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

[The Chair, Liberal, Raj Saini]

Welcome, members, to the eleventh meeting of the Special Committee on the Economic Relationship between Canada and the United States. Pursuant to the motion adopted by the House on February 16, special committee is meeting to discuss the economic relationship between Canada and the United States.

Today we are continuing our examination of buy American procurement policies. I would like to welcome our witnesses, who are both returning for a second time. From the Canadian American Business Council, we have Maryscott Greenwood, chief executive officer. From the Canadian Chamber of Commerce, we have Mr. Mark Agnew, vice-president, policy and international.

Ms. Greenwood, please go ahead for five minutes with your opening comments.

[Maryscott Greenwood, Chief Executive Officer, Canadian American Business Council]

Good evening, Mr. Chair and members of the committee. It's good to be back with you again today.

The policy known as buy American has been a large and remarkably deep-rooted fact on the economic ground of our continent for generations. The Canadian American Business Council has grappled with it repeatedly since our founding more than three decades ago. The issue seems to reassert itself more urgently with each new administration and, more particularly, with each new fiscal crisis.

The Biden administration's infrastructure and economic recovery package proposes spending trillions—all packaged with a buy American caveat. Canada has objections, of course, but effective criticism always rests on a thorough understanding of the counterparty's rationale.

It's useful to consider why buy American is so consistently deployed by U.S. legislators and policy-makers. Put simply, buy American codifies the idea that restricting foreign inputs will help create U.S. jobs. While that school of thought—much as I disagree with it—may actually have some merit where other countries are concerned, the exact opposite is true with respect to Canada.

Given the extent of integration between our two economies, which has developed since the first free trade agreement, the best way to create more American jobs is to deepen that integration even further. We have never been more interdependent. Given our reality, trade barriers against each other are particularly self-defeating and costly. The buy American policy will actually redound on the American workforce and cost American jobs.

It is also important to consider that buy American is nothing new. It should not be taken as some sort of contempt for or indifference to Canada. Governments led by Republicans and by Democrats at the federal and state levels have imposed buy American restrictions on public spending for literally generations, or at least as long as I've been paying attention, which is a long time. To be fair, let's recognize that imposing domestic preferences for public spending is not a uniquely American practice. Trade agreements around the world allow for a certain amount of protectionism. Yes, Canada has opened up its procurement in recent years, but it still fights hard to limit foreign access in certain sectors. The Canadian public actually demands it. You know that better than I do.

That said, we are concerned by the extent of the buy American provisions in the new U.S. legislation. We submit that unless Canada is granted an exemption, a carve-out or, if you will, a “carve-in”, the spending rules will quickly crash into some unforgiving facts.

Take New Jersey. Canada is New Jersey's second-biggest export market. New Jersey sells more goods to Canada than to its next two largest markets combined and it imports billions worth of Canadian goods. Nearly 180,000 New Jersey jobs depend on smooth cross-border supply chains. Buy American would disrupt those chains and reduce the availability of competitively priced Canadian supplies to New Jersey businesses. That means inefficiency. Inefficiency costs jobs. That's just in New Jersey. Almost every other state in the United States has the same economic reality.

Take PPE. Canada is a top supplier of personal protective equipment to the United States. Let's not forget that the previous administration, at the outset of the pandemic, attempted to restrict export of N95 masks to Canada and the Caribbean, but then quickly backed off. Why? Because Canada provides inputs to critical PPE and medical supplies to the United States. The dependence is mutual.

There's another example that we know directly relates to the big economic recovery package. President Biden's infrastructure plan will focus, as we know, on clean energy like wind farms. By the way, happy Earth Day. Quebec companies produce some of the most sought-after wind turbine components in the world. Texas produces more wind energy, by far, than any other state. It's a natural market marriage. Every week, a CN train pulls out of New Richmond, Quebec, loaded with turbine towers or those gigantic, 120-foot-long blades. It makes its way to Chicago and then down the Mississippi to the gulf. Since 2016, CN has moved about 9,000 Canadian-made turbine components to wind farms along its network in the United States. This trade in wind turbines is a direct result of our three consecutive free trade treaties. Restricting it would simply cost American and Canadian jobs.

A smaller, but perhaps more glaring example is under construction right now in Bettendorf, Iowa. The city is building a new bridge and proposes to install a set of elevators to lift pedestrians and cyclists up from ground level to the bridge's pedestrian/bike trail. Local officials have realized that some of the necessary parts for the elevators are only made in Canada. Unless some buy American restrictions are waived, Bettendorf will have to order the parts custom-made in the U.S., doubling the $427,000 cost of the elevators.

We would argue that Bettendorf's dilemma in one form or another will be repeated across the United States on a vast and expanding scale, unless Canada is carved out, or carved in, if you will, from buy American.

Canada will need an exemption. It's a reasonable ask, and there's precedent. Back in 2009, Canada obtained an exemption that allowed Canadian businesses to compete for hundreds of billions in stimulus spending after the housing meltdown.

How did that exemption come to pass? Ask Canada's ambassador at the time, Gary Doer. He worked with the steelworkers' union, which had members on both sides of the border, and a collective voice mighty enough to make itself heard in the White House. As Ambassador Doer likes to tell it, he got the American hard hats involved and appealed to their self-interest.

This time around, Canada will need just as compelling a message. We have built a system of mutually assured growth. Let's not disrupt it.

The Canadian American Business Council advocates ceaselessly to reduce red tape at the border, streamline and match industrial policies, and generally make commerce between our countries smoother and easier.

Buy America may be intuitive for American policy-makers. It should be equally intuitive for Canada to vigorously make the self-evident case for an exemption—a carve-out or a carve-in. The CABC is there to help. Our countries need to recover economically, and we need to do it together.

We actually have a North American rebound campaign that I think we've talked about in the past. I'd be delighted to talk with you about it more if you'd like to tonight.

Thank you ever so much.

[The Chair, Liberal, Raj Saini]

Thank you, Ms. Greenwood. It's always a pleasure to have you here.

Now we will go to Mr. Agnew for five minutes, please.

[Mark Agnew, Vice-President, Policy and International, Canadian Chamber of Commerce]

Mr. Chair, and members thank you once again for the opportunity to meet with the committee.

Scotty, we should really stop meeting like this at committee as well.

Since my last appearance, the Canadian Chamber launched our Canada-U.S. relations initiative that covers five critical areas in the relationship: the border, environment and natural resources, regulatory co-operation, buy American, and defence and security supply chain issues.

We look forward to engaging with committee members on all the above, but really it's the latter two that are the most germane to my appearance with the committee for the next couple of minutes.

I don't need to belabour the point to this committee that the Canadian business community's concern with procurement practices in the United States is an ongoing area of concern, as they risk our being shut out of the American market.

What I instead want to spend the next few minutes talking about are six actual forward-looking ideas to ensure our integration into American supply chains and access to U.S. procurement markets. We hope that the committee will be able to highlight these in their report to the government in the coming weeks.

First, we should look comprehensively at the importance of goods and services. There's a risk that we myopically focus on goods and forget the importance of high-value services. Just last week the U.S. subsidiary of a Canadian company, for example, was awarded a joint venture contract worth up to $2 billion for design and services related to work for the United States Air Force. This demonstrates the value of services, particularly if you're talking about support contracts that can last years instead of a one-and-done deal that comes with the delivery of a physical product.

Second, we need to know what we're bringing to the table as Canada. In 2008-09 when we had the bilateral negotiation with the Americans, we had gone through a fairly bruising process, and I don't think anyone wants to go through that type of arrangement again, given we that have just gone through the USMCA discussions. We need to think about how we can be a serious partner. This includes CUSMA implementation, supporting North American supply chain resiliency, leveraging critical minerals, and perhaps even our own procurement practices to think about buy North American suggestions, particularly, for example, in the defence and security industry.

There is tremendous potential to partner and work with U.S. firms, and also to provide world-class expertise in the clean energy sector. This includes, for example, partnerships on hydroelectricity facilities, or on small modular reactors.

Third, we need to recognize the unique nature of our defence and security industrial base. The DPSA and other arrangements are critical tools for Canada to maintain access to the American market, and we would encourage the committee to explore in its recommendations how these arrangements could be codified to provide further certainty for Canadian companies. The continental industrial base is critical to continental defence and cannot be separated.

Fourth is the importance of engaging on emerging buy clean initiatives. The recently introduced CLEAN Future Act would establish a buy clean program that would set performance targets for projects that receive federal funding. It was introduced with a very explicit goal to bolster U.S. manufacturing competitiveness, and we need to ensure that the standards used in its implementation do not shut out Canadian companies from the market.

Our approach is to seek to address climate challenges while also generating economic opportunities in environmentally sustainable technologies, goods and services. This also means positioning Canada by positively leveraging our low-carbon footprint products.

Fifth, industry and government collaboration is critical. The Canadian Chamber and our members worked closely with the government during the CUSMA negotiations. Another example is when the government and chamber members collaborated last year on the U.S.'s 2021 defence appropriations legislation, which did not pass with provisions that would have been detrimental to Canadian exporters in the defence and security industry.

The Biden administration's supply chain executive order thankfully recognized the importance of consultation with allies, and we're calling on the government to engage in those reviews and collaborate with industry to ensure that a Canadian view is well represented in those processes.

Sixth, and last but not least, is that we need better data. Buy American and buy America, its cousin, are hideously complex when combined with the WTO GPA commitments, waivers and various subnational programs, and this comes from someone who has spent over a decade working in trade policy. There is not really solid data in the public domain about Canadian access to U.S. procurement markets. Canadian businesses, and I personally, would like to get a better handle on the true scope of the problem, and companies likewise want to know where they should invest their business development efforts most effectively.

As I said in a recent media interview, there are few who wake up in the morning in Washington thinking about how to do Canadian businesses a favour. Maybe Scotty is perhaps an exception to that. There are a multiplicity of interests inside Washington, and our embassy is ably led by Ambassador Kirsten Hillman, who does a fantastic job on behalf of Canada, but we are at a critical moment in the relationship, and we need to drive home the point of why it is in America's self-interest to work with us.

The Canadian Chamber looks forward to continuing to work with this committee. I would be glad to answer any questions.

[The Chair, Liberal, Raj Saini]

Thank you, Mr. Agnew.

We will start off with the questions.

We will have Mr. Hoback, for six minutes, please.

[Randy Hoback, Conservative, Prince Albert, SK]

Thank you, Chair; and thank you, witnesses. I feel that I should just pour you a cup of coffee. It's like we're sitting here having coffee as we used to do in the good old days.

Scotty, you're ahead of me.

The first thing I want to do is thank the Governor of North Dakota. He made a gesture of goodwill this week in offering to vaccinate our truck drivers who cross the border back and forth. He's going to vaccinate truck drivers out of Manitoba and North Dakota. That's a good example of a good neighbour. What a great neighbour to do that for us. We're struggling here to get enough vaccines in the arms of our essential workers and our population, and to see him do this is just a really good gesture.

I wish now we could take that gesture and just build upon it. I know we talked about the last negotiations on the USMCA. One of the opportunities lost was to build that North American empire where Canada, the U.S. and Mexico were working together, taking our efficiencies and our knowledge and putting it together and taking on the world. We missed a lot of that, and now with buy America, it seems as though we're going to miss it again.

Ms. Greenwood, one thing you talked about that I thought we did fairly well in the CUSMA negotiations is that we spent a lot of time educating our American colleagues on the importance of the relationship. In COVID times, we can't do it like we did before.

Mr. Doer did it right. He engaged the labour force in the U.S. and did it that way.

Have you seen Canada doing that, at this point in time, and how effective is that?

[Maryscott Greenwood]

Thank you so much, Mr. Hoback.

You know, everybody is meeting like this now. Everybody is meeting by Zoom, and in many ways, policy-makers are easier to reach because they're not travelling very much. It's continuing to engage in this type of format until you're able to engage directly.

There's an in-person meeting of the Pacific NorthWest Economic Region. That's a regional group that includes state, provincial and federal leaders. It's going to be in Montana in August. I think there are a lot of Americans who are going, and there's a hope that it will be possible for Canadians to come as well. Participating in those bilateral sessions is also a good way to do it.

The embassy here does a phenomenal job, as you know, but they can't do it alone. They need everybody helping and leveraging their relationships in order to expand the outreach that you discussed.

[Randy Hoback, Conservative, Prince Albert, SK]

How do you take a message? Buy America is talking about creating American jobs, but I often wonder about the value for American taxpayers. What about value for those jobs? There's a certain point where it just doesn't make sense to do certain jobs in the U.S. because it's just too expensive. There's certain componentry that you just don't make in the U.S. It's just too expensive.

Where does the U.S. find that balance? When does the taxpayer say, “Wait a minute; that's not value for that job.”

Where do you see that fitting into this whole equation?

[Maryscott Greenwood]

It's U.S. companies and U.S. entities that end up having to make the case to their policy-makers.

I mentioned the example of a city in Iowa. They're making a bridge and they're getting the parts for the elevators from Canada. If they had to make them themselves, it would literally double the cost of the bridge, and the City of Bettendorf, Iowa, doesn't have double the funding. Therefore, it just becomes self-evident that it makes sense.

There's a difference between buying from Canada and buying from literally anywhere else in the world. As much as I'm a free trader, I think I would in this case go for Canadian exceptionalism.

We're not trying to open the door to any country in the whole world. We're trying to make sure that the Canada-U.S. relationship works economically. I think Americans are generally open to that. Especially state and local governments that are so stretched for resources don't want their infrastructure prices doubling and tripling because of the supply chain problems.

[Randy Hoback, Conservative, Prince Albert, SK]

Mr. Agnew, one of the things we're seeing in Canada already is a shortage of certain components. A good example would be lumber.

With buy America, the $2 trillion that's going to be spent, and stimulus coming here in Canada, how do you see the management of our resources such as timber and lumber, steel and cement in this type of scenario? How do you see that functioning? The U.S. requires it, and Canada requires it. Do you have any predictions there?

[Mark Agnew]

I actually think one of the biggest opportunities is in critical and rare earth minerals. We have an abundance of these things in the ground but we're just not very good at getting them out. The U.S. wants its semi-conductor industry getting inputs from places that aren't China, and I think that's actually a big leverage thing that we can bring to the table.

What we need to do here is make it more cost-effective for the private sector to get it out of the ground, because right now the economics just aren't there for projects to be springing up.

[Randy Hoback, Conservative, Prince Albert, SK]

I know that in Saskatchewan they're actually putting in place one of the first processing centres for rare earths, different types of rare earths. We have them here; we know that. We've identified where they're actually located. It's like you said: They're not in some place where you just back in with a backhoe and get to work. They're in the middle of nowhere, one might say, and tough to get to.

One thing that we have noticed in both...in North America is shortages of components that were usually coming out of China.

Has any work been done through the chambers or companies that belong to the chambers in identifying those shortages and seeing what we can do as Canada or the U.S. to deal with those shortages or make them up here?

[Mark Agnew]

We are starting that process as part of our Canada-U.S. initiative, and one of the questions is this: What can governments do to help backstop that for the private sector because, right now, there is a market failure in the industry?

[Randy Hoback, Conservative, Prince Albert, SK]

How much time do I have?

[The Chair, Liberal, Raj Saini]

Ask a quick question, Mr. Hoback. You have 10 seconds.

[Randy Hoback, Conservative, Prince Albert, SK]

You know what? I'll leave it there, Mr. Chair, and let my other colleague go next.

[The Chair, Liberal, Raj Saini]

Thank you very much.

We have Mr. McKay now for six minutes, please.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Thank you, Mr. Chair.

Thank you to both our witnesses.

Mr. Chair, if we had a frequent-flyer program, we should put both Mr. Agnew and Ms. Greenwood on it because their testimony is quite valuable, and I doubt very much that any members of the committee disagree with any component of it.

Ms. Greenwood, you've been at this for quite a number of years. Your unique value is that you straddle the policy world, the political world and the practical world. I'm curious as to what kinds of clients are coming to your shop and asking you, “What should we do with this buy American issue because my company sells PVC pipes or whatever?”

What is the advice that you're giving to those who are seeking out your office?

[Maryscott Greenwood]

What companies want right now is to understand what the programs are that are involved in the $2 trillion infrastructure plan to see where there are opportunities.

The first order of business is this: Where does an opportunity exist? Where can we bid on projects? Canada, as usual, is way ahead of the game. The infrastructure plan, which is what buy American is part of, isn't law yet. It's a proposal. You could call it a first volley by the Biden administration early on. It needs to go through the congressional process, and it needs to come out the other end in some sort of a concrete program. There's going to be a lot of debate, so what people want to know now is where there are opportunities.

The other thing is that the White House hasn't fully staffed the Office of Management and Budget where the exceptions will be made, where the recommendations will be taken in for a buy American exception or a Canadian carve-in. Those people aren't even in their jobs yet.

There's a lot of interest and eagerness to get involved, but at the moment, companies are looking for the opportunities.

I would say—to give you a specific example—that cement companies are really important right now. They also have a big impact on the environment. There is some very exciting technology—including some coming out of Canada—where you capture carbon, mix it into nanotubes and things like that—into cement, for example—and reduce the carbon impact.

I think that there will be a lot of opportunities like that where, if Canada can demonstrate its expertise on environmentally sustainable infrastructure, environmental benefits.... Those are the kinds of things that will be value-added and be treated as such, I think, in the U.S.

[John McKay, Liberal, Scarborough—Guildwood, ON]

As you rightly say, it hasn't gone to Congress yet, and as Bismarck once said, there are two things you shouldn't be watching: the making of sausages and the making of legislation. If ever there was a true aphorism, I think the American Congress is probably it.

There is some limited utility at the American congressional level only because of this: What congressman can say anything negative about buy American? That's just not politically sound. However, the advice to approach officials in the White House does sound to me to be a useful thing to do.

Is that advice that you're also giving to our ambassador?

[Maryscott Greenwood]

Yes, and she actually doesn't need advice from me on that. She's well ahead of all us. Ambassador Hillman engages very regularly with people at all different levels of the White House and the executive branch. However, the thing is that they are still staffing up the place. I know that we're all eager to engage with counterparts, but they're still going through confirmations.

The Biden administration is still brand new, so we're waiting for a bunch of seats to be filled before we can truly engage as robustly as I know you're eager to do.

[John McKay, Liberal, Scarborough—Guildwood, ON]

That's a fair comment.

Turning to Mr. Agnew—having you twice in one week, Mr. Agnew, I think, is getting a little bit over the top, but I did not ask you any questions on Tuesday. As it happens, I co-chair the Permanent Joint Board of Defence, and we are just about to set our agenda for the June meeting in the Pentagon. I would be interested in your advice on what you think should be on the agenda insofar as defence and security spends are concerned in that context, where we actually have our American friends captive in the Pentagon.

[Mark Agnew]

The one thing that members have talked to us about is NORAD modernization. There's a fairly large chunk of change that's going to be spent on that, and we just want to make sure that the benefits of that are also accruing to Canadian industry, given that it is a continental defence mechanism. That would be one very tangible item I would ask you to take back to that group. I'd be happy to engage with your office further on that.

[The Chair, Liberal, Raj Saini]

You have 20 seconds, Mr. McKay.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Well, it would be 10 seconds from Mr. Hoback and 20 seconds from me. Our Bloc friends should be very happy.

Thank you.