Thank you very much, Mr. Chairman, and good afternoon, honourable members.
First and importantly, I'd like to take this opportunity to congratulate the government on successfully concluding the U.S.-Mexico-Canada agreement. It has been a tough and intense negotiation, and Minister Freeland and the Canadian team are to be commended on their outreach to industry in seeking guidance and arriving at a modernized agreement that provides more certainty and builds a strengthened platform for trade across the North American integrated industry.
Certainty and predictability are what industry needs to make new investment decisions along with meaningful, agile and effective support measures. To that end, coordinated federal and provincial policy frameworks must continue to be responsive and adjustable to new circumstances that best meet industry's competitiveness needs in a global market.
I have four things that I would recommend today. First is fair and balanced trade opportunities. The USMCA, as it's now known, is an agreement in principle that must now be translated into legal text for implementation, not to mention approvals in the three countries.
CVMA will continue to provide assistance to the government in this regard. Importantly the agreement removes the threat of U.S. section 232 auto parts tariffs through the enactment of a side letter to the agreement. What remains outstanding is the U.S. 232 tariffs on steel and aluminum. I have to believe that the goodwill built up between the Canadian and U.S. negotiating teams can be leveraged to address this matter in very short order.
More broadly speaking, we acknowledge the government's interest in trade diversification and are directly engaged in the government consultation respecting Mercosur, the Pacific Alliance and the ASEAN trade negotiations. While we support fair and balanced trade opportunities, we do not support diversification at the expense of our member companies, their workers or our domestic supply chain.
Respecting CPTPP, we remain very concerned that Canada has opened its domestic market to CPTPP party countries without adequately addressing current non-tariff barriers to trade. CPTPP has a dispute mechanism that addresses only future barriers. Any auto-related trade outcome that unilaterally reduces or eliminates remaining tariffs essentially provides savings worth hundreds of millions of dollars annually to automobile importers who do not produce here, do not use Canadian auto suppliers and do not generate Canadian manufacturing jobs. These are outcomes that we must avoid.
Second is ensuring that the auto sector is an identified class within the federal carbon pricing system and that the recycling of revenues underpins competitiveness of industry. The proposed federal carbon pricing system provides for the development of an output-based pricing system, the aim of which is to reduce greenhouse gas emissions and minimize competitiveness risks for emission-intensive, trade-exposed industrial facilities so as to avoid carbon leakage.
The auto industry is low energy intensity but its trade exposure at 95% plus makes it the most trade-exposed sector in Canada. Considering that Ontario is a high-cost operating jurisdiction, our manufacturing plants are prime candidates for carbon leakage to other competing jurisdictions having higher GHG-emitting energy inputs. Should this occur, the environment loses, our economy is negatively impacted, and we potentially risk losing thousands of high-value jobs. None of these outcomes is desirable.
As the federal government moves forward, it must sufficiently recognize the diversity of the Canadian manufacturing sectors and their facilities and the degree to which the imposition of carbon pricing system costs may undermine a company's competitiveness relative to competing jurisdictions in which they operate.
Program design and attendant requirements are the key to a successful achievement of GHG reduction with minimal economic impact while preventing carbon leakage. For industry, this means a revenue-neutral approach. The program must ensure that the revenue generated under the carbon pricing policy is appropriately recycled back to the company from which it came.
This can be achieved by ensuring that every dollar paid under the federal carbon pricing regime is recycled back to the originating company to be used for new investments in innovation, operating efficiency, and competitiveness. Otherwise, if revenues paid do not equal revenues restored, the difference is simply a tax. It's a tax that our competing plants and other jurisdictions do not have to pay. We are working closely with the government on the program design, and we greatly appreciate the ongoing collaborative approach.
Third, reform Canada's tax policy. Canada must restore its corporate tax advantage over the United States to attract investment and innovation and to spur growth. Canada has the top combined federal and provincial personal income tax among the OECD countries. We strongly recommend that Canada close the tax advantage gap with the U.S. and examine opportunities to make the tax system less complicated and burdensome in order to improve the ease of doing business in Canada.
I might add, there is a recent C.D. Howe Institute report that talks about income tax and what it actually can do to attract new skills and retain highly skilled workers. You might want to take a look at that now, Mr. Chairman.
Lastly, we need to strengthen the strategic investment fund. Canada’s innovation policy framework must be responsive and sensitive to the competitive needs of the industry to support a company's ability to actually bring new investments to Canada. Our industry's investment portfolio ranges from the research and development of technologies that enhance advanced production processes, to joint ventures and partnerships with Canadian-based companies having strong capacities in software development and artificial intelligence, to connected and autonomous vehicle development. All of these meet the objectives of the government's innovation agenda and the product and driving experience being demanded by our consumers.
The industry is evolving at a lightning speed, developing technologies in what will be the new shared economy. It only makes sense that we take a look at refocusing and strengthening how the SIF will be responsive to the future investment needs of auto manufacturing in Canada.
Mr. Chairman, that concludes my remarks. I'd certainly welcome any questions the members of the committee may have.
Thank you.