Finance Committee on April 23rd, 2013

[The Chair, Conservative, James Rajotte]

Mr. Hoback, please.

[Randy Hoback, Conservative, Prince Albert, SK]

I just want to set the record straight, Mr. Carney, with regard to the difference between general preferential tariffs and agreements like NAFTA. When you have a general preferential tariff, what kind of market access do Canadian companies get into that country that we have the tariff with?

[Mark Carney]

The GPT would be a unilateral reduction of Canadian tariffs for those countries that are vested under it, whereas NAFTA, the free trade agreement before NAFTA, potentially a European free trade agreement, as examples, would be reciprocal.

[Randy Hoback, Conservative, Prince Albert, SK]

Yes, so that market access is equal on both sides.

[Mark Carney]

Absolutely.

[Randy Hoback, Conservative, Prince Albert, SK]

The playing field is what one might call level. It's a level playing field.

[Mark Carney]

Yes.

[Randy Hoback, Conservative, Prince Albert, SK]

So it's access to markets, battle it out, whereas in a provincial tariff that's not the case, of course.

I know the NDP say it's a tariff. They keep on talking about it as a revenue generator. In reality, maybe they're right. It is a revenue generator, because you're creating jobs and economic activity in Canada and employing people, and that indirectly does create revenues.

Which is the better type of revenue to create, the jobs, the manufacturing jobs, or...? I guess I'll leave that up to you.

[Mark Carney]

What was that about not answering loaded questions?

Obviously, we don't have a view about the specific issue that members are debating. From a monetary policy perspective, adjustments in tariff rates, whether they're up or down, in a regime such as Canada where there's a credible inflation target, cause a one-time adjustment in the price level, up or down depending on where the tariff goes. In many cases, it's a very marginal adjustment.

Even if it's a slightly bigger and noticeable adjustment, that is a momentary increase in the price level that doesn't build into the rate of inflation over time. So in the conduct of monetary policy, we look through that. If tariffs were reduced, we look through that, and we don't expect there would be a continuation of lower inflation as a result.

[Randy Hoback, Conservative, Prince Albert, SK]

From an inflation point of view, I can see what you're saying, but from a jobs creation point of view—a manufacturing jobs creation point of view—putting these preferential tariffs back in place, which should have been taken off 20 years ago, effectively puts in a level playing field for Canadian companies that are producing the same goods, level with a company in a country that had preferential tariffs and no longer deserves that preferential status. Is that fair to say?

[Mark Carney]

That could be the case, but I'm not following the details of the debate. I understand what you're saying, but I'm not....

[Randy Hoback, Conservative, Prince Albert, SK]

One thing about the changes we make in preferential tariffs is that we level the playing field again with a tariff, because they have a tariff on our goods going into that country. With NAFTA, when we take the tariffs away, we have a level playing field. In a situation where you have a preferential tariff, you have actually created an uneven field against Canadian companies. We do that based on other reasons. When you look at this situation, we're actually levelling the playing field and giving Canadian companies the opportunity to compete on an equal footing with the competing companies from other countries.

[Mark Carney]

I'll speak in a general way. Free trade agreements are reciprocal. Tariff policy, absent multilateral agreements, which are also reciprocal in their overall design, is unilateral. There are sometimes arguments for what you're saying, as there are sometimes arguments on the other side, depending on the industry, the time, the competitive situation globally, whether it's an end product, or whether it's an input. There's a variety of factors that determine trade policy, and I'll leave trade policy to the experts who design these things.

[Randy Hoback, Conservative, Prince Albert, SK]

I think you'd probably agree that it's better to have a good trade agreement, like a NAFTA agreement or an FTA with Europe. That would be the preferential outcome of any type of agreement.

[Mark Carney]

First, our analysis has been that Canada has benefited tremendously from the agreements you referenced. NAFTA is one example.

Second, as Mr. Macklem just highlighted, there is a broader need for Canadian exporters to diversify internationally in an aggressive trade strategy, which could include the European Free Trade Agreement, and which could include the TPP, the Asian-focused initiative. Other bilateral trade agreements would very much, in our view, help that diversification process, which would make the Canadian economy more resilient, creating more income and more jobs over time in the Canadian economy. I will not go into the specifics of any of those agreements, but directionally speaking, that strategy is very much to the benefit of addressing some of the basic challenges faced by the Canadian economy, businesses, and workers.

[Randy Hoback, Conservative, Prince Albert, SK]

I think I'll end on that positive note.

[The Chair, Conservative, James Rajotte]

Okay, thank you.

I have some further questions, but Governor Carney asked for a few minutes at the end of the meeting, so I want to turn the floor back to him before I wrap up the meeting to give him time to offer some concluding remarks.

[Mark Carney]

On behalf of Mr. Macklem, myself, and previous governors, senior deputy governors, I want to underscore how valuable these meetings are for the bank. As I said at the start, this is an essential part of our accountability to Parliament, our accountability to Canadians. We greatly appreciate it. It's not always pleasant, but it is absolutely right and appropriate and necessary to be asked pointed questions about our forecast, about the dynamics of the Canadian economy, and about the risks in the financial sector. We appreciate it.

I think one thing I can safely say is that it is difficult to be an MP. You don't get a lot of praise or thanks, so I wanted to take this opportunity to thank you for the work that you all put in, on behalf of your constituents and Canadians, in holding the bank to account and ensuring that, to the extent possible, our fellow citizens understand our view of the economy, the prospects, and the risks for our country.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you very much, Governor Carney.

On behalf of all committee members here, I want to thank you so much for your service to our country, and for your very respectful, substantive dialogue at all times, at all appearances before our committee.

On behalf of all committee members, thank you very much.

Thank you so much for your service.

At the last session I asked you who your favourite football team was, and I don't know if I got you in trouble.

I'm here at the final meeting to deliver a gift from your favourite hockey team, the Edmonton Oilers. I'm going to wrap up the meeting and then I'm going to present you with a little gift. I'm just delivering it; it's on behalf of Patrick LaForge and Kevin Lowe, two very good friends of yours.

Thank you so much, Mr. Carney and Mr. Macklem, for being here today.

[Mark Carney]

Thank you very much.