Proceedings of the Standing Senate Committee on
Foreign Affairs and International Trade
Issue 19 - Evidence - Meeting of November 18, 2014
OTTAWA, Tuesday, November 18, 2014
The Standing Senate Committee on Foreign Affairs and International Trade, to which was referred Bill C-41, An Act to implement the Free Trade Agreement between Canada and the Republic of Korea, met this day at 3:32 p.m. to give consideration to the bill.
Senator A. Raynell Andreychuk (Chair) in the chair.
[English]
The Chair: Honourable senators, the Standing Senate Committee on Foreign Affairs and International Trade is meeting this afternoon to continue its study of Bill C-41, An Act to implement the Free Trade Agreement between Canada and the Republic of Korea.
We have appearing before us today the Honourable Ed Fast, Minister of International Trade. Previously we did hear from department officials, but accompanying the minister I see is Marvin Hildebrand, Director General, Market Access Bureau; and Vernon MacKay, Director, Investment Trade Policy Division of Foreign Affairs, Trade and Development Canada.
Minister, the floor is yours.
Hon. Ed Fast, P.C., M.P., Minister of International Trade: Thank you very much, Madam Chair and honourable senators. It's my pleasure to appear before the committee today to discuss the Canada-Korea Free Trade Agreement. I will refer to it as the CKFTA. I think everyone understands what that is.
This trade agreement is critical to maintaining a competitive Canadian economy. It is a treaty that will strengthen our trade and investment ties across the Pacific, increase the prosperity of both of our countries, and result in job creation and enhanced opportunities for Canadian businesses, particularly our small- and medium-sized enterprises. It will also improve outcomes for investors, manufacturers, exporters and, of course, consumers.
I understand, as was mentioned by the chair, that our chief negotiator appeared before the committee two weeks ago and has already provided a detailed briefing on the contents of the agreement. I will, therefore, focus on what this agreement means for Canada. I'll place it in context and also explain why it's urgent that Bill C-41 be passed as quickly as possible.
Let me begin by situating this initiative within the context of Canada's broader trade agenda. As committee members know well, Canada is embarked on the most ambitious trade plan in our country's history, which reflects our government's understanding that trade and investment are the twin engines of Canada's future economic growth.
Our government's Global Markets Action Plan is our new five-year blueprint for expanding our trade and investment opportunities abroad. This plan, or GMAP, as we call it, does the following. First, it identifies the priority markets and trading partners that are of greatest importance to Canada.
Second, it identifies the 22 sectors of our economy that represent the greatest prospects for growing Canadian exports.
Third, it puts economic diplomacy at the heart of Canada's foreign policy.
Fourth, it strengthens our network of trade commissioners abroad and across Canada.
Finally, it places a new focus on promoting Canada's new trade opportunities to Canada's many SMEs that have the capacity to export abroad, but have never done so before.
On the trade policy front, we are achieving significant results. In 2006, Canada had free trade agreements with exactly five countries. Now, just eight years later, Canada has concluded free trade agreements with 43 different countries, covering more than half of the global marketplace. We have also dramatically expanded the reach of our bilateral investment treaties and air transport agreements. Air transport agreements, of course, are critical to improving Canada's connectivity to the world, so that we can benefit from all of these trade and investment opportunities that we're opening up.
However, it's not just the number of agreements that is compelling; it is their significance and their level of ambition. Two months ago, Prime Minister Harper hosted South Korean President Park, the first state visit by a South Korean president in 15 years. That visit marked the signature of this trade agreement with Korea, which is Canada's first trade agreement in Asia, with a country that is increasingly important regionally and globally as a player for trade and investment.
Later that same week, the Prime Minister hosted his European counterparts at the Canada-EU summit to mark the conclusion of negotiations on CETA, which is our trade agreement with the European Union. Like the North American Free Trade Agreement in its day, the Canada-EU trade agreement sets the new gold standard for Canada's trade and investment agreements and has us poised to become the only major developed country with preferential access into the world's two largest economies, namely the United States and the European Union.
Just a few days after that event, on October 1, we brought into force both the Canada-Honduras Free Trade Agreement, which brought to seven the number of free trade partners we now have in Latin America, and we also concluded and brought into force the Canada-China Foreign Investment Promotion and Protection Agreement, which marked our twenty-eighth bilateral investment agreement.
We have achieved great results, but let me assure you there is much more work to be done and many more agreements to come. Negotiations with the 11 other members of the Trans-Pacific Partnership are ongoing, and we are pursuing a wide range of other initiatives to modernize existing trade agreements, such as our free trade agreements with Chile and Israel. We're also hoping to establish new ones, including with countries such as India and Japan.
We are also in the process of ratifying an additional 14 new investment agreements and negotiating close to a dozen more. As I mentioned, we're improving our connectivity to the rest of the world. We've added close to 80 partners with whom we either already have signed air transport agreements or have augmented existing agreements.
Let me return now to our free trade agreement with South Korea. When this landmark agreement comes into force, and we hope that will be in a few weeks from now, it will become Canada's most significant free trade agreement since the North American Free Trade Agreement 20 years ago.
Without doubt, the agreement heralds the dawn of a new and more prosperous future for our bilateral relationship with that country. This relationship was nurtured more than a century ago through educational programs on the Korean Peninsula led by Canadian missionaries. Later, it was profoundly shaped by our participation in the Korean War, in which Canada contributed the third largest contingent of troops to the UN command. In fact, Canada lost over 500 of its soldiers in that conflict.
Today, of course, South Korea boasts a population of 50 million people and a GDP of more than $1 trillion, which ranks fourth in Asia. It is a world leader in technology — think Samsung and LG — and has an impressive list of Fortune 500 companies with extensive links across the region and global value chains.
Not surprisingly, South Korea is a priority market under our GMAP. But while our two-way trade and investment flows are significant, at about $11 billion and $6 billion respectively, it is fair to say that we are nowhere near the full potential for two advanced G20 markets like ours.
The CKFTA is an ambitious state-of-the-art agreement covering virtually all sectors and all aspects of Canada- Korean trade. It offers for the first time the opportunity to develop our potential so that we can reach a level of commerce that complements the size and sophistication of our two economies. The CKFTA is expected to increase our annual GDP by nearly $2 billion, and our exports to Korea by more than 30 per cent.
As this agreement is our first with an Asian market, it holds considerable strategic value for Canadian businesses as a platform, a launch pad into other Asian markets. As well, the preferential access to the Korean market provided by the CKFTA will provide an unparalleled opportunity for Canadian companies to team up with Korean firms to pursue business opportunities throughout the world's most economically dynamic region. This is particularly important for smaller Canadian firms that may lack the skills to break into big new markets on their own, but which have niche products, niche services or technologies that can meet the globalized production needs of major Korean conglomerates.
This trade agreement also positions us well to conclude other bilateral and regional negotiations within the Asia- Pacific region, including the TPP and our trade negotiations with Japan.
The most compelling argument for ratifying this trade agreement, and the reason for the urgency in passing Bill C- 41, is to reverse the losses that Canadian firms have been suffering in the Korean market by virtue of Korea's growing list of free trade agreements with our competitors.
Korea's FTAs with the U.S. and the EU have already displaced significant volumes of our exports. Korea is also now in the final stages of ratifying a free trade agreement with Australia, and just last week it announced the substantive conclusion of negotiations with China.
Against this competitive landscape, it is essential that Canada act quickly, and Bill C-41 is designed to do just that. In fact, under this trade agreement, nearly 90 per cent of Canada's current exports will become duty free on the day this agreement is implemented and all but a small fraction of the remaining exports will benefit from duty-free access over time.
Under this agreement, Canada will not only obtain full duty-free access across all industrial and manufacturing sectors, which make up the majority of our exports, but also secure similar access to Korea's sensitive fish and seafood markets, where its tariffs presently run as high as 50 per cent. We will also achieve major gains in agriculture, where Korean tariffs average more than 50 per cent.
The tariff outcomes in this agreement are as good as what the U.S. obtained in its free trade agreement with Korea — indeed, in some areas those outcomes are even better — and they will put us on even or better terms in the Korean market going forward, including in its most sensitive areas.
With respect to autos, Canadian tariffs will be eliminated over two years, while Canadian auto exports into Korea will be tariff free immediately. We have secured a permanent accelerated dispute settlement mechanism, while the U.S. equivalent is expected to be sunsetted after seven years. On auto standards, our manufacturers will be able to manufacture to both U.S. and EU standards, which is not the case in Korea's deal with the U.S.
Let me be clear. This is a very good deal for Canada, especially when you consider that Korea's tariffs, on average, are three times higher than our Canadian tariffs. This agreement also provides for a wide range of disciplines on non- tariff barriers, for fast and effective dispute settlement, and for ambitious outcomes across all other areas of commerce beyond goods.
The services sector, which now accounts for more than 70 per cent of Canada's GDP, will benefit from enhanced market access, including for professional, environmental and business services, and from the most ambitious temporary entry provisions Korea has ever agreed to in its FTAs.
This agreement has state-of-the-art investment protections and enhanced access to government procurement opportunities at the central government level. It has strong commitments on intellectual property rights that will provide protections in the Korean marketplace for Canadian innovators. It also has robust high-level commitments in areas such as labour and environment.
Given its strong outcomes for Canadians, the CKFTA has attracted strong support from stakeholders across all regions and sectors of Canada, including all of the major national business associations and a long list of specific companies and sector groups.
All of this brings me back to my central point. The next round of tariff cuts in the Korea-U.S. Free Trade Agreement are just around the corner. As I mentioned, other Korean free trade agreements are pending. For Canadians to begin to reap the benefits of this agreement and re-establish a level playing field with the U.S. and the European Union, Bill C-41 will need to be passed quickly so that we can complete its ratification and implementation.
Just for your information, in Korea, the domestic ratification process for this agreement is well underway in the National Assembly. We anticipate that, due to broad cross-party support within the Korean Parliament, their ratification bill will be approved in the coming days. Our goal is to have the agreement in force before or on January 1 of this coming year.
But our collective work to deliver the benefits of this agreement will not end with ratification. To realize the full benefits of freer and more open trade, we will need to work closely with our private sector to inform them of these remarkable new export investment opportunities and to encourage them to leverage this trade agreement to drive their own success. That's why in February I will be leading a trade mission of Canadian companies to Korea.
Also, in the coming weeks and months I will be leading a major nationwide initiative, beginning with high-profile roundtables in key commercial centres across our country. The purpose of the initiative is to promote awareness of the Canada-Korea Free Trade Agreement, the Canada-EU Free Trade Agreement and other new market-opening initiatives that we are delivering on behalf of Canadian stakeholders.
I encourage all of my parliamentary colleagues, including those of you at this table, to join me in raising awareness of the benefits of these agreements with our Canadian businesses. We have made available to our Canadian companies a host of tools which will significantly improve their prospects of successfully penetrating new markets around the world, including the one in Korea.
In short, Madam Chair, we have an historic opportunity before us to significantly expand our relationship with the Republic of Korea, in turn creating new opportunities and long-term prosperity for Canadians. I urge all members of this committee to expedite passage of Bill C-41 to facilitate the timely implementation of the Canada-Korea Free Trade Agreement for our stakeholders.
I thank the committee for this opportunity to speak today and would be happy to take any questions you might have.
The Chair: Thank you, minister. I do have a list of questioners. I will start with Senator Downe, the deputy chair of the committee.
Senator Downe: Minister, thank you for your presentation and presence here today.
You mentioned in your remarks the Global Markets Action Plan. Could you expand on that? How is it structured? How is it funded? Is it a stand-alone part of the department? Or maybe your officials could explain it, if someone could elaborate on that.
Mr. Fast: I would be pleased to explain. The Global Markets Action Plan is essentially the successor to what we used to call the Global Commerce Strategy. The Global Commerce Strategy was a five-year plan to develop our trade and investment framework agreements around the world. We undertook broad consultations to establish what our approach would be going forward over the next five years, and so we did the following: We recognized very quickly that our department, the Department of Foreign Affairs, Trade and Development, has limited resources, like any other department, like any other government around the world. We wanted to make sure we deployed those in a way that drove maximum value for Canadians, so we narrowed the number of priority sectors being focused on. We identified those. We also set out a priority set of 22 sectors within our economy that represent the greatest prospect for driving export capacity in Canada.
We then looked at which businesses in Canada need additional support and more information to drive our export strategy. It was very clearly our small- and medium-sized enterprises, so we have placed a special focus in the Global Markets Action Plan in providing enhanced support for SMEs.
It is well known around the world that Canadian companies tend to be very cautious. We are risk-averse. It takes quite some doing for us to take that first step into a new market.
The Global Markets Action Plan also establishes a clear goal, which is to increase the number of Canadian companies that export to emerging markets from 11,000 to 21,000. That's quite an ambitious goal, but we believe it's eminently achievable if we provide our SMEs with the tools required to do that, and we continue to expand that tool chest.
Another thing we're doing is embedding our trade commissioners. We have 1,000 trade commissioners around the world and across Canada, but for the first time, in 25 industry organizations across Canada, we're actually embedding trade commissioners within them. This allows them to have better ears on the ground to hear what the sectors that those industry organizations represent are saying about the challenges, opportunities and support they need.
By the way, those trade commissioners are not captive to those organizations. They report to me. They report to our department. But we believe there's tremendous value in having our ear to the ground and having an enhanced trusted relationship with those key sectors across Canada.
In a nutshell, that's what the GMAP actually is intended to achieve.
Senator Downe: Thank you, that's very interesting.
I assume that you looked at what other countries are doing as well. For example, in the United States, U.S. exports since 2009 have increased by 50 per cent. When I read that, I was intrigued and I looked at some of the things the United States government is doing. They have — and I'm sure you're familiar with this — a direct line for American businesses where trade officials, commerce experts in over 260 American embassies and consulates around the world, are trained to identify market sectors, as our people are, and to help U.S. exporters.
They also have conference calls and Skyping with businesses that can join on any particular topic. For example — this is from the website, so it's public knowledge — they had a session recently on infrastructure opportunities in Dubai. They had a session on international property rights in the South China market, and another one on doing business in the oil and gas sector in Azerbaijan. These are very focused. If you are a small- or medium-sized business and you have a specific product or interest, you can join that conference call with those opportunities.
Is that one of the things we're looking at as part of this plan?
Mr. Fast: We are doing this. We used to have six sector advisory boards that were very broadly based. Under the Global Markets Action Plan, we are now establishing 22 different sector advisory boards. Those boards of directors will be populated by leaders within each of those sectors and will include representatives from our SME community to make sure that all aspects of those sectors are represented and heard. This is a huge step forward. We believe it will provide more accountability for me as minister, but it will also send a very clear message that we're serious about driving SME growth and export capacity.
Another thing we're doing is investigating what kinds of digital platforms could be useful in providing much easier access to new markets around the world and to partners within those markets.
Recently, within the context of our trade negotiations with the European Union, we realized that the EU had established a digital platform, which is essentially an interactive database of 35,000 different companies in the EU. If you are an EU company from France, for example, and you're looking for a partner from Denmark, you go on line and immediately identify what the export product or service is. Eventually, you've got a short list of companies that could become your partner in that new market.
We have partnered now in Canada with the Canadian Manufacturers & Exporters to actually further partner with the European digital network. It's called the Enterprise Europe Network. We're calling ours the Enterprise Canada Network, and it allows us to tap into that European network. Of course, the Europeans can tap into ours. Over time, we expect that's going to broaden and grow, and it's a cost-effective way of our Canadian companies finding partners in new markets.
By the way, we're also assisting that group of 10 countries within Southeast Asia called ASEAN. We are assisting them with setting up their own platform to do that. OpenText is, by the way, leading that effort and, again, it's an opportunity for Canada to show leadership on the world stage because we have the technologies to do it. We're also committed as a department to actually do right by SMEs and provide them with the tools and the support they need to be successful.
Senator Downe: Minister, you may or not be aware of the Canadian Chamber of Commerce report, Turning it Around: How to Restore Canada's Trade Success, a number of recommendations from outside government on what the government should be doing. If you're familiar with the report, I'll ask you.
Mr. Fast: I am.
Senator Downe: What did you think of the report, and can any of those suggestions be incorporated into the government's policy?
Mr. Fast: We are very familiar with the report and we actually worked very closely with the Chamber of Commerce. We very much value the advice they give. In fact, their advice has played a significant role in shaping our trade and investment policy.
If I could follow up on the previous question, as well, you referenced the American trade service and the services it provides to its companies. What I've heard quite often from American companies who have actually done business with our Trade Commissioner Service is that they consider our Canadian Trade Commissioner Service to be the best agency of its kind in the world. Often, those American companies have operations in Canada. Rather than going to their own agency, they tap into ours. They seek the support of ours, because if an American company has investments in Canada and is looking to drive export growth through those investments in Canada, it stands that we would welcome and would also support those American companies that are driving job growth within Canada. There's another good news story for us.
Senator Downe: The Americans are certainly doing something right, because in five years they have increased their exports by 50 per cent. It's certainly an objective we should be striving for as well.
This is my last question, chair, because I know you have a long list.
If I'm a small- or medium-sized business in Prince Edward Island, how do I take advantage of the trade deal before us today? What resources can the government provide to help that business? You mentioned in your statement that you would be at major commercial centre doing presentations. That often, in the Maritimes, means Halifax or Moncton, to the exclusion of everyone else. What message do you have to the business people in Prince Edward Island about how to take full advantage of those opportunities that you identified in your remarks?
Mr. Fast: Excellent question. That's actually the question that we've sought to address. Again, it goes back to how our small- and medium-sized enterprises identify opportunities, execute on those opportunities, and drive economic growth in Canada and success for their own businesses.
The first thing we have said is we now have two huge trade deals that we've put in place for them. The one we hope to bring into force early in the new year is the one before us today. The other one is our free trade agreement with the European Union, which we expect to have in force over the next two years. In each case, we're saying to Canadian companies: Position yourselves now.
Prince Edward Island has the opportunity to benefit substantially because of its proximity to the Atlantic Ocean and to the European Union. That holds true for the Maritime provinces, and Newfoundland and Labrador.
What we're saying to companies across Canada is: As the coming into force of CETA approaches, position yourselves now. Don't wait for the starting pistol to be fired. Prepare yourself now to take advantage of those opportunities.
So where do you go? The first stop should be the Trade Commissioner Service, which will make those companies aware of the various tools that are available. They're going to ask about export financing. Who's going to support my export activities abroad. Who's going to ensure my receivables? Who's going to provide me with a performance guarantee, because I don't know the other party on the other side as well as I'd like? These are all products that, of course, Export Development Canada can deliver; so there's an agency of the Canadian government that can do that.
We will refer them to Enterprise Canada Network to start to identify potential partners.
We will encourage them to join us on trade missions to the European Union. I expect I'll be leading quite a number of them in the lead-up to the bringing into force of this trade agreement with the European Union. Typically on these trade missions small- and medium-sized enterprises are exposed to potential partners in that marketplace. Our trade commissioners engage in something called ''matchmaking,'' which speaks for itself. We match our Canadian companies up with a number of possible partners in that new market. Also, we are often able to introduce our Canadian companies to key decision-makers in that new marketplace. They will also get face-to-face time with me or some of the other ministers who lead these trade missions abroad.
You want to make sure that these companies are doing their due diligence and are aware of the fact that we have a host of tools available that will support them in new markets.
Senator Downe: Minister, I read your speech in the House of Commons and I notice something you left out that I'm sure you want to cover: Korean Air Cargo, once this deal was announced but not ratified, started to fly to and from Halifax. According to your remarks, they hope to transport 40,000 kilograms of live lobsters. That's big business for P.E.I., as well.
Mr. Fast: Thank you for reminding me of that. That was a big success.
The Chair: You wanted that on the record.
Senator Downe: That's right.
[Translation]
Senator Fortin-Duplessis: I am delighted to see you and your team again, minister.
When you appeared before our committee on Bill C-20, which dealt with the Canada-Honduras Agreement, you briefly mentioned our agreement with South Korea. You said at the time that the agreement was the first of its kind in Asia and that it gave Canadian businesses a diving board into the Asian region. Why did the government decide to strike a free trade deal with South Korea first, before other Asian countries?
[English]
Mr. Fast: We engage with willing partners. We engage with partners where we believe we have the greatest prospect of success in actually concluding negotiations. The South Korea trade negotiations took about nine years to conclude. There were some circumstances that caused those negotiations to be delayed. The BSE crisis, which impacted our beef sector, really undermined our ability to access the South Korean market.
However, we engage with countries where we've identified an opportunity to be able to conclude negotiations in a manner that represents Canadian interests. At the end of the day, the commitment I have always made to Canadians is: We'll only sign trade agreements that are in Canada's best interests. If I had to, I would walk away from an agreement if it couldn't meet that standard.
South Korea, of course, has very close ties to Canada. It has an economy that in some ways is complementary to ours. Obviously, it shares common values with Canada, so that's why we chose to move ahead with South Korea when we did.
I can't speak for previous ministers or previous governments. I can tell you that we commenced trade negotiations with Japan a number of years ago on a bilateral basis. In some ways, that was superseded by the Trans-Pacific Partnership negotiations, which now include Japan. We have these parallel negotiations going on with the 12 partners within the TPP, including Japan, as well as a bilateral negotiation with Japan. Again, Japan is a country with whom we share common values and significant complementarities in our economies. We're very hopeful that not only within TPP but in our bilateral negotiations we will be able to conclude a satisfactory outcome for Canada.
[Translation]
Senator Fortin-Duplessis: You said that the fish and seafood sector is prized there. You also said that the agricultural sector seems promising.
I would like further details about which sectors or businesses can get the most out of this agreement. I would also like to know more about the services sector. What kinds of services would South Korea like to get from Canada? And finally, did your delegation over there include any businesses from Quebec?
[English]
Mr. Fast: Let me answer the last question first. That was, I guess by extension, were other provinces involved in the negotiation of the trade agreement with South Korea? As we do in all of our trade negotiations with any country in the world, we collaborate closely with the provinces. We do so because we want to have the best information available that will help inform our negotiating positions at the negotiating table.
If we didn't have the information from the provinces, we wouldn't know how to promote their interests and we wouldn't know how to secure an agreement that is in their best interests. Those consultations are ongoing throughout the negotiating process.
The process for our negotiations with the European Union were a little different, because both the European Union and Canada had talked about perhaps creating the most comprehensive trade agreement the world had ever seen and about how we achieve that.
One of the ways we achieve that is by extending government procurement obligations, in other words, the right to have one's companies compete in the other country's market when it comes to government contracts and to do so without imposing barriers to that participation. We agreed that both sides would attempt to extend those government procurement obligations beyond the federal government level, where we have authority to bind, to the provincial and municipal levels where the provinces have the power to bind. We decided within the European negotiations to bring the provinces and territories to the negotiating table when they were negotiating in areas of their exclusive or partial jurisdiction.
At the end of the day, we secured an outcome that I believe is the world's most comprehensive, gold standard, 21st century trade agreement, because we were able to have the provinces at the table.
Most of our trade negotiations with other countries don't go to quite that depth. With South Korea, the government procurement obligations extend only to those areas within the federal government's jurisdiction.
However, consultations with the provinces are comprehensive in any trade agreement we do. We stay in touch with the trade departments in each of the provinces and territories. Typically, they have point people tasked with making sure our negotiators know what positions we should take at the table in areas that the provinces would have a great interest.
You talked about services and goods. I would like to talk about that as well. You started off by talking about fish and seafood. In Canada, when we sell our fish and seafood products and our agricultural products around the world, we have a well-known reputation for premium quality products that the world wants, especially the middle class around the world. It's the Canada brand. Wherever I travel, if they're talking about getting the very best fruits and vegetables, the very best wheat, barley and canola, and the very best beef and pork, typically, the conversation turns to Canada. They say, ''Well, we know your standards are the highest in the world.'' We obviously want to promote that advantage, but we have to open up markets to do so.
For example, in fish and seafood, Canada's world-known for its salmon, but there are high tariffs on salmon, 20 per cent in the South Korean market. Those tariffs will be gone. Lobster is another one; for live or frozen lobster, the tariff in South Korea is 20 per cent. Hopefully, early in the new year, when this agreement is in place, those tariffs will be gone. That's a huge competitive advantage over some people that we compete with around the world. Frozen crab is another one. There are many other lines that I could mention.
In the area of agriculture, wheat, pork, beef, canola oil, barley malt and certain baked goods are all areas where we are the world leader. We have the best quality.
Some people have suggested that the auto industry is our largest manufacturing sector. It is very large, but there would be people in the food processing industry who would argue that their manufacturing industry is even larger. That's how significant this is to our national economy and, every time we eliminate barriers to getting our products into new markets, we drive economic growth and long-term prosperity at home.
[Translation]
Senator Fortin-Duplessis: During a trip to China, our committee was made aware of a Canadian industrialist who had been jailed, because his Chinese associate had bribed a judge.
Have you included any provision in the agreement whereby in the event of a conflict between a Korean national and a Canadian entrepreneur, the Canadian entrepreneur would have access to a fair justice system free of corruption?
Are there any such provisions?
[English]
Mr. Fast: Thank you for that question. I won't go into it in too much detail simply because we're here to talk about the South Korea trade agreement, but I think I'll be able to answer your question quite quickly.
If the issue is a matter of criminal law, trade agreements don't address criminal law because criminal laws fall within the sovereignty of the country in which we do business. We may not be happy with the state of the law in that country, but it's the state of play that we accept when we make the decision to do business there.
I can tell you that we have a robust consular program, where our missions abroad — our embassies, high commissions and consulates — engage regularly on behalf of Canadian citizens who have been imprisoned on criminal charges; and we continue to advocate for all Canadians around the world who find themselves in those circumstances.
In terms of civil disputes, when it comes to, say, a Canadian company investing in China and then finding themselves in a situation where a dispute arises between that investor and an action that, say, the Chinese government or a government anywhere around the world would take with respect to that investment and where that decision is one that is adverse to the Canadian company's interests, that can be mitigated through investment agreements. We call them Foreign Investment Promotion and Protection Agreements, and they are made between countries. They essentially set out a clear set of rules that will be applied to investments made by companies from another country. They also set out a clear set of rules under which those disputes will be resolved.
We recently actually brought into force such an agreement with China, and, by the way, we have those kinds of provisions in our free trade agreements as well. What that means is that, if a Canadian company invests in China and the Chinese government at any level — municipal, state or federal level — makes a decision that the Canadian company believes is discriminatory against that company because it's Canadian, they can actually commence a dispute that will be resolved not in accordance with Chinese law but in accordance with international law. The arbitrators are international.
We lift that dispute resolution process out of the domestic context into the international context, where our Canadian companies would have, I think, great confidence that the process is fair and that the arbitrators are impartial. I hope that partly addresses your question.
[Translation]
Senator Fortin-Duplessis: Pardon my ignorance, but I had always thought that in a free trade agreement, there would be language protecting Canadians doing business in the country in question. Thank you.
Senator Verner: Good afternoon. Thank you to all three of you for being here.
I would like to follow up on Senator Fortin-Duplessis's question, where she asked about which services would constitute our strengths in this free trade deal. You mentioned merchandise, and agricultural products, but I am curious to know which types of services Canada could contribute to a significant degree, in a deal like this one?
[English]
Mr. Fast: Very good question, and I'm sorry I didn't get a chance to answer it earlier.
When we talk about promoting Canadian services exports, this is perhaps the most promising area of economic growth for Canada. Low-scale manufacturing is often done elsewhere around the world because of cheap labour, but what we do know is that Canada is among the most innovative countries in the world. We are arguably now the best- educated country in the world. The OECD recently announced that over 50 per cent of our high school graduates go on to secure a college diploma or a university degree. They've basically pronounced Canada as number one in the world. What that provides us with is a strategic advantage in that we are innovative and knowledge-based. Much of that is translated into our services industry.
Think about engineering, for example. Which country has the fourth-largest export of engineering services in the world? It's Canada. Now, we only have a population of 35 million out of 7 billion globally and yet we're the fourth- largest exporter of engineering expertise. Why? We're highly educated. Guess what? Those are high-paying jobs and we're able now, under this agreement, to more easily export engineering expertise to South Korea.
Let me give you another example of architectural expertise and information and communications technology expertise. Canada is now acknowledged as a world leader in the area of digital media, animation, film and 3-D technology when it comes to the film sector. This is the service sector at its best: high-paying jobs requiring high levels of education. That's where much of Canada's future lies. Opening up new markets around the world and eliminating the non-tariff barriers that presently exist that prevent us from selling those services to those markets represents a huge opportunity for us as Canadians.
[Translation]
Senator Verner: I am a senator from Quebec, and I would like to talk to you about the pork industry there, a very important one, and one which was severely affected by the agreements signed with the European Union and the United States.
During an interview this past winter, I believe, in 2014, you said you were convinced that the pork industry was going to regain the market it had lost these past few years, following free trade deals signed with other countries.
You clearly explained earlier what the action plan was for global markets. However, do you believe that action plan will be enough to help the industry regain market share and come back strong? Or do you expect to have to take additional measures to lend them a hand?
Mr. Fast: Absolutely.
[English]
I'll tell you why. I'm glad you mentioned Quebec, because Quebec is actually the largest exporter of pork in Canada. It has a reputation for exporting premium-quality pork products.
Our trade negotiations with the European Union were successful in finally opening up the market there to Canadian pork exports. This is a market that has been largely closed to Canadian exporters for many, many years and suddenly we will have access, almost overnight, to that market.
Let me talk then about Korea. Korea is a market where we sold a lot of pork and beef into until the BSE crisis hit. The BSE crisis basically cut off all beef exports into South Korea overnight. Pork was not impacted, that I know of. However, pork was impacted when the United States, in March 2012, got its own free trade agreement with South Korea. The European Union had seen its trade agreement come into force with South Korea the previous year. So suddenly those two big trading blocks, U.S. and European Union, had a huge advantage over our beef and pork exporters to the South Korean marketplace.
That's why we did everything we could to speed up the negotiations of this agreement with South Korea. Unfortunately, in the two years that the U.S. had this free trade advantage over Canada, Canada lost over $1.5 billion worth of exports to South Korea, and we lost it to our big competitors, primarily the United States.
You've just made the case why it's critical that we have this agreement brought into force as soon as possible. Our target is to do it before the end of this year and have it in force by January 1.
When you look at $1.5 billion to the Canadian economy, it's very significant, especially in Quebec and especially in a place like Manitoba, which is also a large hog producer. We want to do right by our producers and level the playing field again, and I hope that will be what we achieve. I'm quite confident that the moment this comes into force you'll see a levelling of that playing field and it will be a big benefit to our economy almost immediately.
The Chair: There is a supplementary question from Senator Plett on this area, if you don't mind.
Senator Plett: Thank you, minister. Being from Manitoba and always wanting to make sure that we are not shortchanged, Google says Manitoba is, in fact, the largest exporter of hogs, not Quebec, with 29.7 per cent of national pig production and they are the largest exporter of pork.
Mr. Fast: Thank you, senator. But I will challenge you.
Senator Plett: You're challenging Google, not me.
Mr. Fast: No, actually, let me clarify. You'll notice I didn't say hogs; I said pork. There's a difference between live hogs and killed hogs and pork, which is processed. It's my understanding that Quebec is actually the largest exporter of pork itself and I would readily acknowledge that Manitoba is number one in terms of hog exports, so I think we're both right.
[Translation]
Senator Verner: Nevertheless, do you think the pork industry is going to require specific measures, or do you think that the regular course of trade will be enough to put businesses back on the path to the profits they were used to?
[English]
Mr. Fast: I would never assume that the industry would be able to recover market share in South Korea on its own. I know they're very competent; they have very strong industry associations representing them and also the full supply chains and processing chain involved in that.
We expect we will be providing significant support to all sectors of Canada's economy as they look to access the new market within the European Union, as well as this market where we're hoping to recover market share in in South Korea.
[Translation]
Senator Robichaud: I would like to add something regarding Quebec's pork industry, Minister.
Senator Verner: Is there a pork sector in New Brunswick as well?
Senator Robichaud: Yes, a small one. You say that the industry will come out on top, but it will be to the detriment of Quebec's dairy sector, will it not?
[English]
Mr. Fast: We don't see it as at the expense of the dairy sector. What we hope to achieve in any trade negotiation is a balanced outcome. That requires give and take. We provided a small amount of additional access for —
Senator Robichaud: For 17,000 tonnes?
Mr. Fast: Yes, for 17,000 tonnes into our Canadian market. There is every reason to believe that domestic growth within our market will absorb much of that. But it's also why our government made a commitment to our dairy farmers that if, in fact, they see a reduction in their market share because of this additional dairy access, we will compensate them. Those discussions are now under way with the provinces, with all of the dairy-related organizations. We have the producers themselves and the processers who are all part of this discussion about how we make sure that we keep them whole, but also establish them for future success, because that's very important to me.
I would also point out that in our trade negotiations with the European Union, contrary to what some people had expected, we fully protected Canada's system of supply management, all three pillars.
Senator Robichaud: I would beg to disagree with you, sir.
Mr. Fast: This is with the European Union. All three pillars are in place. Now, shifting gears just briefly, because we're talking about the Korea free trade agreement, supply management wasn't impacted in any way. The supply- managed sector was untouched in our negotiations with the South Korean government.
Senator Robichaud: But my real question —
Mr. Fast: That was a pretty real question.
Senator Robichaud: Yes, it followed Senator Verner and Senator Plett.
[Translation]
You say that when you negotiate agreements — especially like the one with Korea — you include robust, high-level commitments in such areas as labour and the environment. Often, talk of labour or the environment is used to introduce non-tariff barriers, since tariffs can always be negotiated. When it comes to the environment, what kind of robust commitments are we talking about? Tell us more.
[English]
Mr. Fast: I'd be glad to. You mentioned both labour and environment. I'll very briefly touch on labour.
In this agreement, we reaffirm that Canada and South Korea will continue to live by their commitments under the International Labour Organization, which set out a broad array of protections that workers are entitled to and treatments they're entitled to from their employers. One thing we do not want to do in our trade negotiation is in any way lessen — in fact, we want to improve — the protection of workers.
On the environmental part of it, if you wanted a summary of what the environmental chapter does, it essentially sets out a commitment on the part of both South Korea and Canada that any trade activities we undertake in our respective countries will not in any way undermine our obligations and commitments to ensure environmental sustainability.
There are a number of international commitments that both sides have signed onto over the years. We make a commitment that in no way will any of our trade activities, within our respective countries, undermine the environmental commitments that we've made. This is reasonable to expect from developed countries. It's even reasonable to expect from least developed countries. Every trade agreement that Canada now negotiates includes robust provisions on environment and labour.
Senator Robichaud: I would like to know more about the environment. You say that a lot of countries sign agreements, but in some cases Canada didn't sign some of those agreements. How do you arbitrate a different view on an environmental question with those countries?
Mr. Fast: We do have provisions for dispute resolution for both labour and environmental chapters. They are very specific. We believe that they reflect a Canadian approach. I will have one of our negotiators, Marvin Hildebrand, share with you some of the details of how that actually looks, in terms of enforcing obligations that both parties make to provide for a high level of environmental sustainability.
Marvin Hildebrand, Director General, Market Access Bureau, Foreign Affairs, Trade and Development Canada: As the minister indicated, the environment chapter in this agreement and in all of the recent agreements that we have negotiated has a number of key provisions. First, it commits the parties to high levels of domestic environmental law, regulations and protections. It commits the parties to not compromise those laws for the purposes of advancing international trade. It also obliges the parties to enforce effectively those laws, in other words, effective enforcement.
In addition, at any time in the future, if there is a contradiction, some kind of a dispute, inconsistency or a difference between the free trade agreement and one of the international environmental agreements to which Canada or Korea is party, the international environmental agreement takes precedence.
Finally, as the minister mentioned, in the event that there is a complaint of some sort or if there is a concern that can't be resolved through normal diplomatic channels and discussions between the parties, then there is scope for dispute resolution with an independent panel to adjudicate the complaint and to make their findings and recommendations, in which case the party where the concerns lie would be obliged to address those recommendations and to make the necessary changes.
Senator Robichaud: This is as long as the laws are in the books of the countries that we're negotiating with? If their standards are not as strict as ours, then there's not much we can do there, can we?
Mr. Fast: Actually, that's not quite correct. When we negotiate these agreements, we establish what those standards and what the measure of those standards will be. Typically, it's based on recognized international standards. If those standards aren't adhered to, we not only have a dispute resolution process that plays out, but in most cases and I believe in this case, the arbitrators are allowed to levy monetary penalties against the offending party. I'm advised that is just in the case of labour.
Senator Robichaud: Coming back to labour, when the free trade agreement with Jordan came to this committee, we found out that garment manufacturing in Jordan was employing temporary foreign workers that came from a third party. It was hard to find out just what was happening when they hired or fired, or the conditions in which those workers were employed. I believe that in South Korea they employ a lot of workers from the Philippines.
Mr. Fast: The right to establish laws relating to temporary foreign workers and policies and regulations relating thereto falls within the sovereign jurisdiction of the country where these decisions are being made. It's not something that is part of trade agreements. Trade agreements, like the one with South Korea, do provide for labour mobility. They provide for enhanced temporary entry, and we always make sure that they represent Canada's best interests. But, in terms of going beyond that and actually directing how countries should undertake their temporary foreign worker programs — just think of Canada. What if another country said that they want to have a final say over how we manage our temporary foreign workers in Canada. What would we say? We would say that this is our sovereign jurisdiction. We make those decisions in Canada. We're not going to cede the right to another country to say to us how that should look.
Senator Robichaud: I agree with you, but we ran into problems with that program, did we not, with temporary foreign workers?
Mr. Fast: That is why we have undertaken some reforms.
Senator Robichaud: We have to adhere to an international treaty on labour and in those agreements, usually, it's about fair wages and working conditions.
Mr. Fast: I understand do that, but remember under the International Labour Organization rules and regulations, there are some very clear commitments that are outlined and which we reaffirmed within our trade agreements. We have remedies and we have dispute-resolution processes to address those, if there is an allegation that those provisions have been violated.
Senator Robichaud: Okay.
The Chair: The final question is from Senator Ataullahjan.
Senator Ataullahjan: Thank you, Minister Fast. I have two very short questions. Will service-oriented professionals from Korea come to Canada and in what industries?
You spoke about consultations with the provinces. Were any consultations done with the Korean-Canadian community?
Mr. Fast: On the first question about services related temporary entry, we expect that will be a two-way street. Both South Korea and Canada are highly developed economies where wage and salary rates are high. That's why we are able to agree on quite robust labour mobility provisions. We do expect that there will be a flow of talent going both ways. This enriches our economies. It will likely be in industries where there's a critical need for that kind of expertise. Canada is well known in many different service sectors for the quality and the creativeness of the products that we create.
South Korea is also a world technology leader. If you go into any audiovisual shop, you're going to see LG TVs, Samsungs and a whole array of Korean innovation on display. That holds true for their services sector as well. There may be service professionals that we will want to, on a temporary basis, have come to Canada and enrich our economy. Again, this is all temporary. Our free trade agreements are in no way an immigration program. Immigration is not even touched in our trade agreements. We talk about freer labour mobility and it's done on a temporary basis.
It's not only for service professionals. It goes as far as dealing with intracompany transfers. Say there's a South Korean company that has made an investment in Canada and wants to send some of its employees to Canada to build up their business there and to teach some of the Canadian employees their best practices.
The same thing goes the other way. If Canadian companies want to make a major investment in Korea and want some of their intracompany personnel to take a role there in establishing a business, it will be much easier to do that under this trade agreement. I believe those are reasonable provisions.
On the second issue, was the Canadian Korean community consulted? Yes, extensively. In fact, they actively promoted this agreement and are very pleased to see the negotiations conclude and have this agreement now on the threshold of coming into force.
The Chair: Minister, just one quick question, an update on the progress within Korea on this free trade agreement. Are you optimistic that they are going to proceed as quickly as we are here, apparently?
Mr. Fast: Yes, we are. When we signed the agreement when President Park visited Canada, both parties committed to bringing the agreement into force on an expedited schedule. That appears to be happening on both sides.
In our case, the agreement is now before you for review. We hope it will pass your review successfully and will then pass third reading. It has already gone through that process in the House of Commons.
On Korean side, the agreement has come out of committee, and it's our expectation that in early December there will be a final vote in their National Assembly on the agreement which would then allow it to move forward to formal bringing into force.
That's good news.
The Chair: Minister, thank you for coming and putting your policy perspectives before us, not only on the Canada- Korea issues, but on the broader context of trade policy. It's helpful to our study of this bill and we appreciate the time that you have taken with us.
Senators, we will adjourn at this point to go in camera for one quick item. I'm going to suspend until we go in camera. Thank you.
(The committee continued in camera.)