International Trade Committee on March 16th, 2010

[The Chair, Conservative, Lee Richardson]

Mr. Allison.

[Dean Allison, Conservative, Niagara West—Glanbrook, ON]

Thank you, Mr. Chair.

Once again, thanks to the witnesses for being here.

I have just a quick question; then I'll pass it down to Mr. Cannan.

I understand, Mr. Sinclair, that you're not really happy with the deal Canada got, or you think we could have done better. I guess the question is, do you think European countries and others that trade with the U.S. got a better deal? In your opinion, has there been any other country or province that got a better deal than what we have been able to negotiate?

[Scott Sinclair]

No, the Europeans are in the same situation basically as Canadian suppliers. Actually, you might argue that before we signed this deal we were in a slightly better position than the Europeans, who are now, at the WTO, trying to back out of certain of the commitments they made under the GPA towards the United States. Their rationale for that is in particular the impact of the exemptions, and particularly the impact of minority and small business set-asides. As I said, the target at the federal level is 23%; it comes right off the top of all U.S. federal procurement. In many states that can range from.... Say in Illinois, for construction a fair proportion may be defined as between 25% and 40%, which is set aside for small and minority-owned businesses. Seeing the impact of that, the Europeans are trying to back out of their GPA obligations with the United States, or in their own terms they are seeking compensation. They're very aware of these problems, and they're similar.

[The Chair, Conservative, Lee Richardson]

Mr. Cannan.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Thank you, Mr. Chair.

Thank you to our witnesses. It's great to have you back again. Thank you, Mr. Laurin and the Manufacturers Association. Back on January 30, 2009, you said—and I have your words to quote—that the effects of Buy American would be catastrophic, and you brought that issue to the forefront. I know Prime Minister Harper was very attentive to your call, as well as Minister Day, and we appreciate your comments as to how they worked quickly with the Obama administration to get this issue resolved.

As has been said, the road we'll be travelling from recession to recovery is going to be bumpy. There's fragility along the way. We're not just talking about trade; we're talking about people, about jobs, about hope, and about opportunities. I believe this agreement is the best deal as we move forward. People around this table have travelled to Washington. We will continue to work with them; Brad and I are on the Canada-U.S. inter-parliamentary committee. It's vital to Canadians as well as to Americans. There's approximately $1.6 billion worth of trade going across the border daily, involving 7.1 million jobs.

Mr. Laurin, I have a question to you from the association. They talk about protectionism. We have a market of 33 million, and there are approximately 300 million in the U.S. If we put these protectionist measures in, when about two-thirds of our GDP is trade-dependent, what would be the job losses as a result of those protections?

[Jean-Michel Laurin]

That's a very good question. It's very hard to come up with a precise number because it's a very complex question. We know the effects would be catastrophic in an environment where our companies have organized their supply chains and their business around the knowledge they have open access to the U.S. market and to a lot of other markets around the world. Let's not forget we still do a fair amount of business even with markets we don't have free trade agreements with. About 25% of our exports go to countries other than the United States.

Other markets are still quite important. In fact, if you're looking at China, if you're looking at Latin American countries, some of them are growing very fast and a lot of Canadian companies are investing in growing these markets.

What would happen if we put more barriers in place? It's a very good question. I'd rather not think about it, to be honest with you. I think Canada has benefited a lot from open access to other markets, especially with the United States. Getting those free trade agreements in place with the U.S. and Mexico has allowed Canadian companies to have access to a much wider, much broader market.

Canada was the only G7 country to create manufacturing jobs during the 1990s. A big reason for that was the fact that we had privileged access to the U.S. market. The low dollar was another reason, but it was by and large due to the better access to the U.S. market.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Thank you very much, Mr. Chair.

[The Chair, Conservative, Lee Richardson]

Mr. Guimond, you have the floor.

[Claude Guimond, Bloc, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Thank you, Mr. Chair.

Mr. Sinclair, in your opening statement, you said that local content was threatened. Could you explain to me what you meant by local content, and why is it threatened by this agreement?

[Scott Sinclair]

Thank you. That's a very good question.

I think this is an important point: the GPA rules, and in fact even the temporary arrangements--and I think this is an important point--ban what they call offsets. Basically, offsets are when governments, procuring, go out to negotiate with suppliers for local benefits, like the 60% local content in the wind energy contracts negotiated by Quebec Hydro. Those contracts are a good example because the successful suppliers were foreign companies, European companies, German companies. I want to make that point quite clearly. You can use procurement as an instrument of economic development policy, and it has been used very successfully in many countries, including Canada, on a non-discriminatory basis. What you lose in these agreements is the ability to even encourage or require local benefits, whatever the nationality of the company.

I'll end on this. When you are making massive public investments through your purchasing in, say, a field like renewable energy, I think most Canadians would feel that's public money and that governments should be looking at the best deal with whoever, whatever company provides the greatest overall benefit to the local or regional economy.

I don't see that as protectionist. If it is protectionist, I think it's a sensible economic policy.

[Claude Guimond, Bloc, Rimouski-Neigette—Témiscouata—Les Basques, QC]

In another connection, Mr. Sinclair, a question often comes to my mind regarding the Canada-U.S. agreement on government contracts. You mentioned local content. I am told that this is an agreement between the United States, Canada, the provinces and the territories.

If there is litigation, what happens with regard to the WTO? As far as I know, the provinces have not joined the WTO, they are not signatories?

[Scott Sinclair]

There are different forms of litigation under this agreement. The provinces, as far as the WTO GPA commitments are concerned, have agreed to set up what's called a domestic review process under our own domestic law, so every province would have to give suppliers who are covered by this agreement the ability to launch a bid challenge procedure. I don't know exactly how it's going to be done. I assume different provinces will do it in their own way. The federal government does it through the Canadian International Trade Tribunal.

You're quite right, though, that if there is a dispute about the operation of the agreement as a whole, or about things like somebody complaining that you have failed, for example, to put this proper review process in place, that would be a national government to national government issue.

[The Chair, Conservative, Lee Richardson]

Mr. Trost.

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

Thank you, Mr. Chair.

I just have a few minor questions here.

From my perspective, and perhaps the witnesses will disagree with me, probably the most significant portion of this agreement is the long-term effect, the agreement with the 37 states that will be permanently a part now of WTO rules for procurement, because stimulus comes and goes, and a large portion of this so-called stimulus package was social welfare transfers that had nothing to do with bridges or roads or anything. It was just what we would call transfer payments, by and large, here in Canada.

So my question is to Mr. Laurin. Thirty-seven states are now locked in with Canada under the WTO rules for procurement. Municipalities often take their guidelines and hints from the States. This is a long-term market opportunity for us as Canadians to get in there on procurement, particularly since these are states like California and New York, Michigan, Texas, and by and large the bigger states, with the exception of Ohio, are in there. What other steps should we recommend as a committee? What other things should we do to help your industries and other related suppliers to take advantage? What else do we need to do to allow your members to take advantage of this new opportunity?

[Jean-Michel Laurin]

Thank you. I think it's a very good question, and it's one that we've been giving some thought to lately.

One thing that's really good about the permanent aspect of the deal, which has access to those 37 states, is that it puts Canadian companies on an equal footing with European companies and companies from other countries that have signed on to this WTO agreement. Many of the directives that were issued by the Office of Management and Budget in the U.S. basically said to procurement officers, if you want to spend this recovery money, you need to follow these guidelines. They basically said, you need to have open access to companies from these countries that have signed on to this deal, but they always said, except Canada. I think now at least we've been able to remove that, which is positive. It puts us on an equal footing.

I think for what you plan to do going forward, or what recommendations you could make, it's going to be important that we work with Department of Foreign Affairs and International Trade Minister Van Loan and his staff, to put in place a strategy so that we can, first of all, communicate this agreement with procurement officers in the United States, because a lot of them are not necessarily aware of it. They're not all international trade experts; in fact most of them aren't, so it's going to be important that we communicate the benefits of this agreement to these people. I think there is a strategy that's being put in place with our consulates in the United States and our different trade commissioners.

I think the other part where your recommendations could be helpful is around using the trade commissioner service to get more Canadian companies involved in procurement markets in the United States, and to take advantage of opportunities that are happening, not only with federal spending but also with state-level procurement spending.

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

To summarize, communication of relatively low value, low cost; get out there and help with the advertising.

[Jean-Michel Laurin]

Advertising is part of it, but I think it's much more than—

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

I'm using advertising in a bit of a broader sense.

[Jean-Michel Laurin]

But it's more about direct communications and making sure these governments understand that there has been a change in this international agreement, and that Canada is now in a special position to procure certain things to the United States.

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

Do I still have time, Mr. Chair?

[The Chair, Conservative, Lee Richardson]

Yes.

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

I'm fairly new to this committee, and one of the other things I found interesting in reading through this agreement was that the threshold limits varied depending on whether they were goods or services. I think they were $600,000, and $8.5 million for construction, and so forth. My understanding, in talking to some of our manufacturers and people in Canada, is that by and large--as was noted with other procurement things--we don't usually enforce thresholds and block American contractors. That was the experience of some of the businesses I have.

I have two questions. Do the Americans, by and large, enforce these thresholds? If they do, what sort of substantive impact do they have on Canadian suppliers, manufacturers, etc.?

[Jean-Michel Laurin]

Do Americans enforce thresholds? I know that for projects funded by the recovery act, for example, we have an exemption above a certain threshold. If the value of the contract is below that threshold, they have no choice but to apply by American rules.

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

So it's very strict in that case.

[Jean-Michel Laurin]

That is for recovery projects.

For other types of contracts that are awarded by state governments, for example, I would tend to think along those lines. Typically municipalities and local governments--what are known as state governments in the U.S. or provincial ones in Canada--try to find the best deal possible for taxpayers. Unless there is some sort of restriction in place, they often don't even know where the product was made.

We've been talking with municipalities over the last year or so, trying to figure out how much we are buying from American manufacturers here in Canada. We try to say, “Here's what's at stake for American companies in these negotiations”. When you talk to municipalities, they usually buy from Canadian sales offices, but they don't really know where the products were actually made. That is the case most of the time, and I assume it is the case most of the time in the U.S. as well.