Mr. Speaker, I am very happy to speak to Bill C-55.
I am a member of the Standing Committee on International Trade. The free trade agreement between Canada and the states of the European Free Trade Association, which are Norway, Iceland, Liechtenstein and Switzerland, was considered by our committee and I would like to make some comments on our findings.
First of all, I think we should look at the trade statistics between our countries which suggest that an agreement with the EFTA countries is of key importance to Canada.
We should note that the EFTA countries are the world's 14th largest merchandise traders and Canada's fifth largest merchandise export destination. They are key players. Two-way Canada-EFTA non-agricultural merchandise trade amounts to $5.6 billion. Canadian exports to EFTA totalled $5.1 billion in 2007 and include nickel, copper, pharmaceuticals, machinery, precious stones and metals, medical devices, aluminum, aerospace products, pulp and paper, organic chemicals, autos and parts, art and antiques. It covers a wide range of exports affecting many different areas of our country and affecting many different sectors of our economy.
Canadian imports from EFTA totalled $7.4 billion in 2007 and include mineral fuels, pharmaceuticals, organic chemicals, machinery, medical and optical instruments, and clocks and watches.
Canadian foreign direct investment in EFTA was $8.4 billion in 2006. EFTA foreign direct investment in Canada amounted to $15.6 billion in 2006.
This is certainly an agreement to be reckoned with.
I would like to go back to the considerations of our committee in our study of the agreement. I will give some of the history on this agreement.
In January 2008 Canada signed a free trade agreement with Switzerland, Norway, Iceland and Liechtenstein. The group is collectively called EFTA, the European Free Trade Association.
The Canada-EFTA agreement is the first agreement to be tabled in the House of Commons under the federal government's new policy of allowing members of Parliament the opportunity to review and debate international treaties by tabling those treaties in the House of Commons for 21 sitting days.
The House of Commons Standing Committee on International Trade took this opportunity to conduct its hearings on Canada-EFTA in order to contribute to these discussions.
It has been actually 10 years since a Canada-EFTA trade agreement was first proposed with formal negotiations beginning in 1998. Unfortunately they hit an impasse in 2000 on the issue of treatment of ships and industrial marine products. These issues are still of concern to some in this country.
Concerns were expressed then over the possibility that free trade with EFTA would require Canada to remove its 25% tariff on ships and expose the Canadian industry, which was already struggling with excess capacity to increase competition from subsidized Norwegian producers.
It should be noted, however, that in the time since those concerns were expressed, Norway reported that it has stopped subsidizing its shipbuilders. In fact, His Excellency Markús Örn Antonsson, who is the ambassador of Iceland to Canada, noted that several attempts were made to break this impasse but negotiations did not resume until 2006.
In June 2007 the two sides announced that negotiations were completed. In January 2008 the agreement was formally signed in Davos, Switzerland.
The Canada-EFTA free trade agreement is rather modest in scope. It is a first generation free trade agreement focusing on tariff elimination and trade in goods. Unlike NAFTA, for example, CEFTA does not include any substantial new commitments to investment services or intellectual property. These issues, as well as most safeguards, anti-dumping and countervailing duties will continue to be addressed by the World Trade Organization. However, as the committee heard, there are provisions within the agreement to allow for these issues to be revisited after three years, should the two sides wish to do so. As a consequence, it is not as controversial as some of the other free trade agreements we have dealt with.
The CEFTA is comprised of four linked agreements: a main trade agreement and three bilateral agreements on agriculture between Canada and Norway, Iceland and Switzerland, respectively. Liechtenstein is covered in the Canada-Switzerland agreement. Under the terms of the main agreement, tariffs on all non-agriculture products will be eliminated immediately upon entry into force of the agreement. The only exception is Canadian ship tariffs. Tariff reductions in agriculture are country-specific, as will be discussed later.
With respect to ships, boats and floating structures, the committee heard that the Canada European free trade agreement provides the Canadian shipbuilding industry with one-way protection by which Canadian shipbuilders gain immediate and full access to the EFTA market, while certain protections are maintained in Canada. It is not an unusual type of provision.
For Canada's most sensitive shipbuilding products, there will be a 15 year phase-out of Canada's existing 25% tariff. For less sensitive products, the total phase-out period is 10 years. In all cases, however, there will be no reduction in the import tariff for the first three years of the agreement.
The sole exception is for post-Panamax sized cargo ships, so named because they are too large to navigate the Panama Canal. According to officials from the Department of Foreign Affairs and International Trade, no Canadian shipyard claims to be able to lay down a hull of this size. The Canadian tariff on ships of this size will fall to zero immediately upon entry into force of the agreement, which makes common sense.
Moreover, the CEFTA also includes a safeguard mechanism which offers additional protection to the Canadian shipbuilding industry. If imports from EFTA are found to be causing injury to Canadian shipbuilders within the 10 to 15 year phase-out period, then the tariff rate can revert to the pre-free trade rate of 25% for up to three years. The committee also heard that the CEFTA does not oblige Canada to modify its buy Canada procurement policy for ships.
Addressing the issue of agriculture and agri-food products, which is another area of concern, certainly the content of the three bilateral agreements on trade and agriculture differ from one another, reflecting the unique sensitivities and priorities of Canada and the individual EFTA countries. Under all three agreements, most agriculture and agri-food products will be traded tariff-free. However, each country gained and/or limited concessions on certain key agricultural and agri-food industries.
For example, the committee heard that Canada did not make any over-quota tariff concessions on supply-managed agricultural products, but did grant to Switzerland tariff-free in-quota access to the Canadian cheese market. Canada also gained improved, but not tariff-free, market access to certain sensitive sectors in EFTA countries. These include frozen french fries in Iceland, frozen blueberries and durum wheat in Norway, and durum wheat and horse meat in Switzerland.
The committee heard that the expected economic gains from tariff reductions under this trade agreement will be modest. Tariffs on many non-agriculture products are at perhaps what I would say are nuisance levels, 2% or less, and many other products are already traded tariff-free.
Nevertheless, several witnesses anticipated an increase in trade to result from this agreement. Certain Canadian industries are expected to benefit from improved market access, particularly in agriculture where most of the major tariff reductions are found. Some industrial sectors are expected to benefit as well. These include wood and metal products in Iceland, apparel products in Norway, and cosmetics in Switzerland.
Witnesses also observed that the benefits of the CEFTA may not be limited to lower tariffs. Other potential gains include opportunities for trade diversification, enhanced industrial cooperation, and through increased interaction with the European business active in the EFTA countries, closer economic ties with the European Union.
The agreement will also put Canada on an equal footing with EFTA's other free trade partners, and will give Canada an advantage over countries like the United States, which do not have a trade agreement with EFTA.
The committee also heard that trade agreements have an important symbolic impact.
The vice-president of government relations for Bombardier, George Haynal, when he appeared before the committee, stated that trade deals create a level of confidence among investors, even if, as in the case of CEFTA, investment is not included in the agreement.
Per Øystein Vatne, first secretary to the Embassy of the Kingdom of Norway, when he appeared before us, observed that the very presence of a free trade agreement creates interest in the business community; the appetite for trade missions to Canada from EFTA countries has increased markedly since the CEFTA was announced.
In fact, many of their parliamentarians appeared here in Ottawa before our committee as the negotiations were going on.
Some witnesses, however, expressed reservations about the deal. There is no question about that. Representatives from Canada's shipbuilding industry, in particular, were concerned about the potential impact of CEFTA on their sector.
Mr. Andrew McArthur, of the Shipbuilding Association of Canada, noted that Norway's world-class shipbuilding industry is not subsidized today, but owes its present competitiveness to generous government support in years past.
For this reason, Canadian shipbuilders wanted their industry to be explicitly excluded from the CEFTA, as it is from the NAFTA. They eventually agreed to accept a long term phase-out of tariffs, but their support was contingent upon a new Canadian shipbuilding policy that included a buy Canada policy for government procurement, and the combination of two existing support mechanisms that are currently mutually exclusive: the structured financing facility, SFF as it is known, and provisions for accelerated capital cost allowances, ACCA.
The CEFTA includes a long term phase-out of tariffs and preserves a buy Canada procurement policy, but no action has been taken on the SFF or capital cost allowances as of yet. As per their submissions to the government, representatives of Canadian shipbuilders and marine workers were adamant that without combined access to the SFF and ACCA, the impact of the agreement would be devastating to the industry and would lead to job losses. In their view, this additional government support was critical if the Canadian industry was to survive increased competition from Norwegian producers.
It was noted, however, that the tariff phase-out schedule, and safeguard provisions, for marine industrial goods was particularly generous. According to the counsel for the International Trade Group, Cyndee Todgham Cherniak, a lawyer who specifically deals with international trade, the 15 year phase-out on sensitive ship products is the second longest phase-out she has ever encountered in her study of 100 free trade agreements. However, Ms. Cherniak also cautioned the committee that this abnormally long phase-out period could meet some resistance at the WTO from other major shipbuilding countries, like China and South Korea.
In addition to shipbuilding, some concern was expressed about the impact of CEFTA on supply management in agriculture. Terry Pugh, executive secretary of the National Farmers Union, suggested that the in-quota tariff cut for supply managed products might weaken the foundation of the supply management program.
Finally, several witnesses noted that no economic impact studies had been conducted to estimate the effect of the CEFTA on the Canadian economy. It was suggested that without such studies, it was difficult to judge whether or not the deal would be good for Canada.
Certainly, we are an open committee and we collaborate very well. I would like to draw to members' attention the considerations of the Bloc Québécois, who were certainly very concerned about supply management and preserving it.
Since the elimination of the 7% tariff provided for in the agricultural agreement with Switzerland will affect only the market segment that is already covered by imports, the impact on our producers would be minimal.
However, this will make it all the more important to vigorously defend supply management at the WTO. A quota increase, coupled with the elimination of the within-quota tariff would expose our dairy farmers to increased competition from countries that, unlike Canada, subsidize their dairy production. Certainly, this is a point that the current government must take into consideration.
The Bloc were also concerned about shipbuilding. It felt that the adjustment period provided in the agreement is quite long, as it is, but it will be helpful only if accompanied by adjustment and upgrading programs for our shipyards. Otherwise, it will slow their decline, but nothing more.
Of course, that hits the concerns of possible subsidization and Norway understood this very well. It began a vigorous industrial policy and built up a health industry--