Scott Sinclair on the Canada – South Korea Trade Agreement

Scott Sinclair, Canadian Centre for Policy Alternatives

Opening Statement, Re Proposed Canada-Korea Free Trade Agreement

Standing Committee on International Trade. Thursday, November 29, 2007

Thank you for the invitation to appear today and for the opportunity to raise some serious concerns about the proposed Canada-Korea Free Trade Agreement and Canada’s current approach to bilateral trade agreements.

In the time allotted, I wish to briefly address three issues: 1) Canada-Korea trade in goods and Canada’s manufacturing crisis 2) the pursuit of WTO-plus intellectual property rights in the talks and 3) the deal’s investor-state dispute provisions.

Canada-Korea merchandise trade and the manufacturing crisis

Since the Asian financial crisis in 1997, Canada-Korean trade in goods has been very unbalanced. Canada has consistently run large merchandise trade deficits with South Korea ($2.5 billion in 2006).

Moreover, Canada’s largest exports to Korea are natural resources (e.g. wood pulp, coal, and aluminum); while Korea’s biggest exports to Canada are manufactured goods (e.g. finished vehicles, TVs and radios, and electronics).

As you are aware, Canada-Korea automotive trade is especially lop-sided.

In 2006, Korea sold $1.7 billion in automotive products to Canada while Canada sold just $11 million worth to Korea (a ratio of 153:1).

The Canadian Vehicle Manufacturers’ Association is concerned that the deal “would provide disproportionate benefits to Korean automakers.” Just last week, Ford Canada warned that it would have to “reevaluate” its current investment position in Canada if the Canada-Korea deal goes ahead as planned.

The CAW union has released a study that predicts significant job losses from the deal (33,000 lost jobs, which the study breaks down by region).

The proposed agreement would certainly include rapid, perhaps immediate, tariff liberalization for manufactured goods.

The negative impacts would be felt not just in autos and shipbuilding, which have received the most attention, but also in a broad range of high-tech manufacturing sectors such as electronics, machinery, and plastics.

The proposed deal would worsen Canada’s large bilateral manufacturing trade deficit with Korea and reinforce an unhealthy and unbalanced trade pattern (where Canada’s primary exports to Korea are low-value-added natural resources, while our main imports are high-value-added manufactured goods.)

Canada has lost 291,000 manufacturing jobs since November 2002 (due mainly to the rise in the exchange rate of the Canadian dollar against the US dollar and the rising non-North American, mostly East Asian, share of the North American market.)

The proposed deal would be a blow to Canadian manufacturers and manufacturing workers at a critical time when they are struggling to cope with this crisis. They are justifiably looking to Canadian governments for supportive policies, not initiatives that would make their current situation even more difficult.

WTO-plus intellectual property rights

In a significant departure from its approach in previous bilateral FTAs, Canada is negotiating an intellectual property rights chapter in both the Canada-Korea and Canada-Colombia-Peru deals. Since the conclusion of the WTO Uruguay Round, no Canadian bilateral FTA has included an intellectual property rights chapter.

Since Korea and Canada are both WTO members, to whom the WTO Trade-Related Intellectual Property rights (TRIPS) rules already apply, the only reason to include an intellectual property chapter is to negotiate WTO-plus obligations.

What types of “TRIPS-plus” rules are Canadian negotiators seeking? Even at this late stage in the negotiations, the public does not know for sure. This committee can play a vital role in lifting this unacceptable veil of secrecy.

It can be surmised, however, that Canadian negotiators are actively considering so-called “data exclusivity” and “linkage” provisions, which reduce access to affordable drugs here at home and would have harmful impacts on access to medicines in FTA partner countries.

The monopoly protections afforded by data exclusivity can delay generic competition in cases where a pharmaceutical product is not patent protected, or where a compulsory license has been granted on a patent. Such provisions can also compel generic drug companies to conduct time-consuming and redundant clinical trials before they are able to market cheaper, medically equivalent versions of brand-name drugs.

Canada recently extended its own minimum period of data protection from 5 to 8 years. It would be a serious mistake, however, for Canada to lock in these new rules by binding them in its bilateral trade treaties. It would also harm public health in partner countries by driving up drug costs and reducing access to affordable medicines.

Another concern is that the IP chapter could include rules that prevent health regulatory agencies from granting approval for a drug if another company claims a patent. Health regulatory agencies should not be saddled with patent enforcement. The practical effect of such rules is to frustrate and delay the introduction of cheaper, generic medicines through pointless and costly litigation.

Such provisions were pioneered in Canada and the U.S. They are called “linkage provisions” because they link unrelated decisions with different policy objectives: “regulatory approval” (which should be based on safety, efficacy, and health concerns) and “patent protection” (which is a commercial issue).

Pursuing monopoly protection beyond that required by WTO rules in the Canada-Korea or Canada-Andean pacts would set a very bad precedent, locking in domestic policies that Canadian governments may want to change in future, and reducing access to essential medicines in FTA partner countries. An analysis by Oxfam estimates that similar provisions in the US-Colombia draft FTA would cost Colombians an extra $940 million a year to buy more expensive medicines.

I urge this committee to investigate why Canadian negotiators are breaking with past practice by pursuing TRIPs-plus intellectual property rights in both the Korean and Andean bilateral FTAs and to recommend a halt.

Expanding NAFTA chapter 11 and the investor-state dispute resolution system.

The Canada-Korea deal (and the Andean deals) would also contain investment chapters replicating NAFTA’s controversial investor-state dispute settlement mechanism, which allows investors to sue governments over public policies that allegedly breach stringent investment protection rules.

Binding arbitration can be invoked unilaterally by investors, without seeking consent from their home government. Tribunal decisions are final, although they may be reviewed on narrow procedural grounds in the domestic courts. Although tribunals cannot compel government to change inconsistent measures, they can impose substantial fines.

The Canada-Korea agreement would expand these investor rights, which are unparalleled under multilateral trade rules.

Under NAFTA, there have been (by my count) 49 such claims. (There have been 18 claims against Canada, 14 against the U.S. and 17 against Mexico). The number of challenges to U.S. government measures has fallen off in recent years, but new claims continue to mount against Canada. Three new cases were filed against Canada during 2006 and another three in 2007.

One of these recent disputes pits Exxon-Mobil, the world’s largest and most profitable oil company, against development policies in Newfoundland and Labrador.

Exxon-Mobil, which is a partner in the Hibernia and Terra Nova oil and gas fields off Newfoundland, alleges that Canadian guidelines stipulating that energy companies active in the offshore invest in research and development within Newfoundland and Labrador are prohibited by NAFTA’s investment rules.

In another, the Adams Lake (V.G. Gallo) case, a U.S. investor is challenging the Ontario government’s decision to halt a highly contentious project to dispose of Toronto’s solid waste in a man-made lake on the site of a former open-pit mine in northern Ontario.

In fact, nearly half of the NAFTA investor-state claims (23 of 49) have involved challenges to environmental protection or natural resource management regulations. Beyond the immediate impact of such claims, there is concern about their chilling effect – that governments may avoid regulating for fear of becoming involved in a potentially costly dispute.

At a time when Canadians are more concerned than ever about protecting the environment, and ensuring that communities share equitably in the wealth created by resource development, the government of Canada should not be expanding or entrenching such provisions through bilateral trade agreements.

Concluding remarks

I commend the committee for holding these hearings (although it would have been better if they had begun before the talks were this far advanced). There needs to be full public and parliamentary debate on all aspects of the proposed Canada-Korea FTA.

This deal should not be rushed ahead simply for the sake of getting an agreement. Trade expansion should be based on the principles of fair and balanced trade. Excessive intellectual property protection and investor rights that go far beyond multilateral rules have no place in Canada’s bilateral trade treaties.

The U.S-Korea FTA now appears unlikely to come to a vote in the U.S. congress before 2009. Pending the results of the U.S. presidential and congressional elections, the fate of the deal is uncertain. Key provisions of the U.S.-Korea deal could well be renegotiated. Given this, Canada, and Korea for that matter, would be well-advised to bide their time and delay or suspend the current talks.

Thank you