Good morning, and thank you for inviting me to speak on behalf of Canada's 90,000 manufacturers and exporters and our association's 2,500 direct members to express our support for a free trade agreement between Canada and Mercosur.
Manufacturing is the single largest business sector in Canada. The manufacturing industry's contribution is critical for the wealth generation that sustains the standard of living of every Canadian. The industry accounts for 11% of Canada's total economic output, while employing over 1.7 million Canadians directly in high-paying jobs. Manufacturing is also an export-intensive business. It accounts for roughly two-thirds of Canada's total exports, and for $1.3 billion in exports directly to the Mercosur region.
As such, trade—both imports and exports—is vital to the Canadian economy and to the health of Canada's advanced manufacturing sector. This is why CME and our members fully support free trade and Canada's free trade agenda in general. However, we do not blindly believe in free trade agreements for the sake of free trade agreements, with Mercosur or anyone else. CME has always believed that no free trade agreement is worth signing unless the deal meets three objectives.
One, it should create a fair and level playing field for Canadian manufacturers and exporters and ensure that they have an equal opportunity to export to foreign markets as foreign competitors have to export into Canada.
Two, it should allow value-added exports from Canada, and not just the export of natural resources.
Three, it should not undermine the existing integrated manufacturing supply chains developed through previous FTAs, especially the NAFTA.
Without a doubt, with a combined market of 260 million people and a $3-trillion economy, Mercosur represents a great opportunity for Canada and for Canadian manufacturers as long as we meet these three objectives through negotiations.
However, as a first step, the negotiations must result in rapid elimination of the very significant tariffs in place across the region that directly and negatively impact major industrial and export sectors. Tariffs of up to 35% in sectors such as automotive, machinery and equipment, and pharmaceuticals are trade prohibitive compared to Canada's relatively modest tariff levels.
Secondly, we must ensure effective trade laws are established to remove structural barriers. I must echo concern noted by other groups appearing before the committee over the real concerns in some Mercosur markets of practices that are anti-trade and harmful to Canadian economic interests, including currency manipulation, direct economic subsidies, regulatory complexities, state-owned enterprises, and the dumping of certain products into Canada.
Thirdly, as with all FTAs, we must ensure effective dispute resolution and remedy solutions that quickly resolve commercial issues as they emerge once the FTA is in place.
While this is CME's advice for the FTA negotiations, there is a bigger, more structural issue that we as Canadians and you as a government cannot overlook, and that is our long-term economic performance under FTAs. As noted above, free trade agreements are only as beneficial as the amount of value-added trade they create. Too often, Canada's FTAs have not led to these outcomes, and this should be the top concern for the committee. Outside of NAFTA, Canada's export record with other FTA countries has been mixed. For example, with the EU, our most recent FTA, exports have actually been down while imports have been up. We must have a plan to reverse these trade trends if we are to grow our economy and create new jobs and grow the middle class.
CME believes this plan should consist of three elements.
One, we must improve our domestic business competitiveness, including our tax and regulatory regimes, to ensure they are focused on investment and growth at home to allow companies to produce goods competitively here for markets around the world.
Two, we must focus on leveraging existing business supply chains. Today, roughly 85% of Canada's value-added exports are production parts that feed into larger finished consumer and industrial parts. Governments must make decisions based on actual industrial capacity for global supply chain integration and expansion, not strive to create new export segments where there is no proven advantage or opportunity for Canada.
Three, we must support the global growth of SMEs by supporting their growth at home. Canada has many small businesses but not enough medium-sized and large companies. In fact, over 95% of manufacturers have fewer than 10 employees, and many do not have any internal expertise or financial ability to expand globally. Governments have excellent support programs, but they should be consolidated to ease access for smaller companies.
Today, Canada runs a significant and growing trade deficit with Mercosur countries in large part because of the structural realities of high tariffs, barriers to entry, and other unfair trading practices. Eliminating these realities through negotiation is a must for entry into this FTA, as it is the only path to export growth and prosperity at home for Canadian manufacturers and their millions of employees.
In conclusion, CME supports Canada's free trade agreement with Mercosur because it can lead to a prosperous manufacturing industry and stronger Canadian economy, but we must ensure the negotiations eliminate structural impediments to trade, and we must implement a plan to prepare Canadian industry for the global stage.
Again, thank you. I look forward to the discussion.