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Evidence of meeting #36 for International Trade in the 41st Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was industry.

A recording is available from Parliament.

On the agenda

MPs speaking

Also speaking

Andrew Casey  Vice-President, Public Affairs and International Trade, Forest Products Association of Canada
Bob Kirke  Executive Director, Canadian Apparel Federation
David Worts  Executive Director, Japan Automobile Manufacturers Association of Canada
Kathleen Sullivan  Executive Director, Canadian Agri-Food Trade Alliance

11:55 a.m.

Executive Director, Canadian Apparel Federation

Bob Kirke

In general, they're not non-tariff barriers, but Japanese society and culture. The one thing I would say is that it's not that there is a specific barrier we need to overcome. And not just for our industry but for many industries, if you're going to make a serious effort to go into Japan, as these guys did, and work there for 40 years, you need to understand that it should be part of the global commerce strategy and you must have a long-term commitment to that market. Then I think a lot of industries can do well.

11:55 a.m.

Conservative

The Chair Conservative Rob Merrifield

I want to thank you very much for coming in, Mr. Kirke, and Mr. Casey. We appreciate your testimony.

We'll now suspend and bring the next set of panellists very quickly to the table.

Thank you.

11:55 a.m.

Conservative

The Chair Conservative Rob Merrifield

I'd like to call the meeting back to order.

Thank you, Kathleen Sullivan, for being here from the Canadian Agri-Food Trade Alliance.

We also have Mr. David Worts, from the Japanese Automobile Manufacturers Association of Canada. Thank you for coming.

We will turn the floor over to you, Mr. Worts, the executive director. The floor is yours, sir, and we look forward to your testimony.

11:55 a.m.

David Worts Executive Director, Japan Automobile Manufacturers Association of Canada

Thank you very much, Mr. Chairman.

Good afternoon. Thank you for the opportunity to speak to you in support of this important initiative to broaden and deepen our bilateral relationship.

As mentioned, I'm the executive director of the Japan Automobile Manufacturers Association of Canada, or JAMA Canada. We have eight members comprised of the Canadian subsidiaries of Japanese automakers, including Hino Trucks, Honda, Mazda, Mitsubishi, Nissan, Subaru, Suzuki, and Toyota.

Let me say at the outset that we are firmly supporting a comprehensive EPA between our two countries—just as we have supported trade liberalization over the past 28 years—for the economic benefits, jobs, and new opportunities for both Canadian and Japanese businesses.

The history of our organization is a history of liberalized trade. Let me give you a quick snapshot of the impact that trade liberalization has had on our sector in Canada and, in the process, suggest how other sectors could also benefit from the opportunities arising with freer trade.

While JAMA Canada was established in 1984 to promote greater understanding on trade and economic issues, Japanese automakers first came to Canada in the 1960s. Back then, the markets in North America and Japan were very different, and some early business initiatives were not always successful.

It took time and effort to understand the Canadian market, the Canadian way of doing business, and particularly the needs and wants of the Canadian consumer. Our members have spent many years on this and have made the necessary investment to understand the market, investing in infrastructure and building dealerships, investing in research, and building assembly plants to respond to the needs of the market. Our members understand that this is what it takes to be successful in Canada and in Japan—or in any other market, for that matter.

The first oil crisis of 1973 opened a new door as consumers in Canada saw small, fuel-efficient Japanese cars in a new and favourable light. After the second oil crisis in the late 1970s, Japanese automakers reached a critical level of sales to support a solid business case for local production in North America, providing the opportunity to be closer to their customers.

The case for Canada may not have been as easy due to its relatively small market, but the FTA in 1987 and the NAFTA in 1994 were critical in assuring access to the much larger U.S. market, which allowed the development of a deeper level of integration within North America. Today, only Japanese automakers have joined their U.S. competitors to make light-duty vehicles in Canada; moreover, the only medium-duty trucks made in Canada currently are Japanese.

Not only did investment to produce the most popular vehicles locally create thousands of jobs at assembly plants—and in fact, over the first quarter of 2012, plants in Canada built over 247,000 vehicles, almost 40% of total Canadian production—but over time those assembly plants generated even more jobs and new business opportunities in the supply base. The steady growth of production in Canada has also opened up new opportunities for Canadian suppliers to join global supply networks.

Like the Canadian auto industry overall, the Japanese auto industry in Canada punches above its weight. Every year since 1993 Canada has been a net exporter of Japanese brand vehicles, which contributes significantly to Canada's trade balance. Last year we exported over three times as many vehicles as were imported from Japan.

Without liberalized trade we would not have been able to build over 11 million vehicles in Canada since the mid-1980s. While many people are aware that Japanese automakers are building vehicles in Canada—particularly if you live in Alliston, Cambridge, or Woodstock—they may not be aware that over 50 Japanese parts-related plants have been established—and not just to supply Japanese OEMs, and not just in Canada.

Employment at our Canadian vehicle plants is close to 11,000 team members and associates, while employment among the 57 parts and related suppliers is in excess of 15,000 currently. While many of these parts plants are clustered in Ontario, there are some large Japanese parts operations in Quebec and British Columbia.

Local production in North America also meant that the need for imports would be reduced and reliance on local suppliers would be increased, particularly with the assured access provided by the FTA and NAFTA. Currently, two out of three vehicles that our members sell in Canada are built in North America. Moreover, for two members with extensive manufacturing in Canada, between 50% and 75% of their sales are Canadian-built vehicles.

Among other things, we believe that our presence in Canada has made the industry more competitive, has opened up opportunities to join global supply chains, and has introduced new, advanced technologies for safer, more fuel-efficient, and lower-emitting vehicles.

An EPA would add further impetus to opening up new business, building on more than two decades of industrial cooperation and investment in Canada that has generated technology transfer and Canadian auto parts investment in Japan from leading suppliers such as Linamar, Magna International, ABC Group, and the Woodbridge Group.

Altogether the Japanese auto industry supports over 67,000 Canadian employees in importing, exporting, manufacturing, distribution, sales, and service. The importance of the extensive dealer network among all our members throughout Canada should also be recognized as they are the first-line contact with customers. With over 1,250 dealerships across Canada, they employ over 39,000 Canadians in the sales and service of Japanese brand vehicles.

Despite recent global recession and last year’s earthquake and tsunami in Japan and floods in Thailand, which meant production and sales were curtailed by shortages and supply chain issues, which also hit us in Canada, there were no layoffs of full-time staff at any Japanese vehicle plant in Canada or the US. In fact, rather than being laid off, employees were redeployed for training and process improvements. As well, many employees went into the community and worked with local organizations, offering their capabilities and enthusiasm to community groups and agencies. Highly skilled and well educated dedicated employees are a critical part of maintaining a competitive and vibrant industry.

In summary, JAMA Canada supports liberalized trade with any country that has a level playing field and that can ensure that actual and potential foreign investors are treated equally and fairly. We support this Canada-Japan EPA as an opportunity for expanding trade, investment, jobs, and advanced technology among various sectors including automotive, particularly for those looking to diversify beyond traditional markets in NAFTA.

Both Canada and Japan are trading nations and have a long history of supporting multilateral trade liberalization as the preferred route to lower barriers to trade. With the Doha Round on the back burner, many countries have shifted focus to bilateral and regional trade deals.

In this context, neither Canada nor Japan can afford to be left behind. Japan remains the third-largest economy after the U.S. and China. As Japan is Canada’s fifth-largest trading partner, an EPA would boost prospects for Canada and Canadian companies to pursue broader strategies and strategic initiatives in Asia.

I thank you for your attention. I would be happy to take any questions.

12:05 p.m.

Conservative

The Chair Conservative Rob Merrifield

Thank you very much for that testimony.

We have now Kathleen Sullivan, executive director of Canadian Agri-Food Trade Alliance.

The floor is yours. Thank you for coming.

12:05 p.m.

Kathleen Sullivan Executive Director, Canadian Agri-Food Trade Alliance

Good afternoon, and thank you for having CAFTA back to the committee.

I'm Kathleen Sullivan and I run CAFTA, which is an organization made up of Canadian farmer or producers groups, processors, and exporters. Our mandate is to pursue high-quality trade agreements on behalf of Canada's agriculture and food sector. My members alone produce about 80% of all of the food and agriculture products that are exported out of Canada. That's about $32 billion that's represented around my board table.

We are very happy to be here to comment on the Canada-Japan economic partnership agreement launched earlier this year. In fact I and about ten of my agriculture colleagues, my members, were pleased to be invited by Minister Ritz to join him in Japan when the Prime Minister launched the trade deal. We were able to hold a number of round tables with our Japanese buyers. I was also fortunate enough to participate with the Prime Minister in a round table with Japanese industry.

Every year Canada exports $40 billion in agriculture and food products from this country. Half of everything we grow across the country leaves to find its way to other shores. That includes half our beef production, but it goes all the way to 85% or 90% of our canola production. Without export markets, the size, the structure, the shape of not just our agriculture community but also our rural communities would be drastically impacted.

For us, Japan is very much a priority market. Japan is heavily dependent on food imports, it has the lowest rate of food self-sufficiency among G-8 countries, and it boasts a large agrifood trade deficit. Last year alone we exported almost $4 billion in products to Japan. That's about 10% of everything we export. It makes Japan, for us, our second-largest export market after the United States.

Today Japan is the largest predictable market for Canadian canola seed, the second-largest market for our malt and for our pork, the third-largest market for our wheat, and the fourth-largest market for Canadian beef.

Although agriculture is just 1.5% of Japan's GDP, Japan's agriculture sector is highly subsidized, and it's heavily protected through tariffs and border measures. Tariffs on agriculture products are as high as 50%—on beef, for example—and much higher on sugar and sugar-containing products.

Given the importance of the Japanese market for Canada, it's imperative that any trade deal we sign with that country have a very strong agriculture package. The protection that Japan affords its agriculture and food sectors has long been viewed by us as an impediment to meaningful trade negotiations with that country, but about a year and a half ago Japan launched its basic policy on comprehensive economic partnerships. It really spoke to the importance of Japan taking a look at export markets and making the necessary domestic reforms that would allow it to support meaningful trade deals. That encourages us that in fact trade negotiations with Japan could be quite fruitful.

CAFTA also encourages the Canadian government and Japan to pursue a very, very broad trade deal. It can't just be focused on tariffs, as was talked about in the previous panel. Certainly for agriculture, half of the problems we face around the world are non-tariff barriers. Those will have to play a really critical part in any trade deal.

Finally, I'd just like to quickly reference the Trans-Pacific Partnership. I don't think you can talk about a trade deal with Japan any more without putting it in the context of the TPP.

Of course the launch of the Canada-Japan EPA coincides with the applications of Canada, Mexico, and Japan to join the Trans-Pacific Partnership, which is a regional Pacific Rim trade deal currently comprised of nine countries, including the United States.

We believe Canada should make TPP membership a priority, and the government is working very hard on that. The TPP offers significant opportunities for us not just on a market access standpoint but to be able to deal with non-tariff barriers and certainly growth opportunities if you move beyond the current nine-member configuration.

What's really critical to know about the Trans-Pacific Partnership, though, is that if Japan is in that group, Canada must be at that table. We already have a situation, as I think you all know, in Korea, where both the U.S. and the EU got into Korea ahead of us. We're now at risk of losing that billion-dollar market to our major competitors. We cannot afford the risk that Japan would join the TPP and Canada be left out.

So while we're very interested in joining the Trans-Pacific Partnership, our even stronger message to you is that we have to join in sequence with the Japanese.

With that, I would just like to say that our TPP interest does not detract at all from our interest in the Japanese market. It is a major marketplace for us. It's an incredibly stable marketplace for us. We have a very long and healthy relationship with our Japanese buyers that we want to continue to grow.

With that, I'd be happy to take any questions you have.

12:10 p.m.

Conservative

The Chair Conservative Rob Merrifield

Thank you very much.

We'll start with Mr. Davies.

12:10 p.m.

NDP

Don Davies NDP Vancouver Kingsway, BC

Thank you to both witnesses for excellent and helpful presentations.

I have questions for both of you, so I'll try to go rapidly. If you could keep your answers short so I can get as many of these in as possible, I'd appreciate it.

Ms. Sullivan, I know you have industries and members that are very strongly in favour of their supply-managed systems. You have strongly advocated joining the TPP, I understand, in concert with Japan; but it's well known that putting supply management on the table is a precondition for doing so.

How do you rationalize that risk to our supply-managed system as a condition of entering talks versus the fact that some of your members really want supply management to stay?

12:10 p.m.

Executive Director, Canadian Agri-Food Trade Alliance

Kathleen Sullivan

I don't think I go anywhere without being asked about supply management. CAFTA doesn't take a position on supply management. Our view in agriculture is live and let live. Now, at some point the interests do collide, if you will, because we're looking for trade opportunities.

I think the important thing to remember or focus on with trade deals right now is that Canada should not have any exclusions in its negotiating mandates. I don't believe this means that when Canada gets to the negotiating table, it necessarily or should appropriately trade off any particular sector. But I think what's key for TPP membership is that Canada not exclude anything up front. By the same token, we certainly don't believe that Canada should pre-negotiate anything. Doing so just weakens our position when we actually get to the negotiating table.

We trust our negotiators—Canada has world-class trade negotiators—and we trust that when they get to the table, they will be able to manage all of Canada's sensitivities, just as every other country is.

12:10 p.m.

NDP

Don Davies NDP Vancouver Kingsway, BC

Speaking of pre-negotiations, I think there's controversy over a negative-list versus positive-list approach. One of the criticisms of a negative-list approach, which Canada has been taking with CIDA, is that it does exactly that, it predetermines. Because if we don't specifically exclude something, goods and services that have not even been invented yet, that we're not even aware of will be subject to free trade because of a negative-list approach.

Do you have any comment on that approach or that concern?

12:10 p.m.

Executive Director, Canadian Agri-Food Trade Alliance

Kathleen Sullivan

I know it's an issue that's come up quite significantly in the context of Canada-EU. It's not really an issue that affects us in agriculture. Certainly in the context of Canada-EU, I'm really pleased to see at this point in the negotiations that about 96% or 97% of agriculture tariff lines will go duty-free on day one. We're quite pleased at that. The negative or positive list, I believe, goes more to government procurement services and investment. I'm probably not the best-informed person to answer.

12:15 p.m.

NDP

Don Davies NDP Vancouver Kingsway, BC

Fair enough.

Mr. Worts, I understand that right now the playing field is not level. There's a 6% tariff on Japanese-built vehicles coming to Canada, and there's no tariff on Canadian-built vehicles going into Japan, if I understand correctly. If Canadian tariffs are removed, do you foresee the Japanese companies that are presently producing in Canada moving back to Japan?

12:15 p.m.

Executive Director, Japan Automobile Manufacturers Association of Canada

David Worts

No, I don't see that.

12:15 p.m.

NDP

Don Davies NDP Vancouver Kingsway, BC

Do you see that happening for any production?

12:15 p.m.

Executive Director, Japan Automobile Manufacturers Association of Canada

David Worts

The removal of the 6.1% tariff for us is related to the fact that one-third of the vehicles that we sell in Canada—and two out of three are built locally as I mentioned in my presentation—still come from Japan, and a number of our member companies are still reliant on Japan for those vehicles. While there is a lot of production in Canada—in fact more than we consume here—we anticipate that removal of the tariff would help us to better compete in the market in Canada, particularly with advanced technology vehicles, because they tend to be higher cost, and we would be able to introduce environmentally friendly, fuel-efficient, and safer vehicles.

12:15 p.m.

NDP

Don Davies NDP Vancouver Kingsway, BC

As you know, the Canadian Vehicle Manufacturers' Association has publicly opposed a trade deal with Japan. One thing I'm interested in learning more about is how Japanese-built cars are selling great in Canada, but for some reason cars built in Canada and North America have had a very difficult time penetrating the Japanese market.

Do you have any comment on that or can you explain to us why that might be the case?

12:15 p.m.

Executive Director, Japan Automobile Manufacturers Association of Canada

David Worts

Well, let me say first of all that I think it's often related to the effort that's put into it. I know that American companies have obviously been disappointed by their performance in Japan, but the fact of the matter is that they seem to have been diminishing their operations in Japan over the past number of years.

The reduced number of vehicles they're actually selling in the market and the reduced number of dealerships in the market...all critical to doing well, I think, in a very competitive market. They have not shown up at the Tokyo motor show for the last couple of events, since about 2005. They may have been attracted by the opportunities in China because, after all, Japan is a tough market. We do have over 40 different foreign brands that compete in the market.

They tend to compete in the larger engine or larger segment portion of the market and, of course, that makes sense, because that's where the profits are. The European experience I think has been quite different. While the Americans have been reducing the dealerships and the models they sell in Japan, the Europeans have been increasing them significantly and the results have paid off for them.

12:15 p.m.

Conservative

The Chair Conservative Rob Merrifield

Thank you very much.

We'll now go to Mr. Shipley.

May 10th, 2012 / 12:15 p.m.

Conservative

Bev Shipley Conservative Lambton—Kent—Middlesex, ON

Thank you, Mr. Chair.

Thanks very much to both of you for being here. This is actually another one of those pretty significant trade agreements for Canadians. Today we're talking to the agriculture and auto industries in this segment.

Ms. Sullivan, I was a little curious about your being over in Japan prior to the time you were in Tokyo with Minister Ritz and the Prime Minister. You've been there before. We had Mr. Phillips and Mr. Masswohl in here just the other day, when we were not able to accommodate you.

Can you give us a little bit of sense from when you were there about what kind of reception you are getting as a group of agriculture producers and processors on this particular agreement and on the talks?

12:20 p.m.

Executive Director, Canadian Agri-Food Trade Alliance

Kathleen Sullivan

The meetings we're having are primarily with our buyers, and they're quite enthusiastic about the possibility of a trade deal. The relationship between Canada and Japan, when it comes to agriculture and food exports, has been around for a long time. It's quite a stable relationship and, as I think a few people have pointed out, stability of relationship is very important to our Japanese buyers.

In fact, we did a round table with Minister Ritz and the grain purchasers, and their biggest concern was with the Wheat Board and what would happen with stability of supply. Fortunately, Minister Ritz and Ian White from the Wheat Board were there and were able to provide the reassurances that our Japanese clients wanted.

I think that in terms of the buyers in Japan there's quite a bit of enthusiasm for a trade deal with Canada.

12:20 p.m.

Conservative

Bev Shipley Conservative Lambton—Kent—Middlesex, ON

So then, when you're meeting with these folks.... Something that has come up in just about every presentation we've had—and I think it's actually something that bodes so well for our Canadian reputation—is that they require a premium product. That's what these folks strive to be able to buy when they're dealing with a particular country. I think Canada is known around the world as a quality product country, and the Canadian flag means a lot on some of those things.

So now, when you get that fairly large opportunity for growth, sometimes when growth happens, quality drops. I'm interested in your perspective, Ms. Sullivan, on how you're going to be able to maintain that, because Canada is unique in being able to separate and to keep our separation, whether it's in the meat industry or whether it's the grains. Are you confident as we move forward that your producers and processors are going to be able to maintain and to still value that premium product?

12:20 p.m.

Executive Director, Canadian Agri-Food Trade Alliance

Kathleen Sullivan

You know, I am, and I think you raise an important point. From an agriculture perspective, we are quite thrilled with the trade agenda right now. If you take a look at a few of the TPP countries, Canada is negotiating or trying to negotiate with 80% of the markets that we export to. So it's pretty important for us.

In terms of Canadian agriculture and food groups, I'll take the Canada-EU CETA as an example. For the past three years we haven't been working on that just here in Canada; we also go to Europe regularly. We know it's important for us to understand what the implications of a deal are so that we can then back everything right down to the farm level, take a look at processing capacity, and start to ensure that structurally the industry is ready.

I think in terms of our food safety systems, our inspections systems, we have the infrastructure we need there. It's really a question of ensuring that we have both the production and the processing capacity. That is a challenge that the industry has, but it's one that I can assure you we've taken on and are starting to look at in terms of the Japanese deal but also a European deal and all of the other deals in the queue.

12:20 p.m.

Conservative

Bev Shipley Conservative Lambton—Kent—Middlesex, ON

Thank you.

Just as a follow-up, there's been an economic model done on Canada-Japan, a bit of a joint study. I always struggle with these, because this one indicated that there will be a GDP benefit of $4 billion to $9 billion. You get a 100% jump.

I suspect that some of it—as we heard from the forestry products folks, for example—has to do with how we'll market the whole product that we have to a country. We don't know the answers to that yet. It likely has a lot to do, I think, with the quality and the premium products that we'll be able to provide for a price that they're willing to pay.

That's basically just by developing a trade agreement and taking away some of those trade barriers. In agriculture some of them are at 38%, so we have significant ones.

I'm just wondering, Kathleen, in terms of your organization, are there particular commodities that you see as gaining the most potential or benefit out of an agreement?

12:20 p.m.

Executive Director, Canadian Agri-Food Trade Alliance

Kathleen Sullivan

Yes. I think we have benefits pretty much across the board, but certainly for beef and pork we see a lot of opportunity, and also in the canola sector.

I mean, right now, just because of the tariff structure, we can get canola seed into Japan with no tariffs, but our oils have pretty significant tariffs, and that supports the domestic processing sector. If we could change that arrangement and start to export our oils to Japan, first of all it's a higher-value product; secondly, the processing jobs stay in Canada, so it provides an even better economic benefit here.

Right now beef, pork, and canola would be our top agriculture exports. If we could open the markets for those or expand them, that would be tremendous.

That really is where the benefit could be concentrated.

12:25 p.m.

Conservative

Bev Shipley Conservative Lambton—Kent—Middlesex, ON

Thank you.

In your opening statement you said that you're encouraged by Japan's basic policy on comprehensive economic partnerships. That was brought in about a year and a half ago.

Can you expand a little bit on that, just to help us understand what that actually means to you and to the agriculture producers, and likely to the processors also?