Thank you very much, Mr. Chair, for the invitation to meet with all of you today.
I am, as you said, the economist for Unifor, which is Canada's largest trade union in the private sector of Canada's economy. We represent 305,000 members working in at least 20 different definable sectors of the economy, many of which will be affected—some negatively, some positively—by this agreement you're considering.
Indeed, I was a little amused to read the title of your study today, “Positive Effects for Canada of the Canada-Korea Free Trade Agreement”. Usually in economics we do a methodology called “cost-benefit analysis” to inform important decisions. The title of your study implies that we're doing something different called “benefit-benefit analysis”. I will consider some of the benefits of the agreement, but I will also consider some of the costs to Canada. I hope that in doing so I am still in order for your hearings.
I must also apologize. I received this invitation to appear only yesterday. I do have some speaking notes, but in the coming days I'll formalize those notes and have them translated and submitted to your committee.
I've also asked the clerk to enter into the record, if he's able to today, two more formal documents. One is an important study of the likely impacts of trade liberalization with Korea on a number of different sectors of Canada's economy, published by one of our predecessor unions, the Canadian Auto Workers. The second is a shorter briefing document, a briefing kit, with some more up-to-date information on Canada-Korea trade patterns and the likely impacts of the free trade agreement.
I'm concerned about the agreement. I believe it will lock Canada into a bilateral trade relationship that is very unbalanced in both quantitative and qualitative terms. In quantitative terms, we import more than two dollars in merchandise from Korea for every dollar that we sell back. As a result, we have a large and chronic trade deficit with Korea, which reached almost $4 billion last year.
Trade is good. As an economist I'm a big booster of trade if it adds to the net demand for Canadian-made products and hence for the Canadians who make them, but our bilateral imbalance with Korea has done the opposite. It is a significant component of our larger overall trade and balance of payments deficits, which have undermined our macroeconomic and employment performance in recent years. We estimate that the current bilateral deficit with Korea corresponds to the loss of over 10,000 Canadian jobs across a wide range of sectors.
But in addition to the quantitative imbalance, I'm even more concerned with a structural or qualitative mismatch between our exports and our imports. Canada primarily exports unprocessed or barely processed resource-based materials that constitute the large bulk of our exports to Korea. In return, we primarily import sophisticated technology-intensive and value-added products, and that is a losing combination for any country concerned about its long-run development prospects.
For example, Canada's top four exports to Korea in 2013 were, in order: coal, copper, aluminum, and wood pulp. Canada's four top imports from Korea were automobiles, electronic circuits, auto parts, and smart phones. I recognize the importance of resource industries to our prosperity, but in the long run we need to be doing much more to add value to our resources, and not just digging them out, sending them to someone else, and buying back the stuff they make out of our resources.
Moreover, in understanding the implications of a free trade agreement, we have to understand the structural asymmetry in our existing starting point. Canada's exports of resources to Korea will not be significantly impacted by a free trade agreement because they are not at present in the resource sector subject to high tariffs or other trade restrictions. Korea needs those resources and doesn't have them, and it doesn't make sense to be protecting them somehow, or stopping their import. On the other hand, our imports of value-added products do have significant tariffs attached to them, and eliminating them will lead to a significant increase in our imports from Korea.
Making things worse, our resource exports to Korea are relatively non-labour intensive, whereas our imports are more labour intensive. It's a no-brainer that a free trade agreement with liberalization on both sides will stimulate the quantity of imports from Korea much more than our exports to Korea. Then, even more, the number of jobs associated with those imports will be lost out of proportion to new jobs created in relatively non-labour intensive export sectors.
More deeply, a trade agreement like this clearly reinforces Canada's status as a supplier of raw materials and an importer of value-added goods. Like other free trade agreements that we have signed in the past, this one will make matters worse by reinforcing our specialization in resource exports, undermining the domestic market position of value-added industries through cheaper flows of imports and, perhaps most importantly, limiting the policy levers that are available to government to try to promote more diversification.
We will talk a bit about the auto industry. Nearly three-quarters of our bilateral deficit with Korea is due to automotive trade. It is the single most important component of our bilateral trade with Korea. We trade, if you like, in autos a lot, but it's a one-way street. We exported $15 million worth of automotive products to Korea last year and imported almost $3 billion back. For every $1 we sell in Korea in automotive, we import $182 from them, so it really is a one-way street, and clearly it's going to stay that way after a free trade agreement.
In fact, the situation with Korea has gotten much worse over the last 15 years even though Korea—this is important—has reduced its tariff on automotive imports during that period. Our automotive exports to Korea were never large to begin with, but they have fallen by 82% since 1999. Our imports, on the other hand, are up 450% in the same time, and that change is not driven by tariff issues. That's driven by a structural imbalance in the nature of the trade, differences in the two automotive markets and, importantly, a very successful effort by Korea to mobilize a whole slate of policy levers to promote exports in key value-added industries while clearly limiting imports.
The automotive provisions of this agreement—bilateral tariff elimination, acceptance of market access, and national treatment—will lock in the existing imbalance. They'll have no measurable impact on our automotive exports to Korea, and they will make our imports from Korea incrementally larger.
We can verify this by reviewing the situation of the United States and the European Union, both of which have recently signed free trade agreements with Korea, the U.S. in 2012, and the EU in 2011. America's merchandise trade deficit with Korea has actually widened dramatically since the FTA to $23 billion last year from $14.7 billion in 2011. In the auto sector there's been a small uptick in U.S. auto exports to Korea, but those exports remain small. America's imports of automotive products from Korea grew 22 times faster than new U.S. auto sales to Korea did, so the trade imbalance has gotten much worse.
The EU imbalance has gotten worse as well. The number of vehicles imported into Europe has grown by three times as much as the number of new vehicles exported by Europe, again reflecting the structurally closed nature of Korea's market.
Remember, the American and European situations were preferable to ours. Europe has a whole slate of domestically based automakers like Mercedes and BMW that sell high-value products with strong brand names into Korea. Canada has no such feature. In the U.S. case, there were very aggressive measures to try to tackle the imbalance in the auto sector, including a unique snap-back provision. Those provisions are not in existence. Our agreement is clearly inferior to the American one, so the net impacts are going to be worse.
I stress that while I've emphasized the auto sector, the auto sector is not the only sector that will be harmed by this agreement. Other sectors will be affected by the same problem of an initial large imbalance, a structural asymmetry of our bilateral relationship, and technological and competitive weakness among Canadian value-added exporters instead pushing us to reinforce our specialization and resources.
Our analysis, which I mentioned at the beginning, looked at 20 non-agricultural sectors at the two-digit level, including food processing. Fifteen of those sectors will lose employment and output under a free trade agreement with Korea. Four of them will gain new opportunities, and one has no change.
Auto is not the hardest hit sector in our analysis. Computers and electronics is, followed by machinery, then followed by the auto sector. All of those high-value sectors will clearly lose more sales from this agreement than they will gain. Total job losses could total 30,000 across the 20 sectors that we looked at, so it's wrong to assume that this is just a problem of the auto industry. If anything, the sectors that could win under the agreement are more the exception than the rule.
I acknowledge that some sectors will win, including the export of meat and meat products. Every free trade agreement has winners and losers. The task for policy-makers is to make sure the net impact is going to be positive, and I cannot foresee—perhaps we can talk about this more in the questions—any scenario in which the increase in meat through pork and beef exports to Korea offsets anything but a tiny fraction of the growth in the bilateral trade deficit, which is clearly going to occur under this deal.
Finally, the agreement also includes several of the very negative structural features of the NAFTA-style free trade agreements that have nothing to do with trade. In fact, in some ways they restrict trade. These are features like the deregulatory bias of services trade, intellectual property measures, and limits on government procurement. In fact, I don't know if this is known widely, but the Korea FTA would cut by more than half the size of the threshold under which federal contracts for goods and services have to be offered to the competing country. That's a significant change.
Then finally, it does lock in an investor-state dispute settlement mechanism that is being challenged internationally. I find it incredible that the Europeans are very worried about that provision, yet here in Canada, even progressives would sign an agreement that has more of this investor-state dispute settlement kangaroo court system that's been so controversial.
I look forward to your questions. Thank you again for the opportunity to join you today.