International Trade Committee on June 10th, 2010

[The Chair, Conservative, Lee Richardson]

Welcome.

We'll begin the 22nd meeting for this session of the Standing Committee on International Trade.

Welcome. I must say I didn't even recognize that we were going to have the witnesses from Toronto today, and that's terrific; I see an old friend.

We have witnesses today on the beginning of a study on free trade between Canada and the European Union. We welcome to the committee room Kathleen Sullivan, who is executive director of Canadian Agri-Food Trade Alliance.

Visiting us again from the Grain Growers of Canada is Richard Phillips, who is the executive director. Welcome back.

And in Toronto, via teleconference, we have the chairman of the Canada Europe Roundtable for Business, Roy McLaren. It's nice to see you again.

[Roy McLaren, Chairman, Canada Europe Roundtable for Business]

Thank you.

It's good to see you.

[The Chair, Conservative, Lee Richardson]

I think it was in the High Commission in London a couple of years ago.

[John Cannis, Liberal, Scarborough Centre, ON]

He was a Liberal minister.

[The Chair, Conservative, Lee Richardson]

And a darned good one.

Also with us is Jason Langrish, the executive director.

We're going to proceed in the usual manner. I'm going to ask our witnesses to give opening remarks, and then we will go to the committee for rounds of questioning in the usual fashion.

I'm going to start with those who have been patiently waiting in Toronto.

Mr. McLaren, are you going to begin with an opening statement?

[Roy McLaren]

Yes, I am going to give one minute, Mr. Chairman, and Mr. Langrish, who is far more competent than I am, will give the other nine minutes, for a total of ten.

What I want to say first is thank you for your welcome and for holding this hearing today. We're on the eve of the fourth round of the negotiation of a comprehensive economic trade agreement with the European Union. We're at about the halfway point, in effect. But my association with the idea goes back a long way, not quite as far back as Lester Pearson, who proposed in 1949 that NATO be something more than a military alliance, that it be underpinned with an economic alliance.

That idea didn't fly at the time, and subsequently, as I tried in my later years as minister of trade to pursue the idea in Brussels, we didn't have much success, largely because the European Union believed, as to a degree we did, that trade enhancement and liberalization might best be pursued in the new World Trade Organization, or the GATT preceding it, rather than in regional or bilateral agreements.

I remember very well speaking with Leon Brittan about the idea, and subsequently with Pascal Lamy, and eventually with Mandelson, to push the idea of a Canada-Europe agreement.

Why did I want to push it? Well, I think the question answers itself almost, in that all trade is good for Canada, free trade is even better for Canada, and for the European Union it was an occasion to negotiate for the first time with a developed country. Europe had already completed a number of agreements with developing countries, but as I said, reserved their trade relations with developed countries for the World Trade Organization.

However, with the faltering, and now I would say the demise of the Doha Round of the WTO—most unfortunate, but I think we might as well recognize the facts—the European Union has decided that it's time to negotiate with a developed country to see whether a complex and comprehensive agreement can be successfully achieved, and also with a federation, because the European Union sees the negotiation with Canada as a template not only for relations with other developed countries or developed areas, but also as an opportunity to test a negotiating agreement with a federation, something that they will in time encounter when they turn to Australia and eventually the United States.

The business community in Canada has gotten behind this agreement 110% and are very enthusiastic about the opportunities. Canadian business has already made major investments in the European Union and clearly sees the opportunities in the time ahead for trade as well as investment.

At this point, Mr. Chairman, I'm going to turn it over to Jason Langrish and ask him to fill in some of the details.

[Jason Langrish, Executive Director, Canada Europe Roundtable for Business]

Thank you, Mr. Chairman. Thank you for the opportunity to present to the international trade committee.

Just briefly, the Canada Europe Roundtable was founded in 1999. It had a lot of government support at the time. The reason it exists is that the transatlantic business dialogue that exists between the United States and Europe did not permit participation by Canadian companies. So we created our own organization, and I think we've been much more successful than the American version, because instead of just focusing on delivering shopping lists of recommendations to government, we focused rather on achieving a free trade agreement between Canada and Europe.

If we speed ahead to 2007, we had well over 100 Canadian and European chief executives as well as all the major industry groups supporting free trade between Canada and the European Union. Premier Charest of Quebec also took a strong leadership role, and then trade minister David Emerson was very central.

Europe obviously came along. France and Germany have been very supportive. And as Roy McLaren mentioned, the collapse—or at least the suspension—of the Doha Round negotiations has given new impetus to free trade between Canada and the European Union.

It also created a re-think in the European Commission. Should they be negotiating with wealthy, developed countries? They decided the answer was yes, and they decided the country with whom they should be negotiating was Canada, thanks to our good fortune and all the good work of our foreign affairs department, which ran a campaign to engage the member states. When we got a note from Brussels, they went straight to the member states, and the member states said Brussels may not wish to do this, but we do, the members of the European Union.

I don't think it's surprising. Brussels has always been favourable to negotiating with, say, ASEAN or MERCOSUR. They also recognized that these would be challenging negotiations, but they've since come around and are now very keen. They have actually indicated that it's the best negotiation they've participated in, because Canada and the European Union have so much in common. European business has also signalled their very strong support.

The key issues that have come up from the business community on the negotiations continue to be public procurement, issues around market access, and also technical barriers to trade, notably into the European Union. Services, investment, and labour mobility are all areas in which there is significant growth potential. Intellectual property and agriculture, as well as ensuring ambition among provinces, has been a challenge, but I think we're seeing real movement in that area as well.

Why does this matter for Canada?

I think the first point is that an FTA with the European Union is not a race to the bottom. Free trade is often characterized as a race to the bottom. I think it would be very difficult to characterize this agreement as undermining labour and environmental rights, as an example. The European Union is one of the strongest jurisdictions in the world in protection of labour and environmental rights. I don't think they're looking for anything that's going to diminish that. I think the argument that this is what the agreement could do is somewhat hollow.

As Roy said, Canada is a test model, and if successful, Europe will probably attempt to negotiate with other OECD countries.

I think what's important, though, is that assuming we're successful in concluding this negotiation, in the future, if there is a NAFTA-EU negotiation, we will have established precedence that will be meaningful for Canada within the context of that negotiation, as opposed to sitting on the sidelines and having to accept what the European Union and the United States decide upon.

We're also conscious in these negotiations not to compromise our relationship with the United States in negotiating something with the European Union. But of course the European Union has its own very significant relationship with the U.S., and I don't think they want to do that either.

In Canada, one of the reasons it hasn't received as high a profile as past negotiations is that there's a general acceptance that free trade is a good thing. Given that Canada exports so much and that so much of its prosperity is dependent on export markets, a free trade agreement with Europe is a particularly good thing, especially when our exports to the United States have dropped by almost 30%.

Yes, we need to diversify, and yes, Asian countries and the big-growth areas of Asia are important areas in which to diversify, but it's not an all-or-nothing. We need everything we can get in this globalized economy. Realistically, it's going to take some time before we can negotiate with the Indias and Chinas of the world, whereas Europe is ready to go right now.

I'd also add that if we don't conclude this negotiation, if we're not seen as capable of concluding the negotiation that obviously could mean so much to Canada in terms of economic growth and market access, I think we'd have a very difficult time going forward and negotiating with other partners. The sentiment would be if they can't conclude this agreement—Canada with the European Union—how much energy are they going to put into concluding a negotiation with a smaller partner?

Despite the debt and demographic challenges presented by the European Union, you're still looking at a continent with a 500-million-person market. They have a demand for resources and value-added goods and services that we can satisfy. They are being challenged in traditional markets where they have been active, such as Africa, and I think they're seeing Canada as a good long-term partner.

It's also going to allow us to make common cause on future multilateral issues. In our dealings in the Arctic, as an example, we're going to need to work with the Europeans closely. I suspect that this agreement, which is obviously of an economic nature but requires a great deal of political and ultimately cultural collaboration, will make our future collaboration on pressing issues, such as the northern dimension or other areas of international affairs, a more positive and more robust participation and partnership.

I think I'll conclude on that point, but just saying that, as Roy said, the business community is strongly behind this. This is not a new idea. We've been working on it for several years, and we're very encouraged not only by the progress the negotiators have been making but by the broad support that this agreement has.

It's not just an initiative of the business community. We have editorials in the Toronto Star, in the Globe and Mail, in the National Post, and they've all been resolutely in support of this agreement. Now, there are individual issues that will be challenging and which people won't agree on, but I think that the broader goal of free trade between Canada and the European Union has a very broad level of support in Canada.

[The Chair, Conservative, Lee Richardson]

Thank you, Mr. Langrish. That's an excellent start. I appreciate that as an overview.

We'll go now to Richard Phillips, executive director of Grain Growers of Canada. Oh, is Kathleen Sullivan is going to start? I'm sorry.

Go ahead.

[Kathleen Sullivan, Executive Director, Canadian Agri-Food Trade Alliance]

Thank you, Mr. Chair.

My name is Kathleen Sullivan. I'm executive director of the Canadian Agri-Food Trade Alliance. As the chair has pointed out, I'm joined here by Richard Phillips, who sits on our executive.

CAFTA is a coalition of national and regional Canadian organizations that support a more open and transparent international trading environment for agriculture and food products. Our members include Canada's major agriculture exporters—the beef, pork, grain, and oilseed sectors, just to name a few of them—and we represent producers, processors, and exporters, so we're very broad-based.

Canada is the fourth-largest agriculture and food exporter in the world. We rank behind only the EU, the United States, and Brazil. We export half of our beef and cattle, half of our grains, at least 60% of our hogs and pork, and well over 70% of our canola production. Across Canada, nine out of every ten farmers depend on export markets.

But while Canada is a world leader in agriculture and food trade today, there is no doubt that our place in the world is slipping. When it comes to agriculture and food exports, our trade growth is being outpaced by countries such as Argentina, Indonesia, and India, which could surpass Canada in total agriculture and food exports within the next few years.

When it comes to food exports alone, we've already slipped from third place to ninth place in world standings in just the last decade. It is essential that Canada build and expand export markets for our agriculture and food products. We need to identify and pursue meaningful bilateral and regional trade deals that offer significant benefits for Canadian agri-food sectors.

We are particularly enthusiastic about the Canada-EU negotiations that are currently under way. Outside the WTO, the Canada-EU CETA is the greatest trade opportunity that our sector has seen in a generation, and it's highly unlikely we're going to see anything that matches its magnitude for many years to come.

First of all, the European marketplace is huge. Europe has 500 million people who in large measure share our tastes and values. In particular, they have a very developed taste for higher-value food products.

Second, we are currently under-servicing Europe as a marketplace. Our current exports to the EU from an agriculture standpoint are just one-tenth of what we ship to the United States every year. We have virtually no access into Europe for our beef and our pork products. In fact, we now ship more Canadian cheese to Europe than we ship Canadian pork or Canadian beef.

Third, we are plagued by European non-tariff barriers that can effectively undermine the market access we have in important areas such as our oilseeds sector, for example.

The Canada-EU CETA is an important opportunity for Canada to make significant headway into Europem, and to do it ahead of some of our major trading partners and competitors, such as the United States. A joint Canada-EU study has estimated that Canadian-processed food exports to the EU could grow by about $2 billion a year—that's about 140% growth—while our primary agriculture exports could grow by another $1 billion; that's about a 40% growth. The numbers are really quite staggering.

Because this agreement is so broad and so comprehensive, and because the EU has priorities that lie outside of agriculture, there are really unique and unprecedented opportunities for Canada to pursue aggressive advances in market access and in addressing non-tariff barriers for our agriculture and our food exporters. We are a trading nation, and a more open trade system is essential for the future growth and prosperity of Canada's agri-food sector.

We continue to believe that the WTO has much life in it. Mr. McLaren and I have had this conversation a few times in the past. We're quite optimistic that we will find a way forward through the WTO, and it continues to be our priority in agriculture. It really remains the best way to achieve a rules-based system for agricultural trade and it is the only vehicle that can address the comprehensive range of trade issues and barriers that face global agriculture trade in a way that's transparent and rules-based.

But the Canada-EU CETA is a critical agreement for Canada's agri-food sectors. It could open EU markets for key agriculture and food exports and it could address long-standing and future non-tariff barriers in a manner that is precedent-setting.

I think Richard is going to add a few comments on that.

[Richard Phillips, Executive Director, Grain Growers of Canada]

Thank you, Kathleen.

I was also smiling at Mr. McLaren when he talked about Pearson, because I'm just reading a book right now that goes back to Laurier's vision of trade, if you want to go back even further yet.

Trade is bigger than just tariff lines. It's also about market access and clear rules to make the trade work. Issues such as SPS—that's sanitary and phytosanitary—food safety technical barriers can interrupt trade and in some cases nearly kill trade. Two key components are under negotiation in this deal to deal with these concerns.

Number one is a proper dispute resolution process. It has to be clear, must be easily understood, and needs to work in a timely manner. This is especially important for the SPS issues.

The second is recognition of sound science. One example I think we know of very recently within the grain trade concerns flax. We simply have to have a better and more timely process to deal with low-level presence concerns. A trade agreement is only as good as our ability to enforce it.

My final point is that there are only a few really large markets in the world: the U.S., China, India, and the EU. This is one of those four markets. More importantly, it's a market that buys high-quality and high-end goods, services, and food. High quality means higher prices, and that means better opportunities for all of us to make money in the agriculture value chain. So we, the Grain Growers of Canada, with the Canadian Agri-Food Trade Alliance, strongly support these trade talks.

I look forward to your questions. Thank you.

[The Chair, Conservative, Lee Richardson]

Thank you again.

We will begin in the normal fashion. The first round is going to be of seven minutes for questions and answers, and I think everyone here is familiar with it.

We're going to start with our Liberal colleague, the Honourable Scott Brison.

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

Thank you, Mr. Chair, and thank you to each of our witnesses today.

This has been compelling testimony about the importance of this opportunity, the Canada-EU FTA. It's an unusual FTA from a number of perspectives, because it covers more than some FTAs have in the past. I understand, for instance, that some of the discussions are around regulatory reform. This is something new to these discussions that has not been part of previous discussions. Given that non-tariff trade barriers, which are often regulatory in nature, represent barriers to trade and commerce that are sometimes as serious as tariff barriers, I would really appreciate a little insight into that component of the discussions.

And I understand the discussions even involve professional accreditation issues. We have challenges in Canada on some of these issues, but I'd be interested to hear some insight from you on the regulatory component and the professional accreditation component, because those areas I think are extremely important areas for discussion.

So my questions are both about what the scope of those discussions is and what chance you believe exists for us to successfully conclude agreements in those areas.

[Roy McLaren]

I'll take this.

Mr. Chairman, I want to make two quick points and then ask my colleague to respond further to Mr. Brison's incisive questions.

He's entirely right, of course; this agreement is about far more than tariffs. Tariffs, thanks to the Uruguay Round of the GATT and more recently, for example, the government's decision to remove tariffs on industrial components, has rendered tariffs in the Canada-EU context a minor issue. There are some piques to be dealt with, but on the whole it's a minor issue.

Regulatory negotiations are far more important, and Mr. Brison is entirely right to select that as a major issue. It involves the provinces, and that's why the participation of our provinces has been so important in the development of Canada's stance in these negotiations. Fortunately, all ten provinces have pledged themselves to modify or change their regulations as necessary as a result of the eventual agreement.

Recognition of professional qualifications, Mr. Brison's second point, is bound up with the whole question of labour mobility. Labour mobility is a feature of this agreement—which it isn't, for example, of the Canada-United States agreement or of NAFTA. Labour mobility has been very much in the mind of Premier Charest in particular, but all the provinces have recognized the benefits that can flow to Canada from greater mobility and mutual recognition of professional standards. It's an area in which already we're making substantial progress, and I don't doubt we'll complete that particular aspect of the agreement in fairly short order.

If I might, Mr. Chairman, I'd like to ask Mr. Langrish to add a word, and then perhaps we can get back with Mr. Brison.

[Jason Langrish]

I'll just add two key points. The first is that regulatory cooperation is an integral part of this negotiation. If you look at professional skills, minerals, forest products, agricultural products, and even procurement, all those sectors face barriers going into the European Union. In procurement, sometimes it's technical standards—the environmental standards for even, say, paper products, which are not necessarily based on sound science. The regulatory reform is well advanced, because this was discussed in the predecessor to the CETA, which was the TIEA, the trade and investment enhancement agreement. I know work is well advanced.

The two key components of the regulatory cooperation chapter, from what we understand, are that both sides will have the responsibility to give advance notice on any planned regulatory formation so that the other side can issue comment on how it will affect exports into the European Union or into Canada; and it will be backed by a binding dispute resolution mechanism, which is something we currently don't have. When we see that we're faced with regulatory barriers into the European Union now, our exporters really have no recourse, whereas with a legally binding dispute resolution mechanism, our hand will be greatly strengthened in dealing with the European Union.

Thank you.

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

Thank you very much.

I also want to say how delighted I am to see a great friend of the Parliament of Canada, Roy McLaren, back here via technology today. It's great to see you, Roy.

[Roy McLaren]

Thank you very much. It just proves that old trade ministers never die, they just fade away.

[Kathleen Sullivan]

From an agriculture standpoint, non-tariff barriers are critical in our world. The estimates are that half the value of this trade agreement for us will be in addressing those non-tariff barriers.

There's a real chance to resolve some issues that have been outstanding. For example, there are very different standards in Canada and Europe when it comes to slaughterhouses, on the meat processing side. Approvals on the GMO side are very different and very cumbersome in Europe. They have very different environmental sustainability requirements from ours.

If we don't find a way forward and a way to work together on those issues, then frankly, market access into Europe would be meaningless for agriculture. Our view is very much that the deal with Europe has to be meaningful. If we can't resolve the non-tariff issues, then really we shouldn't be moving forward.

We're actually quite optimistic that we'll make progress on these. They've already been woven into the negotiations, so we're quite pleased so far.

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

I have a quick final question on this round.

This is an unusual negotiation from another perspective, and that is the leadership role being played by Premier Charest. You've alluded to it, but how important has his leadership been to this process, both in terms of the international negotiations with Pierre Marc Johnson and others and in terms of gaining consensus with the provinces on some of these matters that have previously provided barriers?

[Roy McLaren]

Briefly, he's been central to both issues. He's played a major part in bringing about the negotiation, partly through his intimacy, as it were, with President Sarkozy of France. France and Quebec already having an agreement of sorts, both Premier Charest and President Sarkozy saw the desirability of building on that. It was a great departure for France, which hitherto has been rather protectionist in its trade attitudes. Premier Charest played a key role in overcoming that impediment.

Second, he's also been very active in ensuring that the other nine provinces and the territories commit to the agreement, and has taken a leadership role with his colleagues, the other premiers.

[The Chair, Conservative, Lee Richardson]

Thank you.

We're going to have to move on. I appreciate the first round.

We'll go to Monsieur Laforest from the Bloc.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

Thank you, Mr. Chair.

Good afternoon to all the witnesses. Welcome to the committee. We thank you for coming here on such short notice.

My first question is for Mr. Langrish, in Toronto.

We know that, currently, Canada is lagging behind the European Union in trade by about $10 billion. Imports from the European Union total about $62 billion, while exports to the European Union are about $52 billion.

Do you believe that concluding a free trade agreement will enable us to restore the trade balance, or even shift it in Canada's and Quebec's favour? If so, which sectors would benefit the most if the agreement was concluded?

[Jason Langrish]

Thank you for your question.

It's very difficult to predict whether there will be balance. I don't know that it's important that there be balance, considering they probably have 14 times our population.

I think economic studies show that European exports would increase by about $18 billion and Canadian exports by about $10 billion to $12 billion. Considering we have a little over 30 million people and they have over 500 million, I'd say we're doing pretty well on that score.

The thing about trade negotiations is that you never know. In the negotiation for the FTA with the United States, it was widely predicted that our wine industry would collapse; well, it's actually grown. We don't know for certain, but we do anticipate significant growth.

We will see growth, obviously, in the agricultural sector. We will also see export growth in the manufacturing sector, including the automotive sector. In fact, Ford has as much as told us that there's a vehicle they produce in southern Ontario that they want to export globally, including to Europe. There'll be growth in auto parts as well. There'll be an export market for forest products. Minerals will grow as an export market. There'll be growth in services, energy, seafood, and anything that has a tariff applied to it of more than, say, 5%--and even at 5%, it will probably grow.

There also will be a significant growth in investment. I foresee Canada increasing its status as a financial services hub. It will make it easier to raise capital for major infrastructure projects in Canada. It will create more liquidity. There will be a desire within Europe to put money into Canada, because Canada is seen as an outperformer. This agreement will help to facilitate putting that money to use and getting a better return in Canada than could probably be expected in the European Union.

We will see a growth in exchange. Not only will there be more movement of skilled people, but I suspect that also, ultimately, there will be more educational and cultural exchanges. I see the cooperation spilling outside economics and into politics and culture.

I see this already in Toronto. When I first moved to Toronto from Brussels five years ago, there was very little on Canada and the EU. I see regular activities all the time now. Even just watching the World Cup preparations, I'm literally bombarded by European groups organizing things, and I've noticed a marked increase in the net immigration into Canada of skilled Europeans.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

I wanted to clarify one of my questions. I'm sorry, but we're on the clock.

Earlier, you talked about one element to consider. You said that the agricultural sector is one of the sectors that could benefit from increased exportation. This leaves us with the impression that the concluded agreement would emphasize the exportation of agricultural products from Canada to Europe, to the detriment of other sectors.

Could there possibly come a time when exports of Canadian high technology products—which are also produced in Europe—are reduced to allow for more exports of agricultural products? Is such a situation plausible?

[Jason Langrish]

It's hard to say, but it's the underlying assumption. Canada is a market of 30 million people. We can't produce everything. You need a certain scale to produce certain goods. What we need to do is focus on the areas where we're strong and on whether we are going to be able to make economic gains in this agreement as a result.

To say that we have the world's leading technology in all areas is obviously not true. At this very moment we import, for instance, wind turbines from Denmark. Realistically, are we going to become better resourced in wind turbines and solar cells than Germany or Denmark? It will be tough, but the thing is, as long as those companies are investing in Canada, producing in Canada, using Canadian employees, and using Canadian research facilities, then we will get a win. It doesn't necessarily have to be a home-grown Canadian company for it to be good for the Canadian economy; it can also be an investment from Europe, and reciprocally we do the same thing as well. Bombardier bought Adtranz, as an example--

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

I would like to ask you one last question, Mr. Langrish.

European Union's negotiators have said that the supply management issue will be included in negotiations concerning the agricultural sector.

Do you feel that the European Union is taking an especially hard line at the negotiating table? Does it really intend to conclude an agreement in which supply management would absolutely be on the table?