Economic Relationship between Canada and the United States Committee on April 22nd, 2021

[The Chair, Liberal, Raj Saini]

Thank you.

Mr. Savard-Tremblay, you have the floor for six minutes.

[Simon-Pierre Savard-Tremblay, Bloc, Saint-Hyacinthe—Bagot, QC]

Thank you, Mr. Chair.

I would like to thank my colleague for giving me the additional 20 seconds.

I would also like to give my regards to my other colleagues and the witnesses today.

I would like to address the witnesses who are hoping for an exemption. I think Ms. Greenwood said that she was in favour of free trade, but that it would be good to have an exemption for us to have special access to U.S. government procurement.

That said, if it's not legally possible, given that the free trade agreement really must be equally beneficial to all parties, as we have heard from witnesses, what is your strategy?

[Mark Agnew]

I think what we would want to see is as broad an exemption as possible. Now, I'd like to think of myself as being a fairly pragmatic person. I would not be so naive as to think that we're going to get a full blanket carve-out. What we should probably be identifying right now is this: What are the actual key sectors that will come out of this infrastructure package? We should really hone in on those, go to the Americans and say, “We actually have some key expertise in areas X, Y and Z. This is why it's in your interest to make sure that we're not getting whacked with it, and that's why we should be carved out.”

I would love to think we would get a carve-out on the whole thing, but frankly I just am not sure that's going to be a viable option.

[Maryscott Greenwood]

I would love a blanket carve-out, or carve-in, if you will. We were successful in 2009 with the economic stimulus, but were only successful late in the game. It took a long time to get there, and what happened in the meantime was that you had pipelines that were laid in California that had to be pulled up. I think a broad exemption would be good.

I agree with Mr. Agnew about codifying the defence production sharing agreement. There is precedent for the U.S. and Canada to have reciprocal access to each other's procurement markets, and the defence sector is a perfect example. If it's good enough for defence, it's good enough for infrastructure, in my opinion. I think we have to push hard on it, and we have to bring American businesses to the table with our conversations with U.S. policy-makers so that they understand.

The target isn't Canada, typically. Maybe it is for steel, but it isn't for anything else, really, from Americans. The target is other countries, like China.

[Simon-Pierre Savard-Tremblay, Bloc, Saint-Hyacinthe—Bagot, QC]

In 2009, the negotiations were in fact very long and very difficult. The situation has changed somewhat, because there is now the Canada-United States-Mexico Agreement (CUSMA), which is no longer NAFTA. As was demonstrated before the committee, the situation is not the same, because CUSMA, unlike NAFTA, does not contain a chapter on government procurement. So it would be a renegotiation, and in the current context, goodness knows who would win. One would expect the Americans to take a particularly combative position. So it's a long way from being settled.

Mr. Agnew, you were saying that there probably couldn't be a blanket exemption or a broad exemption. If that's the case, which sector would be preferred?

I personally have a hypothesis, and I'd like to ask you what you think about it: shouldn't we focus on the greenest technologies and industries? We could certainly win contracts in this area against many American companies, since we are very advanced in the field.

[Mark Agnew]

Given that we have nearly every sector of the economy in our membership, there are a lot of different cases that could be made. I would say, just based on some of the early conversations we've had with our members, particularly people who are in the clean energy space—hydro facilities, small modular reactors—that I think those would be particular areas of potential strength for us. As we've seen today, with the leaders' climate summit, there's a big push in the White House to have the U.S. hit net zero and reduce its emissions, so that's an area that I think we can come at from an area of strength.

Also, of course, too, there are a lot of what I would call more traditional infrastructure sectors that have an interest, such as steel and aluminum as well. I think those are the areas that we would hope to see being priorities. Certainly, I know that in Quebec particularly the aluminum sector is quite important.

[Simon-Pierre Savard-Tremblay, Bloc, Saint-Hyacinthe—Bagot, QC]

Aluminum is actually very important, especially because our aluminum is not made with coal like China's. We have the greenest aluminum in the world. We are even thinking about carbon-neutral aluminum.

If we had to choose a specific exemption, since we know that the new U.S. administration has environmental considerations, shouldn't we insist on eco-responsibility as a criterion when awarding contracts?

[Mark Agnew]

Absolutely, and I think that is part of the offer that Canada has with our green credentials: It's how our electricity is done. I think the stat is that around 80% to 85% of our electricity comes from clean sources. I think that's a great narrative to tell and to make sure that people in Washington understand that.

[The Chair, Liberal, Raj Saini]

Thank you, Mr. Savard-Tremblay.

Mr. Green, welcome to the committee. You have six minutes.

[Matthew Green, NDP, Hamilton Centre, ON]

Thank you very much, Mr. Chair, and to all of the staff who are here tonight and to all of the members and the witnesses, I thank you for allowing me this opportunity.

I'm here very proudly representing Hamilton Centre. Of course, for those who know, when you drive over the Skyway and you see the industry, you'll know that they call Hamilton “Steel City” for a reason.

I want to begin just centring in on that. I think a lot about the ways in which Bain Capital gutted Hamilton Specialty Bar, a 100-year-old company with generations of workers, hundreds of workers. I think about the ways in which U.S. Steel's restructuring of $2 billion in debt was put on the backs of the pensioners through the CCWA. I can't help but wonder how and to what extent the buy American provisions have impacted local steel here in Hamilton.

I heard Ms. Greenwood in her comments suggest, in presenting a Canadian exceptionalism, that Canada wasn't the target, except for maybe steel, and I think I tend to agree on that, so I want to get a sense to begin with, through you, Mr. Chair, from Ms. Greenwood, if she would expand on to what extent she thinks the American Recovery and Reinvestment Act of 2009 and the buy American provisions are similar and different from the buy America provisions that currently limit Canada's access to the United States sub-federal procurement market.

[Maryscott Greenwood]

Thank you very much for the observation and question.

They're similar. It's the same movie. We're seeing it again. There are certain industries and certain constituencies in the United States that are very vocal and have a lot of political clout. We've seen it in steel. We've seen it in lumber, where the U.S. will do something that is not broadly good economic policy, that is counter to its trade agreements and obligations and counter to engaging with allies. Nevertheless, the U.S. will have some protectionist mechanisms. Sometimes it works.

Bombardier has a facility in upstate New York because they were bidding at the time on the New York City subway cars—remember back when Bombardier was building railcars?—and they put a facility in Plattsburgh, New York. Why? Because there was a buy local element. They won the bid, but the challenge for you, I think, is that it shows that buy local works, right? It's complicated.

The other thing I would hasten to add is that you have to look at the larger picture when you're asking for an exemption. For example, I think that in the Canadian budget that was tabled a couple of days ago there's a digital services tax. This is something we've seen from other jurisdictions in the world. The U.S., I would predict, will look dimly on taxation of the big digital companies that are based in the U.S., many of whom are our members.

I think you have to worry about what frame of mind the White House is in when making these decisions on exemptions, and are they listening.... Are the Steelworkers...is the union as aligned with your position as they were with Ambassador Doer's leadership in 2009 or not? Are people grumpy about a perceived Canadian unfair position on digital services or not? The—

[Matthew Green, NDP, Hamilton Centre, ON]

Mr. Chair, through you, I wonder if I could bring it back to the heart of the matter.

Here in Hamilton Centre, the digital taxes are going to be passed on to consumers anyway. It is not going to hit the major digicoms that are coming out of the States.

I do know that our steel sector was hit pretty hard when I thought we had done a lot of work through CUSMA to come up with a new agreement that might have had greater protections and greater abilities for negotiated settlements. It was signed and it seemed like months later Trump threw it out the window and imposed tariffs anyway, so I wonder to what extent these agreements matter when the regime changes and the leadership of the United States decides to go in a different direction.

[Maryscott Greenwood]

You're right. The USMCA, the CUSMA, applies to a huge swath of the economy, but government procurement, infrastructure, government dollars on infrastructure is a different thing. If you're providing steel to American inputs, you get tariff-free access to the U.S. under the trade agreement, but if you're talking about a state or local government that's getting funding from the U.S. federal government on infrastructure, that's when these buy local, buy American provisions come in.

To your original question, it's very much the same fight that we've been having for generations.

[Matthew Green, NDP, Hamilton Centre, ON]

I would put to you that this government has earmarked, I think, $100 billion in COVID recovery. I'm assuming much of it will be in local spending on procurement.

Would it then put us in a position where we would be looking at creating like policies, buy Canadian policies, that would perhaps have earmarked Canadian steel on our rail and transit and our green energy projects like wind and solar?

[Maryscott Greenwood]

I'll just give you a quick philosophical answer.

In either case, it's a bad idea. Canada and the United States do better when we work together and have full access to each other's markets. I don't think a tit-for-tat like that works very well, but I understand the political desire to do it.

[Matthew Green, NDP, Hamilton Centre, ON]

What are we left with if we don't have that ability, and let's say, for instance, the Biden administration decides to go in a different direction with steel again?

[Maryscott Greenwood]

It's a big, huge relationship. There are lots of levers. I don't know. I'd have to think about a strategy that would help make sure that you don't get disadvantaged in that way, but I'm not prepared to give you a retaliation list right now.

[Matthew Green, NDP, Hamilton Centre, ON]

I appreciate it. Thank you.

[The Chair, Liberal, Raj Saini]

Thank you, Mr. Green.

We will now start our second round.

Mr. McLean, welcome to the committee. You have five minutes.

[Greg McLean, Conservative, Calgary Centre, AB]

Thanks very much, Mr. Chair; and my appreciation to our witnesses.

I will start with my questions to Mr. Agnew in particular. I wish I had a briefing of yours ahead of time, because I was scrawling down notes like crazy here thinking of some good questions to ask you.

You talked about critical minerals, clean energy and defence. I would really like to go into those as far as how we co-operate and work together with our American partners here. We've recently done a study of this at the natural resources committee as well, and a bunch of weaknesses here have been exposed.

First, every critical element is going to take a 10-year mine development process, and probably longer because of new legislation in Canada applying to mines, called the Impact Assessment Act, which has been disastrous across the board. The length of time to develop those actual industries versus the time you actually set up a facility to fortify and manufacture those metals, which is about 18 months, is a big disconnect. In that cycle of 10 years or so, you have a cartel-like provider around the world, mostly China, in critical minerals that will continue to move that price up and down, so those mines in that process will become unviable, like in the United States with the Mountain Pass facility.

Tell me what you think, between Canada and the U.S., we should be doing in order to buffer those cartel-like tendencies to make our critical elements unviable at certain points in that commodity cycle.

[Mark Agnew]

There are two aspects to this that are worth exploring. There are a whole lot more, but in the interest of keeping a focus, I'll talk about two pieces.

One is the domestic one. There are things that are within our control solely about regulation, impact assessments, labour and infrastructure. What do we need to do to make it viable for companies to take it out of the ground? That's one element.

The second is, when we're talking about what the Canadian and American governments can do together, how can we correct the market failure of it not yet being commercially viable? This is where I think there could be a potential for government, I don't want to say “backstops”, but for lack of a better word I'll say backstops.

How do we use procurement, for example, as a tool to create financial incentives for companies to see a reason to take this out of the ground and know there's a buyer on the other end ultimately? That is what companies need to know: If they take it out and then someone else goes to process it, will there be someone there to buy it? I think that is where the governments could come in, and because we have such a joint supply chain when it comes to, for example, defence products, how can we use the government purchase of defence equipment to incentivize the critical minerals industry?

[Greg McLean, Conservative, Calgary Centre, AB]

It's a bit interesting because the American business model is about driving costs out of supply, all the way through the supply chain, and in times of commodity cycles, driving that cost out means going towards the lowest-cost provider, and that is China half of the time. How do we get a North American supply chain in critical minerals that will buffer that tendency to drive costs to the lowest-cost provider?

[Mark Agnew]

I think you need to create the demand for there to be the supply. It comes back to what I was saying about the people who are taking it out of the ground and refining it. They need to know there's a buyer on the other end for it, whether that's governments for defence contracts or whether that is an automotive company that is then going to use it to make chips that go into your vehicle. You need to create the demand before people are going to take it out of the ground.

[Greg McLean, Conservative, Calgary Centre, AB]

I'll move on.

Let's look at vaccines and how the U.S. is now pretty much on its way as far as getting its population vaccinated is concerned.

In Canada, we have a closed border with a no travel zone from the U.S. right now. Maybe Ms. Greenwood can answer this question: How do we get a North American position going forward where we can continue to have that cross-border activity, where we share vaccines?

Points of national emergencies, where we look at ourselves as an actual North American bloc and have similar health outcomes, and therefore, we're not having as much interaction with others, but as far as our ability to travel back and forth, we share those critical vaccines, for instance, that can be manufactured so...both sides of the border as well.

Is that something that could fit under this realm?

[Maryscott Greenwood]

Absolutely, I think we have to learn the lesson of the pandemic and of COVID and figure out how we do it better going forward because this, unfortunately, isn't going to be the only public health crisis we face. I totally agree with the idea, and in fact, our organization is all about figuring out how Canada and the United States can face these things together.

Sir, if I might respond, for just 10 seconds on critical minerals, I agree with what Mr. Agnew said. I would add to your question about cost and China being a low-cost provider, that I think something like the carbon border adjustment tax is going to be what it takes.

I think government policy has to make it more expensive to source from China, so for a carbon border adjustment, we'd have to think about other.... Pollution, human rights, whatever adjustments you make and account for are the way you bring those costs up higher so that North American companies can compete.