Economic Relationship between Canada and the United States Committee on April 8th, 2021

[The Chair, Liberal, Raj Saini]

Welcome, colleagues, to meeting number 9 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, 2021, the special committee is meeting to discuss the economic relationship between Canada and the United States. Today, we're continuing our examination of buy America procurement policies.

I would like to now take the opportunity to wish a very warm welcome to our witnesses from the Department of Foreign Affairs, Trade and Development. We have with us today the Honourable Marc Garneau, Minister of Foreign Affairs; Steve Verheul, assistant deputy minister, trade policy and negotiations, and chief trade negotiator for the Canada-United States-Mexico Agreement; and Mr. Michael Grant, assistant deputy minister, the Americas.

Thank you very much, Minister, for taking the time. I know you're very busy, as we all are.

I understand you have some opening comments. You have five minutes, sir.

[Marc Garneau, Liberal, Minister of Foreign Affairs]

Thank you very much, Mr. Chair.

It's a pleasure to be in front of your committee. It's my first time in front of any committee as foreign minister. I'm delighted to be here with Steve Verheul and Michael Grant from our ministry.

Canada and the United States have a unique and incomparable relationship. We enjoy the world's largest trading relationship and the longest undefended border. We are strong allies on the world stage and work together to protect the natural environment in our two countries, but we are also guided by the objective of reducing emissions globally. No two nations depend more on each other for their mutual prosperity and success. About 2.7 billion dollars' worth of goods and services cross our shared border every day. Roughly three-quarters of Canada's exports go to the United States.

In February, mere weeks after his inauguration, President Biden chose to renew a tradition. His first meeting with a world leader would be with Prime Minister Trudeau. They talked about the importance of a shared vision for clean, sustainable growth that creates opportunities and strengthens the middle class on both sides of the border. Following this meeting, they announced the road map for a renewed U.S.-Canada partnership to revitalize and expand our historic relationship. The road map is a blueprint to expand our co-operation in many critical areas, including in our response to the COVID-19 pandemic and in building cleaner, fairer and more inclusive economies for everyone.

Following this meeting, I talked to Secretary Blinken about pursuing the work undertaken by our two leaders. We agreed to work together with like-minded partners to promote our fundamental values around the world, values such as democracy and human rights, on issues including the challenges posed by China, the rise of authoritarianism, and the arbitrary detention of Michael Kovrig and Michael Spavor. The U.S. assures us of their unequivocal and unwavering support in calling for their release. Secretary Blinken and I have also discussed the importance of working together to build back in an inclusive way from COVID, as well as co-operating on migration issues.

We also agreed to refuse needless protectionism. We all recognized that the economic recovery, both in the United States and in Canada, will be quicker, stronger and more sustainable if we act together. For that reason, President Biden and Prime Minister Trudeau launched a new strategy to strengthen the resilience and reliability of our supply chain, which is so critical to the prosperity of our two countries, and which has been and remains essential in our pandemic response.

Workers and businesses are not just exchanging goods; they produce them together so that they would be used here and around the world. Concretely, most of the U.S. imports coming from Canada already contain American products. The two countries understand very well that it is crucial to avoid unexpected consequences of poorly thought out protectionist policies.

Canada is a predictable and stable partner for the U.S. and is also its closest ally. We work together to ensure that our mutual prosperity and our national security would be supported by a solid and resistant supply chain.

We know full well that the Buy America policies negatively impact our cross-border trade, as well as our American interests. That is why Prime Minister Trudeau and Vice-President Harris agreed in February to avoid the unexpected consequences of those types of policies. What is more, last month, Deputy Prime Minister Freeland and Vice-President Harris discussed the importance of free trade, especially in the context of proposals surrounding Buy America policies.

Our two countries also recognize the vital role natural resources play in our trade relations. Canada is the largest energy supplier to the United States, and that includes oil, natural gas, hydroelectricity, as well as uranium. It is essential for us to work together to ensure a sustainable and predictable provision of resources for North America and the entire world.

Energy underpins our exports. It supports the economy, jobs and competitiveness on both sides of the border. It provides energy, security and resiliency to North America, and supporting Line 5's continued operation remains a top priority now and in the future through Enbridge's tunnel project.

We work tirelessly through Canada's diplomatic network in the U.S. to promote and strengthen the energy relationship. Our shared desire to ensure greater energy security on the continent is coupled with our shared commitment to create jobs in a clean, sustainable economy of the future that both protects our natural environment and addresses the existential threat of climate change while creating opportunities in the energy sector of the future.

We agreed with the U.S. administration to take a coordinated approach to accelerating progress towards sustainable, resilient and clean energy infrastructure, including encouraging the development of cross-border clean electricity transmission. We have also agreed to align policies to achieve a zero-emission vehicle future and to create the necessary supply chains to make Canada and the U.S. global leaders in battery development and production, so every citizen can participate in the transition to cleaner energies and renewable energy storage.

Under the new road map, we will also launch a high-level climate ministerial to increase our climate ambitions consistent with the Paris Agreement and net-zero objectives, while holding polluters accountable.

Beyond economic recovery and energy security, Canada and the U.S. also collaborate closely on defence, both at home and abroad, notably through multilateral organizations.

Over the short and medium terms, we will expand our cooperation in terms of defence on the continent and in the Arctic, including by modernizing the North American Aerospace Defence Command, NORAD, and by launching a broader dialogue between the United States and Canada on the Arctic.

We are currently going through a landmark and very exciting moment in our relationship with the United States. Over the next few years, Canada will have an array of opportunities to work with the Biden administration, and we are in a very good position to take advantage of those opportunities.

Thank you for listening. It would be my pleasure to answer your questions.

[The Chair, Liberal, Raj Saini]

Thank you very much, Minister.

We will now start our first round of questions, with Mr. Lewis for six minutes, please.

[Chris Lewis, Conservative, Essex, ON]

Thank you, Mr. Chair, and thank you, Minister. We certainly appreciate your coming out here to answer questions.

Minister, at a Manufacturing Canada Conference in May 2014, which is as relevant today as it was then, Robert Hattin, a former chairman of the Canadian Manufacturers & Exporters board of directors, suggested that to get around the challenges to competing in the U.S. economy, Canadian manufacturers should simply buy an American company:

Business as usual is no longer an option, and we have to figure out other ways to continue to participate in the largest economy in the world. Let's buy America. Let's invest in America.

Of course, what Mr. Hattin doesn't say is that this will result in a potentially catastrophic loss of well-paying manufacturing jobs in Canada.

Minister, to stem further hemorrhaging of contracts and jobs in Canada during the year-long closure of the Canada-U.S. border, what is the Canadian government doing to ensure that manufacturers can thrive in Canada and jobs in Canada are protected from President Biden's latest tightening of the buy America provisions?

[Marc Garneau, Liberal, Notre-Dame-de-Grâce—Westmount, QC]

Of course, you quoted somebody back in 2014 talking about manufacturing and encouraging Canadian companies to buy American companies. To some extent, that has happened, as it has the other way as well. We do both as countries; we invest in each other.

Since that time, of course, we renegotiated very successfully the NAFTA 2.0 agreement, the CUSMA agreement, and I believe that Canada came out of that with a very good free trade agreement with the United States. It was modernized and it defended all the important priorities we had as a country.

The situation is such that trade between our two countries.... I did point out that goods and services—we're now talking about over $2 billion a day—are flowing between the two countries. It's obviously slowed down somewhat by COVID-19, but we took a team Canada approach in making sure our neighbours to the south were aware of the strongly integrated supply chains that exist between our two countries. As a result of that approach, we were able to come out with a very good deal for Canada and for Canadian manufacturers, and we will be cognizant of that as we go forward.

[Chris Lewis, Conservative, Essex, ON]

Thank you, Minister, I certainly appreciate that. I'm very happy that you spoke about the integrated approach.

Minister, another concern I have about the buy America or buy American provisions is the impact on the Canada-U.S. supply chains, which are highly integrated, as you've just suggested, sir.

Right here in my backyard in Essex is the Windsor Assembly Plant, the Chrysler assembly plant. We cannot get chips for our vehicles; therefore, the plant is shut down for one month. I really suggest that integration is not happening at the greatest level that it perhaps could.

Minister, parts for a vehicle go back and forth across the busiest international border up to seven times before a car is manufactured. Then, that same vehicle or truck is sent back to the States and/or Mexico in some cases.

Minister, is Canada negotiating with its U.S. counterparts to ensure that the integrated supply chain with respect to manufacturing in Canada, particularly in the automotive sector, is protected?

[Marc Garneau, Liberal, Notre-Dame-de-Grâce—Westmount, QC]

Yes. I'm glad you brought up the example of the automotive sector, because it's probably the most important illustration of how tightly integrated our supply chains are. As you point out, products go back and forth across the border before they end up in a finished car. The automobile sector has been very well protected in the renegotiated Canada-U.S.-Mexico trade agreement and will continue to be protected as we go forward.

The United States recognizes very clearly that this is a strong example of where there can be unintended consequences with protectionist policies. We're going to make sure that the United States continues to understand that. We're confident that they will as we go forward, and particularly as we transition from internal combustion engine cars to electric cars. We're confident that this message will continue to be carried to our neighbours to the south.

[Chris Lewis, Conservative, Essex, ON]

Thank you so much.

Interestingly enough, Minister, I am the chair of the Conservative auto caucus. Yesterday I had eight or nine stakeholders there, from all aspects of auto. Yes, there's a lot of talk on electric, and I think that's fantastic. As you know, sales across Canada are down 20%, and that's because we cannot get commerce back and forth across the border and we can't get people back and forth across the border.

Specifically, Minister, have you had any conversations with your counterparts in the United States to ensure that manufacturers, advanced manufacturers in the auto sector, can get people across the border to do their jobs?

[Marc Garneau, Liberal, Notre-Dame-de-Grâce—Westmount, QC]

I'm very glad you brought that up. Yes, we are specifically talking about different groups who would be potentially considered to be essential workers who need to cross the border for specific reasons. That could be technicians in the automobile industry. We are currently looking at that to see if we can refine our essential workers list as we move forward.

[Chris Lewis, Conservative, Essex, ON]

Thank you, Minister.

Thank you, Chair.

[The Chair, Liberal, Raj Saini]

Thank you, Mr. Lewis.

We'll now go to Mr. McKay for six minutes, please.

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

Minister, it's good to see you again, even if it is virtually.

On January 25, President Biden issued an executive order: “Ensuring the Future Is Made in All of America by All of America's Workers”. It's not a very subtle executive order, may I say? It seems to me that it was a very political executive order. From this side of the border, one thinks that maybe treaties, laws and various agreements, including NAFTA 2.0, are more casual suggestions than actual agreements that are binding on both parties.

My first question is, what is your political strategy with respect to getting the most favourable treatment under that executive order? Everything in Washington seems to be political, and you can operate at an executive level but not necessarily at a political level. I'd be interested in your strategy with respect to that.

The second question I have is with respect to your seeking exemptions from the arbitrary orders that many American officials might well make with respect to Canadian products. Mr. Lewis can give you examples, and I can certainly give examples as well. I'd be interested in your political strategy and how you're going to ameliorate the section 4 exemptions.

[Marc Garneau, Liberal, Notre-Dame-de-Grâce—Westmount, QC]

Let me start by differentiating between buy American and buy America, which were brought up. We're exempted from buy American because of World Trade Organization government procurement regulations. Buy America, however, as I mentioned in my opening remarks, was pretty much the first subject that the Prime Minister brought up with President Biden when he met him on February 23. At the same time, the Prime Minister spoke to Vice-President Harris, as I mentioned. Our Minister of Finance has also spoken with the Vice-President about the unintended consequences that could happen as a result of buy America policies. These are unintended in the sense that products we sell to the United States already have, on average, 21% American content in them, and if those products are blocked from being sold in the United States, then the United States is effectively cutting off its nose to spite its face because of that highly integrated nature.

That is the message we carry across to the United States. I believe we did this very successfully, with a great deal of effort, in the team Canada approach we used for about two years when CUSMA was being renegotiated. We will use a similar approach to remind our American neighbours of the importance of maintaining supply chains and keeping exports open to Canada, because this is not only in Canada's interests but in the interests of Americans.

We were successful with CUSMA and we intend to be successful with buy America.

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

We've been friends long enough to know that I don't mind interrupting my friends.

[Marc Garneau, Liberal, Notre-Dame-de-Grâce—Westmount, QC]

That's fine.

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

That response is on an executive level—you to your secretary of state and the Prime Minister to the President—but as we know, everything in Washington is political. What I'm interested in knowing is how you anticipate penetrating Congress and getting to both Republicans and Democrats in Congress and the Senate, because those are the people who have skin in the game. A number of people have been successful politically because of the anticipation that this kind of a buy America order would be issued forthwith, so I'd be interested in knowing your political strategy.

[Marc Garneau, Liberal, Notre-Dame-de-Grâce—Westmount, QC]

In the team Canada approach, we obviously had people like Chrystia Freeland and Steve Verheul negotiating on our behalf for the new NAFTA treaty, but at the same time, I was involved, along with many other government ministers and MPs, in speaking directly to American lawmakers and governors. We pointed out to them that they may not know it, but we are their chief export destination; we are in many cases the country from which they import the most, and there are many jobs in their state because of that.

That's the kind of hard information we shared with our American colleagues to point out exactly what the implications of trade between the two countries are. We believe that we met with some success on that, because we think we ended up with a good treaty. That's the approach we will continue to take as we move forward and as some of the buy America legislation, which still has to go through Congress, is implemented.

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

Thank you.

[The Chair, Liberal, Raj Saini]

Thank you, Mr. McKay.

We will now go to Monsieur Savard-Tremblay.

Go ahead for six minutes.

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

I want to say hello to my colleagues and thank all the witnesses joining us today.

Minister, on March 4, 2021, the United States Department of Commerce published the notice of initiation of its third administrative review of the softwood lumber countervailing and anti-dumping duty orders.

It is true that tariffs were already revised downward in the previous reviews. According to you, what kind of a tariff revision can we expect this time?

[Marc Garneau, Liberal, Notre-Dame-de-Grâce—Westmount, QC]

Thank you for the question.

As you said, the tariffs were revised downward, but the work is certainly not done. Canada's position has remained the same since the beginning, several decades ago: it is unfair and unwarranted for the United States to impose duties on Canadian softwood lumber. That is our position, which we maintain. We vigorously defend the Canadian industry's interests, including through the proceedings brought under chapter 19 of NAFTA and chapter 10 of CUSMA, as well as before the WTO. So we are defending our interests in those two different forums.

Canada continues to believe that it is in the two countries' best interest to conclude an agreement. We will remain ready and willing to negotiate a mutually acceptable agreement. The high tariffs on softwood lumber are being maintained despite the new U.S. administration. That is something our two countries have discussed.

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

My next question was actually about the Canadian government announcing its plan to negotiate a new agreement for softwood lumber. I wanted to ask you whether that was still planned. You just sort of confirmed it, but I would like to know what the status of the discussions on this issue is.

[Marc Garneau, Liberal, Notre-Dame-de-Grâce—Westmount, QC]

Unfortunately, the discussions take time, as certain positions are entrenched. That said, this is not the first time we find ourselves in this situation. Unless I'm mistaken, I believe that this is the fourth or fifth time we have had this legal dispute between our two countries. We won the first four times and we certainly plan to use the same arguments this time.

We are encouraged by the fact that we definitely have important allies in the United States right now because the construction industry is booming there, and there is great need for softwood lumber from Canada.

So we will continue to present to our American colleagues the same arguments that helped us win this dispute the four previous times.

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

We know that, in this type of commercial war, when a verdict is rendered, it is generally favourable to Canada rather than to the United States.

However, the period during which the tariffs are in effect is extremely difficult. During that time, businesses can approach the brink of bankruptcy and lose a lot of jobs. There is a flaw that surfaces during the dispute settlement period.

Why not have used the CUSMA negotiations, for instance, to resolve the softwood lumber issue once and for all?

[Marc Garneau, Liberal, Notre-Dame-de-Grâce—Westmount, QC]

As I said, we invoked chapter 10 of CUSMA, but these negotiations take time. This did not happen overnight the last four times.

I know that this sometimes puts our industry in difficult positions. However, we are here to support it, as we have said.

The process has to follow its due course. Sometimes, when a dispute comes before a court of justice, it can take time. We are all anxious to have this resolved, but we have to be patient.