International Trade Committee on Oct. 2nd, 2014

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

Have you lost any market share to Australia in South Korea?

[John Masswohl]

What we've lost is at the low end. We've lost a lot of the frozen product. Bone-in products have been very important in the Korean marketplace.

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

My time is limited, but if I understand you correctly, the base where you are now is at about $7 million and the highest is at $50 million?

[John Masswohl]

Yes. We figure we can get beyond the $50 million. Previously, $50 million was our best year, in 2002.

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

Thank you.

Mr. Stanford, perhaps you corrected yourself, or maybe I misunderstood you during your presentation, but you were saying that even with the tariffs going down on the South Korean vehicles coming into Canada, they won't be able to sell more vehicles. Correct me if I'm wrong.

Here's what my question would have been. Doesn't the Canadian consumer benefit from that? There will be a reduction of costs to the Canadian consumer because the price will come down.

[Jim Stanford]

On the first part of your question, I think I said that even with the Korean tariff being eliminated to zero from 8%, we do not expect any significant increase in Canadian vehicle exports to Korea, because there's no market base, there's no distribution system, there's no consumer taste for the vehicles we make, and there remains a range of structural and non-tariff barriers that we expect to limit the exports. When we eliminate our tariff, the 6.1%, which would be eliminated over three years under this deal, we will see not a dramatic but an incremental increase in an already large trade flow coming in.

Now, your question on whether can consumers benefit—

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

Where will they take away the competition? Would it not be in other low-cost imports?

[Jim Stanford]

First of all, Korean vehicles are not what I would call “low-cost imports”. I don't know if you've been to a Hyundai or even a Kia dealership lately, but they have gone upscale in a big way. They are competing directly with many of the mid-sized sedans and compact utility vehicles that we specialize in here in Canada. Not all of their new sales would replace a Canadian-made product—

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

I have only half a minute left and I want to ask you whether there would be any reversing of this agreement after a couple of years. Could we say, “Well, it didn't work”? Do you see anything in this agreement whereby we could just call it off and say, “You know what, thanks, but no thanks”?

[Jim Stanford]

There's no snap-back provision focused in auto as there was in the U.S. deal, but this treaty, like most, can obviously be cancelled if either side gives notice—I think it's six months' notice in this case—to cancel the treaty. But given the history of free trade agreements, that's very unlikely to happen.

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

Thank you.

[The Chair, Conservative, Randy Hoback]

Thank you, Mr. Pacetti. You're right on time.

We'll go to Mr. Cannan for seven minutes.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Thank you very much, and thanks to our witnesses again for being here. This is a very important and, as we know, historic trade agreement for our cattle industry. We had good representation on the trip to Korea. I'm very excited.

I just wanted to clarify something, John. You mentioned that if we don't get this agreement ratified by the end of the year, reinforcing that time is of the essence.... What does that 2.7% work out to approximately in dollar value for your industry?

[John Masswohl]

If we're talking, say, about $10 million worth of trade, it's 2.7% of that. By my math, that's $270,000, which goes directly into the Korean government as tax revenue. But I think in reality what ends up happening if the differential gets too large is that Korean importers would prefer to get a better deal by buying that beef from American suppliers. The reality is it's not just the amount of duties that we have to pay that we lose, it's the amount of business that we end up losing, and the customers we end up losing.

We think, as I said, that at that 8% we can hang on to the customers we have and perhaps even start to grow that back.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Thanks for the clarification.

Mr. Stanford, I always enjoy listening to your presentation. I don't always agree on the perspectives, but I appreciate your thoughtfulness.

I'd like to pick up on a comment by my colleague, Mr. O'Toole. He was talking about the auto sector. When the question was asked to Mr. Burney on Tuesday at our meeting, he talked about the impact on the auto industry. He said every credible study that has been done on the subject has concluded that the impact that the Canada-Korea free trade agreement will have on auto jobs and production in Canada would be negligible at 0.2% of domestic production. That 0.2% figure was from a report by University of Toronto professor Dr. Van Biesebroeck, with which I'm sure you're familiar.

I've been on the trade committee for eight and a half years. David Emerson, who was the trade minister when I started, conducted some other studies. More than 90% of vehicles produced in Canada last year were exported, and half the Korean cars that come into Canada are brought in duty-free from the U.S. As Mr. O'Toole alluded to, a thousand more workers from Ford in Oakville will make those vehicles for export. Could you clarify again why you are against supporting Canadian workers who are obviously clearly yearning to compete and win in the global marketplace when it's a level playing field?

[Jim Stanford]

Well, I would like Canadian workers to have the chance to compete and win in a global market on a level playing field, but a free trade agreement that eliminates tariffs, provides national treatment and guaranteed market access, locks in an enormous, unbalanced situation, allows countries with very successful state-led development strategies—like Korea, Japan, and China—to continue to use those levers to stimulate their exports while limiting imports, and then ties the hands of our own government from doing similar things, is not remotely a level playing field. The term “level playing field” cannot be used in the description of Canada-Korea bilateral trade.

I'm very much in favour of giving Canadian workers, Canadian auto workers and workers in any other industry.... This is not just auto: most manufacturing sectors will experience a net decline in their sales because of this. I'm very much in favour of giving all of them a chance to sell their products to a global market in the same way that we accept high-value products from Europe, Japan, Korea, and elsewhere.

As for the scale that we're talking about, it was interesting to hear Mr. Masswohl talk about the decline in beef sales to Korea and his hopes for increases, his hope that in a good situation we'll get it back to the $50 million or more that we were exporting there in 2002. We have to consider the scale of that benefit, recognizing that it's very important to those beef farmers, but even if we get back to the $50 million, the increase in beef sales under this agreement would offset barely 1% of our existing trade deficit with Korea, and that trade deficit will certainly get wider if this free trade agreement goes ahead.

With all due respect to those sectors that do see opportunity here, I understand that, and I understand the hopes of the members, workers, and small-business people in those sectors. As a country, we have to balance the overall view of where the major impacts, both negative and positive, are going to be.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Okay, fair enough.

You work closely with Unifor, the Canadian Auto Workers association, and the workers across Canada, the unionized, so you talk about free and fair trade and the positive impacts of trade. What trade agreement have you, or Unifor, or the auto workers supported?

[Jim Stanford]

We were a great supporter of the Canada-U.S. Auto Pact, which in many respects, I would say, was the most successful trade agreement that Canada was a part of. This was an agreement that used both carrots and sticks and provided tariff-free access to the Canadian market to a range of vehicle manufacturers and parts makers, but on the condition that they maintain some kind of proportional production presence here.

It is this Auto Pact that explains why Canada has an auto industry, and at one time a very disproportionate auto industry. In the late nineties, we were one of the most successful auto-producing jurisdictions in the world despite our northern location and our small size. That all had to do with active policy. It was a fair agreement. The trade was balanced, it went both ways, and both countries had a shot at the decent jobs that are in the industry.

A free trade agreement on the NAFTA model starts to take it in a different direction. Then it's dog eat dog and every country for themselves, and there's no guarantee at all that we will be left with anything like a proportionate presence in strategic industries like auto.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

I have one last quick question.

I'm all for value added and additional jobs in Canada. We're the second-largest land base in the world and very diverse. We're blessed with natural resources, so we do export a lot of natural resources. One of the concerns I hear from companies across Canada and from witnesses who have come to the committee is that one of the challenges we have when we're trying to have value added is the high labour cost in Canada. Could you comment on that?

[The Chair, Conservative, Randy Hoback]

We'll need a quick answer on this.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

It's keeping us from being competitive globally.

[Jim Stanford]

It made us look expensive. Now it's coming back down and we're looking better and better all the time.

[The Chair, Conservative, Randy Hoback]

Thank you, Mr. Stanford.

We'll go next to my colleague Mr. Davies for five minutes.

[Don Davies, NDP, Vancouver Kingsway, BC]

Thanks.

Mr. Stanford, as you testified, and as we know, Unifor has significant union membership in a variety of private sector industries, such as seafood processing, pulp and paper, wood products, and aerospace. Those sectors have testified before this committee in the past, and they're uniformly optimistic that this trade deal will increase their competitiveness in the Korean market and make up the ground lost since KORUS and the EU-Korea deals were implemented.

Jim Quick from the aerospace association said that Canadian aerospace exports to Korea had dropped 80% after the EU and U.S. deals were implemented, because of the tariff reductions. Also, aircraft demand in Asia is slated to require 12,000 aircraft totalling $1.9 trillion over the next 20 years, which excites companies like Bombardier.

Does Unifor see any job gains in other sectors that you represent as a result of this deal, such as aerospace, for instance?

[Jim Stanford]

As I mentioned, we conducted a study that looked at 20 different non-agricultural sectors at the two-digit level, including food processing, so there is some agricultural content in that. We simulated what would happen as a result of tariff liberalization or elimination on both sides given the imbalanced starting point between the two countries and the likely elasticities of demand in response to that.

We identified 15 sectors that would lose jobs and output as a result of the net impacts of the deal, and as I mentioned computers and electronics was the hardest hit. We identified four that would win. Those included mining other than oil and gas, food manufacturing, wood products, and paper manufacturing. You have identified some of those sectors in which we do have Unifor members working, and I acknowledged that at the beginning of my testimony.

In terms of aerospace, I am skeptical that there will be a significant benefit to Canadian aerospace from the Canada-Korea trade agreement. Aerospace is another one of those crown jewel industries, if you like, with strategic spillover effects in terms of innovation, supply chain stimulus, and so on. Korea has been very active at using levers of state policy, including public capital through state development banks, export promotion strategies, and tight links between suppliers' skills development and original equipment manufacturers to nurture a home-based aerospace sector just as we have been in Canada. That explains exactly why we are a successful aerospace producer.

We're seeing the challenge from other countries as well, such as China and Russia, which are dealing with Bombardier but are demanding domestic content as a condition of their access to those markets. I would also suggest that just because a lineup of business representatives come before you to say that something is going to be beneficial does not guarantee that it will be beneficial for the Canadian economy as opposed to for individual business or for the business community in general. The business community, of course—