International Trade Committee on Nov. 19th, 2013

[Jean-Guy Vincent, Chair, Canadian Pork Council]

Good morning.

My name is Jean-Guy Vincent. I am a hog producer from Seraphine, Quebec, and the Chair of the Canadian Pork Council Board of Directors. I am joined today by Martin Rice, Executive Director.

First, I wish to thank the members of the House of Commons Standing Committee on International Trade for the invitation to appear before you today to discuss the Canada-European Union Comprehensive Economic and Trade Agreement.

The Canadian Pork Council serves as the national voice for hog producers in Canada. A federation of nine provincial pork industry associations, our organization's purpose is to play a leadership role in achieving and maintaining a dynamic and prosperous Canadian pork sector. Canadian producers recognize the importance of trade and welcome the Canadian government's efforts to expand economic ties with the European Union through a comprehensive economic partnership agreement.

Our sector depends on exports. Over two thirds of the pork produced in Canada is exported as either live hogs or pork products. Exports stimulate the growth of Canada's hog and pork industry. Furthermore, robust global demand for Canadian pork has resulted in increased value and volumes going to a broader base of customer countries. Over the past few years, our industry has faced serious challenges in its ability to compete in the world market, particularly because of the high value of the Canadian dollar, record-high grain prices and the global economic downturn. The economy will continue to change and we cannot allow ourselves to neglect or interrupt efforts that could increase our access to markets for purely political reasons.

I would like to add that the industry currently has a new outlook because its production costs are decreasing and prices have remained stable since the spring. These conditions allow producers to achieve positive margins, reinvest in their equipment and, most importantly, pay down and reduce their debt.

We appreciate the government's determination in moving things forward and signing an agreement with the European Union. This is a good agreement for the pork sector and takes into account the best interests of Canada and the European Union. Pork is a key component of Canada's agri-food sector and provincial economies. The Canadian pork industry is made up of over 7,000 hog farms with cash receipts of over $4 billion. Hog producers account for 8% of total farm cash receipts and are the fifth largest source of farm income in Canada.

A study by the George Morris Centre confirms that pork production and exports contribute immensely to the Canadian economy. The study shows that the economic development associated with pork production and exports injects $9.28 billion into the Canadian economy. In addition to describing the economic benefits of Canadian pork exports for the overall economy and hog producers, the study shows that exports of Canadian pork, which reached $3.2 billion in 2011, generated additional value added activity of $3.5 billion for the Canadian economy, and some $20 to $30 per head back to Canadian hog producers.

In addition, the report shows the impacts of pork and pork product exports on the Canadian economy, our sector and the profits of producers. Canada is competitive on the global market and is successful as a pork and pork product producer and exporter. Our industry knows that the key factor in maintaining this success is our ability to access a wide variety of markets.

The Canadian Pork Council took a great interest in the work done during the Canada-EU Summit in October 2008 to explore the possibility of entering into an economic agreement.

The population of the EU is about 500 million. Most say that their favourite meat is pork. We therefore strongly believe that this agreement will increase pork exports to the lucrative European market and that it will be beneficial to Canadian pork producers and processors, as well as to the economies of the provinces across the country.

We have yet to tap the potential of the EU market. Europe is the only large pork-consuming region in the world whose market Canada currently does not have access to, as it is limited. Canadian exports are undermined by very high tariffs and burdensome administrative import regulations. Canadian pork exports to the EU were limited to only 415 tons in 2011, while total Canadian pork exports were 1.1 million tons that same year.

The 500 million people living in the EU's 28 member countries consume over 20 million tons of pork each year. That is nearly 30 times higher than the Canadian consumption. Despite this, the EU imports only about 0.2% of the pork it consumes. In comparison, Canada has a completely open market for pork products and imports over 200,000 tons of pork per year. This represents nearly one third of national consumption.

Now is the opportune time for Canada to enter a liberalized trade agreement with the EU. Competing pressures on EU land resources are beginning to impact the EU's ability to produce animal feed, and this in turn will limit hog production.

In the future, EU pork exports are expected to decrease and demand for imports will grow. Right now exports to the EU are severely restricted by tariff and non-tariff trade barriers. Canada's hog industry has a solid reputation for competitive pricing; safe, high-quality products; and reliable consumer service. The CETA represents a great opportunity for Canada. The new zero-tariff access for pork and much improved quota administration rules provide us unique access for Canada and an advantage over U.S. exports until the deal is worked out between the U.S. and the EU. The potential is seen for hams, and to a lesser extent shoulders, which should also help to boost the entire carcass value.

It is recognized that to address EU market demands, Canadian processing plants will need to invest in such areas as feed additives and disease testing. Today there are four Canadian pork plants that have achieved eligibility to export to the European Union. With the promise of larger quotas and with the resolution of quota administration barriers, the CETA will encourage additional plans to see certification. The solid trade deal that has been negotiated with the EU could increase Canadian pork exports by up to $400 million a year. This is by far the best opportunity Canada will have for many years to acquire new access to this important pork market. The Canadian and EU markets for pork complement each other, and this relationship holds great potential to enhance our sector's export opportunities as well as benefit workers, businesses, and families who rely on the pork sector for their livelihood.

Thank you. Merci.

[The Chair, Conservative, Rob Merrifield]

Before we get into questioning, we have Mr. Jayson Myers from the Canadian Manufacturers and Exporters.

Jayson, the floor is yours.

[Jayson Myers, President and Chief Executive Officer, National Office, Canadian Manufacturers and Exporters]

Thank you, Mr. Chairman.

Good morning. I am pleased to comment today on behalf of Canadian Manufacturers and Exporters on the economic they foresee in a Comprehensive Economic and Trade Agreement with the European Union.

I'm really pleased to be able to comment today on the economic advantages that Canadian manufacturers and exporters see in the comprehensive economic and trade agreement with the European Union. We've called the CETA the Wayne Gretzky of trade deals. I have to say, though, in Quebec we're referring to it as a Rocket of a deal.

But let me tell you why. First of all, we think it is a Great One. It's a great deal. I think we have to put it into context. It is the most extensive economic trade agreement ever concluded by Canada. It's the most comprehensive and ambitious trade agreement ever concluded between two major economies. I think we have to take under consideration that it took the members of the European Union itself 45 years to achieve the same level of market liberalization that we've achieved under this agreement.

The CETA will give Canadian businesses preferred access to the largest and richest market in the world, a market of more than 500 million consumers. But more important, it is one of the most technologically sophisticated markets and supply bases in the world. It's a market in which Canada's leading exporters are already very active, and it's a home base for some of the largest corporate investors in this country. It's also a market where Canada's small and medium-sized exporters are going to find a tremendous amount of opportunity for partnerships and technology, development in technology licensing, manufacturing, distribution, and investment opportunities.

And we know that first-hand. Since May, we've been working with industry associations in Europe to identify opportunities for technology and business partnerships for Canadian companies. Since May, we have had 26 joint ventures concluded. The CETA is only going to increase interest about new business opportunities between Canada and the European Union. This is the time for Canadian companies to be developing their European expansion strategies, to be making the investments they need to take advantage of the European market.

I can tell you over the past three weeks, since the signing of CETA, the one question I've heard from our members more than anything else is how do we take advantage of these opportunities? What do we need to do in order to take advantage of them? That's not a question I've heard very often in the past. Doing business in Europe has been a daunting experience for many Canadian exporters, especially for smaller companies and for some sectors like new technology, meat, fish, or other food products that have faced high tariffs, complex regulatory barriers to trade, a maze of product testing and certification procedures, restrictions on investment and service provisions, and other barriers that have simply locked them out of the European markets and European procurement markets in particular.

The CETA is going to address a majority of these tariff and non-tariff barriers to trade and investment. That's another reason why I think we can call this the Wayne Gretzky of trade deals. It's going to go to where the puck will be in international business. The agreement goes well beyond the elimination of tariffs. It addresses issues that businesses face in international markets, as they try to create value for customers, for stakeholders, for their shareholders.

The CETA opens markets for most business services. It allows for temporary entry of business personnel who need to work across borders in order to support and service their customers, and to learn and transfer knowledge within their business organizations. The agreement creates opportunities in procurement markets, it makes product testing and certification faster and easier, and it enhances protection for investment and intellectual property rights.

In fact, the CETA does set the standard for 21st-century trade agreements, for TPP as well as for TTIP, the European Union's negotiations with the United States. The CETA is unique in the level of ambition it demonstrates in its negative list approach to services, in procurement, labour mobility, and in the willingness to facilitate business opportunities in sectors that traditionally have been closed in both Canada and Europe.

As a result of the CETA, Canadian companies will have better preferred access into the European market than they will into the NAFTA market. That should be a concern for the United States. I hope it will lead to further progress in liberalizing trade between Canada and the United States. Of course, one feature of the CETA that's critically important in positioning Canada for the future is that we will be accorded most favoured nation status. In other words, we'll be grandfathered by the EU if it is able to secure any more favourable treatment in its negotiations with the United States with respect to North American rules of origin, services liberalization, and recognition of standards.

This, I think, is a highlight of the agreement.

The CETA is unique for another reason. All provincial and territorial governments have been part of the negotiations and support the agreement. This is historic. The Europeans never thought it was possible. In many ways the CETA succeeded because of the provinces. I especially want to recognize the contribution of former Quebec premier Jean Charest. The agreement will also help to facilitate trade within the Canadian market.

What are the economic benefits that Canadians can expect from the CETA? The economic analysis that was completed five years ago, before the launch of negotiations, concluded that the agreement would lead to 80,000 new jobs for Canadians.

As an economist, however, I can tell you that most economic forecasts are based on “business as usual” assumptions. The only thing certain about them is that the forecast is wrong—this one in particular. It doesn't take into account the growing number of business and technology partnerships between Canada and Europe. It doesn't account for the fact that the CETA will position Canada as the only economy in the world with comprehensive preferred access to both the European and NAFTA markets, which should attract more business investment into Canada on the part of companies operating in both of those markets. It doesn't consider the fact that the CETA will allow smaller manufacturers and technology and services companies preferred access into the supply chains of European multinationals, which will in turn provide a platform for taking their goods, services, and technologies around the world—to Africa, Russia, central Asia, China, India, Asia Pacific, and Latin America. All of these other markets are markets where European companies have a large and well-established presence.

As I say, there's only one thing I can say for certain about an economic forecast: it's likely going to be wrong. I think the economic forecast that gave rise to the negotiations grossly underestimated the economic benefit of the CETA.

Of course, though, the CETA will only open the door to the European market. It's up to Canadian businesses to take advantage of the opportunities. I have every confidence they will. We'll be working closely with government to make sure that exporters and manufacturers have the support they need to find those new opportunities and grow and win market share in Europe and around the world.

What we have so far is an agreement in principle, though. This is an important accomplishment, but a lot still has to be worked out in terms of the details of the legal text. We'll continue to be consulting closely with the government as those details are finalized. Of key interest to us is how the agreement handles rules of origin, product certifications, regulations affecting business travel, access to government procurement markets, and timely and effective dispute settlement procedures. Now we have to implement the CETA, and we have to take advantage of the CETA. There's a lot of work to be done, especially by Canadian business, in order to do that. We are committed to helping our members take advantage of those opportunities.

Finally, I think it's important to recognize the hard work that's gone into the agreement. I'd especially like to recognize the leadership and the achievements that have led to this agreement in principle, particularly on the part of the Prime Minister; the Minister of Trade, Ed Fast; other ministers; provincial premiers; our ambassadors in Europe; and the officials, who I think all deserve to take a lot of credit.

I especially want to recognize the achievements and the accomplishment of Steve Verheul and the Canadian negotiating team. This is a historic agreement, and I think we should all be very proud.

Thank you.

[Some hon. members]

Hear, hear!

[The Chair, Conservative, Rob Merrifield]

Thank you very much. I think we are proud.

Mr. Morin, the floor is yours, sir. You have seven minutes.

[Marc-André Morin, NDP, Laurentides—Labelle, QC]

Good morning, Mr. Vincent. I am always happy to meet a producer from our part of the country. I will thus expect more insightful comments from someone who is going through this situation.

What is the current pork quota in the European countries? At this very moment, how much pork can we export to the EU?

[Jean-Guy Vincent]

Mr. Rice knows the specific numbers and tonnage better than I do. I prefer not to provide numbers with which I am not very familiar. However I can say that there are currently tariffs on Canadian pork exports to Europe. There are also quotas and health regulations. These all severely limit our access to the European market. We do have plans. Some meat-packing plants are working on this and trying to penetrate the European market. However we only managed to export 415 tons of pork in 2011. What we have to understand is that we export 70% of our pork production. We have access to a number of countries. Having access to a stable and changing market is important for the pork sector and...

[Marc-André Morin, NDP, Laurentides—Labelle, QC]

What I was trying to say...

[Jean-Guy Vincent]

As for Quebec, this is also very important for the province.

[Marc-André Morin, NDP, Laurentides—Labelle, QC]

That is what I was trying to ask.

Are we currently exporting the maximum amount of pork we are allowed to export to Europe?

[Martin Rice, Executive Director, Canadian Pork Council]

We have an opportunity to ship something in the order of 75,000 tonnes of pork into the European Union under the WTO quotas that exist. However, we haven't used it, other than for a very short period about three years ago, because of very, very high tariffs and very difficult tariff quota administration issues. The tariffs were in the vicinity of 20% to 30% ad valorem, and in a business where a good profit margin is 5% or 7%, it's prohibitive. The tariff quota administration issues are even worse than the tariffs themselves because they require non-refundable deposits and licences and so on.

This deal eliminates the tariffs and brings the quota administration over to a department of the EU which is operating without a trade protection element, which is what will make this quota meaningful.

[Marc-André Morin, NDP, Laurentides—Labelle, QC]

Mr. Rice, does the industry have the necessary production capacity or does it need other means to develop products that can be sold more easily in Europe?

What role should the government play in developing the industry so that it can realize its full export potential to Europe?

[Martin Rice]

Well, there will certainly be an important role for the Canadian Food Inspection Agency in inspecting plants that are possible additions to the list. Right now we have four plants which are or could be very easily re-certified, and which together could ship in the order of 20,000 tonnes. That is a good tranche, I guess, of the quota as it comes into implementation.

Assuming we have a year and a half or so to get ready for the new agreement coming into place, we'll now see some other companies that have waited until there's real and effective access so they could envision investing, in some cases several million dollars. I know of one company that's talking about $20 million to make one of their plants EU-approved. We certainly have demonstrated in our many other markets, where we have to come up with product that meets different specifications than we have at home, that we can definitely line up the production to meet that market requirement, as we are doing in well over 100 other countries right now.

[Marc-André Morin, NDP, Laurentides—Labelle, QC]

Europe is the land of unfettered agricultural subsidies. The European countries do a lot of dumping in Africa and all over the world. They have a huge production capacity and also a better climate than we do and greater productivity.

Do you think we will be able to adapt to these kinds of conditions?

[Jean-Guy Vincent]

That is an excellent question. You are indicating that a number of countries around the world strongly support their agricultural sector.

I have the opposite question. We export to 100 countries. We have safe markets. However, in terms of the European market, what would have been or what would be the impacts on pork producers if the U.S. had signed an agreement before Canada had? I am speaking to you from my position as a producer, when I am on my farm taking care of my animals.

[Marc-André Morin, NDP, Laurentides—Labelle, QC]

This also happened in South Korea.

[Jean-Guy Vincent]

Precisely. This is why I believe the Canadian Parliament must confirm this agreement. The pork sector is relying on it. Over the last few years, our production has decreased by more than 20%. That is significant.

In the future, the global demand for protein will favour the pork sector. Canada must therefore position itself in this regard. For us, as Canadian hog producers, it is very important. That is why we strongly endorse the agreement.

We have a year or two ahead of us to prepare, but we will need help in the pork sector to break into this market.

[The Chair, Conservative, Rob Merrifield]

Thank you very much. The time is up.

Mr. O'Toole.

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

Thank you, Mr. Chair.

I'm going to ask just a few short questions and share my time with Mr. Hiebert.

Thank you all for appearing today. Your input is very helpful in this process.

I have a couple of questions for Mr. Myers, just to set some contrast from our earlier witnesses.

How many businesses does your organization, CME, represent?

[Jayson Myers]

We have about 10,000 members.

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

Do you have a number for how many employees that represents among the members, or even an approximation?

[Jayson Myers]

It's probably about one and a half million.

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

That's very helpful. Our witnesses this morning from Unifor—I'm not sure whether you heard them—represent 300,000 workers. Their chief economist, Jim Stanford, predicts massive job losses as a result of the CETA. It's our position that the CAW and Unifor have consistently been against trade and have come up with straw man figures such as that to scare people.

What are the businesses that you represent, that are employing people across the country, saying about the CETA?

[Jayson Myers]

I can tell you that, from the point of view of the vehicle assemblers in Canada in the automotive industry, the discussion has been about how soon we can take advantage of the high quota. This is a quota that is 25 times more than we're exporting right now. Most of the problems, although there are tariff problems, are around inspections and regulatory issues. Those are some of the reasons that it has been so difficult to export automotive products to Europe.

I can tell you that the companies I've been talking with—our assemblers—are setting up and are already exporting cars to China and internationally in many markets, and I think they see the opportunity of taking full advantage of the quota increase to export cars into Europe.

I think it's very important to recognize the context of these negotiations. The United States and Europe are also negotiating, especially in the automotive industry, in which we have such an integrated supply chain across North American that it's really important to get the rules of origin right. As the United States and Europe begin to negotiate, I think we'll be grandfathered into those negotiations. The open type of market here, especially around tariffs, but also around certifications and vehicle standards, is a very positive step ahead for the automotive sector.

I don't see where the job losses would come from. In fact, Jim Stanford is a good friend, and we talk for ages about the Canada-U.S. trade agreement 25 years ago. It has moved beyond the Auto Pact. I'd hate to go back to the Auto Pact days, when we were only producing half the number of cars in the country that we were selling in the country. That's not where international business is; that's not where the automotive industry is. I think NAFTA.....

Canadian companies cannot compete on low labour cost; we can't compete, really, on volume. We have to compete on a degree of specialization, and I guess what I'm hearing among a number of our members—and this really echoes what the Pork Council has said, too—is that we won't be able to compete on a “business as usual” basis in Europe; it's going to take investment and product development and better service. But Canadian companies, I think, have a record of being able to do these things and win market share in the North American market or win market share in Asia, and this is going to allow many Canadian companies to win a lot more market share in Europe as well.

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

Thank you.

Mr. Hiebert.