International Trade Committee on Feb. 13th, 2014

[The Chair, Conservative, Rob Merrifield]

I call this meeting to order.

We are continuing our study on the Canada-European Union comprehensive economic and trade agreement.

We have with us today John Jung, the chief executive officer of Canada's Technology Triangle Inc. We have also Robert Lewis-Manning and Debbie Murray from the Canadian Shipowners Association. Thank you for being here.

Mr. Jung, the floor is yours. We look forward to your testimony. Following that we'll hear from Mr. Lewis-Manning and then we'll get into questions and answers.

Please go ahead.

[John Jung, Chief Executive Officer, Canada's Technology Triangle Inc.]

Members of the committee, I am very proud and honoured to be here today, so thank you very much.

Canada's technology triangle is an area that is geographically known as Kitchener-Waterloo-Cambridge and the townships that surround it. It's a unique community that has grown to 550,000 people and is growing to 750,000 people in less than 20 years and probably one million before 2050. It has some very strong sectors and a diverse economy. We have advanced manufacturing, information technologies, food, finance, and education, among other sectors.

CTT's mandate is to attract foreign direct investment and to assist our export-oriented companies to expand abroad. Likewise, we look to the Government of Canada to help create jobs and opportunities for our companies by ensuring the right kind of market access for our companies to be able to go global and be competitive and grow prosperously.

Accordingly, our region is very interested in this CETA with the European Union which the Prime Minister announced on October 18. As we understand it, CETA is actually going to be our biggest and most important bilateral free trade initiative since NAFTA.

In fact,with NAFTA, Canada has the greatest advantage because we have 28 EU states as well as the NAFTA members. If you do the arithmetic, they represent around 900 million consumers in the EU and North America. That's quite a lot of people that we can service. We all know what the benefits are of bringing NAFTA into play. The U.S. is our greatest trading partner and Canada and the EU also have a long history of economic cooperation.

Comprising 28 member states with a population of over 500 million and a GDP of $17 trillion, the EU is considered the world's largest single market, representing Canada's second largest trading partner and the second largest source of foreign direct investment.

In turn, we look to the EU as being our third largest trading destination and our fourth largest source of FDI, foreign direct investment. We understand that CETA is going to cover 98% of the EU-Canada bilateral economic partnerships, including all sorts of comprehensive trade, IP, HR, subnationals, government procurement, and so forth.

With all these sectors involved, we understand that about 9,000 lines of tariffs are to be dealt with over the next two years. That's a big job. According to our report, we stand to benefit significantly from this. That is what makes members of our Waterloo region industry sectors take notice.

Our region is a leader in research and innovation and contributes towards the production of advanced manufacturing goods, including automotive, medical devices, scientific and precision instruments. It includes companies like BlackBerry, whom you'll hear from a little later today.

Our Canadian auto industry, such as Toyota and others in Cambridge, is highly dependent on trade. From an automotive and manufacturing perspective, we'd like to see the CETA agreement provide market access opportunities for our automotive sector and manufacturing sector, increase our export opportunities to Europe, and remove the tariffs with flexible rules of origin that make benefits for the OEMs, original equipment manufacturers, and the parts manufacturing companies.

CETA is therefore expected to eliminate most of the existing EU tariffs on advanced manufacturing products, medical devices, and so forth. This is an area which our community is well known for. Advanced manufacturing and related represents over 22% of our employment base. That is 56,000 workers. Nationally that is a pretty significant number considering how small our community is. It employs 400,000 and contributed over $42 billion in 2012. This makes a very important aspect of our economy in our society so it's very, very important for us.

Of course, we haven't seen the details, and the devil is in the details, especially in some of the agricultural and food processing industries. We want to learn more. For instance, the topic of cheese keeps coming up in every meeting that I've gone to. We'd like to hear a little more about how that's going to work its way through. As we understand it, once CETA comes into force, almost 94% of the EU agricultural tariffs will be duty free and CETA will immediately eliminate existing EU tariffs on food processing and beverages.

This should make our food and beverage products in our community and across Canada even more competitive in Europe, establishing a new base of opportunities for increased sales and market access throughout the EU.

As you know, the Waterloo region is well known for its unique collaborative innovation and its tech ecosystem. IT boasts approximately 30,000 ICT workers in software development and services, digital media, web, microelectronics and so forth. The Canadian exports of ICT products to the EU can face tariffs from between 1% all the way up to 14% on certain products. Our understanding is these tariffs are expected to be eliminated. This is an amazing opportunity for international commercialization and export by our nearly 1,000 tech companies and significant start-up community that's in our region. This will help not only the Waterloo region innovation and knowledge workers, but nearly every knowledge worker in every corner of our country.

Finally, the Waterloo region has a strong services industry, ranging from wealth and management services to architectural, engineering, environmental, and technical services. It's also a huge opportunity across Canada, accounting for 70% of Canada's GDP and employing over 13.6 million Canadians who export these services to the EU for a total or $14.5 billion annually. As barriers to entry, citizenship, ownership and investment restrictions act as barriers to exports of services, it will be extremely important to eliminate these restrictions in order to grow our services sector in Canada.

Canada's technology triangle works also with what we call pan-regional and pan-Canadian alliances. One of those is Consider Canada's City Alliance which works very closely with Invest in Canada and represents 12 of the largest cities across Canada including the Waterloo region. CCCA, as it is called, is focused on attracting foreign direct investment to our communities. Successful trade agreements like this one will offer EU and Canadian investors greater certainty, transparency, and a protection for their two-way investments, which is really important in fostering greater long-term prosperity and jobs.

Of course, through consumer opportunities we'd all like to see our new shiny BMWs in our driveways.

Recently, at the international function that Waterloo region held with our local ambassadors, I recommended that over the next two years, while CETA is being finalized and ratified, our community should take advantage of this time by becoming more familiar with the opportunity and strategize how best to organize the community and its sectors to leverage this agreement's full potential.

Soon our region is going to be taking on its first region-wide economic development strategy. We expect, by the way, to leverage this agreement as a key aspect of that new strategy. It's also going to be an opportunity for us to look at some of the negative issues and we're going to suggesting across Canada that communities undertake a similar kind of program in order to take advantage of this once-in-a-lifetime opportunity.

In November I travelled with Mr. Jayson Myers of the CME and Invest in Canada and CCCA to Madrid, Amsterdam, and Milan to promote this agreement. I spoke at two of these locations about similar topics around the Waterloo region.

Finally, we recently met with the EU ambassador—yesterday, in fact, at a luncheon in Toronto. She reminded us that the EU is the largest trading bloc, the largest fully integrated market and highly competitive environment. Paraphrasing old blue eyes, Mr. Frank Sinatra, she said that if you make it happen in the EU you can make it happen anywhere. That's a real nod to our Canadian products. We believe that our Canadian products, when given a challenge and the right opportunities, can succeed anywhere.

In conclusion, CTT wishes to ensure that you have good completion of this agreement. We hope that, through good luck and Godspeed, you're able to do this for all of us.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

We'll now turn to Mr. Lewis-Manning.

The floor is yours, sir.

[Robert Lewis-Manning, President, Canadian Shipowners Association]

Thank you, Mr. Chair, for the opportunity to speak today.

We're here to speak to you about some initial concerns we have with the agreement and the potential impact on domestic short sea shipping. While we believe that CETA is good for Canada, aspects of its implementation have potentially unintended negative consequences for our part of the marine sector and consequently the resilience of the Canadian supply chain.

Our main concern is associated with the concept of maritime feeder services with European vessels and the impact it could have on Canadian domestic short sea shipping. We are seeking support for our industry through this committee to ensure that Canada maintains a predictable operating environment for its domestic shipping. We are all seeking a very robust trading environment, and our industry has a uniquely Canadian capacity that could be unknowingly marginalized, depending on the conditions, and more importantly, the implementation details of the trade agreement. In order to understand the concern, I will speak briefly to our industry and then more about maritime feeder services.

Our association is quite old; it was established in 1903. It represents companies operating and owning Canadian ships, employing Canadian mariners, paying Canadian taxes, and operating in the unique and demanding Canadian waterways that are part of a larger short sea shipping industry on the Great Lakes, the St. Lawrence waterway, the St. Lawrence River, eastern Canada, and the Arctic. It has an economic impact on this region of $35 billion annually. We represent the lion's share of the Canadian domestic fleet operating in that area, but have also reached out to other non-members to discuss our messages to you today.

We're operating 86 vessels consisting mainly of bulkers, self-unloaders, general cargo ships, and liquid bulk tankers. Indeed, for most Arctic communities, our vessels are the only way in which to attain affordable and reliable goods and items necessary for survival, everything from food to fuel to even houses. Our fleet carried 50 million tonnes of cargo last year, including iron ore, coal, grain, aggregates, and general cargo. Over 70% of the cross-lake traffic in the Great Lakes between the U.S. and Canada was done by our fleet, indicating that there's a heavy demand by both American and Canadian shippers.

Our membership does what is called short sea shipping, which is the transportation of cargo between ports in Canada, largely on inland waterways and coastal waters. These are generally short runs of a duration of hours and days, not weeks and months as in the case of global shipping. Our fleet is unique and built for Canadian waters, and we only trade in these waters. Our mariners have an incredible amount of experience and training. Our fleet is a unique Canadian capacity, and industry and government have built it together through sound policy and investment.

Many countries seek a stable, sovereign, commercial fleet to ensure they have a reliable source of transportation, which is key to economic growth and the safety of the overall transportation network. Growing and replacing this capacity of human capital, infrastructure, and process takes time, and if lost, would not be replaced, leaving Canadian and American shippers potentially vulnerable to the variances of foreign market pressures, putting more trucks on the roads, and pushing the rail system capacity.

Our member companies are making major investments in technology and capacity, and present a solution to sustainable and green transportation. Canadian ships on Canadian trades are 24% more fuel efficient than rail, and over 500% more fuel efficient than trucks. With the government's removal of a 25% import duty on new vessel construction, our member companies responded by investing over $700 million in world-class vessels. These are green and efficient vessels designed specifically to trade in our unique waters in Canada. Indeed, as an industry that is part of a larger global supply chain linking the North American economic heartland to the world, we anticipated that the capacity we are investing in would be well timed for growth.

We have built our business, our fleet, and our labour force on the predictability of the market. Currently, under the Canadian coasting regime, trading from Canadian port to Canadian port can be done only by Canadian registered vessels, unless there is no Canadian shipping capacity available at a reasonable value. This regime has worked relatively well, providing services to shippers when needed while growing the Canadian marine industry. Our government has been a partner in ensuring the reliability and safety of transportation and infrastructure.

I'll move on to maritime feeder services in general. As I mentioned, the essence of our concern is with regard to potential maritime feeder services.

Although the details are really not yet fully understood by our industry, Transport Canada officials have informed us that the maritime feeder services are part of the agreement. Although we look forward to seeing trade enhanced, and our role in the supply chain enhanced too, this decision represents a potential significant alteration in markets and introduces a high level of unpredictability into our industry, both for shippers, who are our customers, and shipowners alike.

As a Canadian flag fleet with only a short sea shipping market to trade in, we believe that our sensitivity is much higher than international fleets that can seek other markets globally. We are concerned that attempts to present this message to our government were difficult to place and not completely understood. It's quite a complex issue.

You might ask why we should not encourage foreign-crewed and foreign-owned vessels to move cargo between Canadian ports.

First, there is no assurance these vessels will continue to trade in Canadian waters in the long term. The current economic downturn in the global shipping industry encourages foreign shipowners to seek unique market opportunities, such as Canadian maritime feeder services. The Canadian domestic short sea shipping fleet cannot do the same. Consequently, when global trade picks up, there is little assurance that foreign vessels will remain active in maritime feeder services and they could seek opportunities that are more lucrative elsewhere globally. Such an unpredictable situation, if encouraged by the agreement, could marginalize the domestic capability.

Second, foreign crews do not necessarily have the long-term experience and training required to navigate in some of the most sensitive ecosystems in the world: our waters. Piloting a ship in coastal and inland waters, often during severe weather, is incredibly demanding and requires the utmost understanding of not only navigation and ship manoeuvring, but also a myriad of regulations designed to protect our waters and coastlines.

Third, our mode of transportation is the greenest and safest form of transportation in existence. One ship has the same capacity as 301 railcars or 963 trucks, and consequently, has the lowest emissions of greenhouse gases. Likewise, the Canadian marine industry's safety record is second to none because both the government and the industry have made a long-term and sustainable investment in training, regulation, and innovation.

In conclusion, we strongly believe the government should consider the potential long-term consequences of permitting unrestricted access to traditional domestic marine trades. Canada's successful economy is dependent on predictable and safe marine transportation, and it will continue to play a key role in the supply chain in Canada and globally.

The agreement could be a windfall for our industry, and hopefully it will respect our role in the domestic and global supply chain. Indeed, we would like to see our government use the agreement and other policies as mechanisms to grow Canadian short sea shipping.

Thank you again, Mr. Chair, for the opportunity to speak.

[The Chair, Conservative, Rob Merrifield]

Thank you to both of you for your presentations.

We'll now move to questions and answers, starting with Mr. Davies.

The floor is yours, Mr. Davies, for seven minutes.

[Don Davies, NDP, Vancouver Kingsway, BC]

Thank you to all the witnesses for being with us today. Welcome to the committee.

Mr. Lewis-Manning, I want to start with you. I actually have a copy of the e-mail sent out by Transport Canada, dated January 6, and I'll quote from that. In talking about CETA, it says:

...discussions have been held on…. - maritime feeder services for containerized cargo between the Ports of Halifax and Montreal onboard European Union-registered vessels. A maritime feeder service is the transportation of international origin/destination cargo on board a ship from a port in Canada to another port in Canada prior to an export movement overseas or following importation from overseas.

If I understand correctly, currently Canada's Coasting Trade Act and the requirements of the Canadian Register of Vessels would prohibit non-Canadian registered vessels from moving cargo between Canadian ports. Am I correct on that?

[Robert Lewis-Manning]

Thank you for the question.

You're partially correct. The reality is that within that same coasting regime there is the ability to apply for a licence to move that cargo on a temporary basis. I think the essence of the issue as it could unfold is how that regime would be implemented if there were changes to the current regime. It's not impossible, but there is a process that has to be followed in order to do it.

[Don Davies, NDP, Vancouver Kingsway, BC]

Perhaps you could give me a rough estimate. What percentage of that work is currently being done by Canadian registered vessels and crews?

[Robert Lewis-Manning]

If you give that example specifically, from the port of Halifax to the port of Montreal, it is quite low. I'm speculating it's less than 10%.

[Don Davies, NDP, Vancouver Kingsway, BC]

For Canadian...?

[Robert Lewis-Manning]

Yes. In fact, our members are not specifically working that trade at the moment, but that's not to say it won't be a future opportunity.

[Don Davies, NDP, Vancouver Kingsway, BC]

What about Canadian ports in general then, broadening the—

[Robert Lewis-Manning]

Do you mean from Canadian port to Canadian port? It would be over 95%. It's quite high.

[Don Davies, NDP, Vancouver Kingsway, BC]

Do I have your testimony correct that the concern is that the 95% of work that's currently being done by Canadian-flagged, Canadian-crewed ships internally within ports could be subject to European-flagged vessels and crews? Is that the concern?

[Robert Lewis-Manning]

Yes.

[Don Davies, NDP, Vancouver Kingsway, BC]

How many jobs would you say would be at stake were that provision to happen?

[Robert Lewis-Manning]

It's difficult to put a solid number on it.

We employ approximately 3,000 to 5,000 professional mariners and supporting staff, so it would be some of those. I would not expect, if it were confined to only that type of service, a very limited aspect, it would be very small. I guess the potential is for growth, and understanding the mechanism for implementing such a feeder service is really the concern. The concern is the lack of understanding of what it could mean to the implementation of the agreement.

[Don Davies, NDP, Vancouver Kingsway, BC]

If I understand this memo, it refers specifically and only to movement of cargo between the ports of Halifax and Montreal. Is that your understanding?

[Robert Lewis-Manning]

I have the same information you do, so yes, but I'm not sure if there's anything else that's being—

[Don Davies, NDP, Vancouver Kingsway, BC]

Are you saying that currently Canadian vessels, Canadian-crewed ships, are doing only about 5% of that work?

[Robert Lewis-Manning]

That's my estimation. In fact it's not the case for our members specifically at the moment, but I am aware of other Canadian-registered companies that are doing feeder services in the Maritimes.

[Don Davies, NDP, Vancouver Kingsway, BC]

I have one final question for you before I turn to Mr. Jung.

The memo also talks about the repositioning of empty containers between ports in Canada. Is there a similar concern that European-flagged, European-crewed vessels may get access to that work as well?

[Robert Lewis-Manning]

There isn't specifically from our members, but there is concern within the marine industry that this type of service will impact other business models. It's not so much the revenue that's generated from it; it's actually the logistics of planning future movements, and that's the complexity of moving containers around.

[Don Davies, NDP, Vancouver Kingsway, BC]

Overall, for your members, if you lost some jobs there, do you anticipate gaining work for your members and business for your members through other aspects of CETA? I guess I'm looking for the overall comprehensive effect.

[Robert Lewis-Manning]

At this stage, we don't see an obvious opportunity, because a lot of what we do is hauling cargoes out of North America. They go to a Canadian port and they're shipped externally, globally by many foreign ships. We provide that service to get it out to the coasts.