International Trade Committee on Oct. 7th, 2014

[The Chair, Conservative, Randy Hoback]

Good morning, everybody. We'll get started.

Pursuant to our order of reference from Wednesday, October 1, 2014, this is Bill C-41, an act to implement the free trade agreement between Canada and the Republic of Korea.

We have a witness here, and we have Mr. Linton joining us from Toronto.

Witnesses, thank you so much for coming on short notice. I know some of you had to change your schedules to be here. We appreciate your making the effort to give us the information that you're going to provide today.

We'll start off with ten minutes each, and we'll start with Claire Citeau, please.

[Claire Citeau, Executive Director, Canadian Agri-Food Trade Alliance]

Hello.

My name is Claire Citeau, and I am the executive director of the Canadian Agri-Food Trade Alliance. I am here today with two directors of the Canadian Agri-Food Trade Alliance: Martin Rice, who is also the executive director of the Canadian Pork Council, and Phil de Kemp, who is the president of the Malting Industry Association of Canada.

Thank you for inviting me today to speak on behalf of the Canadian Agri-Food Trade Alliance on the Canada-Korea free trade agreement.

The Canadian Agri-Food Trade Alliance, CAFTA, is a coalition of national and regional organizations that support a more open and fair international trading environment for agriculture and agrifood. CAFTA's members include farmers, producers, processors, and exporters from the major trade-dependent sectors, including the beef, pork, grains, oilseed, sugar, and malt sectors. Together, CAFTA members account for 80% of Canada's agriculture and agrifood exports, realize $50 billion in exports, and directly employ half a million Canadians.

The Canada-Korea free trade agreement will be extremely beneficial for Canada’s agriculture and agrifood exporters and will help the sector regain competitive access to South Korea.

It is essential that the Canada-Korea free trade agreement be ratified and implemented by January 1, 2015. South Korea is a lucrative market of 50 million consumers, and a key hub of Asian supply chains. South Korea imports over 70% of its food, and until a few years ago, Canada was a preferred supplier for many agrifood products. In 2011, South Korea was Canada’s fifth largest export market, with Canada exporting over $1 billion in agricultural and food products to that country. Since then, our agrifood products to Korea have plunged by more than 50%. This massive loss in exports is directly attributed to free trade agreements that South Korea has concluded with Canada’s key competitors, namely the European Union in 2011, and the United States in 2012.

Without a free trade agreement, Canada’s agrifood exports face tariffs as high as 50%, and in some cases 400%, while our main competitors have had their tariffs eliminated or phased out. Losing the South Korean market is a major blow to Canada’s agrifood industries, including beef, pork, canola, and grains. In fact, before KORUS, Canadian pork exports to South Korea were $233 million a year. They have now fallen to under $80 million. Grain exports were $479 million a year. Today, they are less than $100 million.

Through the elimination of tariffs on 86.8% of agricultural tariff lines, the Canada-Korea free trade agreement will provide the level playing field that simply does not exist today.

I would like now to share with you a sample of CAFTA members’ projections of the opportunities that are foreseen in an agreement with Korea, keeping us on par with Australia, Europe, and the U.S.

The Canola Council of Canada estimates that exports for canola seed and canola oil, respectively $60 and $90 million currently, could double.

The Canadian Cattlemen’s Association expects to maintain meaningful trade with Korea during a transition period and expects to return to the annual $50-million range once tariffs are fully eliminated.

The Grain Growers of Canada has identified duty-free wheat sales, on top of the grain utilized in feed for livestock, to meet the increased demand for Canadian meat.

The Malting Industry Association of Canada points out that South Korea is the number four market for malting barley, yet current tariffs for malting barley are 30% within quota, and 513% over quota. A new trade deal with Korea for this sector will mean significant new marketing opportunities for the malt industry and for farmers.

The Canadian Meat Council, representing meat processors, points out that Korea is one of the most important meat importers in the world, with import demand exceeding $2 billion for beef and pork products annually. Once Canada’s meat exporters and processors regain competitive access, it is projected that annual beef and pork exports will rebound and surpass their previous peaks.

The sugar industry, through the Canadian Sugar Institute, expects the Canada-Korea free trade agreement to provide significant opportunities for most sugar-containing products through tariff phase-outs over three to five years.

The Canadian Pork Council, representing Canada’s hog producers, hopes that this deal could help fully restore, in a few short years, annual pork exports to South Korea of $400 million.

Taken together, we believe the Canada-Korea free trade agreement, if fully implemented by January 1, 2015, could result in over $800 million of incremental Canadian agrifood exports. It is really critical to have a level playing field as quickly as possible. On January 1, 2015 the next round of tariff cuts in South Korea’s agreement with the U.S. will be phased in, putting further competitive pressure on Canada’s agrifood interests. Canadian exporters are already suffering from the impact of Korea’s deals with the U.S. and Europe. There is also a very real probability that the Korea-Australia deal will come into force on January 1, 2015.

While we have already lost ground in South Korea, we are running out of time. Every month that the implementation of the Canada-Korea free trade agreement is delayed, the greater the negative impact will be for Canadian farmers, producers, and exporters.

In closing, the Canadian agrifood industry depends on exports. Canadian agrifood exporters need a level playing field in order to access the Korean market. CAFTA members hope for and expect quick ratification of implementing legislation of the Canada-Korea free trade agreement in both countries.

Thank you.

[The Chair, Conservative, Randy Hoback]

Thank you.

We'll move on to our next witness, Ms. Campbell.

[Dr. Ailish Campbell, Vice-President, Policy, International and Fiscal Issues, Canadian Council of Chief Executives]

Mr. Chairman, committee members, thank you for this invitation to appear before the committee on trade to discuss the Canada-Korea FTA.

Before I begin my remarks, please let me recognize the new chair, MP Hoback.

I would also like to enter into the record best wishes to the former chair of this committee, MP Rob Merrifield, who retired from Parliament in September to become Alberta's representative in Washington. The Canadian Council of Chief Executives wishes Mr. Merrifield all the best in his new role and thanks him for his continued service to Canadians.

The Canadian Council of Chief Executives is a not-for-profit, non-partisan organization composed of CEOs of Canada's 150 leading enterprises. Members collectively administer $6 trillion in assets, have annual revenues in excess of $850 billion, and are responsible for the majority of Canada's exports, investment, R and D, and training.

We engage in an active program of public policy research, consultation and advocacy. The CCCE produces well-thought-out and well-founded comments from a business perspective on matters of national importance to Canada's social and economic fabric.

I'd like to table for the committee's consideration three key points concerning Canada's FTA with Korea.

Point one, the CCCE supports the rapid ratification of the free trade agreement with South Korea. The Canada-Korea FTA must be implemented on January 1, 2015. This is vital so that Canadian firms do not fall further behind U.S. competitors as the Koreans phase in tariff cuts under their various bilateral trade agreements. Canadian exports to South Korea have dropped by nearly one third since the implementation of the U.S. deal. The Canada-South Korea FTA gives our exporters a fighting chance to regain lost market share and, in doing so, to protect Canadian jobs.

I take note of the support for this agreement from the Conservative government, the New Democratic Party, and the Liberal Party of Canada. All three parties agree that increasing Canada's trade ties with Asia is necessary in order to ensure Canada's prosperity in the 21st century. As a result of this agreement, Canadian companies will enjoy enhanced opportunities to sell products and services to South Korean consumers and participate in South Korean-based supply chains.

If the EU is counted as one entity, Korea is Canada's sixth largest export market for goods and Canada's sixth largest supplier. The two nations also rank in the top 10 partners for two-way trade in services and intermediate goods trade, which is an indicator of strong activity in global value chains.

Korea has 14 companies on the 2013 global Fortune 500 list. Canada has nine. Only the United States, China, the EU, Japan, and Mexico have more trade with Canada than South Korea does.

President Park, in her state visit to Canada two weeks ago, highlighted the creative economy as a sector where she'd like to see deepened bilateral trade, including in television and video game content. Other priority sectors for growing the trade and investment relationship illustrate the diversity of trade between our two nations. Financial services, professional services such as engineering and legal services, agrifood, seafood, clean tech, energy products including LNG, forestry products, metals, aerospace, advanced manufacturing, and more are ripe for increased commercial activity and partnerships.

In the auto sector Canadian firms have tabled their concerns with this agreement. They've highlighted that the U.S.-Korea Free Trade Agreement has not resulted in the increased trade that was hoped for or expected.

The CCCE therefore recommends the development of a specific auto sector strategy for the Korean market to ensure that Canadian auto and auto parts manufacturers are positioned for success. Such a strategy could examine exports, two-way foreign direct investment, and non-tariff barriers as well as cooperation with other major auto and auto parts exporting nations that have free trade agreements with Korea, to ensure an open market for foreign products.

The second point is this.

The government and businesses must work together to implement this agreement. Cooperation among businesses, Canada's embassy in South Korea, the Canadian Trade Commissioner Service, EDC and others is critical to implementing the agreement and improving trade.

As you have already heard from Claire this morning, the United States, the European Union, and Australia have already concluded FTAs with South Korea. The lead time these nations have in their tariff reduction schedules and implementation of commitments put Canadian companies at a competitive disadvantage. The CCCE recommends the creation of an advisory committee to Minister Ed Fast on the implementation and promotion of the South Korea FTA. The largest traders and investors, including those with significant foreign affiliate presence in Korea, should be the core members of this advisory committee as they have the greatest experience in the South Korean market and manage the supply chains that could be access points for small firms.

To measure the success of the Canada-Korea FTA it's important that the starting point is well understood and we benchmark against this. Canada's imports from Korea were $7.3 billion in 2013, and it exported $3.5 billion. Korea invests more in Canada at almost $5 billion in 2013, compared to Canadian direct investment in Korea that sits at about $535 million. Foreign affiliate sales are also on the rise. Outcomes of the FTA should be measured annually with increased benchmarks such as trade, FDI in sales in South Korea by Canadian foreign affiliates, the establishment of joint ventures, and revenue from licensing agreements.

The advisory committee recommended by the CCCE, along with institutions such as the Asia Pacific Foundation led by Stewart Beck, could also contribute to promoting broader Canadian awareness and understanding of the South Korean market as well as its general conditions, including its stable democracy, its interest in a peaceful Asia region, and its highly innovative economy. As John Weekes, Canada's former ambassador to the WTO has pointed out, marketing is essential and understanding the thinking of Korean consumers is critical if the potential benefits of this FTA are to be realized.

This partnership approach in which government and business are aligned and execute on opportunities is at the core of the government's global markets action plan.

I will conclude with point number three. I reiterate the vital importance of deeper Canadian engagement with the Asia region. The South Korea FTA is a concrete step forward in government-led initiatives in this region, and the CCCE congratulates Minister Ed Fast, chief negotiator Ian Burney, and the entire trade team at DFATD for having stuck to the difficult negotiations that led to the final conclusion of this agreement. They have our huge thanks.

The agreement represents a turning point, frankly, in Canada's long-standing efforts to build closer economic ties with the Asia-Pacific region. It demonstrates to other important economies in that region that Canada is a reliable and serious partner, and it offers a base from which Canadian companies can reach out to other fast-growing markets. CCCE members are already active across Asia and want to do more business in high-growth nations from India to Indonesia. Concrete next steps could include a bilateral economic partnership agreement with Japan. Concluding the EPA with Japan should be a priority given the strong FDI relationship, Canada's need for energy resources and food, and opportunity for further trade in agricultural products and manufactured goods.

It's also our view that Canada needs a leader-to-leader strategic partnership with China, similar to what Australia has accomplished. That could lead to enhanced commerce in sectors of mutual interest. The government should also consider, as New Zealand has executed, the negotiation of a free trade agreement with China.

I'd be happy to take questions on Korea and the CCCE's broader priorities for Asia, including the Trans-Pacific Partnership, in the Q and A section, should this be of interest to committee members.

Thank you again for the opportunity to comment on this historic FTA.

[The Chair, Conservative, Randy Hoback]

Thank you very much.

We'll now move on to Mr. Linton. You have ten minutes, sir.

[Bob Linton, Director, Legislative Affairs, United Food and Commercial Workers Union Canada]

Thank you, Mr. Chair.

On behalf of the membership of UFCW Canada, I thank you and welcome the opportunity to appear before the Standing Committee on International Trade to comment on Bill C-41, an act to implement the free trade agreement between Canada and the Republic of Korea.

Before I begin, however, I would like to bring greetings and regrets from our national president, Paul Meinema, who, is unfortunately unable to appear, due to a scheduling conflict. I would also like to apologize that I'm unable to appear before you in person today, but I do appreciate the arrangements you have made for me to share our concerns with respect to Bill C-41.

UFCW Canada is Canada's leading private sector union. Together, we are more than a quarter of a million Canadian workers strong. Together, we are building a stronger future for UFCW Canada members, families, and communities, while protecting and promoting employees' rights and social justice for all. UFCW Canada is a leading force for workers in the retail food processing and hospitality sectors. As part of Canada's most progressive unions, our members live and work in communities from coast to coast and in every province. Our members are your neighbours. They are your grocery clerk or the cashier you have gotten to know. They work in meat packing plants and hotels. Some work in nursing homes, car rental agencies, drugstores, food processing plants, and many other sectors of the economy.

UFCW Canada believes that the Canada-Korea free trade agreement overall will be a good deal for Canadian workers. Korea is and will continue to be a strategic economy for many Canadian exports. Korea is heavily dependent on food imports with a demand exceeding $28 billion annually. Korea is Canada's fifth largest agricultural food export market. It has a population of 50 million relatively high-income citizens, and GDP per capita based on purchasing power parity is about $31,000 or 75% of Canada's. In other words, the Korean population has the resources to consume the full range of products from technology to agrifood and consumer goods to culture. A wide variety of sectors in Canada export heavily to Korea. Some of those are plastics, beef, pork, canola, other grains, wines, spirits, processed foods, value-added wood products, seafood, and fish. The agrifood sector represents 8% of the Canadian economy and is said to sustain one in eight jobs, a number that should increase with the Canada-Korea free trade agreement.

Another main reason for believing this will be a good deal for UFCW Canada members and other Canadian workers is that Canadian workers need a level playing field to compete in Korea. Canadian workers have become severely disadvantaged in exporting their products to the Korean market over the past three years due to Korea signing trade agreements with other countries, such as the Korea-U.S. Free Trade Agreement, as was already mentioned. U.S., EU, and Australian products compete significantly with Canadian products in the Korean market. Every year that passes Canadian products lose competitiveness and market share.

In the first year after KORUS took effect, Canada's exports to Korea dropped by $1.5 billion. The value of Canadian exports to South Korea decreased by 27.2% between 2011 and 2013, including a loss of more than 70% in the agricultural sector. With the recent signing of the Australian trade agreement in 2014, which is not fully implemented yet, and with imminent agreements with Mexico and New Zealand, which are also major competitors with Canada for agrifood, we believe this situation will likely only worsen.

Furthermore, increasing trade with Korea and other similar countries is a crucial step to diversifying our export industries, reducing risks and dependence on the health of the U.S. economy. At UFCW Canada, we also realize that the Canada-Korea free trade agreement is different from other free trade agreements such as the Canada-China foreign investment promotion and protection agreement and CETA. Therefore, the benefits of the Canada-Korea agreement will outweigh the negatives. Unlike controversial components of CETA and the Canada-China FIPA, the Korea FTA does not apply to or negatively affect supply-managed agricultural sectors. It does not contain any negative intellectual property provisions that would precipitate massive cost increases for pharmaceuticals in Canada and cost seniors and the Canadian health care system dearly, so it will benefit not only our members but all Canadians. While it has an investor-state dispute settlement provision, it contains transparency, guarantees for tribunal proceedings, and it is fully cancellable with six months' notice.

For UFCW Canada members, CAFTA will be beneficial. As previously mentioned, Korea is heavily dependent on food imports with demand exceeding $28 billion annually. It is Canada's fifth largest agriculture and food export market.

In the absence of a formal trade deal between Canada and Korea, the Canadian agriculture and agrifood sectors are missing out on potential business opportunities. This in turn impacts the 2.1 million workers who labour in Canada's agriculture and agrifood sectors. Signing the agreement will help Canadian exports, expand their market share, and support jobs in this sector. As it stands now, Korean tariffs on Canadian pork and beef are as high as 25% to 40%, and beef exports to South Korea shrank between 2011 and 2013. The agreement will level the playing field for Canadian agricultural and agrifood workers. This will bring significant benefits to UFCW Canada members, particularly in Quebec and Ontario. Quebec, with 26% of the UFCW membership, and Ontario, with 48% of the UFCW membership, are respectively first and second as Canadian producers of pork products. In dollar values in the pork sector, Canada currently ships approximately more than $76 million in product with $33.5 million from Quebec, $3.6 million from Ontario, $11.5 million from Manitoba, and more than $26 million from Alberta. Without this deal, the impact on exports will be negative as the Canadian economy will suffer, with no doubt a loss of jobs in that sector alone.

This agreement means that not only members at our locals in Quebec, such as Local 1991, and Ontario, Local 175, will benefit from this free trade agreement but locals in Alberta, such as Local 1118 and 401, and Saskatchewan, Local 1400, will also have the potential to benefit. This deal will not only help to protect the jobs of our members in these provinces but has the potential to increase employment with good union paying jobs that benefit the communities.

The agreement also protects the terms “Canadian whisky” and “Canadian rye whisky” as geographical indicators, ensuring that they remain exclusive to Canadian producers such as Gimli's Crown Royal distillery in Manitoba where members of Local 832 are employed.

This agreement may not be perfect and we would have liked to have seen it negotiated differently, particularly around the investor-state dispute mechanism. It may not be a boon to all sectors of the economy. Whether it succeeds in the short term will largely depend on how quickly South Korea is able to recover from the economic downturn that it is currently experiencing.

Granted, it is difficult to protect all of the possible repercussions of the deal, but on the whole we believe the Canada-Korea free trade agreement will benefit most sectors of the Canadian economy. It will be in the best interests of Canadians and in our opinion contains more positives than negatives. UFCW Canada members stand to benefit from the deal going forward.

Thank you.

[The Chair, Conservative, Randy Hoback]

We will now proceed to our first round of questions.

Mr. Davies, you have seven minutes.

[Don Davies, NDP, Vancouver Kingsway, BC]

Thank you, Mr. Chair, and thanks to all the witnesses for being with us today on short notice, as the chair has indicated.

Madam Citeau, I wonder if you have any job growth estimates about the impact of Korea on your membership. Do you have any numbers regarding how many jobs might be created by this deal over a period of time?

[Claire Citeau]

I think we have the information on the exports that will be reached as a result of this. I mentioned $800 million that could result as a benefit of the Canada free trade agreement.

[Martin Rice, Director, Canadian Agri-Food Trade Alliance]

I would just add that in some respects it's a case of avoiding conditions where we could lose jobs because of the shrinkage of our exports, but I don't have a precise measure on that.

[Don Davies, NDP, Vancouver Kingsway, BC]

Fair enough. Thank you.

My second question to you is, could you give us an estimate of the percentage of unionization in the Canadian agrifood industry? Do you have any general number to give us?

Nothing? I'm just trying to get a general idea. If you don't know, could you check and get back to the committee if you do find the number?

Ms. Campbell, thank you for being with us here again today. It's often said that signing a trade agreement provides the opportunities for businesses to take advantage of increased trade. It may be necessary, but not necessarily sufficient. From your organization's point of view, are there any other tools or policies that the federal government can adopt that would assist Canadian exporters to realize the potential that this agreement may give them?

[Dr. Ailish Campbell]

I'd just say three quick points. First, the tools that the government already has at its disposal, including Export Development Canada, Business Development Canada, and the Trade Commissioner Service, are absolutely essential. On those particular tools I'd suggest the development of Korea-specific plans.

Second, large firms are already present in Korea. Members of ours as diverse as Linamar, Magna, Bombardier, and Manulife Financial, will need to articulate any market access challenges they're having, such as particular non-tariff barriers in the auto sector, or the necessary regulatory changes that are needed in the financial services sector. I think a partnership approach between business and the Trade Commissioner Service and Export Development Canada, as I outlined in my opening remarks, is absolutely critical. To articulate also opportunities for small and medium-sized enterprises....

Finally, I would really like to underscore the recommendation to Minister Fast that an advisory committee be struck, so that we keep attention on this issue, and also that we raise awareness of the opportunities, particularly in the business sector for new exports and investment.

Thanks.

[Don Davies, NDP, Vancouver Kingsway, BC]

On that implementation committee, Ms. Campbell, and speaking about partnerships, would your organization be in favour of ensuring that there are labour representatives on the committee as well?

[Dr. Ailish Campbell]

Absolutely.

[Don Davies, NDP, Vancouver Kingsway, BC]

Would that be helpful?

[Dr. Ailish Campbell]

The answer is yes.

[Don Davies, NDP, Vancouver Kingsway, BC]

Thank you.

Mr. Linton, thank you for being with us today here from Toronto.

Mr. Linton, can you give us an idea how many members approximately the UFCW has in the food processing or agrifood industry?

[Bob Linton]

As I said, there are 2.1 million workers in the food industry. I don't have at hand how many members broken down into the different sectors, but I will get that for you and share that with the committee.

[Don Davies, NDP, Vancouver Kingsway, BC]

Could you speak to the importance of export markets for UFCW members in the sectors that you know that they're employed in?

[Bob Linton]

Particularly in the beef and pork sector, which is heavily unionized, it will make a significant impact in their jobs throughout the country, not just Ontario or Quebec but also in Saskatchewan and Alberta. Today we've been fortunate....

In speaking to our different local union presidents in Alberta, in some of the plants they have lost product. They have admitted they've lost product from agreements that the companies they worked for had with the Korean sector; however, they were fortunate enough to find market placement for their product in other countries. The reality is, though, they know this is coming and they've seen how the number of exports have gone down through the years. They are fully expecting that if this agreement is not ratified there will be job loss in those sectors.

[Don Davies, NDP, Vancouver Kingsway, BC]

Thank you.

I think that's a similar point to the one Mr. Rice made.

Ms. Campbell, some congress people in the States have indicated in the context of certain trade agreements the desirability of adding currency provisions in trade agreements. I know obviously no country is going to agree to relinquish their sovereign ability to set monetary policy, but a lot of these trade agreements are predicated on the concept of a currency floating within a certain range. This is something that trade agreements don't typically cover.

Has your organization given any thought to the importance of maybe addressing currency in the context of trade agreements because it has such a major impact on import and export flows?

[Dr. Ailish Campbell]

It's a very important question. We absolutely have given consideration to it.

It's an incredibly complex area. For example, what would be considered excessive government intervention to set prices or essentially manipulate currencies? Specifically, would the U.S. quantitative easing actions over the last several years qualify? Would the ECB's recent actions to essentially go into negative interest rate territory be considered excessive manipulation?

This is a question on which we will need the guidance of experts at Finance Canada and the Bank of Canada to look back at our own monetary policy, set some possible tests or conditions that you might see in an FTA, and actually run the numbers to see whether Canada itself over the last say 20 years in the history of our modern-day monetary policy would have been caught by any screen. Then we have to ask ourselves if we're ready to police this, who would police it, and what any enforcement mechanism would be.

I agree with you that it's an important and very complex question. I would recommend this committee seek advice from Finance Canada on that issue.

[The Chair, Conservative, Randy Hoback]

Mr. O'Toole.

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

Thank you, Mr. Chair, and thank you to all of our witnesses for appearing on relatively short notice. As was discussed by a few of the witnesses already this morning, the deadline to have this ratified by January 1 has us in an urgent state on the committee, so thank you for your flexibility.

My first couple of questions are for Ms. Citeau. Thank you for joining us this morning. You spoke about the 500,000 jobs represented by the industries you represent, then you took us through a very nice overview by industry group—for example canola, beef, grain, and malting—talking about the opportunities that this trade agreement poses for those industry groups.

Do most of your members forecast hiring more Canadians as a result of this new market access?

[Claire Citeau]

I believe most of the members forecast increasing exports to this particular market. As a result of this, in principle, more opportunities would mean more job creation.