International Trade Committee on Sept. 30th, 2014

[Laurin Liu, NDP, Rivière-des-Mille-Îles, QC]

Thank you for appearing before us this afternoon.

I want to talk a little bit about Canada's aerospace industry.

When Korea signed free trade agreements with the United States and the European Union, Canada's aerospace exports dropped by 80%, going from $180 million to barely $35 million in 2012.

Has the department been able to determine the market share that Canada's aerospace sector lost in Korea in recent years?

[Ian Burney]

Thank you.

I don't believe we conducted a study on that sector specifically, but we are aware that we have already lost a third of our market in South Korea, which is one of the reasons why we feel so strongly about the agreement being ratified. The industry was very much behind the agreement.

[Laurin Liu, NDP, Rivière-des-Mille-Îles, QC]

Does Canada's aerospace sector still have a foothold in Korea? And if so, is there one specific product that does better than the rest?

[Ian Burney]

Are you referring to exports?

[Laurin Liu, NDP, Rivière-des-Mille-Îles, QC]

Yes, in the aerospace sector.

[Ian Burney]

Yes, Canadian firms currently export a number of aerospace products to South Korea, including simulators. They have been tasked with setting up a training centre in Seoul. What's more, 100% of Korean tariffs will disappear once the agreement comes into force.

[Laurin Liu, NDP, Rivière-des-Mille-Îles, QC]

That's excellent news for the industry, which is vital to my region as well as Montreal.

Has the department done any forecasting in terms of the possibilities around increasing Canada's aerospace market share in Korea after the free trade agreement comes into force?

[Ian Burney]

As I mentioned, we anticipate our exports will rise by $1.7 billion. But I don't think we have a breakdown by sector. I can't give you an exact figure for the industry, but it will be a portion of that $1.7 billion.

[Laurin Liu, NDP, Rivière-des-Mille-Îles, QC]

Do you know whether that will allow Canada's industry to regain the market share it lost, and if so, how long will that take?

[Ian Burney]

As I said earlier, the tariffs will disappear the first day the agreement comes into force. So I hope it won't take too long after that.

I will ask Nadia to expand on that.

[Nadia Bourély, Director, Trade Policy and Negotiations, Asia Division, Trade Negotiations Bureau, Department of Foreign Affairs, Trade and Development]

I would just like to point out that the aerospace industry expressed strong support for the agreement with Korea. And the Aerospace Industries Association of Canada was very much in support of the agreement.

[Laurin Liu, NDP, Rivière-des-Mille-Îles, QC]

Yes, I'm aware. I read the remarks in that connection. This is wonderful news for the industry.

My next question has to do with the auto sector.

Let's say a car is manufactured in Canada and then exported to the United States. If that car is then sent to South Korea, will it be subject to the tariffs agreed upon by the United States and South Korea or will the tariffs negotiated by Canada and South Korea still apply?

[Ian Burney]

If the Canadian car remains duty-free in the United States, the benefits under the Canada-Korea free trade agreement would apply, but if the car is intended for sale in the United States, it would not be covered. Transshipment is not possible.

[Laurin Liu, NDP, Rivière-des-Mille-Îles, QC]

Very well. Thank you.

Can your department share with the committee any information it has on Canadian wine and spirit exports to the Korean market? I know it's covered under an agreement.

[Ian Burney]

Do you mean the amount?

[Laurin Liu, NDP, Rivière-des-Mille-Îles, QC]

Yes. Have you assessed the market share that Canadian products could gain?

[Ian Burney]

I'm going to ask my colleague from Agriculture and Agri-Food Canada to answer that question.

[Denis Landreville, Director and Lead Negotiator, Regional and Bilateral Agreements, Trade Negotiations Division, Market and Industry Services Branch, Agriculture and Agri-Food Canada , Department of Foreign Affairs, Trade and Development]

Yes, thank you.

We didn't study that sector specifically. But a number of studies are done by the private sector, and the industry itself does growth analysis.

Looking at icewine alone, I can tell you that exports between 2010 and 2012 were at about $400,000. It's around $350,000 for rye and whiskey. We are going after those markets already. Icewine is a major market, and the tariff will disappear as soon as the agreement comes into force.

[The Chair, Conservative, Randy Hoback]

Thank you.

We'll move on to Mr. Shory, please.

[Devinder Shory, Conservative, Calgary Northeast, AB]

Mr. Chair, congratulations on your appointment.

Mr. Burney, thank you to you and your team for bringing us to the point we are at today on this FTA. I also want to thank you for sharing the information on why it is important and why there is a rush to study this legislation quickly so that we do not hit the January date when the United States and the EU will have another round of reductions in tariffs, etc.

We all know, Mr. Burney, that with a population of 50 million and a $1.3 trillion GDP, South Korea is the fourth largest economy in South Asia. I have heard again and again that South Korea can also serve as a gateway to Asian markets. I would like you to elaborate on what that means for Canadian companies and Canadian businesses, particularly as it relates to global value chains. Also, can tell us whether this agreement will possibly increase our trade with other Asian markets? What is the potential there?

[Ian Burney]

I think that is a very important strategic dimension to this agreement. We all know the major Korean conglomerates, the chaebols, have a massive footprint throughout the globe, but especially in Asian markets like China, Japan, and elsewhere. As for the extent to which this agreement can help position Canadian companies and SMEs to participate in those value chains, it will open doors not just in the Korean market, but throughout.... I'm aware of a partnership between IMAX and a major Korean company that involves building theatres throughout China. This is potentially limitless, but to the extent that the agreement encourages Canadians to develop business in Korea and they form relationships with these massive global companies, the potential is limitless.

[Devinder Shory, Conservative, Calgary Northeast, AB]

I remember that IMAX also bid on some theatres in India as well, as a matter of fact.

Yesterday during my speech, I mentioned that with this agreement Canada has secured greater opportunities related to temporary entry for businesses and their executives than those enjoyed by South Korea under other free trade agreements with the United States and the European Union. What kind of advantage will this provide to Canadian businesses and business persons needing to move between the two countries so frequently to conduct their business?

[Ian Burney]

That's absolutely true. In fact in this agreement we have the most ambitious provisions on temporary entry for professionals and other service providers that Korea has ever agreed to in any FTA. This goes far beyond what they have in KORUS. Well, in fact, they have nothing in KORUS.

In the case of their agreement with the European Union, it's basically a reiteration of their existing WTO commitments, nothing more.

We have state-of-the-art provisions that cover important professionals like engineers, accountants, veterinarians, and so forth, who will be able to enter the Korean market to perform their services without the need for a labour certification test. That's the key documentary requirement that our professionals will not require. These commitments of course were made on a reciprocal basis, but this is great news for Canadian companies seeking to access that market. Independent professionals can do that. They can also come in as contract service providers. There's a specified list of covered professionals in the agreement, and those who are on the list will have much easier access to the Korean market.

[Devinder Shory, Conservative, Calgary Northeast, AB]

I know that fortunately all the parties are supporting this FTA, that it is a good agreement and that time is of the essence in this matter. I wonder if the stakeholders have been openly calling for the ratification of this agreement because they also agree it will put them on a level playing field. Did you hear anything from the stakeholders? Are they also on the same page as the government and in this case all the parties?

[Ian Burney]

Yes. We're hearing loudly, clearly, consistently, and frequently, “Please have this agreement in place by January 1.” There could be no clearer message from the business community in Canada in terms of what their interests are in this agreement and on the importance of moving it quickly.