Foreign Affairs Committee on April 11th, 2017

[The Chair, Liberal, Bob Nault]

Thank you. Madame Laverdière, we'll go to Mr. Saini, please.

[Raj Saini, Liberal, Kitchener Centre, ON]

Good morning. Thank you very much for being here this morning.

My first question is regarding the trilateral summit that you mentioned, Mr. Morrison. As we know, in July 2018 there will be a Mexican election. We know that President Pena will not be eligible to run. From some of the reading I've done and what I've heard on the ground, the next election in Mexico will be fought on some sense of economic nationalism.

If you look at what's happening right now with NAFTA—and you were quite clear that this would have to be a trilateral arrangement—my fear is that if that election is fought on economic nationalism, when the new Mexican president assumes office, part of his platform will have to cater to domestic considerations. You're going to have a natural tension point between the United States and Mexico. Where does Canada fit in? Eventually, whatever the negotiations lead to, either they will lead to a trilateral agreement within NAFTA, or there will have to be a bilateral agreement with the United States with Mexico out.

Is there a contingency plan for both scenarios? Obviously, the easier one would be to have all three at the negotiating table. On the other hand, if the Mexican election in 2018 proves to be fought on economic nationalism, and they recede or recuse themselves from NAFTA, then, because of the supply chain integration, I wonder how we are going to manage that file. Are we going to have to have two agreements? What are your comments on that, or do you have any sort of fallback plan or backup plan in that scenario?

[David Morrison]

Let me say that we are tracking it very closely. I'll unpack a bit of what you just said. The Mexican electoral calendar is the following. The actual election is in July 2018, but the informal electioneering has already begun, as you noted. There are various theories as to what the key issues will be. It will begin in earnest as we get into December 2017 or January 2018. I believe there is a law or at least a protocol in Mexico that anybody running for president has to step out of current functions six months before the election. That's how that timeline is driven. Then there is a very long period between election day and the inauguration. There is a very long handover period that lasts from July, in this case July 2018, through to November. The Mexican electoral calendar will intersect with the NAFTA renegotiation calendar, or at least the projected calendar, and I might turn to Martin in a moment to speak to the NAFTA calendar.

The other thing I would say, on your question about a trilateral or bilateral negotiation—again, Martin can fill in the details—is that Canada's position is that we would like a trilateral negotiation. That is Mexico's position as well. But even in the existing NAFTA, which is a trilateral agreement, there are various elements that are essentially bilateral in nature. This question continues to be presented in the media and elsewhere as a binary question—it's either bilateral or trilateral—but you can have a trilateral negotiation that ends up with elements that are more applicable to two of the parties than to all three parties.

[Martin Moen]

With regard to the NAFTA, our view is that a trilateral arrangement works well. When you take a look at the kinds of investments and sourcing decisions that have been made in many sectors, you see that these have been made, over the last couple of decades, on the understanding that a trilateral agreement is in place, and that's how many sectors have organized themselves, most notably the auto sector.

We think that this kind of trilateral supply chain is quite beneficial to Canadian manufacturing, but also to U.S. manufacturing, and we've certainly heard many voices in the U.S. saying that being part of a trilateral supply chain helps promote manufacturing success in the United States. As we've certainly heard, the Trump administration views manufacturing employment as something very important. We do think that if we were to move down a direction where these kinds of investment decisions and supply chains were undermined, it would have a very negative impact on manufacturing in the United States. I think there is an awareness of that.

Right now, from what we hear from testimony in the United States by the U.S. administration, there is a discussion about the value of bilateralism, but there is also a recognition of the importance of the supply chains in North America. Right now, all the focus is on getting ready to put forward, from the administration, a notification to Congress of an intent to renegotiate the NAFTA rather than to tear it apart.

As for what might happen in the future after some election, and what the timelines might be, it's very hard to tell. Certainly we've done the analysis and are thinking through a wide range of possibilities, but definitely our preference would be to maintain the general structure of the agreement going forward.

[Raj Saini, Liberal, Kitchener Centre, ON]

Thank you very much for that.

Mr. Morrison, I want to discuss something you mentioned in your opening remarks, that right now there is a trend in the United States toward hard power. I'm reminded of Professor Nye's comments in the eighties about soft power. As you know, the definition of soft power is the ability to attract and persuade.

For me, when we look at where the United States is going right now, we see China utilizing soft power, whether they are developing parallel structures right now in the world economy—the Asian Infrastructure Bank, or the one belt, one road initiative, it seems to me that if you look globally where the trend is going, the United States is reverting to hard power, but China is utilizing soft power, whether in Latin America or in Africa.

You mentioned the Mexico City proposal, talking about the U.S. global gag order. It seems to me Canada is trying to fill the gaps in many areas, but ultimately as a smaller country, we cannot always fill in gaps where they decide to recuse themselves.

Where do you see the Canadian foreign policy going now, managing two large economies and two countries with the very distinct, clearly aligned, and clearly forceful policies? One is using hard power and one is using soft power. I see this coming back to the definition of the Great Game, from which Russia has now recused itself to some extent, but China and the United States are now competitors to a large extent. Where does Canada's foreign policy fit in with that?

[David Morrison]

Thanks for the question. It's a big one.

[Raj Saini, Liberal, Kitchener Centre, ON]

We have an hour.

[Voices]

Oh, oh!

[David Morrison]

I'll come to the Canadian part in a moment, but my answer to the hypothesis of China turning to soft power and the United States turning to hard power is that it's too early to say. That would be my gentle push-back.

I think that going back to my remarks on what “America first” means, we don't really know how much hard power versus soft power the U.S. is going to use, because they haven't filled out what “America first” means.

Likewise, China has embarked upon the ventures that you have mentioned—the Asian Infrastructure Investment Bank and the one belt, one road policy—as well as many others in Africa, the Caribbean, and Latin America. Particularly on the economic development side, I think it's debatable whether those programs are soft power. They come with a lot of money and not many conditions. I suppose the outcome is intended to be the same, but the overall sense of what last week was certainly considered to be the most important bilateral relationship in the world, that of the United States and China, I think, is that it's a work in progress.

To come to the second part of your question, how Canada fits in, a lot of people in our building spend a lot of time thinking about it. Obviously the world is changing in ways that, frankly, were not fully anticipated before the election of President Trump, and we're having to think through, both long term and on a daily basis, where Canada's interests fall. It is certainly with respect to that key relationship that you mentioned—the U.S. and China—but it is very much as well on the commercial side, in free trade agreements, and on the strategic side, in where Canada's interests fall, given the rapidly changing dynamic in the Middle East.

It feels like a moment in international relations, and when you reach those moments you have to look at all potential scenarios.

[The Chair, Liberal, Bob Nault]

Thank you very much.

Colleagues, I think we'll have to wrap up our first hour here.

I want to thank Mr. Morrison and his colleagues for coming today. I think we probably need a lot more time than we got, so we probably will have to have you back some time later on as we get more in detail in the study.

The one thing I found the most interesting in your comments was the continuation of this view that it's really hard to read where the Americans are going, for a number of reasons. One, they have a brand new government, a brand new administration, and a lot of the people who should have been appointed, have not been appointed yet. It's pretty hard to do business with people who are not there yet. This is a fluid discussion that we're having as it relates to our relationship.

Thank you very much for taking the time. We'll have you back at one point during this session. This is going to be a longer study than normal, and we think this is a very important discussion. For example, softwood lumber alone, which is a big issue for many of us Canadian politicians, is a meeting in itself. I think we'll have an opportunity to discuss some of those bigger files.

Colleagues, we'll take a short break, and then we'll go right to our next presenter.

Thank you very much.

[The Chair, Liberal, Bob Nault]

On behalf of the committee, I want to take this opportunity to welcome the Canadian Chamber of Commerce. In front of us are the senior vice-president of policy, Mr. Warren Everson, and his colleague, Adriana Vega. I don't know what Adriana's position is, but I think Mr. Everson will tell us.

We're going to turn the floor over to Mr. Everson and get right into the presentation. Hopefully, we'll get through.

I apologize in advance, Mr. Everson, because I have a funny feeling that the bells are going to start ringing, but we'll keep going as long as we can, with the proviso that you will accept our invitation to come back at some point if we can't get anywhere near where we think we need to go on this presentation.

I'll turn the floor over to you, Mr. Everson.

[Warren Everson, Senior Vice-President, Policy, Canadian Chamber of Commerce]

Thank you so much. I've become the Quasimodo of witnesses here. Every time I sit down the bells start to ring.

[Voices]

Oh, oh!

[Warren Everson]

I am very pleased to be invited to this committee. This is my first appearance in front of the committee under this House. I'm very delighted to see your taking this issue to ken, as there's no more important issue for Canada's foreign relations than our relationship with the United States. I do believe we'll probably be back in one form or another in front of you before your work is finished.

I do want to commend staff here, Ms. Crandall and her staff, for preparing a list of questions. I think it was the first time that I've had a list of questions from the committee in advance, and it was very thought-provoking. Unfortunately, I'm confined to the economic issues of the chamber's mandate, so I can't wander off into all the other fascinating issues that were raised here, but I do appreciate it.

I also want to apologize that all of my remarks today will be in English. That's a first for me, but I screwed up my instructions to my translator, so tomorrow or the next day I'll have a perfectly lovely translation of my remarks.

We are all watching the U.S. situation with fascination and concern. There is an angry, almost violent quality to U.S. politics right at this moment, and threats emerging from all manner of different sources. But, in truth, there is no anti-Canada lobby in the United States. In the chamber, we're mobilizing our members and our own leadership to engage with U.S. business in their home districts, to remind them how valuable our relationship is and how damaging it would be to them if that relationship were disrupted.

Adriana Vega, to my left, is our international affairs director and will be one of the key actors in the chamber's campaign. Adriana is a polynational. She was born in Mexico. She has served with the Canadian embassy in Mexico and Beijing, has lived in London and worked with the U.K. India Business Council before coming and joining us. She just got back yesterday from Japan. I had a speech in Morrisburg recently, so that's cool, but Adriana will no doubt be called upon to answer some questions.

[The Chair, Liberal, Bob Nault]

Where is Morrisburg?

[Warren Everson]

With regard to our relationship with the United States, we have a great story to tell Americans. We're just trying to find the best way to tell it. Millions of Americans depend on us for some part of their prosperity, and almost none of them know that. Over the next few months, our CEO and some of the key members of our industry groups will be participating in missions in the United States. We're working very closely with David Morrison and his team on this. Our first visits will happen in a couple of weeks when the President will be in Carolina and then back into the south again.

I think we have to be somewhat limited in our expectations. Americans don't need a big, long economic essay on their relationship with Canada. They just need to be reminded of it and warned that every time something bad happens in Canada, it will tend to rebound back into the economy of the United States, and people there will be victimized.

I think we shouldn't have a convention, or an annual meeting, or whatever at all this year in which somebody doesn't stand up and say, “Folks, we have a good relationship going with Canada. Don't let those—insert adjective here—in Washington screw it up.” That's almost all we need. As I say, there's no pent-up aggression towards Canada among Americans, to our knowledge.

I'll mention three key areas we're looking at, and then I'm anxious to get on to questions.

The first one is the renegotiation of NAFTA. Then there is the promised tax reform in the United States, which represents another big sprawling issue. Then, loosely, is a category called “everything else”, because as we all know, there are hundreds of other issues that might intrude.

Speaking as quickly as I can about NAFTA, we have renegotiated NAFTA a number of times, I think about 10 times, since the agreement was signed. The provision in the agreement is for the parties to reset definitions and to make small changes, literally the tweaks that Mr. Trump referred to a couple of months ago. That doesn't, however, appear to be what the Americans are now planning.

As recently as a couple of years ago, the Canadian Chamber of Commerce was advocating that NAFTA be reopened and renegotiated simply because it's an old agreement. It doesn't include a raft of things that are present in our economy such as e-commerce. It has very antiquated definitions of employment categories and the like. We thought it was a grand idea. Also, negotiators from Canada and other countries were showing us what could be possible in the CETA agreement and in the TPP, in which more ambitious and very interesting provisions were being included.

I don't think we would have chosen to open NAFTA in the current environment, but these are the cards we were dealt. I think all three countries can look forward to significant improvements in this agreement if the attitude of the negotiators is that it should be of mutual benefit. I agree that it's not obvious that's the attitude today.

The rhetoric by important Americans, most notably the presidential candidate Donald Trump, was far from having any suggestion of mutual benefit, but I do think Canada should enter these negotiations with the same hopeful and tough-minded approach that we bring to all negotiations. We will have to make some concessions. We will seek some advantages. We certainly have things to get from a new NAFTA. If the concessions we're asked to make are excessive, we'll have to be prepared to walk away from this agreement.

We should remember that the Americans didn't enter this agreement out of charity or any kind of favour to us. This was very beneficial to them. For those of you who noticed it, the draft letter that was prepared for Mr. Vaughan's signature to the Congress two weeks ago started with a report on how significant NAFTA has been to the U.S. economy. I don't think when wiser heads prevail that they will be cavalier about the future of the agreement.

We have a whole raft of offensive objectives here. We have an updating of our occupational designations. I mentioned that the enormous administrative burden around the current rules of origin should be lightened if possible. Your previous witnesses talked about the regulatory co-operation exercise. We're very strong supporters of that, and U.S. members of the Chamber of Commerce are also. That's been a bright spot in our relationship in recent years. We do think that should be enshrined in NAFTA as a chapter.

On the defensive side, we think Canada has to fight very fiercely against the most blatant protectionist measures that are being talked about, such as Buy American and country-of-origin labelling. We should remember that the whole purpose of the North American Free Trade Agreement was to expand trade and make it more free. We should be very hostile to the concept that we are negotiating a trade restraint agreement.

I was EA to the minister of trade at the time the negotiation was finalized, and we brought the legislation to the House. Chapter 19, on the countervailing duties dispute-settlement mechanism, was really the main reason Canada entered into the free trade agreement, to get away from this endless legal harassment. There is a big lobby in the United States to get rid of Chapter 19 and go back to the courts. It should be a very high priority for Canada to fight that. Chapter 19 is not working very well; it's all gummed up. But we know that the Americans who claim the issue is their sovereignty are really just anxious to getting back to using the court system essentially as a tool of trade harassment.

When we see the official notice to Congress from the administration, we'll have a better sense of what they are after and then we can start to calibrate what we have to gain and when.

I'll very quickly mention that in some ways I think the tax reform exercise is more hazardous for Canada, because there is no adult supervision. It's going to be a massive food fight in Washington, and as the parties horse-trade, they are not going to be aware of who is winning and who is losing, beyond the specific interest they are advancing. It does not appear—and this is my own comment—that the administration will hold a very tight rein on Congress and that they'll be able to dictate the terms.

We see these massive, sweeping proposals for moving the revenue sources of the United States very dramatically from state taxes and individual income tax to border taxes and payroll taxes and so forth. Those kinds of grand designs are hazardous, probably to them and certainly to us. I don't think we should panic at this point. Back in February—and this is my favourite quote so far—Senator Tom Cotton, a Republican, said in the House, when talking about the border tax, “Some ideas are so stupid that only an intellectual could believe them”.

[Some hon. members]

Oh, oh!

[Warren Everson]

I do think the fusion of protectionist sentiment with a desperate need to find new sources of revenue is a significant risk to Canada. Again, the only way to stop this is for Americans themselves to be on the watch for their own best interests, and if they see something that's will be very negative to Canada, and therefore destructive of their biggest customer, they might and could speak in their own defence and therefore help our situation as well.

I'm going to move on. I have a section called “everything else”, which would include all the other possible irritants and exacerbants that may emerge between us.

The most important threat we face from the United States is probably not any of these overt actions, but just as a result of a general gesture by the United States administration to improve the competitiveness of U.S. business. Regardless of whether we like what they're doing—cutting taxes, cutting regulation, deferring environmental spending, repatriating capital from other countries with a tax amnesty—and whether we think any of those things are good or not, they will have a very significant impact on the competitiveness of American business, and neighbours like us are going to have to respond to them. I think that is the biggest challenge we face—not any of the specific actions but the general improvement in the opportunities to invest in the United States and diminution of the attractiveness of investing in Canada.

The Canadian government so far has done a masterful job of engaging with the United States at the political level; we've seen everybody. From the moment someone is appointed and then is approved by Congress, a Canadian is waiting to take them for coffee. That's been very impressive. American diplomats are reflecting that to us, saying that they've not seen a campaign as effective as this, or at least as active as this.

But the next exercise is to get out of Washington and into the heartland where Americans are talking to their own legislators about their own interests and to make sure that Canada is seen as a positive for that, and that dangers to our relationship be avoided.

That, I think, would be a good place for me to stop, Mr. Chairman. I look forward to questions.

[The Chair, Liberal, Bob Nault]

Thank you, Mr. Everson.

We're going straight to Mr. Allison.

[Dean Allison, Conservative, Niagara West, ON]

Thank you very much for being here, Mr. Everson, and Ms. Vega as well.

One of the things that always concerns me is that we always perceive America as being this great entrepreneurial heartland and fair in what they do, and yet they have been protectionists in the past, and I think more so now with Mr. Trump.

I agree with what you're saying on the engagement, etc. When they start talking about trade deficits, the reality is that we import more from them than we export to them, even though that number is pretty close.

You talked about our officials being down there. Give us some more examples of things you guys are doing at the chamber. What more can we do? I know we're talking about the possibility of being able to go to places other than just Washington to have these discussions with state legislators, etc. Would you expand a little on what more we can do?

[Warren Everson]

We're having discussions with the war room that David Morrison runs over at Global Affairs to plan visits. Starting with our CEO and other significant business people who might be in our membership, we want to see whether or not it's possible to have a Canadian politician or various Canadian politicians come along at the same time, and that way perhaps bring out American legislators at the state or federal level. There's an enormous amount of information being built up now about the relationship, so that when you're in Louisville, Kentucky, and you happen to mention to somebody that the largest customer of this particular factory is Canada, it doesn't take them very long to figure out that an unemployed Canadian is not going to be able to buy as many of their products.

So, we're trying to build these regional campaigns, combining with media and social media and so forth, to try to warm up each area of the country. When we talked to Global Affairs, they said they would like us to go south, if we wouldn't mind. They have the border states pretty much cross-hatched with different Canadians visiting, but in Alabama they couldn't pick a Canadian out of a police lineup. So they want us to go down there and remind them that we buy rubber tires and chemicals, and all manner of things from them, or we sell to them.

We are the largest purchaser of American goods in the world, and while our trade balance goes like this every now and then, Mexico's and China's trade balances are not close at all, and ours just keeps fibrillating back and forth. We bought $48 billion worth of trucks and cars from them in 2015, and there isn't another market like that around the world for them. To the degree to which they are seized of that reality, then, I think we're as well defended as we can be.

[Dean Allison, Conservative, Niagara West, ON]

My other question is about when you talk to your counterparts in business down there. Obviously, they understand us well because they're selling to us. Are they active in any way in this regard? I realize that until it happens, we'll always be thinking it's not going to happen. Maybe it won't. People don't respond. But is there any thought of their also reaching out to their own legislators?

[Warren Everson]

To some extent, yes, I think so.

Mr. Donohue, the head of the U.S. Chamber of Commerce, was here a couple of months ago and visited the Prime Minister and others, and made a speech. He made it absolutely clear that he considers the Canada-U.S. relationship to be of tremendous benefit to the American economy and that his organization will be very hostile to actions that impinge negatively on it. My boss is planning to visit Carolina in a couple of weeks, and we're just planning which locations he will visit in either North or South Carolina. The manufacturers from South Carolina asked to see him as soon as they heard he was coming. So they want to have a meeting.

Again, I think there's an appreciation among lots of people. Our biggest dangers are probably from the backhanded collateral damage when they act against some other country, and we get caught up in it.

[Dean Allison, Conservative, Niagara West, ON]

I have just one final thought. I think it's a great idea if business is going down to try to include legislators as well, because then there's an opportunity to try to open those doors at the same time. It's always great. When we go down as politicians, that's one thing, because we meet with politicians; but when we go down with business people, I think that adds another dimension.

[Warren Everson]

Obviously the politicians bring a level of skill that not every business leader has as well, so I think you can do a one-two punch that's effective.