SUBMISSION OF SHIPYARD GENERAL WORKERS’ FEDERATION OF BRITISH COLUMBIA
BY PRESIDENT GEORGE MacPHERSON
February 11, 2008
HOUSE OF COMMONS STANDING COMMITTEE ON INTERNATIONAL TRADE
THE PROPOSED CANADA-KOREA FREE TRADE AGREEMENT
I appear before you today to represent approximately 2,000 skilled members of the Shipyard General Workers’ Federation of BC who work in the shipyards, marine manufacturing and supply industries, and in the metal fabrication shops in British Columbia’s coastal communities. Except for a few medium sized shipyards the majority of marine and metal manufacturing plants in BC are small operations supplying capital goods to the local market.
I am here to echo what many other representatives from the transportation and metal manufacturing industries have said before me, and that is to state that we are strongly opposed to yet another free trade agreement that seriously threatens to undermine the viability of our manufacturing industries in our province and country.
But first I would like to say that we very much appreciate the undertaking of your Committee to conduct extensive hearings on the implications of the free trade agreement (FTA) currently being negotiated between the governments of Canada and South Korea. And we appreciate this opportunity to make this presentation.
One of the objections we have to the Canada-Korea negotiations is the complete absence of any prior consultation with our industry representatives before the formulation of Canada’s trade agreement proposals. We also object to these negotiations proceeding before there has been a full impact assessment, with participation by labour unions and civil society groups, of the economic and social impact of the standard FTA model on workers in both Canada and Korea.
One would be led to believe from only reading the documents concerning these FTA negotiations on the government’s website, that there is nothing but positive results possible from such an agreement. But we all know from our experience with the NAFTA and subsequent FTAs that this is just not the reality, that there are all kinds of serious negative consequences, especially for Canada’s struggling manufacturing industries, our workers and communities.
Our marine and metal fabricating industries in BC have already been seriously undermined by NAFTA, and more recently Canada’s FTA with the European Free Trade Area countries, through elimination of the 25% tariff on ships imported from the United States, Mexico, Norway and Iceland. Both Norway and Iceland are among the world’s leaders in ship construction, and US shipyards have traditionally had the significant unfair advantage of Jones Act protection, and in recent years a heavily subsidized naval reconstruction program. In addition we have suffered the serious loss to a German shipyard of four BC Ferries Corporation contracts to build large new car and passenger ferries for BC coastal waters.
By now choosing to enter into a similar FTA with South Korea the government of Canada will drive another stake into the heart of a viable Canadian shipbuilding and marine manufacturing industry. But this stake, in comparison to others in the recent past, has all the signs of being the fatal one.
Korea has by far the largest and most price competitive shipbuilding industry in the world. Korean shipyards now build over 40% of all new ships delivered in the world, and Korea has six of the 10 largest shipyards. But this strength and competitiveness was not built on the rules of free and open market competition, either domestically or internationally. It was built during several post war decades of an unholy alliance between an authoritarian nationalist government and a few very wealthy families granted monopoly power to create large industrial conglomerates (called Chaebol), with significant government aide and assistance. As a result successive Korean governments have contributed in many ways to help Hyundai Heavy Industries, Samsung Heavy Industries, and Daewoo Shipbuilding & Marine Engineering – the top three shipbuilders in the world - consistently dominate the global shipbuilding market for well over a decade.
In addition, the Korean shipbuilding industry is notorious throughout the world for pricing their ships at below the cost of production in order to gain market dominance. This is achieved through a number of government support measures. In 2002 the European Commission decided to challenge South Korea’s below-cost ship selling practices before the World Trade Organization. As a result the WTO found in 2005 that Export-Import Bank of Korea loan guarantees to Korean shipyards constituted prohibited export subsidies.
Projecting into the near future it is evident that the Korean shipbuilding industry will be forced to be even more price competitive as it’s current dominance in global shipbuilding is increasingly threatened by Chinese shipyards. For example, in 1999 the Chinese government embarked upon a long term strategy of overtaking Asian shipbuilders South Korea and Japan by 2015, and in 2004 began building the world’s biggest single shipyard at the mouth of the Yangtze River north of Shanghai. And this is just one of several large government and private sector partnerships there to build massive shipbuilding capacity.
For our sector the issue is not about forcing the Canadian shipbuilding industry to be more competitive so as to be able to compete in the export market for new or rebuilt ships. Canada has never been a significant exporter of ships, and never will be. And without the current 25% tariff on imported ships Canadian shipyards will never be able to compete with Korean, Japanese and Chinese shipyards for the supply of vessels to the Canadian maritime industry. So for us the issue is about sustaining a viable heavy manufacturing industry in this country to supply just the domestic market, and protecting it from the destructive forces of competition from subsidized major exporters of marine transportation equipment, especially South Korea. If our government does not do this in these FTA negotiations, our industry will be all but dead in a matter of just a few years.
The Canadian shipbuilding industry is already operating at about 1/3 of its capacity. Canadian demand for ships over the next 15 years is estimated to be worth $9 billion in Canadian jobs. Under the FTAs with Norway, Iceland, and now planned with Korea, and then Japan, these Canadian shipbuilding jobs are in serious jeopardy. In these terms this government plan is shear folly, and an outrage.
As stated by the President of the Shipbuilding Association of Canada, it is impossible to envisage anything positive for the Canadian shipbuilding sector in a Canada-Korea FTA unless significant changes are made to Canadian government shipbuilding policies – both federal and provincial.
Without tariff protection, Canadian build government procurement policies, a comprehensive industrial strategy, and other domestic industry supports, FTAs with Norway, Iceland, Korea and Japan will totally undermine all of the cooperative efforts of all Canadian shipbuilding participants over the past two and a half decades, to bring the government of Canada to the point of implementing a comprehensive strategy and viable long range plan for the sector.
For over two and a half decades all parties in the industry have been calling on the government of Canada, and demonstrating the need through numerous studies and submissions, to develop a strategy for the development of a viable modern industry available to meet future Canadian requirements. Finally, in June 2001, then Minister of Industry Brian Tobin gave his reply to a March 2001 report of the industry-labour shipbuilding National Partnership Project Committee, which had appealed to the Minister to take practical and feasible steps to assist in revitalization of the shipbuilding and marine fabrication industry across Canada.
In his reply to the National Partnership Committee Report, Minister Tobin acknowledged that:
Canada’s shipbuilders systematically encountered competition from production subsidies, generous financing, market protection, state ownership and, in Canada’s largest potential market, the United States, the Jones Act that excludes them from large parts of the commercial market.
Among the 36 recommendations made by the National Partnership Committtee one addressed the hidden subsidy to vessel purchasers from shipyards in South Korea and China through the mechanism of very low wages and intolerable working conditions imposed on their workers:
In some countries, the workers themselves are subsidizing their industry by working for low wages and in conditions that would not be tolerated in Canada. By deliberately suppressing labour and social rights, some foreign shipbuilders are effectively filling their order books at the expense of their workers. In light of this reality, the National Partnership Project Committee believes that an international social clause governing labour standards in the shipbuilding industry should be developed and promoted by the Canadian government.
In his June 2001 announcement of “A New Policy Framework for the Canadian Shipbuilding and Industrial Marine Industry”, Minister Tobin stated that “the Canadian industry is recognized as an important contributor to national and local economies and that a viable competitive domestic ship maintenance and repair capacity is important to Canadian operational needs”. However, since that announcement, each succeeding government has stepped further back from Minister Tobin’s modest commitments to the industry. Therefore the opening of free trade negotiations with the world’s largest and most notoriously anti-competitive shipbuilding nation without so much as prior consultations and input from Canada’s shipbuilding industry is nothing short of a final act of betrayal.
Canada has coasts that face three oceans, it has the longest coastline in the world, and has maritime responsibilities extending over an ocean area greater than its land mass. The St. Lawrence Seaway transportation route is longer than the Atlantic Ocean is wide. Yet we have a maritime transportation manufacturing industry that has been floundering for over 30 years because of the failure of the government to recognize and act in the interest of this vital and strategic sector.
The governments of all the great shipbuilding countries of the world, including the US, Norway, Iceland, Japan, Korea, and more recently China, have long recognized the strategic importance of domestic shipbuilding, and built up their industries through all manner of procurement policies, subsidies, tax relief, loan guarantees, infrastructure development, and tariff protection. Canada is the only large maritime nation to not have a plan and development strategy for the industry for the past 50 years.
To have to confront the Korean shipbuilding industry under a standard FTA under these circumstances will result in disaster for our industry.
For all the above reasons we call upon the government to cease FTA negotiations with Korea until the following has been done:
- All manufacturing industry parties have been consulted on the trade agreement model best suited for entering into an FTA with Korea;
- A social clause governing labour standards in metal manufacturing, especially shipbuilding, be incorporated to prevent competition from undercutting domestic industry on the basis of labour costs, suppression of labour and social rights, and non-adherence to International Labour Organization conventions;
- Comprehensive economic and social impact assessments have been conducted under alternative FTA models, with participation by labour unions and civil society groups, in both Canada and Korea; and
- A comprehensive industrial strategy has been developed by the government for the Canadian transportation manufacturing industry, and has as its primary objective the long term stability and viability of a shipbuilding and marine fabrication industry on the East and West coasts.
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