International Trade Committee on Sept. 30th, 2014

[Ian Burney]

No. Our tariff will be phased out in three years.

[Don Davies, NDP, Vancouver Kingsway, BC]

I'm sorry. The Korean tariff comes out—

[Ian Burney]

Immediately.

[Don Davies, NDP, Vancouver Kingsway, BC]

Yes, immediately.

Are there any measures being contemplated to encourage Korean auto production in Canada? One of the big concerns is that they don't have any footprint in Canada. We know they have plants in the U.S. and Mexico. Did you have any occasion to determine any policies that we might use to encourage those manufacturers to locate here and create jobs?

[Ian Burney]

I can tell you that the government at all levels tries to encourage investment from Korea, including in the automotive sector. I know that's a pitch our minister has made to his counterparts. It's a point that I've made when I've been dealing with the Koreans, that it would be very helpful if there could be investment. The answer back is that these are private companies and they make decisions on the basis of commercial considerations.

Ultimately, I think it's all of the steps that the government continues to take to strengthen Canada as an investment destination that will facilitate that. It has certainly been working in other sectors. As you know, the level of Korean investment in Canada is about 10 times higher than our investment in Korea.

[The Chair, Conservative, Randy Hoback]

Thank you, Mr. Davies.

We'll move on to our next participant, Mr. O'Toole.

[Erin O'Toole, Conservative, Durham, ON]

Thanks very much, Mr. Burney, to you and your team for appearing today. Congratulations on the final outcomes and the bill that's before Parliament. I'm sorry for the delay earlier. I appreciate your patience. The delay actually leads to my first question.

Some Canadians may wonder why, so quickly following the visit of President Park, we are eager to get this through the House, through the Senate, and ratified by January 1. Regarding that January 1 ratification and tariff change rates, could you speak to why, if we're going to ratify, doing so before January 1 is very important for the economy?

[Ian Burney]

As I indicated, Canadian exporters are suffering now from the competitive impact of Korea's deals with the United States and Europe. There's also a very real probability that Korea's new deal with Australia will come into force on January 1 or thereabouts, so it's really about the imperative of levelling the playing field as quickly as possible. Now, on January 1, you will see the next tariff cuts under the KORUS agreement; so to the extent that tariffs are being phased out under that agreement, that's another milestone whereby the competitive pressure on Canadian interests will grow even further.

The stakeholders whom we work with have been very clear in saying to us, “We're already suffering, but we still have a toehold in the Korean market, and if you can get this deal in place by January 1, we can hang on.” It's a very important date from the standpoint of our stakeholders, particularly in the agricultural sector.

[Erin O'Toole, Conservative, Durham, ON]

Thank you. That's clearly what I'm hearing as well, so much so that we had a parliamentary delegation a month ago to deal with Korean legislators and members of their assembly to make sure that the same sort of urgency on ratification exists in their country as well. It's nice to see the all-party support that will allow us to get there, and that hopefully also explains our patience with what's gone on today.

You took us on a nice walk-through of the various sectors that will benefit from this. I think a lot of Canadians would find the comparative tariff rates to be quite stark. The auto tariff Canada imposed that will be phased out is, I think, 4.1%, but you were talking about Korean tariff rates in the teens and in the 200% to 900% range. On a comparative basis, are the tariffs that Korea imposes significantly higher across the board? Does that impact a trade surplus versus a deficit?

[Ian Burney]

Absolutely, and that is one reason we think the tariff outcomes in this agreement are particularly advantageous for Canada. The average MFN, most favoured nation, rates in Korea are 13.3%, and in Canada they're 4.3%. Across the board Korean tariffs are three times higher.

If you look at special product areas, including areas where Canada has particular export strength—agriculture, fish and forestry products, fish and seafood, a range of manufacturing products—that's where you see very high Korean tariffs. Agriculture tariffs, as I mentioned in my remarks, can be as high as 900%; the beef tariff is 40%; pork is between 22.5% and 25%. These are big numbers, and when we have to face competitors who are going to be coming in duty-free, they're prohibitive. These are big numbers. The fish and seafood tariffs average in the teens, but they run as high as 47%. Again, the lobster tariff is 20%, and this is a business we're trying to grow quickly.

In the industrial sector they tend to be a little bit lower, but we still see tariffs of up to 8% in a lot of sectors and up to 13% in some others. These are very significant sectors, and the fact that tariffs on 90% of our exports will be eliminated on day one means that we can, within a period of a few short months, I hope, level the playing field on the vast majority of our export interests.

[Erin O'Toole, Conservative, Durham, ON]

Even in your discussion right there of the various sectors and the high rates Canadian exporters face, there's a nice cross-section of the regions represented as well: seafood, industry, agriculture, forestry. This is really a net win for all parts of Canada. Would that be fair to say?

[Ian Burney]

Absolutely. We've had very strong support from all the regions. I would say that the provinces and territories have all been supportive. Of course, Ontario has expressed some concerns about some of the automotive elements, but with that limited exception, we've had unanimous support from all the provinces and territories across the country.

[Erin O'Toole, Conservative, Durham, ON]

I would like to ask your perspective on one last part. We've had some discussion of autos. You talked about how some of our competitors with their free trade agreements are seeing a 30% increase in imports. I think you said one in eight new vehicles purchased in South Korea is actually an import.

From a competitive standpoint, with the U.S. in an FTA position with South Korea and Canada not.... I'm from a proud automotive area. GM in Oshawa is a big employer in my area, and in Oakville and Windsor, we're proud of our plants. I've said in the House as well that a lot of Canadians don't realize the decisions on the types of vehicles rolling off Oshawa's, Oakville's, or Windsor's lines are made by the parent corporation in Detroit.

What are your thoughts on Canada not negotiating an FTA with South Korea at a time when the parent company deciding whether a vehicle comes off a plant in the U.S. or Canada has less market access in Canada because of a lack of an FTA? Can you talk about our competitive position in autos vis-à-vis that of the U.S., and whether this deal levels the playing field?

[Ian Burney]

Absolutely. I think this deal and deals like it are vital to ensuring that cars made in Canada have the same competitive access to markets around the world. Otherwise we put ourselves at a disadvantage when we are trying to attract that investment. That's one of the key factors when multinationals are making a decision about where to locate production, so that is an absolutely vital consideration. I think we as a government have to do everything we can to ensure that not only are companies not penalized by locating in Canada, but also that they derive as much preferential access as we can give them to markets around the world. I think that's a very compelling point.

[Erin O'Toole, Conservative, Durham, ON]

In the case of Ford, for example, deciding whether a vehicle for export will be made by a plant in Michigan or a plant in Canada, the playing field is now levelled and the parent company has a full range of decisions without market differentiation between the Canadian plant in Oakville and the one in Michigan.

[Ian Burney]

Absolutely. There are many other considerations that will go into where to locate a plant, but I think we as a government certainly want to do everything we can to make sure that discriminatory access to global markets is not one of them.

[The Chair, Conservative, Randy Hoback]

Thank you, Mr. O'Toole. You're at seven minutes.

Mr. Pacetti.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Thank you, witnesses, for coming forward.

Just for the record, Mr. Burney, when would you have been asked to come before the committee?

[Ian Burney]

You know, we were put on notice a couple of weeks ago that this would be an early priority of the committee, but to be honest, a specific date was not provided until last night. We were basically told to be ready to be here tomorrow.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Thank you.

Just as a bit of history, how long did it take to negotiate the free trade agreement with Korea?

[Ian Burney]

We began with an exploratory process in January 2005, so that was nine and a half years ago. Formal negotiations began in July 2005, so there has been just under nine years of negotiation.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Okay.

I was just looking at an article in the paper which said that the congressional research office in Washington said that U.S. goods exports to South Korea decreased by 5% in the period between 2011 and 2013, whereas the U.S. goods trade deficit with South Korea worsened during the period and imports from South Korea rose 11%.

Free trade agreements are great. Everybody is in favour, and especially the NDP with this one, but how do we make sure Canada comes out a winner? Obviously your numbers indicate that we will be increasing trade, but how do we make sure it doesn't increase only one way?

[Ian Burney]

If we look at the figures on what's happened between Korea and the U.S., it's true that U.S. exports declined by about 5% in the first two years, but that's against a backdrop where overall Korean imports from the world dropped. Basically, the Americans held their own at a time when Korea was importing less from the world.

Now, if you look at that same period, our exports fell by a third. Our exports plummeted. It's the comparison that I think is relevant, and I think the difference in tariff treatment is one of the important reasons.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

What would be the indication to have Korean imports increase?

[Ian Burney]

Korean imports into the United States went up somewhat because the U.S. economy was recovering, but what's interesting to note is that the two areas where they grew the most were autos and ICT goods. The auto tariff hasn't come down yet under KORUS, and ICT was duty-free to begin with. So the increase in Korean exports to the United States are not relevant to KORUS.

The other point that's often forgotten with those statistics is that the U.S. runs a very large services surplus with Korea, to the tune of about $10 billion. Those figures are only on the goods side. If you bring in the services side of the equation, the picture looks very different.