:
Thank you, Mr. Chairman, and honourable committee members.
[Translation]
Good morning, ladies and gentlemen. I am very happy to be here today to participate in the discussion on the Comprehensive Economic and Trade Agreement.
[English]
My name is Emechete Onuoha and I am the vice-president for global government affairs for Xerox Canada. It is a great pleasure to have the privilege to be before you today.
I thought, Mr. Chair, I would talk a little bit in terms of the background of our circumstance here in Canada and our presence. We will focus primarily on the innovation aspects of trade and the trade liberalization agenda as it relates to creating conditions for innovation and excellence, particularly in the ICT industry.
We were pleased with the most recent pronouncements in the context of his trade summit in Mexico, linking innovation with the Canadian trade agenda. In that regard, let me share with committee members a little bit about our company to situate the discourse.
Xerox globally is a $22.3 billion corporation. We employ 140,000 employees worldwide. We operate in 163 countries around the world. We have five R and D centres in four countries, including Canada, the United States, France, and India. We are a leader in business process services, document management, and commercialization of research. This latter point is of strategic importance in the Canadian context, and I will elaborate on that a little bit, Mr. Chair.
We've been operating in Canada since 1954. Canada is one of the most strategically important markets for Xerox Corporation. We employ about 3,000 here in every region of Canada represented at this committee table. For several years, Canada has been considered one of the top performing operating companies in the Xerox world and we are one of Canada's top 100 employers. We've also established a world-class R and D centre in Ontario, which has received most recently the coveted Green Chemistry Award from the Chemical Institute of Canada for outstanding achievement in research in engineering.
The Xerox Research Centre of Canada, or XRCC as it's called, has a global materials mandate and generates roughly 160 patentable ideas per year. That's three inventions a week, which makes it one of the most productive and prolific knowledge platforms in the world for us. We have managed to attract some of the world's top materials scientists from 35 countries, who now work, live, and pay taxes here in Canada. The XRCC also hires 42 high potential university co-op students, primarily from research-intensive universities right across Canada.
Xerox Corporation is one of the top 100 spenders on R and D in Canada across all industries. At the moment, nearly all of our foreign direct innovation investments come to this province. We're also proud of our Canadian advanced manufacturing operations and our supplies development centre, both of which are located in Ontario. In fact, every digital imaging device and technology that we sell through sprawling market channels worldwide contains intellectual property that was either invented or developed right here in Canada at our research centre. No other IT company in our established competitive space can say that.
We have a mutually beneficial record of achievement. Innovation is recognized by us internally and by Canada as a critical success factor for economic resilience and long-term sustainable development, so these strategic investments in applied research and commercialization are critical success factors for innovation. Given that innovation is the difference between good ideas and great outcomes, or the difference between knowledge, thought leadership, and market leadership, we feel that the creation of an environment that allows for the free flow of individuals and skilled labour mobility is of critical importance. This is one of the provisions with respect to the CETA arrangement that is of strategic importance to Canada, given the amount of business we do in terms of exchange of skilled personnel between our European counterparts and our Canadian research facility.
As a leading information technology company, Xerox continues to attract talent worldwide. In order to enhance Canada's continued economic resilience well into the 21st century, results-based private sector investment in value-added R and D and commercialization of research is mission critical. Foreign direct investment, which is another thing we focus on to try to ensure that our corporate colleagues understand the utility and the value of foreign direct investment in Canada, is something that is critical for our success going forward.
In addition to financial resources, many companies with promising ideas and/or technology lack the research, development and engineering, RD and E, infrastructure, processes, and management expertise required to move potentially profitable products and services from mind to market through effective commercialization. This free market movement, again one of the hallmarks of a liberal trade agenda, is a critical success factor for us as well.
This kind of commercialization expertise is not necessarily widespread in Canada, but it does exist. In collaboration with the private sector community of practice and relevant industry stakeholders, the Government of Canada, Industry Canada, may want to consider development of an accurate inventory of private sector enterprises that have established, robust RD and E capabilities that could be utilized by promising businesses that do not have said capabilities. By virtue of accurately mapping out these capabilities, opportunities would exist for collaboration.
Currently we're investigating using our RD and E facilities to enable small and medium-size Canadian enterprises that do not have the capacity for commercialization to actually undertake prototype and advanced research and development using our facilities to help them become export ready, which, as you know, is a critical success factor going forward and will be enhanced by enhanced market access through the CETA instrument.
Xerox continues to leverage the Canadian advantage through our global materials mandate assigned to the XRCC, which, as I stated, generates over three inventions a week. As a result of this prolific IP turn, we continue to see Canada as a favourable destination for foreign direct investment for my corporation.
I should state that in various areas that are of strategic importance to Canada, whether it is health and biomedical research, or energy research, as well as ICT-related research, material science is of critical importance and positions Canada to be a globally unrivalled competitor in this space. Insofar as material science research runs through some of the most important and strategically prioritized areas of scientific inquiry in Canada, we feel that our contribution through the globally mandated Xerox Research Centre will continue to generate value on a go-forward basis.
With that in mind, we are happy to participate in any discourse that speaks to the long-term economic resilience of Canada and also speaks to the importance of trade liberalization and a rules-based trading framework. We believe that Canada is a natural platform for innovation. We believe that when we are coordinated and focused on such things as commercialization of research, development and engineering, Canada presents largely unrivalled opportunities going forward.
With that, Mr. Chair, I will conclude my remarks. I'm happy to yield the floor to my colleague.
:
Thank you very much, Mr. Chair. It's always an honour to have the opportunity to present to this committee.
The Canada-EU CETA was announced in October as having been a completed deal. Since that time over four months ago, still no text of the deal is available publicly, so it makes it very difficult for someone like me, who is a specialist in investment aspects of the deal and could look very closely at the investment chapter, to say much about what the deal actually does.
I ask myself, why is there no text at this stage?
One explanation seems to me to be because the negotiations are still ongoing. The second explanation seems to me to be that there's some other reason not to disclose the text. Whatever the reason, I would like to stress that the text is very important to evaluate the cost and benefits of any trade or investment agreement. There's really no basis for informed public scrutiny or analysis or debate or evaluation of a trade and investment agreement without a public text of the agreement.
I would compare this to real estate agents telling you to buy a house, that it's a really good deal, but they're not going to let you look at the actual buy and sell agreement, the actual agreement to sell the house, and they're not going to let your lawyers look at that agreement; you should just commit to buy it. We wouldn't buy a house in those circumstances, and I suggest that from my perspective as a specialist in the details, it really is not a good idea for anyone to be lauding an agreement without the ability to have informed public scrutiny and debate about a text.
I should add, if you disclose a text, that allows for a certain seriousness and rigour in the evaluation. In my own experience, when I reviewed the text of the Canada-China FIPA about a year and a half ago, it's only by peeling away various layers of how certain provisions work that you can uncover things like the fact that in that FIPA, Chinese investors were given full market access in principle to the Canadian economy, and Canadian investors were not given any market access in principle to the Chinese economy.
Carrying on to the Canada-EU CETA, how can we judge this trade agreement in the absence of the text? I rely primarily on two sources.
First is a technical summary. It's called a technical summary of the CETA that was released by the government in October. That summary has a number of bullet points on investment that make certain statements or claims about what's in the CETA.
Second, I'm aware of what purports to be a leaked draft of the investment chapter of the CETA. That draft is dated mid to late November, so it comes a month after the announcement of the CETA deal being concluded.
Having reviewed those two documents, I'd like to highlight just a few issues that I think are important.
First of all, in the leaked draft text, clearly portions of the investment chapter are not yet agreed. The text is marked in certain colours of ink to indicate which side has proposed text that has not yet been agreed. While you might expect there would be some minor issues that you'd be cleaning up after the deal was done, the items that are not agreed in the leaked draft that I've seen from November are quite significant issues.
For example, in any trade or investment agreement that provides for investor-state arbitration, Canada has never agreed to a so-called umbrella clause, but there's a proposal from the European Union to include an umbrella clause in the Canada-EU CETA, and that is marked as outstanding.
If an umbrella clause were included in the CETA, the way umbrella clauses have been interpreted by some tribunals, in effect that would mean that they elevate any obligation of any governmental entity in Canada to the level of a treaty obligation.
For example, if you are a municipality that has concluded a contract with a European company, and that contract provides for disputes under the contract to be resolved in Canadian courts via an umbrella clause in the CETA, there will be imported into that contract a right of the European company to take any disputes with you about the contract outside of the Canadian courts and have the contract itself interpreted separately through the investor-state arbitration process.
In effect, you're rewriting many, many public sector contracts around the country if you include an umbrella clause. I'd just highlight that as a very significant decision that is not yet agreed, if we can rely on the leaked text that's gone around, dated November 2013.
Another point is that in the technical summary of the CETA, there is a statement that the Investment Canada Act has been carved out of the CETA. However, in the leaked text of November 2013, that's not yet agreed. There's red ink to describe a Canadian proposal to carve out the Investment Canada Act from the dispute settlement provisions in the CETA.
It's very typical for Canada to carve out the Investment Canada Act in that way from other concluded treaties that provide for investor-state arbitration, but it seems to me that this has not yet been agreed by the European Commission. Of course, whether it's been agreed to or not, I don't know, but it's impossible to really verify that until we see an actual text.
If the Investment Canada Act were not carved out of the CETA, it would mean that not only European companies in Canada, but also American companies, based on most favoured nation treatment principles in the NAFTA, would be able to raise objections about Investment Canada Act decisions, for example, on national security issues, in the context of investor-state arbitration. That is outside of any judicial process, whether Canadian, European, or international in some other way.
Mr. Chair, please do let me know if I reach the end of my time.
Maybe I'll just highlight one other aspect that I thought was significant in light of both the technical summary and the leaked draft.
The technical summary makes a claim that the right to regulate of Canada and of European governments has been preserved. There's also a reference to a protection of sovereign control over natural resources.
I word-searched “sovereign” and I word-searched “regulate” in the leaked draft. I looked at it closely. No provision states that the right of anyone to regulate is protected, or uses the words “sovereign control”. Perhaps it is in the treaty—we can't verify it, of course, until the text is public—but based on the leaked draft of the investment chapter I have seen, there are, I think, some significant issues that are outstanding.
The last point I'd like to highlight is this: why have an investment chapter that provides for investor-state arbitration at all in a trade agreement between Canada and the European Union? This is a question which a lot of people ask. When we think about the history of investor-state arbitration, really it was to provide security to foreign investors in countries where the domestic courts were not thought to be reliable and independent.
I really don't think that claim can be made about Canadian courts and European courts. If there are concerns about some of the accession countries in Europe, Canada already has FIPAs with almost all of those countries. For Canadian investors in Romania, for example, or in Poland, if we had concerns about those courts—I'm not saying we should, but if we did—Canadian investors already have access to investor-state arbitration in existing FIPAs for those countries.
My question really is this: what's wrong with the European Court of Justice, with the European Court of Human Rights, with Canadian courts, with the Supreme Court of Canada, such that foreign investors need to have the right to opt out of the court system and bring claims against the public purse in Canada and Europe to an arbitration process that is clearly not independent, open, procedurally fair, and balanced in the manner of a judicial process, whether domestic, regional, or international?
That concludes my comments. Thank you very much.
:
Thank you, Mr. Chair. I'd like to say that it's good to see our vice-chair serving in this capacity today.
Thank you to both witnesses for appearing.
Mr. Onuoha, I appreciate your comments. I'm going to restrict most of my time to Mr. Van Harten, but I find the bookends that you signify together very appropriate today. In many ways your talk about innovation, about the centre in Ontario as part of the globalization of clusters or centres of excellence, is something we've heard before, in particular in relation to appearances on CETA and to the fact that many global companies are developing that cluster concept.
Mr. Van Harten, as I said at the outset, I feel as though I know you, because I see your name in so many e-mails. You have a very impressive academic background, and your passion is evident.
Do you have experience outside the academic setting in the private sector? I recognize that you have clerked and been involved with some very important inquiries as well. Have you worked in the private sector as a lawyer or researcher?
:
Frankly, that's an excellent question which I very much appreciate.
First of all, I fully support mediation. ADR, alternative dispute resolution, is very positive, if it can save costs, if it can speed up the resolution of disputes. If the parties are more comfortable with resolving a dispute that affects them primarily or only, I completely support it. I don't think courts should in any way try to interfere with those kinds of processes.
I think there are some contexts to which arbitration is just not well suited. In a basic public law context, let's imagine that criminal law or charter disputes could be resolved through arbitration without any possibility for review in a court. How would, for example, the accused person feel, if the accused person knows that the arbitrators, whose business, really, is arbitration, are not going to get appointed anymore unless there is a certain number of successful prosecutions? It's just not a context in which arbitration is used, and it shouldn't be used.
When we took commercial arbitration out of commercial disputes, disputes between companies, and put it into the investment chapters of trade agreements and FIPAs, that dejudicialized the dispute resolution process.
That is an essential concern that I have. You can make arbitration much more judicial than it is in investor-state arbitration. State-to-state arbitration, for example, under NAFTA is far superior to investor-state arbitration.
:
It's a great question, and thank you.
Our objective is really around sustainable, profitable growth. Even though we've been conducting our business in Canada since 1954, and we've been conducting our value-added advanced materials research in this country since 1974, our objective is really to grow investment. We don't necessarily take comfort in the status quo of our business, and our business is changing. The nature of our business in 1954 and even beyond that in 1974 is far different currently from what it was previously. As an example of that, traditionally our business was driven by generating profit and revenue from selling technology hardware that puts marks on paper. The Xerox brand has been made world famous as a result of the art and science of basically selling boxes that put marks on paper.
About 15 years ago, well over 85% of our revenues was generated by the sale of those technologies. Today, I stand before you representing a company that has less than 50% of our revenues generated by traditional hardware technology sales worldwide. We are moving into the distribution of services and advanced business process outsourcing.
The short answer to your question is that our markets and the nature of demand are changing, so the nature of the research, development, and engineering that we have to do in this country is changing as well in order for us to maintain a competitive edge against our external competitors. Indeed, the most intense competition for foreign direct investment for my company is internal versus external. As I mentioned in my remarks, there are no other companies that are doing this type of research.
:
Mr. Cannan, thank you for the question.
One of the challenges we see even within our own supply chain in Canada is that there are many companies that have really promising IP and promising technologies that they can't scale up or they can't actually optimize in terms of even prototyping.
One of the things we have done, given our natural skill in terms of commercialization of research, is we have identified the capacity in our Canadian research centre to actually utilize some of our surplus research ability to help those fledgling Canadian companies actually continue the RD and E process by using our platforms and the infrastructure and capital that we've already invested in here.
An example of this is we've already initiated some work that is in partnership with the National Research Council's flagship programs, where the NRC is trying to commercialize research in a more applied scientific fashion that is more focused and market connected. We are actually the platform in tier one of the flagship research program related to printed electronics which, as you may know, Mr. Cannan, is relevant to advanced additive manufacturing, in particular, 3-D printing. My company is actually a world leader in the production of 3-D printheads, which is one of the two critical components of standard 3-D printers. Through this interaction with the NRC, we're actually using our research platform to further incubate and extend applications that have been developed by Canadian companies that don't have the capacity to scale those up. In addition to doing fundamental research and basic research at our research centre, we also have an integrated prototyping plant, as well as a supplies development manufacturing centre.
The unique feature of that structure is that all three of those components are actually housed on one compound underneath one roof. It is the most unique facility of this nature in Canada. It's one of only two or three in North America, and one of only six or seven in the world.
By virtue of having all of those attributes in the value chain located in one facility, we have the ability to present the research centre as a turnkey RD and E option, if you will, for promising companies that have technologies that can benefit from material science.
As I mentioned earlier, there are four areas, four lines of scientific inquiry that are deemed to be of global, competitive, strategic importance for Canada relating to health and biomedical research, as well as ICT research, and energy research going forward, and certainly material science plays a role in all of those areas.
We're leveraging our platform, and we've been in discussion with the Government of Canada and Industry Canada on these points. Two weeks ago I had the opportunity to speak with Minister on some of the work we're trying to do.
This isn't theory. This is actually something we have voluntarily undertaken to do using our platform and in keeping with our objective to be a responsible corporate citizen and utilize our assets in the interests of developing the resilience and the profitable growth and export readiness of Canadian companies.
:
I'd like to thank our guests for being here.
Frankly, if those public consultations had been in the great riding area of Mississauga, obviously my colleague would have been part of that as well.
I might say, Mr. Onuoha, that if for any reason Mississauga doesn't fulfill all your requirements, the great city of London, Ontario, the 10th largest city in Canada, which is just down the road, would be more than pleased to absorb any excess R and D that you do.
Mr. Van Harten, welcome back to our committee.
You remind me a bit of my Cape Breton mom. In a real sense, my thought of her was that no matter how much she knew about a subject she had an opinion on it. That was my mom. You have a lot of opinions. The reason I bring that up is you said that without the text you can't say much, but my God, you sure said a lot.
I have a couple of questions, if you'd allow me, please.
I found it very interesting and very reasoned in terms of your approach, at least the tenor of your dialogue, but something you said actually quite surprised me. It's not the part where you said that you'd like to eliminate non-tariff barriers. Quite true. I might add there probably isn't one guest of ours, one witness who hasn't come forward that would say, “We'd love to eliminate non-tariff barriers.”
That always becomes the tricky part, because what we can do at the legal end, if you will, and the contractual end is do those kinds of things, and if we don't have some kind of a dispute settlement mechanism to try to reduce the impact of those non-tariff barriers...because those are the most insidious ones I think for any country, frankly, and for any business that's trying to do business. I say this as a business person; it's the most challenging part.
The question I have for you is on something that probably struck me most of all. You were talking about dealings with claim arbitrators. You made reference to challenging their judicial independence in your first series of comments and questions. You said because they were appointed the way they were that there was a bias in their judgment. I think this is really critical, as it gets to the credibility of arbitrators. Do you have any specific proof? I ask this as a sincere question to you. Do you have any specific proof that arbitrators have biased their judgments on a claim because that arbitrator was appointed? Do you have a specific reference you can make to that?
:
Thank you very much, Mr. Chair. Thank you for the opportunity to express myself in French. My presentation today will be a quick rundown of the situation of artisanal cheesemakers.
I am the president of the Regroupement des producteurs et transformateurs du Québec, an association made up of approximately 40 companies in Quebec. Those companies are spread out across Quebec. Our province has three dairy production sectors: cow's milk, goat's milk and sheep's milk.
Of course, the current situation is of great concern to us. We fully understand how important such an agreement is. However, this agreement is of great concern to the agricultural sector and to our processing sector in particular.
We prepared a little summary on what Europe is currently doing. We can see that the 27 European countries produce and process around 8 billion kg of cheese. This production mainly comes from France, Italy and Germany. If we look at France, we see that it basically exports 760 million kg of cheese all over the world. That number converted into tonnes is 760,000. That's basically about 2.8 billion euros.
The math is quite simple. At the end of the day, the average price for French exports around the world is 4.17 euros, or around CAN$7.25, based on the exchange rate. For producers, processors and some semi-industrial producers in Quebec, that amount does not even cover the price of milk.
You can see why we then agreed that we had to try and understand how those people managed to have such a low price. The fact is that they have various subsidy programs, for both cheese production and cheese factories. Subsidies are even granted to companies like Lactalis, Bongrain and European artisanal cheese factories.
In fact, by digging a little deeper and doing a bit more research, we found that, in some sectors, such as the sheep industry or the goat industry, subsidy programs cover up to 115% of the gross profits generated by companies. That says it all. If they did not receive support from the government, those companies would not survive. It's sort of the same thing for the dairy cow sector. I think the latest figures I have seen were around 76%. We in Canada get 17,500 tonnes, 16,000 of which are fine cheeses.
Take goat's milk for example. We, including the industrial sector, process 10 million litres annually, 80% of which are processed into cheese; that's 8 million litres. The average yield is 10%, which gives 800,000 tonnes. Ten percent of the 16,000 tonnes of fine cheeses from Europe is twice the volume of Canada's goat's milk sector. So it's completely different. In that sense, the competition is completely and clearly unfair because of the subsidy programs they have.
We know that Quebec and Ontario are the provinces that import and consume most of that cheese. That is especially true for Quebec because I think 58% or 60% of the cheese is sold there. Inevitably, those two provinces will definitely be affected.
Of course, the situation is alarming for us. As I said earlier, Quebec's production and processing sector is made up of around 40 companies. As a result, over 200 jobs have been created across Quebec. And over 250 types of cheese are being produced. Our sector has grown a great deal over the past 20 years.
We are working hard to develop the market in Ontario and western Canada. You will agree that the fleur de lys may not always be popular, but, when it comes to cheese stalls in Ontario and the rest of Canada, the Quebec fleur de lys is very popular because of the quality of the product. However, with the cheeses that will keep coming to Canada, it will surely be replaced with the French fleur de lys.
Many people will say that various bodies will work hard to promote Canadian and Quebec products to help them keep their market share and receive the exposure they deserve. However, there will be price gaps. Even though consumers like Canadian and Quebec products, they will do the logical thing. I think we can all understand that.
I must admit that, at our last general meeting, people were very worried. What really worries them is that they will find themselves in a position similar to the current position of French companies. You are able to see all the problems they are experiencing, despite the financial support provided to this sector in France.
I actually have a very interesting story to tell you. Some of our members have European roots. Two of them came to Canada to have the freedom to manage their own company without having to rely on the government. Today, the dynamics are changing. Unfortunately, the fact is that we don't have a choice. We will need to be subsidized and supported by the government. That is not what we wanted and hoped for. However, the dynamics have changed significantly.
Do you have any questions? If not, I can add things as we go. I shortened my presentation because the copy I submitted was from a presentation I gave before the Syndicat des producteurs de chèvres du Québec. You can see a brief overview of the amount of cheese processed in Quebec and Canada. The gaps are significant. Would you like me to specifically elaborate on certain issues?
:
Mr. Chairman, on behalf of GreenField Speciality Alcohols, thank you for the opportunity to present our views on the Canada-EU comprehensive economic and trade agreement.
Let me begin by telling you a bit about GreenField.
We are the leading specialty alcohol producer in Canada, with a focus on corn-based bulk industrial alcohol, packaged alcohol, and fuel ethanol, as well as associated agricultural co-products.
In addition to being the largest producer of fuel ethanol in Canada, we are also the market leader in the production of high-quality industrial alcohol for both domestic and export markets. As well, we are a major producer of grain neutral spirits for the beverage alcohol industry in Canada, the United States, and selected markets around the world.
Our company also manufactures and sells co-products from the alcohol process, including distillers grains, corn oil, and carbon dioxide.
GreenField owns and operates four state-of-the-art manufacturing plants in Ontario and Quebec. All plants are strategically located close to the corn supply. We process more than 60 million bushels of Canadian corn each year. These facilities produce a combined annual output of 650 million litres per year, of which 125 million litres is industrial beverage-grade alcohol and the balance is fuel ethanol.
We are known as one of the top producers of specialty alcohols in North America. Our specialty alcohols are found in a wide range of consumer applications and products. You can find it in paints, solvents, inks, detergents, repellants, pharmaceuticals, disinfectants, and in the food and flavour preparation industry. As well, of course, it is very common as grain neutral spirits used in the production of vodkas and alcoholic coolers and for beverage fortification.
Through its membership within the Canadian Association of Importers and Exporters, GreenField has been actively following the progress of CETA. We are encouraged that the European Union and Canada signed an agreement in principle on CETA last October and look forward to CETA coming into effect. We support the idea of free and open trade between Canada and Europe.
In particular, we have no reservations about the removal of the Canadian tariffs on European alcohol, fuel ethanol, or related co-products coming into Canada. We believe that we are low-cost producers within the global marketplace and are fully prepared to compete fairly on price, quality, and service.
To date, GreenField has had limited export activity into Europe, principally due to the existence of both tariff and non-tariff barriers. The removal of the EU duties on our product—non-denatured alcohol is currently, in euros, at 0.19 per litre and denatured alcohol at 0.11 per litre—would be a welcome first step in advancing our ability to access the EU markets. However, it should be noted that the elimination or the phase-out of the EU tariffs will not in itself lead to any meaningful level of GreenField exports into the EU. Certain non-tariff barriers will need to be addressed and overcome before we truly see open trade of our products.
By way of example, EU Regulations 1829/2003 and 1830/2003 are regulations that deal with genetically modified foods and ingredients. These regulations would apply to any of our alcohol products that might find their way into the food industry. Any products that are derived from a genetically modified organism, such as hybrid corn, cannot be imported into the EU without EU approval, which then requires traceability and mandatory labelling of GMOs also on the final consumer products. Alcohol for human consumption that is derived from genetically modified corn would be considered to be food produced from GMOs.
To make matters more complicated, the responsibility for enforcement of EU regulations for imported GMOs falls on the member states within the EU, each of which has its own food and safety and regulatory bodies.
In our case, the majority of the corn grown in Ontario and Quebec is derived from hybrids and traits that are not presently approved in the EU.
Even though they are perfectly safe and approved for use in food and feed in Canada, the United States, and Asia, there is just no practical way we can operate our plants by trying to source and certify the use of identity-preserved, EU-approved corn hybrids. This disparity between the GMO regulations will continue to act as a non-tariff barrier for many of our alcohols that we produce here in Canada.
Another example of a non-tariff barrier is the European regulatory initiative called registration, evaluation, authorization, and restrictions of chemicals, better known as REACH. A number of our denatured industrial alcohol products are used as chemical intermediaries and require the addition of approved denaturants to meet end-use specifications. Any denatured alcohol products that we wish to export to the EU would be required to be registered under REACH. Complying with the registration and labelling and protocols contemplated under REACH will be extraordinarily complicated and expensive, so you can see that we will continue to have challenges accessing the EU markets unless there is some harmonization of regulations between Canada and the EU.
We are encouraged that the CETA framework contemplates the establishment of a working group to examine biotech issues, such as GMO, with the objective of achieving such harmonization.
Before I conclude my remarks, I would like to comment on the prospects for exportation of fuel ethanol to the EU. Presently, all of our fuel ethanol production is sold in Canada to Canadian oil companies that blend ethanol to comply with federal and provincial renewable fuel standards. Canada is short of fuel ethanol and is a major importer of ethanol from the United States, importing about 1.2 billion litres of its total three billion litres consumed last year. With this structural supply imbalance, it is unlikely that we would be selling significant quantities of fuel ethanol into the EU in the near future.
On the other hand, the prevailing price for ethanol in the EU is higher than in North America, reflecting higher costs of production due to economies of scale, higher feedstock costs, and higher energy input costs. Access to this premium EU market could prove to be important in the future. Currently the EU imports about 20% of its 5% mandated fuel ethanol requirements. There is support in Europe to increase the renewable content in their transportation fuels to 10%, and some European auto manufacturers are recommending a 20% ethanol blended standard by 2025. Long term, there is a future market for Canadian-produced biofuels like ethanol in the EU markets.
Members of the committee, I would like to conclude my remarks by commending the government on bringing the Canadian-European trade deal forward. Through our membership of the Canadian Association of Importers and Exporters and the Canadian Renewable Fuels Association, we at GreenField Speciality Alcohols look forward to staying informed of the progress of CETA and to providing our input.
Thank you.
With the stakes changing dramatically, we would like to receive financial compensation, as the pointed out when the agreement in principle was signed. Even before everything goes into effect, whether in January 2015 or in January 2016 as some authorities prefer, we would like the government to act quickly by providing cheese factories with a budget envelope, as it did in last week's budget when it set aside $500 million for the automobile sector in anticipation of an agreement with South Korea.
It hurts a little to see that the automobile sector is being protected from a significant potential impact when the same could have been done for the dairy and cheese sectors in Canada. Before the agreement even goes into effect, it would be only fair for the government to help businesses in the sector to improve their bases in order to be better prepared for what is coming.
Two things are clear. First, foreign companies will take over 30% of the market for fine cheeses from Quebec and Canada. That is not an insignificant amount. It is huge. Second, as I said earlier, their prices will be significantly lower than ours, because of the subsidies those companies receive. For those reasons, the government must respond quickly before the agreement goes into effect.
:
Yes, indeed, and we took note of what he said. However, we have to be careful. As I said earlier, the 16,000 tonnes that the government is assigning to fine cheeses represents a significantly higher percentage than is understood at the moment. Actually, since the main target is fine cheeses, the cheese imported from Europe will have a higher value. We are certainly not talking about 6% here, but an impact that will be significantly higher, somewhere in the order of 30%. Some people at a meeting yesterday even talked about an even greater impact. That is the first point.
We met with Frédéric Seppey, who was the chief negotiator for agriculture in the free trade agreement. One of the first questions we asked him was how the 17,700 tonnes, 16,000 of them in fine cheeses, had been determined. The answer was very simple: since May 2009, the negotiations included no increase at all, and Canada was very insistent on that. But Europe wanted 25,000 tonnes. Canada maintained its position until January 2013. So that means that, from 2009 to 2013, people knew that it would have a significant impact.
In a visit to Brussels in October 2013, Mr. Harper managed to reach an agreement to set the amount at 17,500 tonnes in exchange for exports of Canadian beef and pork. We find it surprising to see an agreement on such a major amount with so little analysis. For four years, we maintained our position that there should be no increase.
If, for four years, you agree that the increase must be kept at zero, you are implicitly admitting that there is a major impact.
:
That's a great question.
You look at that and you realize that we're importing a third of our demand. What can we do about it? You have to keep in mind that there are a couple of factors here. Our trade between Canada and the United States and the ethanol industry is north-south rather than east-west trade. Logistics are critical. There will be, unless there's ethanol production in western Canada, imports in the United States because there's no duty as you know from ethanol coming into the United States, and transportation will trump all.
You also have to keep in mind that gasoline demands are very seasonal; therefore, ethanol demand is very seasonal. There are three to four months of the year when the demand is up a good 15%. In Canadian industry, at least in our business, we like to run 100% all the time. We've designed and built our plant based on supply and demand so that we can have 100% inclusion rate outside of those demand peak periods. We sure don't want to be exporting. As an industry, to your point, we would like to see the industry more closer in balance and not tipping the scales into export mode, but continue as an import mode because you know that's when your industry's getting the highest possible price.
It is a balance. It's very difficult to get investment to build plants when you know that there are issues. In terms of free trade between Canada and the United States, you look at the industry in the United States, there are issues down there with blend walls. There are issues down there with mandates. Until those things get resolved, it's very hard for investment. Even companies like ours, as our balance sheets get stronger are saying that we should plot down and build another plant. We have sites selected, but the risk associated with that at this point in time has us sitting back and focusing on the cost of production.
Mr. Arsenault, I am very proud to tell you that the official opposition's deputy agriculture critic, Ruth Ellen Brosseau, tabled a motion in the House of Commons today to make sure that the Conservatives keep their promise of providing adequate compensation to cheese producers. Rest assured that some members of Parliament will be monitoring this very closely.
I am also concerned by the fact that the Conservatives are still refusing to table the text of the agreement in Parliament. In addition, they proposed nothing by way of compensation in the last federal budget. That is one more reason why we must be on our guard.
My question is about supply management. We know that Canada is taking part in other negotiations, specifically involving the trans-Pacific partnership. We also know that other countries taking part in those negotiations disagree with our system of supply management. Australia is one of them.
Do you think that our system could be put at risk because of those negotiations?
:
I am sorry to give you that impression, but, to a certain extent, I feel that it is quite realistic.
As I was telling you, the current average price of products coming in is C$10 per kilogram. When they get to market, those products sell for about C$30 per kilogram. So you are going to end up with fine cheeses, like cave-aged Gruyère, Comté, Cantal, or Salers. Those are all French cheeses with high added value. They will compete with our cheeses like Louis D'Or, which has won a lot of prizes in Quebec, in Canada and in the United States. It retails for $65 or $70 per kilogram.
Louis D'Or is a Gruyère-style cheese that compares well to Emmenthal, to Comté and to all those cheeses. Consumers may well like it, but they are rational too.
We have done a lot of work in recent years to develop our consumer market. With such a price difference, we are going to lose it quite quickly. That is certain to happen because those products are going to literally invade our markets.