International Trade Committee on Nov. 19th, 2009

[The Chair, Conservative, Lee Richardson]

Order. We'll begin.

Sorry for being late. Obviously, we're late as a result of a vote in the House.

I'm not going to make any comments about it, Mr. Julian. I know you're interested, of course, in the important matters at hand here, and wouldn't filibuster or drag down the efforts of the committee.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

I'm sorry, Mr. Chair, what was that comment? I didn't hear.

[The Chair, Conservative, Lee Richardson]

I was just saying we're coming to order for the 37th meeting of the Standing Committee on International Trade.

I'm very please to welcome again to the committee, from the Canadian Council of Chief Executives, David Stewart-Patterson, the executive vice-president, and Sam Boutziouvis, the vice-president of economics and international trade; and from the Canadian Manufacturers & Exporters Association, Jean-Michel Laurin, who is the vice-president of global business policy.

We are continuing our discussion of Canada-South America trade relations, with particular reference to Canada-Colombia.

I think because we are starting so late we're going to proceed right away. I'll ask our witnesses to begin with an opening statement, and then we'll follow up with questions.

I don't know if you've had an opportunity to discuss amongst yourselves who wants to begin.

Are you going to begin, David?

[David Stewart-Patterson, Executive Vice-President, Canadian Council of Chief Executives]

Yes, if that's all right with you, Mr. Chairman.

[The Chair, Conservative, Lee Richardson]

All right.

We're going to hear first from David Stewart-Patterson.

Is Sam going to complement that?

[Sam Boutziouvis, Vice-President, Economics and International Trade, Canadian Council of Chief Executives]

Just in the question and answer session, Mr. Chairman.

[The Chair, Conservative, Lee Richardson]

Excellent. Thank you very much.

Mr. Stewart-Patterson.

[David Stewart-Patterson]

Thank you, Mr. Chair.

Thank you to the members for the opportunity to appear this morning to talk about trade with South America, and obviously with particular reference to Canada-Colombia. My colleague Sam Boutziouvis is with me and will help me with any questions that come up.

Obviously, it's no secret that the Canadian Council of Chief Executives has been and remains a strong and consistent supporter of international trade and investment liberalization generally. Obviously, we were heavily involved in the Canada-United States Free Trade Agreement onwards into the North American Free Trade Agreement. And I think more recently, we supported trade and investment liberalization multilaterally, regionally, and through bilateral agreements as well.

The reason we consistently support free trade and investment liberalization is simple: open markets are good for Canadians. Open markets create more high-quality jobs for our people. They open doors for Canadian exporters. And of course, by supporting business growth, they help to generate the tax revenues governments depend on to fund public institutions and social programs. So in a very real sense, Canada's prosperity depends on our ability to do business in both developed and developing markets around the world.

I think our country's most immediate opportunity in South America is quick implementation of the free trade agreement that Canada has negotiated with Colombia. I am going to speak directly this morning to Bill C-23, and urge members from all parties to support prompt passage of this legislation. I'd argue that this bill deserves your support for four major reasons.

First, enhanced international trade is vital to help our country recover from the global economic downturn. At the moment, Canada is experiencing a bit of a lopsided economic recovery. Domestically, there are signs that we're beginning to make progress. But our international trade performance continues to disappoint. The strong Canadian dollar and weak demand in our largest market, the United States, have combined to make life difficult for many of our exporters. We're also seeing a rising tide of protectionist measures, such as the buy American provisions in that country's stimulus legislation. Looking ahead, Canadians know from our own experience in the 1990s that the huge government deficits being run up in the United States create a real danger of prolonged weakness both in future American demand for our goods and services and in the value of the American dollar.

In this environment, I think it's vital for Canadian companies to continue to do everything possible to diversify their export markets. Passing Bill C-23 would reinforce these efforts. Conversely, further delays in passage of this bill would undermine the goal of improving Canada's global trade performance and slow our return to strong economic growth.

The second major reason for supporting this bill, Mr. Chairman, is that it will produce real benefits for Canadian workers, farmers, and companies. The agreement is going to benefit companies and workers across a wide range of industries, including the automotive sector, steel, chemicals, public infrastructure development, oil drilling, environment and engineering services, information technology products and services, agriculture, fertilizer, paper and other forestry products, copper products, textiles, apparel and footwear, mining, and advanced manufacturing.

Equally important, Bill C-23 is going to help level the playing field for Canadian workers and farmers, stimulating growth in commercial relations, raising awareness, and further opening this dynamic and growing economy to Canadian know-how and Canadian ingenuity. Upon implementation, the agreement will eliminate tariffs on nearly the entire range of Canadian exports to that country.

Colombia's tariffs on Canadian goods currently range from 15% to 108%, which obviously represents a huge disadvantage right now for Canadian exporters. Passage of Bill C-23 would erase that disadvantage and help Canadian workers, farmers, and businesses stay ahead of our global competitors.

I have to add that Colombia is not standing still here and waiting for Canada to get its act together. Just this past week, President Uribe signalled his interest in pursuing a free trade agreement with South Korea, and spoke of working towards an enhanced relationship with Japan. Investment talks have already started between Colombia and China. Meanwhile, Colombia and the European Union are aiming to wrap up negotiations on an economic partnership agreement by next March. Colombia has already completed negotiations with member states of the European Free Trade Association.

By the end of 2010, the Government of Colombia expects to have completed nine trade agreements, representing 45 countries. In our view, it is only a matter of time before Canada's number one trading partner, the United States, secures its own free trade agreement with Colombia. At a meeting on June 29, President Uribe and President Obama instructed their teams to renew efforts towards such an agreement. President Obama expressed confidence that a deal can be struck that “is good for the people of Colombia and good for the people of the United States”.

Some commentators have referred to Canada's trade agreement with Colombia as a defensive form of FTA. We do not agree. Rather, we believe that implementing the Canada-Colombia agreement quickly represents an opportunity for Canada to get out in front of our international competitors.

The third major reason this bill deserves your support is domestic policy. It's going to benefit the people of Colombia. Domestic policy reforms introduced over the past decade have served Colombians well. Colombia experienced accelerating economic growth between 2002 and 2007, thanks in part to improvements in domestic security, rising commodity prices, and market-based macroeconomic policy reforms.

Over that period, poverty levels declined by 20%, and unemployment fell by 25%. Naturally Colombia's economy, like all of ours, is being hit by the global downturn. But the good news is that, like Canada, Colombia has come through 2009 relatively well. As the recession took hold, President Uribe's government took many of the right steps. It cut capital controls, arranged for emergency credit facilities, promoted investment incentives, and encouraged exporters to find new markets.

The Canada-Colombia free trade agreement will signal Canada's strong support for the pro-growth initiatives of President Uribe, and it will further increase confidence in doing business in Colombia. In doing so, the Canada-Colombia FTA will reinforce efforts to promote greater safety, peace, and confidence in Colombia.

On the subject of security of Colombia, the facts are inescapable. After decades of turmoil, violence has dropped to levels not seen in a generation. Tens of thousands of paramilitary fighters have demobilized, and education enrolment has increased dramatically. I think people around the world are recognizing this growing sense of security and safety. One notable result, for instance, is that more than 200,000 cruise passengers docked in Cartagena in 2008, almost double the number in 2007. Significantly, Colombia now attracts more than $1.2 million visitors every year, double the number in 2002.

Earlier this year, the board of governors of the Inter-American Development Bank chose to meet in Colombia on the occasion of the bank's 50th anniversary. Scheduled to take place in Colombia is the 2010 World Economic Forum meeting on Latin America. Recent improvements in security in Colombia have had tremendous impact in attracting foreign investment. Between 2005 and 2009, foreign direct investment into Colombia has averaged over $9 billion U.S. a year.

The fourth and final argument I would suggest in favour of passage of this agreement quickly is that it meets the highest global standards. Officials of the Department of Human Resources and Skills Development have concluded that “the agreement signed with Colombia represents the most comprehensive labour agreement in the world today”.

Canada in fact has achieved labour protection provisions that go beyond those even being sought by the United States and the European Union. A speedy resolution mechanism embodied in the Canada-Colombia labour side agreement will in a very real sense help to improve conditions for Colombian workers.

Officials of the Department of Finance, for their part, have concluded that “this free trade agreement tries to support corporate social responsibility, environmental laws and labour laws”. In addition to its strong provisions on labour standards, “the corporate social responsibility aspects of this agreement are the first time Canada has included such commitments” in a trade deal.

These provisions are included in both the investment and the environment chapters of the Canada-Colombia FTA.

The Canada-Colombia agreement will also enhance the impact of Canada's development aid programs in Colombia. Certainly there's a case for more aid to support marginalized communities—women and indigenous groups—legal assistance, and judicial reform. Failure to implement our free trade agreement would instead undermine our ongoing development efforts to strengthen Colombia's social and economic fabric.

To summarize, Canada should be doing everything possible to deepen commercial relations with developing markets such as Colombia. The prompt passage of Bill C-23 would help Canadian workers and businesses, of all sizes, both in stimulating economic recovery in the short term and in building sustainable competitive advantage. Implementing the free trade agreement would also benefit Colombia's economy and society, and it would signal Canada's strong support for countries and governments committed to democracy, the rule of law, peace, and security.

This is a deal that is good for Canadians. It is a deal that is good for Colombians. It sets an example for the world. We should just get on with it.

Thank you, Mr. Chair.

[The Chair, Conservative, Lee Richardson]

Thank you, Mr. Stewart.

Monsieur Laurin.

[Jean-Michel Laurin, Vice-President, Global Business Policy, Canadian Manufacturers & Exporters]

Thank you, Mr. Chair.

My comments will echo those of my colleague to my left.

First of all, thank you for the opportunity to appear before the committee on this very important hearing.

I'll talk a little bit about the current economic context and why this proposed agreement with Colombia is important, and answer some of the concerns that Canadian companies have right now.

First of all, our association represents manufacturers and exporters in every industrial sector in every province. We have small, medium-sized, and large manufacturing companies as members from across Canada. Together, the sectors we represent are the largest in the Canadian economy, employing over 1.7 million Canadians.

The current economic context we are faced with in the manufacturing sector today is very difficult, as you know. Our members have been heavily impacted by the recession. From July 2008 to about May of this year, our sales have dropped by 28%. If we look year on year, it's about a 20% decline in sales that Canadian manufacturers have experienced. The downturn has been affecting manufacturers and export-dependent companies from every province. If you look at manufacturing sales by province, every province of the country has experienced a significant downturn in sales.

That is rooted in part in the fact that the U.S. economy and the European economy have been heavily impacted by the recession. Our exports to the U.S., for example, are down 31% this year compared to last year. If we look at our exports to major countries or groups of countries, one thing we realize is that developed economies have been heavily impacted by the recession but emerging economies seem to be performing a little better in that context.

What we are seeing, for example, is that while our trade with the United States has declined significantly, our trade with some other regions of the world—for example, Asia and certain Latin American countries—has declined much less. In some cases we have even seen some improvement.

The current challenge for manufacturing and exporting companies throughout the country is that we've had to contend with a very rapid and very significant decline in consumer demand. We are still hopeful that we're going to see a sustainable recovery ahead in the next few months, but there are still some impacts of the recession that are being felt in our sector. Obviously, the appreciation of the Canadian dollar and the strength of the Canadian dollar right now, along with the lack of availability of financing for a lot of companies, are probably the two largest risk factors for a recovery coming ahead in the next few months. Obviously we are concerned with protectionism and lack of trade liberalization with certain markets.

In that context, when we talk to our members about what the nature of the recovery is going to be and how we will ensure that we have a vibrant and dynamic manufacturing sector in the future, and how to ensure we emerge from this recession in better shape, one of the key things that companies are telling us is that we need to develop new markets. Demand is still weak in the U.S. economy. If you look at global trends, one thing we are realizing is that emerging markets are growing much faster, but they are also playing a much more important role in the world economy. That is where Canadian companies need to position themselves. That is where our trade policy needs to go as well, to try to help Canadian companies grow their businesses in these rapidly developing markets.

That's a trend that hasn't started just this year. For example, a few years ago the great majority, over 90%, of our exports were going through the U.S. or directly to U.S. customers, whereas today about three-quarters, 75%, of our exports go to the United States. That is in large part because we have been able to grow our business in other rapidly growing markets.

In terms of Canada-Colombia trade, one thing we've witnessed is that trade between the two countries has grown very rapidly. For example, between 2004 and 2008 our exports to Colombia have grown by 83%. Colombia is a very good example of a market that is growing very rapidly where we have been successful in expanding our presence in that market and responding to some of the needs and demands that they have by supplying them with Canadian products and services.

Also, good news with respect to our trade with Colombia is that we've been exporting a lot more manufactured high value-added goods to that country. In 2004 manufactured goods accounted for about 50% of our exports to Colombia, whereas last year, according to the most recent statistics, 67% of our exports to Colombia consisted of manufactured goods. This is good news, because we've been able to grow our trade not only in agricultural products but also in high value-added manufactured goods.

If we look at this FTA precisely, considering that tariffs on industrial goods average about 11.8% and tariffs on agricultural goods amount to about 16.6%, getting these tariffs removed would improve the competitive position of Canadian exports into that market. Considering what David was saying earlier, that we have other trading partners who are negotiating with Colombia, if we can get that deal passed, and if we can deliver those results to Canadian companies, we're going to be in a much better competitive position going into that market going forward.

To summarize, one thing we're realizing is that more and more of the world's economic growth is going to come from emerging economies such as Colombia's. That's good news, because it means there are new business opportunities for Canadian companies. As Canadian companies are going to look to grow their businesses beyond North American markets, they're going to look at countries like Colombia.

The good news is that Canada's trade policy is aligned with that business priority. We haven't just negotiated with Colombia and Peru, for example, but Canada is currently negotiating with the European Union and other countries around the world as well that want to open trade opportunities for their companies with Canada. I think that's good news for Canadian business and that's good news for the Canadian economy.

I'll conclude here.

Thank you.

[The Chair, Conservative, Lee Richardson]

Thank you, Monsieur Laurin.

We'll now proceed with questioning.

Considering the hour, I'm going to ask members to be very careful today with regard to sticking to our predetermined time allotments. That would be seven minutes for the first round.

We'll begin with Mr. Brison.

[Scott Brison, Liberal, Kings—Hants, NS]

Thank you, Mr. Chair.

I thank our witnesses very much for being here with us today.

In terms of the Colombian economy, one of the challenges Colombia has faced after 40 years of civil war is the reliance on the narco-economy. Do you see legitimate trade as having the potential benefit of giving Colombians the real and sustainable opportunities that can help wean them off that narco-economy, which has sustained a conflict that's become less about ideology and more about drugs?

Secondly, as you referenced, these labour and environment agreements are, according to our own public servants but also international negotiators with whom I've communicated, the most robust that we have signed as a country with any other country, but also the most robust of any agreements between any countries in the world. Given that we already have a trading relationship with Colombia, do you see any way that this new rules-based agreement can do anything but improve labour standards and environmental conditions?

There are arguments that somehow this deal can diminish labour standards or diminish environmental standards. Do you see any way that is conceivable, given that they are as robust as they are and given that we already have a trade relationship now without these rules?

[David Stewart-Patterson]

I think your question begs the answer.

Coming to your first question, clearly, the easier we make it to do legitimate business, obviously the more we decrease the room for the underground, the illegal economy. The more opportunities there are for Colombians to do well in a market economy subject to the rule of law, the less incentive there is to get involved in the drug trade, and I think the better off all Colombians are going to be.

Similarly, as you've observed, and as I have already said, I think we have a very robust groundbreaking set of side agreements, labour standards in particular, built into this agreement. It's hard for me to say how on earth anything that is essentially groundbreaking, world-leading in its provisions.... It's obviously going to be a significant contributor to the well-being of Colombian workers and to the population as a whole. It seems pretty obvious to me.

[Scott Brison, Liberal, Kings—Hants, NS]

Mr. Cannis has a quick question as well.

[John Cannis, Liberal, Scarborough Centre, ON]

First, I want to pick up from Mr. Brison, because he triggered something.

We're in Afghanistan and we're spending billions of dollars. We know what the problem is. The illegal drug trade is flourishing, and yet we're there to help prevent human rights violations, help them build a stable society, and we're being told by other people, other parties, that we have to stay away because some of these similar problems exist in Colombia. Maybe you can comment on that.

You mentioned they're not standing still. You talked about China, EU by 2010, nine other agreements, 45 other countries. If we continue procrastinating putting this deal together, if we don't act on it ASAP, and down the road we come back to it, what's your view? Will we be dealing from a weaker position than now, given that? And I use the Central American Free Trade Agreement, where we were there, but we procrastinated, the U.S. ratified, and now they're sitting there in cabinet saying we'll talk, we'll see. We lost some bargaining chips then, I believe, or maybe you disagree with me; please let me know. Will we be repeating the same thing should we not act on this?

[David Stewart-Patterson]

I would suggest that in any case where we're looking at our relationship with a particular trading partner, and a number of countries are looking at improving their trade relations, if we get in there first we're going to have an advantage. I think in particular here there's an opportunity for Canadian companies and Canadian farmers, agricultural exporters in particular, to gain in export over their American counterparts if we get in there first.

[John Cannis, Liberal, Scarborough Centre, ON]

That was it, Mr. Chairman. I'm keeping it short.

[The Chair, Conservative, Lee Richardson]

You have two minutes left.

[John Cannis, Liberal, Scarborough Centre, ON]

We're trying to conserve time, sir.

[The Chair, Conservative, Lee Richardson]

Oh, excellent.

[John Cannis, Liberal, Scarborough Centre, ON]

Avec les deux minutes, Monsieur Guimond, vous avez neuf minutes.

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

Thank you, Mr. Chair.

Good day, gentlemen.

So much for small talk. Today, we are discussing the free trade agreement between Canada and Colombia. You know the Bloc Québécois' position on this matter. We are opposed to the agreement, first of all, because it is a bilateral agreement and Colombia's record on human rights is very poor. For these reasons, we cannot support it.

It's clear on listening to you that you have quite a stake in this agreement. You represent many Quebeckers and Canadians. I'm curious about how you and your members feel about doing business with a country that has one of the worst human rights records.

[Jean-Michel Laurin]

The manufacturing sector in Quebec and in Canada is currently in the throes of a rather serious crisis. Quebec businesses are looking to develop new export markets in leading sectors like aeronautics and machinery and equipment manufacturing for the mining industry in particular.

With respect to the automobile parts market, for example, or the truck and tractor market, some rather interesting business opportunities present themselves. This is not a traditional market like the United States, for example, a country with which our members are accustomed to doing business. You asked how our members feel about doing business with a country like Colombia. For starters, we generally do business with commercial partners. Security and other areas are a concern for some companies. However, in my opinion, the agreement presents some interesting business opportunities for Canadian companies. Having a free trade agreement in place enables...

Earlier, I mentioned that the two countries already do business with each other. We export over $700 million worth of products to Colombia. Trade levels, which are already significant, have been increasing dramatically. The issue here is how trade will be impacted by this free trade agreement.

First of all, the agreement will provide more certainty and give Quebec and Canadian companies a competitive advantage, because companies that import goods will no longer have to pay the customs tariff. Secondly, trade will be covered under the parts of the agreement that deal with the environment, human rights and social rights, something that is currently not the case. I don't quite understand your opposition to the agreement. The current situation is such that—

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

Why do business at any cost with a country that...You mentioned exports totalling $700 million, but we have never seen any studies to back up that contention. We have reason to question these figures.

Earlier this week, we discussed agriculture. A hog industry representative stated that the value of this market was $4 million or $5 million annually. That isn't enough to save Canada's hog industry.

I have a simple question for you. Why would you insist on wanting to do business with a country like Colombia, given its record on human rights? Perhaps some of your members are aware of the country's record. Generally speaking, do your members accept this situation?

[David Stewart-Patterson]

The reality is that Canadians care about human rights and we are not passive about it. We engage other countries around the world because we want to make the situation better. One way to improve the situation of human rights in Colombia and in other countries is to engage them and bring them towards the rule of law.

We talked about Afghanistan. We know there are huge problems there. That does not stop Canadians from caring about what happens in Afghanistan, or from intervening in order to make the situation better.

We are arguing that by engaging in legitimate trade with Colombia we are advancing their economic situation, their social situation, and their progress in human rights. Colombia has made huge progress in the past decade. That is very important, we should assist in continuing it, and that is what this agreement will do.