Economic Relationship between Canada and the United States Committee on April 29th, 2021

[Dave Carey]

That's a great question.

On an annual basis, approximately 20 million tonnes of canola are produced. About 10 million tonnes of that is now value added. It's crushed at a processing facility instead of being sold as the raw product, as seed.

Quite frankly, our two biggest export markets when it comes to biofuels would be to satisfy our domestic market. About $640-odd million a year go to the European Union, and that's really driven by their strong demand for canola-based biofuels. In the United States, it would be a combination of oil for cooking, for other value added. We do think if we got that clean fuel regulation correct, as you alluded to, that could be another 1.3 million tonnes annually that would be crushed here, roughly the size of our Japanese export market.

Biofuels have been critical as far as hedging against trade volatility is concerned.

[Richard Cannings, NDP, South Okanagan—West Kootenay, BC]

When we're talking about the United States, what are the clean fuel regulations there? How does biodiesel play into that market, and what role can Canada play to supply that market? I'm trying to figure out how canola fits into the buy America situation.

[Dave Carey]

Absolutely.

We've had 10 years of reciprocal aggregate compliance between the United States EPA and Agriculture and Agri-Food Canada that recognizes both of our markets' production practices as sustainable. Unfettered access across the 49th parallel is critical for canola—Canada controls 60% of the world's canola—to be able to move unfettered into the United States.

Ninety per cent of canola grown in Canada is exported; that was $11.9 billion in 2020. The big concern, Mr. Chair, around buy America is that we rely on the United States as a global partner to promote rules-based trade. We rely on it to promote the World Trade Organization. We rely on it to promote that, post-COVID, we cannot have the rise of protectionism. Buy America is concerning for canola as an export-oriented crop and concerning for Canada as a middle power. If our biggest trading nation no longer respects rules-based trade, that's a really strong signal as we're trying to reform the appellate body of the World Trade Organization, as we look at the Ottawa group.

We're here from an existential sort of perspective as, post-COVID-19, we've seen this rise in protectionism. We need to make sure that we get back to what makes Canada great, which is being an exporting nation, as fellow witnesses have said. We don't want to alienate the United States, but we also need to make sure that we take them to task. We can't hold China responsible for its trade issues if the United States isn't willing to step up. Those are, I guess, our critical concerns there.

[Richard Cannings, NDP, South Okanagan—West Kootenay, BC]

Thank you.

I'll turn to Mr. Sobot again.

When I'm thinking about this from a natural resources point of view, I know that one of the big disagreements we've had with the United States—and I talked about this the last time I was on this committee—is the softwood lumber disagreement and how that whole situation is one of the major reasons we have such soaring lumber prices in Canada, for instance, and across North America. We use that argument in the United States to say, “Why do you punish us? You're only punishing yourself. You're making it much more expensive to build houses, to do everything.” However, that doesn't seem to gain enough traction.

I'm wondering if there's any argument there with regard to, for instance, your pipe. Is that something that, if you were excluded from the U.S. market, would affect prices in any way? Can we use that argument with the United States?

[Veso Sobot]

Yes, Mr. Cannings, that's exactly right. If we were to not supply the U.S. market with its raw material, its prices would go up drastically. Quite frankly, what's happened in our marketplace is that products have gone up 60% because of raw material increases over the last couple of months, so it would be hurting them; there's no question.

The protection against that is fair and open competition. Allow as many products as you can. Have fair and open competition. The price will come down. That's what Burton, Michigan, found. It found that when it opened up competition—we won the bid—it saved $2.1 million over the next competing bid. Mayor Zelenko, a Democrat, recognized that and didn't mind that it came from Canada. She sat on the international trade committee, by the way, for Canada and the United States when she was in the state legislature, and she saw Canada as a valuable ally, not as a competitor.

One of the reasons we—

Sorry, go ahead.

[The Chair, Liberal, Raj Saini]

Sorry, Mr. Sobot. Finish up very quickly, please. We're really short on time today.

[Veso Sobot]

One of the ways we got the exemption last time was that we found out that there's an American competitor that had exclusive domain in Canada. It was the one that was behind the buy America initiative. It paid, literally, millions of dollars to its congressman to get buy America written in. When that was found out, the Canadian embassy worked very diligently and brilliantly and brought them in to the embassy. They signed a letter that said they were worried about China, not Canada, and that was really an important point. That's what changed the game. That letter was given to the USTR and the President of the United States, and that's how Canada got the exemption.

[The Chair, Liberal, Raj Saini]

Thank you, Mr. Cannings.

We'll go to our second round.

Mr. Hoback, you have five minutes, please.

[Randy Hoback, Conservative, Prince Albert, SK]

Thank you, Mr. Chair.

Thank you, witnesses, for being here on a Thursday evening.

Mr. Carey, I'll start off with you.

I'm from Saskatchewan. I'm really excited about Saskatchewan and canola, and you can understand why. We see another, what, $1 billion that is going to be invested in Saskatchewan, three new facilities opening up. In fact, we're going to be in the scenario, probably, where we won't have enough raw product in the province of Saskatchewan, so we're going to have to pull out of Manitoba, Alberta and North Dakota. With regard to buy America, I'm trying to understand what that does for the actual construction costs for these facilities.

Mr. Sobot, I'm going to ask you about the price of your pipe right now, here, pretty quickly.

As we see a shortage in lumber, a shortage in cement, a shortage in steel, what does that mean for these plants and their expanding at this point in time? Does that concern you?

[Dave Carey]

Mr. Hoback, thanks for the question.

Being a farmer rep, it's hard to know, but I could certainly commit to getting back to you and the clerk in writing after speaking with COPA, which represents the processors. I know they're very bullish on this as far as that $1-billion investment in Regina is concerned.

However, it speaks to, as my fellow witnesses have said, Canada needing an exemption from this. We have a special trading relationship. We're so integrated that, if there is not an exemption, it will certainly make life more difficult in terms of these processing plants, with billions of dollars invested in Regina and other places. Their operating costs will certainly increase.

From a farmer's perspective, more trade volatility is not what we need these days. I can certainly commit to speaking with Chris at COPA and getting back to you. For sure, for all the reasons we've alluded to, it's concerning when the United States isn't following rules-based trade.

[Randy Hoback, Conservative, Prince Albert, SK]

As we hear President Biden talk about his environmental plan and how we're supposed to be on the same page and try to create a North American environmental plan with biofuels somehow fitting into that, it's going to be interesting to see if they come up to our standards, because we've leaped ahead of them quite a bit already, or if we're actually going to lower our standards to meet theirs. There are some things to be learned here.

Mr. Sobot, I'm going to go to you.

On the PEX pipe shortage in Canada, why should I feel sorry that you can't sell them to the U.S. if you can't even supply the market already in Canada?

That's just a hypothetical question.

[Veso Sobot]

We think the shortage in Canada for PEX pipe is temporary. The shortage was created because all the chemical plants in Louisiana and Texas went down in that big ice storm. We think things are going to go back to normal in June.

We're not asking you to be sorry for us; we're just explaining the lay of the land. That's all.

[Randy Hoback, Conservative, Prince Albert, SK]

How do you explain this, then? We see this [Technical difficulty—Editor] to get the economy going again. We see $100 billion talked about here in Canada for stimulus.

As I said, for lumber, good luck, or for OSB. When you look at construction materials, the cost of housing is actually starting to really inflate.

Are we not just adding more fuel to a fire that doesn't necessarily need it?

[Veso Sobot]

This has been puzzling me. I don't understand why there's so much inflation out there right now. I hope it's not because the government is printing money. If that's the case, we're in big trouble, because we're going to have a tough two, three or four years, trade or no trade.

However, I don't think that's what's going on right now, not in the plastics sector anyway. As I mentioned before, the plastics sector was hit with very bad weather. Everybody is going to be back online by June.

[Randy Hoback, Conservative, Prince Albert, SK]

As we see this program unwind in the U.S. and our stimulus here in Canada, if you feel that you have to be in the U.S., will that mean you'll be shutting plants down in Canada and fulfilling the Canadian marketplace out of your plants and new facilities in the U.S. in order to take advantage of buy America?

As you said, you can build in the U.S. and ship to Canada all you want, but you can't go the other way.

[Veso Sobot]

That's my worry. We have 15 plants in Canada now and 10 in the United States. We'll be making investments on both sides of the border this year. We have significant investments planned.

I'm worried that the economic circumstances will be such that it will be more profitable for us to invest in America rather than Canada. That's what I worry about. I've been with the company for 31 years; I'd like to see another fantastic five years of growth in Canada and the United States. I don't want Canada to lose out on opportunities.

[Randy Hoback, Conservative, Prince Albert, SK]

You talked about Harper and Obama making—

[The Chair, Liberal, Raj Saini]

Mr. Hoback, you have 15 seconds for a question.

[Randy Hoback, Conservative, Prince Albert, SK]

Chair, I will stop there instead of starting a new round.

Mr. Sabot, I will say this. John can buy you dinner or breakfast. I'll buy you lunch. How's that?

[Veso Sobot]

It's a deal.

[The Chair, Liberal, Raj Saini]

Thank you very much, Mr. Hoback.

Ms. Romanado, you have the floor for five minutes.

[Sherry Romanado, Liberal, Longueuil—Charles-LeMoyne, QC]

Thank you so much, Mr. Chair.

Before I begin, I want to say hello again to Mr. Carey. As chair of the industry, science and technology committee, I know you presented to us earlier this week, so it's a pleasure to see you again.

It's tough going in the second round because people already asked the questions that I wanted to ask, but I do want to elaborate a little more with Mr. Allen.

As a very happy client of AddÉnergie, I have to say, I am very interested in hearing a little more about what you're trying to do. This week at the industry, science and technology committee we heard a little about the opportunities in Canada with respect to natural resources for battery production.

For instance, we have a lot of resources in terms of lithium and graphite. While we don't actually make the batteries, we assemble them here in Canada. When you look at the road map for a renewed U.S.-Canada partnership and the Canada-U.S. critical minerals action plan, can you elaborate a little on how collaboration between Canada and the United States in terms of not only assembly but also production of batteries for electric vehicles could help your company? Perhaps you could expand on how it could be a win-win opportunity for both Canada and the U.S.

[Travis Allan]

Thank you.

I can't agree more. The opportunities right now with the change to electrified transportation writ large are so enormous. I like to think about it in terms of a couple of key parts.

There's the vehicle assembly, which we've been really fortunate to see great collaboration on between Canada in Ontario and the big automakers.

We see the clean energy piece where Canada is unbelievably blessed with hydro power, nuclear power and lots of renewables across the country that we can use here and export to the U.S.

Then I really think there are two more pieces to have critical North American energy independence when it comes to transportation. One of those is being able to build the charging stations that we need to turn that clean energy into charging the batteries, which is what we do.

The other one is the massive opportunity around batteries. Canada has so many of the minerals and metals that are needed not just for batteries, but I should say also for charging stations. We use aluminum in ours. That is a really great opportunity. In particular, it's an integrated opportunity, because I don't think it's going to be any one country. I keep coming back to the idea of an integrated North American market. We're going to have a lot of the pieces here in Canada. There are probably going to be some pieces in the United States, and our best bet, frankly, is to go it together and allow for that integrated continental trade.

[Sherry Romanado, Liberal, Longueuil—Charles-LeMoyne, QC]

Thank you so much.

I am a member of Parliament in Quebec. We were one of the provinces that really took advantage of these subsidies with respect to electric vehicles. The demand is incredibly high here in Quebec for those vehicles.

You talked about energy independence and you talked about North America. Scotty Greenwood was here and talked a little bit about, when we're talking recovery, a green recovery, we really need to look at it from a North American perspective or more of Canada-U.S. perspective rather than doing it alone. As you said, there are so many opportunities for collaboration in that regard, and I agree with you wholeheartedly.

As you know, in budget 2021, we committed to supporting the establishment and growth of a domestic electric vehicle battery supply chain through a $5-billion investment in a net zero accelerator and the introduction of tax incentives and project scaling supports. How do you think these supports will help the electric vehicle sector?

[Travis Allan]

Those announcements will have a very important catalyzing role, I would say, in helping kick off a huge opportunity for Canada not just to be changing its own transportation system, but to be getting some of the jobs and building the IP and the expertise that is the real opportunity. I would say that is the crux of that. It's very exciting, as are prior announcements that the government has made and investments in charging and vehicle incentives for light, medium and heavy duty.