International Trade Committee on Nov. 15th, 2011

[The Chair, Conservative, Rob Merrifield]

I'd like to call the meeting to order.

I want to thank the witnesses for being here.

This is a continuation of our study on CETA, the European-Canada free trade agreement. We have before us today the Forest Products Association of Canada as well as Canada Pork International.

Andrew Casey, I think, is going to lead us off, and then we'll have Jacques Pomerleau for the pork association.

Andrew, thank you for coming. We look forward to your presentation, after which we will open it up to questions and answers.

The floor is yours.

[Andrew Casey, Vice-President, Public Affairs and International Trade, Forest Products Association of Canada]

Thank you, Mr. Chair.

It is a great pleasure to be here with you today to discuss this topic.

The Forest Products Association of Canada is the national trade association that represents Canada's integrated pulp, paper, and lumber producers. The industry at large represents about 12% of Canada's manufacturing GDP. We directly employ 240,000 Canadians across the country and another 500,000 or so indirectly.

We are found in pretty much 200 communities across the country. When I say we're “in” those communities, I mean we are the economic lifeblood of many of those communities, keeping the towns running and keeping the jobs in the communities.

For many of you around this table, we've had numerous discussions over the years. Many of your constituencies are no strangers to the industry and certainly to the trials and tribulations we've gone through in the most recent economic downturn. Obviously many jobs have been shed in the sector. Many of you have felt the impact directly in your constituencies over the past couple of years.

I'd like to say that we're coming out of the economic unrest, but it looks like there's still some more uncertainty ahead. I am pleased to report, however, that the industry has taken some steps during the most recent economic downturn to better prepare itself to come out of the next economic malaise a little bit better prepared.

We've certainly undertaken progress on a number of fronts. We've improved our competitiveness and our productivity. We've looked to diversify our product stream. We're getting into the bioeconomy in a more fulsome fashion. We're adding that to our existing lumber, pulp, and paper production and trying to extract more value out of each and every tree.

The other two key parts of our transformational strategy include market diversification and leveraging our environmental reputation abroad. I think those last two components are integral to the Canada-European free trade agreement that we're going to discuss today.

Our industry is a significant exporter. We export well over 50% of our product, about $26 billion a year, to markets outside of Canada. We are one of Canada's largest exporting industries. We're also one of the most successful forest products exporting industries in the world.

Our primary market is, of course, the U.S. marketplace, where about 65% of our product goes. We send another 30% or so of our product to Asia, and certainly are looking at China as an increasingly important part of our product mix. The EU represents about another 5% of our market share. Various markets elsewhere around the world make up the remainder.

The government has been extremely supportive of the industry in terms of diversifying its marketplace in a number of ways. One is direct support for market development and market expansion in other parts of the world. Particularly if you look at China, the government has supported a lot of our development of that market. Ministers Oliver and Fast were recently over there doing some significant work in terms of outreach to their government. Much of this is government to government, so that's enormously helpful.

The second aspect of the government support that's been very useful for the industry in developing new marketplaces and diversifying our markets has been through free trade deals such as the one we're discussing today. I've been before this committee to discuss the Jordanian deal, the Panamanian deal, and also the Colombian deal, all of which are significantly smaller than this one but nonetheless help to diversify our marketplace. For that reason, we are very supportive of the deal we're talking about today, the deal with the EU.

To give you a sense of it, the EU imports from countries outside of the EU family about $23 billion worth of product annually. We ship about $1.5 billion worth of product to the EU. You can divide it almost into thirds: pulp, paper, and then wood products.

Our pulp and paper goes into that marketplace relatively tariff-free, but we do face a 7% tariff on our OSBs, the oriented strand boards, and plywood products going into that marketplace, which essentially renders our industry uncompetitive vis-à-vis our competitors.

On this particular deal, we've been working very closely with officials in the government in structuring the deal. There are two components of it that we're very supportive of. One, of course, is the removal of that 7% duty on our plywood products.

The second part is fairly unique. I don't know whether the committee has actually discussed this to date. We've advocated an annex for forest products procurement with governments. Right now the government procurement process for forest products in the EU is a fairly behind-closed-doors process. We're advocating something that's a little bit more open and that taps into leveraging our environmental pedigree.

The industry has come a long way in terms of its sustainability practices and its harvesting practices. We think that's an advantage in the marketplace. We would like to see that being used in the development of government procurement practices. So an annex to this deal has been written, and we believe it is on the table for discussion at this particular point in time in the next round. We understand that things are progressing smoothly. We're looking forward to seeing the final version of that.

All of that is to say that this is an important deal for us in that it opens up new markets for us. It expands our marketplace and is part of a market diversification plan that this industry has undertaken. We are grateful for the government's support in this regard. I look forward to entertaining questions from the committee after Mr. Pomerleau has provided his testimony.

Thank you, Mr. Chair.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Mr. Pomerleau.

[Jacques Pomerleau, President, Canada Pork International]

Mr. Chairman and honourable members of Parliament, I am pleased to be here today to present the position of the Canadian pork industry on the comprehensive economic and trade agreement with the European Union.

First I will say a few words about our organization. Canada Pork International was established in 1991 as the export market development agency of the Canadian pork industry. It is a joint initiative of the Canadian Pork Council and the Canadian Meat Council, and our membership includes all the stakeholders from the hog producers to the processors and trading houses.

Our organization deals primarily with market access issues: promoting Canadian pork abroad, providing market intelligence, and working on other significant export-related issues.

It should be noted that more than 50% of the pork produced in Canada is exported. Canada is the world's third-largest pork exporter, behind the EU and the United States, and we account for nearly 20% of the world pork trade, so we are a significant player at the world level.

In 2010 we exported to over 100 different countries, close to 1.1 million tonnes, and that was worth $2.8 billion. This year we are on track to exceed the $3 billion mark, and our exports right now are up by close to 5% at this point.

Our industry is quite proud of the fact that we have been able to achieve an effective market diversification strategy. While more than a decade ago the U.S. market accounted for more than 75% of our total exports--and I'm quite sure you have heard that from many other sectors in the past--it's now just 32% of our total exports.

An essential factor for our success has been the opening of new market opportunities through the Uruguay Round in the mid-1990s, but also through regional trade agreements like the one we have with Mexico.

We need to note that Canada has been an exporter for over 100 years. Our export capacity was first built to supply the British market, from which we are excluded at this point, because when they joined the European Union, or the EEC at the time, we were excluded from that market. Therefore, we are very thankful to be given the opportunity today to express our views on the proposed agreement between Canada and the European Union.

As I mentioned earlier, Canada holds around 20% of the world's total pork trade, in spite of the fact that in practice our products have yet to gain meaningful access to the European Union, which is the world's second-largest pork-consuming market, behind China. To give you an idea of the size, China would consume around 50 million tonnes of pork per year and the European Union around 20 million. For that reason, CPI and its members are strongly in support of Canada concluding a comprehensive agreement with the European Union.

In our latest strategic plan, we identified the European Union as one of our highest priorities, and our interest in penetrating the European Union has greatly increased in recent years because of the sheer size of that market. It's also because of the interest that has been shown towards our products by many meat importers in Italy and the U.K. and by those who basically have a pork deficit within their own national markets. It's difficult for us to quantify the exact potential of the market at this time, but we estimate that if the conditions are right, the EU could easily become one of our top ten markets, if not one of the top five.

There are three areas of specific interest to our industry that need to be dealt with during the current negotiations. One is the EU pork import regime. Following the conclusion of the Uruguay Round, the EU was very creative in its efforts to minimize foreign pork access by amalgamating all meats instead of providing a minimum access for each. As a result, the EU pork TRQs represent roughly one-third of 1% of the total EU pork consumption.

In comparison, pork imports represent more than 25% of the total Canadian pork consumption and are three times larger than the total EU imports for a population of 500 million. Here in Canada we are just about 34 million. That gives you an idea of the difference here. Still, in spite of that, the EU current tariff rate quotas and their administration are very complex and not conducive to sustained trade.

In-quota tariffs are also very high, and they require performance bonds as well. In practice, it has never failed. We believe that Canada should be in a good position to negotiate a significant Canada-only tariff-free TRQ with simplified administrative procedures in its allocation.

Several western European countries were significant markets for Canadian pork at one time or another over the years, until the EEC adopted a series of technical measures—one called the third-country meat directive—that eventually excluded Canadian pork. Our major markets at the time were...I mentioned the U.K., which was a market for more than 75 years; France; and the Netherlands. The same measures were applied against our products when significant markets in central Europe--such as Poland, Hungary, and Romania--joined the European Union, and as a result we lost all of those markets.

Although the Canada-EU Veterinary Equivalency Agreement has substantially made it easier for some Canadian pork plants to become EU-approved, there are still negotiations required to make it a true equivalency agreement, and the Canadian Food Inspection Agency is fully aware of those and is always working with us in trying to ease those challenges.

Plants that wish to meet the EU standards under that agreement still have, in order to comply, to incur significant expenses and implement strict protocols, especially on some feeding material. At this time, only three Canadian pork plants are EU approved, with more considering it. Better access and less constraining plant registration requirements would definitely convince most Canadian plants to seek an EU registration.

Although they have been rarely used when it comes to exports to Canada, EU pork export subsidies can in theory apply to all markets. Canada should insist that it should at least not be used for shipments to Canada within the framework of this agreement.

It is worth noting that all of the issues we have with the European Union have been well documented over the years by the Government of Canada. We really appreciate having been consulted since the very beginning of the negotiations and being kept appraised of all the latest developments pertaining to our products.

A final Canadian pork position has yet to be submitted to the EU and it is still being worked on, but we are quite confident that the Canadian negotiators will do whatever is possible to get the best possible deal for our industry.

Finally, just to take one more minute of the committee's time, we wish to bring to your attention that the free trade agreement between the European Union and the Republic of Korea was implemented earlier this year. And everybody is aware that the United States has concluded a similar deal, although it remains to be ratified by the South Korean parliament, which is, in our view, just a matter of time.

South Korea is Canada's fourth-largest market in value for pork exports, and sales are on track to get very close to $300 million this year. Our Korean customers are all telling us that Canadian pork is the top-quality imported pork in that country. The Canadian industry has worked hard to develop opportunities for a wide range of products, including value-added products such as chilled pork, which is now available in several large South Korean supermarkets.

It now happens that all of Canada's competitors in South Korea have a free trade agreement, and you will appreciate that the Canadian pork industry, as well as several others in the Canadian agrifood sector, have a very significant interest in not being left behind. Our South Korean contacts have repeatedly made it very clear that without an agreement with South Korea, the Canadian pork industry will be almost out of that market within two years, as the tariff elimination schedules provided in other FTAs will make us completely uncompetitive.

Therefore, we urge the committee to support efforts to resume the negotiations shortly and finalize a Canada-South Korea free trade agreement as early as possible. There is no doubt in our mind that not concluding an FTA with South Korea would more than negate any gain we could make in successfully concluding one with the EU. Both are important to us.

Thank you for your time today, and I look forward to answering any questions you may have.

[The Chair, Conservative, Rob Merrifield]

Thank you very much for those two presentations. We'll now open it up for questions and answers.

We'll start with Mr. Masse.

[Brian Masse, NDP, Windsor West, ON]

Thank you, Mr. Chair, and thank you, gentlemen, for coming to this committee here today. Mr. Casey, I'd like to start with you.

With regard to your presentation, you mentioned something very important. It's not just the 7% tariff that's on there, it's also the behind-closed-doors elimination of the opportunity that takes place. Could you expand upon that? I think that's very important because non-tariff barriers can be just as significant.

[Andrew Casey]

Yes, absolutely. Thank you for that question.

You're exactly right. What's happening in Europe is that governments develop procurement policies for their own purchasing habits and they tend to be done behind closed doors and without any open process. You end up having--whether it's intentional or not is a question--non-tariff barriers being put in place.

In some cases, we find those to be quite restrictive for our industry. They will put in place criteria that really don't apply to any country other than a country like Canada. As I say, it's hard to cast aspersions as to whether it's intentional or not, but you have to assume that there is some intent there.

Opening up that process and having it as a free and open process whereby we understand what's happening and then having a method through which you can appeal if things don't go the way you think they should go...that's also part of this annex. You would set up a body that would have an objective perspective.

I think the other important point of this thing, which I did not mention in my opening remarks, is that quite often the EU acts as a first step, in many respects, on the environmental side of things. Other countries around the world will look to the EU as an example of how policies are developed and what sort of criteria are in those policies. When we look to our other marketplaces such as China, which represents an enormous opportunity for our industry, if they quickly adopt some of the policies that are being developed by the EU governments from a procurement standpoint, we could find ourselves shut out in other marketplaces as well.

So it's an important sort of beachhead to get in there. They can often set policies elsewhere just by example. For that reason, it's also important beyond just the current ramifications of the direct EU-Canada deal.

[Brian Masse, NDP, Windsor West, ON]

So you're suggesting that we should have an appeal process built into this, to be able to expose that and then to challenge it. Would you suggest penalties as well?

[Andrew Casey]

Well, penalties probably would be extreme. I think you would want to have an open process, because a penalty would require that somebody has done you an ill.

[Brian Masse, NDP, Windsor West, ON]

Yes.

[Andrew Casey]

I don't think we're saying that. I think what we're saying is to have an open process for how you develop the policies and then have experts come to testify if you feel the policies are restrictive in some way, and hopefully that can have them amended.

[Brian Masse, NDP, Windsor West, ON]

Thank you.

I'm going to move over to the pork industry now, if I may.

I'm interested in your changing landscape with regard to exports and all of that. You've mentioned that the U.S. market has shrunk percentage-wise, but I'm just curious to know if it has actually stayed the same in terms of quantity. I'm interested in knowing what's happening along our border.

[Jacques Pomerleau]

In fact, since we were established, the percentage went down, but the total exports to the U.S. doubled. It just happened that we tripled our exports in the meantime.

[Brian Masse, NDP, Windsor West, ON]

Okay. So it has been a success at the other end versus just in the U.S.

You mentioned as well the subsidies that could be applied. Can you get into a little more detail about those subsidies? Do you have any specific instances that you can refer to with regard to European pork coming into Canada? As well, quickly, who's dominating your European market right now in pork? Who would you have to start competing against to get that market share?

[Jacques Pomerleau]

You're talking about from outside the EU or within...?

[Brian Masse, NDP, Windsor West, ON]

You mentioned in your presentation that the EU was providing some subsidies at different times for their pork exports to Canada and that we should stop that.

[Jacques Pomerleau]

Yes, but that was a long time ago. What I'm saying is that this has not applied recently to exports for Canada and we should make sure that it will not in the future. That's all I'm saying at this point.

As for the largest competitor, Denmark is exporting to Canada. One thing that I forgot to mention is that the EU has free access to Canada. We have no duty, no TRQ, when it comes to pork. But at the same time, some animal health considerations make it nearly impossible for most European countries to export to Canada, so in practice it's basically Denmark that is exporting to Canada.

On the other side, Germany is the largest producer in Europe, with 50 million hogs per year, which is about double what Canada does, and Denmark is also a significant player.

[Brian Masse, NDP, Windsor West, ON]

Thank you.

I'm going to turn the rest of my time over to Mr. Ravignat.

[The Chair, Conservative, Rob Merrifield]

Okay.

You have a minute and a half, Mr. Ravignat.

[Mathieu Ravignat, NDP, Pontiac, QC]

First, I'd like to thank you for being here, Mr. Casey.

You mentioned the difficult situation the forestry sector is in. Things are particularly difficult in my constituency of Pontiac. Four major plants have shut down. They were American operations. This sector is experiencing a lot of difficulty. If we asked these companies and the workers if NAFTA was a good thing for them, you would get a very mixed response. A considerable number of jobs have been lost. In Quebec alone, 20,000 jobs have been lost in this sector.

In a context of free trade with the European Union, how can we promote the changes we need to make in regions like ours, while opening up the market?

[Andrew Casey]

This is a very difficult question. I will answer you in English, if I may.

[Mathieu Ravignat, NDP, Pontiac, QC]

No problem.

[Andrew Casey]

I want to make sure I give you a proper answer.

Absolutely. We've lost a lot of jobs across the country—there's no question. Some of the restructuring in the industry was necessary. We had an industry that had overcapacity; that was a result of our industry growing quite quickly and not having enough competition abroad, and a low Canadian dollar. When the recession hit, there was quite a significant amount of restructuring that had to be done, regardless of what was going on elsewhere.

We're coming out of it--I'll use an old expression that is maybe overused--leaner, meaner, ready to fight. It's an industry that's better prepared now to take on international competition. These trade agreements are essential in that they are there to open up new marketplaces for us. They allow us to diversify our markets. I can't say that jobs are going to come back in certain parts of the country; it's unlikely in many parts of the country. But for the 240,000 jobs that still exist in the industry—and many of them are in Quebec and other parts of the country as well—these types of agreements are absolutely essential, as well as other programs that are under way with some of the government's support to help develop new markets, and diversify those markets to solidify the industry and the hold it does have with the jobs that are still there in the country.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Mr. Holder.

[Ed Holder, Conservative, London West, ON]

Thank you very much. I'd like to thank our guests for appearing today.

Mr. Casey, I'll start with you, please. I noted very clearly your comments about government procurement in Europe with the behind-closed-doors approach. I was glad to hear you say that what clearly needs to happen is a clear and open process for that, and again, the spirit behind this trade deal is to do exactly that.

I do have a question as it relates to the exports. I missed the figures in terms of the percentage that went to the States, to Asia, and to the EU. Can you just confirm? I thought I heard 65% to the United States.