International Trade Committee on May 12th, 2016

[Linda Hasenfratz]

It's the scientific research and experimental development incentive, the R and D tax credit.

[The Chair, Liberal, Mark Eyking]

The R and D tax credit, okay. It's the research tax credit.

We're going to start off with dialogue with the MPs. We have the Conservatives for five minutes.

Mr. Van Kesteren, go ahead.

[Dave Van Kesteren, Conservative, Chatham-Kent—Leamington, ON]

What a great discussion we've had this morning. It's one of the few times that I can say that I agree with every one of you. I agree that the TPP has some great potential, and I agree, Matt, that it has some challenges. There's no question about it.

We have seen, as we've travelled, that the small and medium-sized businesses, almost without exception, are excited about this free trade agreement. The other thing I noted—and I was just having a short conversation about this with William and Matt—was that when we travelled through Quebec, we saw there were an enormous amount of small and medium-sized, especially small, businesses that were start-ups.

It appears to me—I'm going to ask you to jump in and weigh in on this—that the challenge is with those organizations that are, let's call them, “institutionalized”. They've been here for quite some time, and specifically the auto industry, which has been here for 100 years in this area.

What do we need to do, and what do they need to do, to possibly change the course of this, so that a free trade agreement will be advantageous to them? Can you comment on that, Mr. Anderson?

[William Anderson]

I think there are already companies in this industry, and Linamar is certainly one of them, as we've just heard, that have been able to take advantage of trade initiatives.

[Dave Van Kesteren, Conservative, Chatham-Kent—Leamington, ON]

Linamar, how long have you been around?

[Linda Hasenfratz]

It will be 50 years this year.

[Dave Van Kesteren, Conservative, Chatham-Kent—Leamington, ON]

Fifty years, okay.

[William Anderson]

They're well established.

I think the automotive industry in Ontario is already efficient. I think the challenges that it faces have to do more with differential costs than with a lack of efficiency. I think Ontario's labour force in the automotive industry is outstanding. Companies like Linamar, and many others, have been innovative. If you look at engineering types of performance metrics on assembly plants, for example, they're very good. They're faced with a world in which they have some cost disadvantages. They have disadvantages in terms of labour cost, they have disadvantages in terms of energy costs, they have disadvantages in terms of how long it takes them to get from the point of making a location decision to having production coming out of that facility, and they have disadvantages in terms of access to markets other than NAFTA. Part of the reason you have a disadvantage relative to Mexico is not just labour costs. If a German company wants to put an assembly plant into Mexico to sell cars into Brazil, those cars will go in much more cheaply to Brazil than if they came from a facility in Canada, because of the trade relations that Mexico has established with other Latin American countries.

I think the technical ability is definitely there to compete on a global scale. There are some cost disadvantages, but I think having access to broader markets is a positive rather than a negative.

[Dave Van Kesteren, Conservative, Chatham-Kent—Leamington, ON]

I didn't know that you went to the London School of Economics. I respect you. I always did, and I respect you that much more because you understand economics.

You must agree that, in general, trade agreements—and I recognize what you're saying, that there are some serious challenges, which I see in Chatham as well, where I'm from—are a good thing. There's more to trade agreements than just conducting the business. Trade agreements are there to set the rules. Mr. Ritz always says that just as good fences make good neighbours, good rules make good trading partners, too.

Wouldn't you agree that this is a transition and a movement that is going to gain momentum. We're going to trade more and more across the world, and we need good trade agreements. I know there will be a follow-up question about whether or not this is the right trade agreement. Wouldn't you agree with that statement?

[Matt Marchand]

You can go back to Galbraith or Ricardo or Adam Smith, or a number of our friends in history and talk about this. With a trade agreement, if I have bananas and you have apples and we trade something like two apples for two bananas, that's what you call trade. But if one industry is getting either heavily subsidized or has favours, and you and I both have apples, but you have state subsidies to grow your trees, you have state subsidies on your roads, you have state subsidies on other things, then we have to look at that and ask if that is an accurate agreement.

[The Vice-Chair, Conservative, Randy Hoback]

I'm sorry, Mr. Van Kesteren's time is up.

[Dave Van Kesteren, Conservative, Chatham-Kent—Leamington, ON]

That's a shame. We were having a good—

[The Vice-Chair, Conservative, Randy Hoback]

You will get more chances to answer his questions later.

Ms. Ludwig, you are up next.

[Karen Ludwig, Liberal, New Brunswick Southwest, NB]

Thank you very much for your excellent presentation.

My first questions are for Mr. Anderson—or is it Dr. Anderson?

[William Anderson]

It's Doctor, but call me Bill, please. Not even my mother calls me William.

[Karen Ludwig, Liberal, New Brunswick Southwest, NB]

From someone who worked on a Ph.D, I think you are well deserved to be called doctor.

My questions are regarding our research and studies.

For starters, I represent a riding with five international border crossings in New Brunswick. We fully understand the dependence on the American market. We've heard a number of varying positions on TPP. Do you have any research or studies to support what you've put forward regarding the ramifications if we don't ratify it?

[William Anderson]

There are a lot of studies on TPP using what are called computable general equilibrium models, and most of them are irrelevant to my argument because those studies just generally compare a world with TPP to a world with no TPP, and I don't think that's the decision you are faced with here. The decision you are faced with here is, do you want to be in a world where the United States is a member of TPP and Canada is not.

Our research is mostly on cross-border supply chains and the integration of other industries as well, agrifood; and certainly the automotive industry is the most important at this crossing. We have an assembly plant here in town. It requires 200 to 300 trucks a day to come across the Ambassador Bridge for that assembly plant to work.

Remember that Canada and the United States are not a customs union, so it's not like Europe where stuff just goes across the border. There has to be customs administration on everything, and there are rules of origin that come into play. If we get into a situation where the United States is able to play by one set of rules of origin, and Canada is constrained to a more restrictive set of rules of origin, even if we would prefer, overall, to be using that more restrictive set of rules of origin, it will put Canada at a disadvantage because it will make it more difficult to operate those supply chains across the border.

That's how our research at the Cross-Border Institute relates it.

[Karen Ludwig, Liberal, New Brunswick Southwest, NB]

Thank you.

I have just one more question on that. We've heard from, I believe, Joseph Stiglitz, in terms of his research, that there's a potential of 58,000 job losses. Taking your position of the cost of not ratifying TPP, do you have any estimation of how many jobs might be lost by not ratifying?

[William Anderson]

I don't have an estimation of that. Again, that's because it would come from a broad type of economic model, and I have not seen one that actually does the right counterfactual, which is to say, looking at a situation where the United States is in the TPP and Canada is not. Most of the factors that would have a negative impact on Canada will occur whether or not Canada is in the TPP. For example, on preferential access to the U.S. market, if the United States adopts the TPP, we lose that preferential access, which we've had for 20 years, and Canada's decision won't affect that.

[Karen Ludwig, Liberal, New Brunswick Southwest, NB]

This question is for Madam Hasenfratz. Looking at your business, where 90% of it relies on the U.S. market, have you looked at diversifying from that? Obviously, you've been quite successful on your comparatives and have been able to be nimble and innovative. Have you considered diversifying more from the U.S. market into other international markets?

[Linda Hasenfratz]

Yes, we absolutely do. While 90% of what we make in Canada is shipped to the U.S., 35% of our overall business is actually outside North America. In Europe and in Asia, we do supply some products from North America, for instance, Skyjack. We do all our manufacturing here in Canada, and then export to Europe and to Asia. For our automotive business, given the volumes, we do locate internationally and supply those markets from those areas. However, we create jobs and a lot of support for those international operations in our Canadian operations because we're doing a lot of R and D, product development, process development, launch support, and that type of thing for those plants.

[Karen Ludwig, Liberal, New Brunswick Southwest, NB]

How significant is the Japanese market to you and your business?

[Linda Hasenfratz]

We're not going to ship to Japan from here, that's for sure, but we certainly supply the Japanese automakers in other locations. We supply Japanese automakers in the U.S. from our Canadian operations, for instance, and we do buy products from Japan, such as equipment to manufacture the components.

[The Vice-Chair, Conservative, Randy Hoback]

Ms. Ramsey.

[Tracey Ramsey, NDP, Essex, ON]

Thank you so much for your presentations here this morning.

We're discussing the U.S. and Japan a lot. Japan has come up numerous times at this panel as a market that people would like access to. In terms of the U.S., though, I'd like to say that whether or not we sign the TPP, they still have the advantage. If we were to ratify here in Canada and go to the U.S., the U.S. still holds the power to determine whether or not they allow our entry. Therefore, really there's no push for us to sign ahead of this two-year window we have for this ratification process.

The U.S., as I said, has advantages in many ways. We heard about the auto chapter. They actually opted out of the chapter on labour mobility because they see it as a threat to their sovereignty. There are many ways that the U.S. was able to protect themselves in this deal that Canada was not. These are things that are deeply concerning to us on this committee.

I'll go back to auto, because of course we're sitting here in Windsor. Before I do that, though, Ms. Ludwig brought up the Tufts University study. It's part of the struggle we have, as well, that we have no economic impact study that exists. Global Affairs Canada hasn't done one. There are different economic models that have been done, and they show, essentially, a 0.0% to 0.2% increase in our GDP by 2030, which—by all accounts we've heard at this committee—is a rounding error. It's not being shown that the benefits are there for us, and the job losses are estimated at around 60,000.

I would like to go to Mr. Marchand and basically ask you if you can read into record that resolution you brought before us, and if you can talk a little more about how you think Canada's auto industry and our auto industry here in Windsor-Essex would be impacted by the TPP.