwhelmingly, you have to look at the benefits here, and they're really for grains and pulses, peas. These haven't been traditionally strong export markets in the meat areas. The access we've got is far and away more than we've shipped historically, and certainly more than in recent years.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

I would just say, from listening, that what any agreement looks at is the balance and the benefit to each country, particularly when we look at what we have--the diversity we have in the marketing within Canada, being able to open markets up that we didn't have--and yet we've still had the benefit of protecting Canadians, not only producers but consumers, in terms of having those negotiations exempt from the tariff reductions.

I'm going to turn it over, Mr. Chair. I think my colleague has another question.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Thank you, Mr. Chair.

Thanks again to the witnesses. I appreciate the corporate social responsibility in the aspect of implementing our new strategy.

In your opening comments, you alluded to the fact that we have this labour side agreement. I think it's the first one in the Canadian history of agreements that we've had a special side agreement with a dispute resolution mechanism. Maybe you could expand a little bit more on how that resolution mechanism works and why we even need this agreement. Do you think it's going to be sufficient?

[Pierre Bouchard]

Yes, we've had the dispute resolution mechanism in previous agreements, for North America and for Chile. The Costa Rica one did not have financial penalties. This agreement is sort of a third generation agreement. It is much, much stronger than what you had under the North American agreement or the Costa Rica agreement. The dispute resolution mechanism is an important part of this. Essentially, we've tried to strike a balance between having an efficient deterrent for non-compliance and having a problem-solving approach.

You have different approaches in the world right now. For example, Americans will tell other countries that if they don't comply they'll get trade sanctions. Actually, when we looked at the agreement, we thought that it was better to have financial penalties than to have trade sanctions. When countries have to face trade sanctions in the WTO, or they don't comply, they have a choice of either paying a penalty or having trade sanctions. Very often they'll choose the trade sanctions, because the country applying the trade sanctions actually hurts itself a little bit.

In this case, if 70% of our imports from Peru come from Canadian companies and are reprocessed, it would actually hurt us, so we would prefer to have a penalty instead. We have a strong legal mechanism to ensure that the penalty would be paid into a fund controlled by both governments. It would also ensure that the money would be used to solve the problem.

It's important to understand when the penalty would take effect. It would come at the end of a dispute resolution process, where the government probably would have had to expend maybe half a million dollars just for the cost of the dispute review panel. The government would probably be in no mood to compromise after having gone through all of this, and generally the government has been seen as aggressively pursuing these complaints.

Once the money is put into the fund, then you have to have an agreement. You have to have an action plan. You have to have an agreement to resolve the issue. If we believe the other country is not acting in good faith and does not really want to resolve the issue, we'll just refuse to have an agreement. Until we have an agreement, that country has to keep paying this amount of money into the fund year after year. We find that this approach is superior to asking, as other countries do sometimes, that the money be paid to the treasury. That's the process that we've set up.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

With the dispute resolution mechanism, I'm wondering about the labour agreement. This is the first time we've had a side agreement, I believe, on the labour component.