Foreign Affairs Committee on May 4th, 2017

[Maryscott Greenwood]

You can endorse my comments, Mr. Black.

[Voices]

Oh, oh!

[Conrad Black]

I only heard the latter part of them, Scotty. I certainly agreed with what I heard. You and I usually agreed when we debated on CTV, other than who we wanted and expected to win the election.

[Maryscott Greenwood]

Right: other than that.

[The Chair, Liberal, Bob Nault]

We're always at the disposal of the witnesses when it comes to how they want to present themselves.

Knowing Mr. Black as well as I do, having followed him for many years, I will take his lead and go straight to questions.

We'll start with Mr. Kmiec, please.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

Thank you, Mr. Chair.

Thank you both for being here today.

We had two witnesses come in before who talked a great deal about NAFTA and some of the intricacies of renegotiating the agreement, but there was very little about the tax changes being proposed by the White House, by Congress. It's unclear who's proposing what. I know people talk about Trump being unpredictable. I like to think of him as unconventional in his approach to the presidency and in how he and his cabinet behave.

In terms of the tax proposal, I'm always wondering which is the greater risk to Canadian business. Is it the renegotiations of NAFTA?

On the 10 points you mentioned, Ms. Greenwood, I went through a list of things that could be included, that may want to be included, as options. Or there's the tax reform. I'm just looking through it here. It has things such as simplifying the tax brackets on the personal side, repealing of the inheritance tax, doubling the standard deduction, repealing the alternative minimum tax. It also has reducing the corporate tax rate to 15% from 35%, which is a $3.7-trillion initiative that they have. It has repealing the tax on investment income. They're also talking about expanding child care benefits, and then repealing most deductions, except for mortgages and charitable giving. The other one that concerns me is the one-time tax on overseas profits. It is not very clear what they want to do.

To both of you, where should Canada actually be focused? Is it on this NAFTA renegotiation? Should we be pushing the Americans to play their hand? Or should we wait and focus on these tax changes they're proposing, which may actually go through much sooner and have a much greater impact on Canadian business?

[Conrad Black]

Do you wish me to speak?

[Tom Kmiec, Conservative, Calgary Shepard, AB]

Yes, sir.

[Conrad Black]

I do not consider myself completely qualified to offer advice on the tactics of which to do. I assume that we can prepare for both at the same time. I did say in my remarks with Scotty coming up to the election, and between the election and the inauguration, that Trump should be taken at his word. He intends to do what he said. While some find him unpredictable, I don't. I think he is quite predictable, and he is going to enact his program. It appears that he will get a modified health care bill at least through the House today. Obviously it will have to be reconciled with the Senate, and that doesn't get it done, but that ties into the tax bill.

On the matters you mentioned, my guess, for what it's worth, is that he is going to have to produce some revenue enhancement to accompany these tax reductions. The one that the President himself has mentioned is in effect to take the anticipated decline in the gasoline price, and instead of giving that decline to the consumers putting what amounts to an additional tax on gasoline but not one that raises the price from where it is now. It is assumed in the administration that over time the price of gasoline in the United States will come down because [Technical difficulty—Editor] offshore drilling, increased fracking, and the reduction of imports.

The other that's been floating around, and it's one that I occasionally inflict upon my American readers in the National Review, is the tax on elective spending. It's not unavoidable spending, such as groceries or children's clothing, but luxury spending, or a fair swath of financial transactions. To the extent this impinges upon Wall Street, this president doesn't owe Wall Street anything anyway [Technical difficulty—Editor] done nothing but criticize him, but he can make it up to them by rolling back excessive regulation [Technical difficulty—Editor] Sarbanes-Oxley. I suspect that something like that will be worked out.

Now, it's not going to happen overnight, obviously, because it is so complicated and the atmosphere is so poisonous. As you know, Mr. Trump ran for President running against all factions of both parties. He ran against the Bushes as much as the Clintons and the Obamas. He ran against Wall Street, Hollywood, almost all the media, most of academia, the entire bureaucracy, and virtually every adult in Washington, D.C., 94% of whose voters voted against him. He did win, but the war continues. It is going to have to de-escalate at some point. If he gets some sort of health care measure through, it may be a signal that finally 20 years of gridlock in that system is breaking down.

My own view is that the Democrats cannot go on trying to stigmatize him as a madman, a lunatic, an illegitimate person who provokes, in the words of one of the New York Times columnists, Mr. Kristof, a whiff of “treason”. They just can't go on with this. And Colbert's outrageous comments on Monday night.... There will be a settling down. We will get back to a relatively normal government, though given the identity of the personalities, in particular the President, a rather flamboyant government.

On your question, I think that over time the tax question will be a bigger one. I leave it to you legislators and wouldn't presume to advise you on this point, but there are the implications to Canada of declining energy prices and a sharply lower corporate tax. I doubt if it will get down to 15%, as the President suggested last week. I imagine you have to compromise a little above that. The implications of that to Canada are clearly serious in terms of where international investors' money is apt to get into this North American market.

I'm not a trade wonk, and I don't want to get out of my depth, but I take the President at his word that his desires in respect of adjustments to trade arrangements with Canada are relatively minor. He has never expressed to me the slightest grievance against Canada, other than on the matter of its failure to live up to the 2% target for defence spending as a percentage of GDP amongst NATO countries. For what it's worth, my information is that they consider the latest budgetary estimates from our government on that subject to be rather disappointing, but I'm sure those matters are dealt with in official channels.

[Maryscott Greenwood]

Thank you, Mr. Chairman.

Thank you, sir, for the question, which was about whether tax reform is more important to the Canada-U.S. relationship and Canadian competitiveness, I believe, than NAFTA. I think it's a very important question and a very smart question to ask.

To set a little bit of context, the President campaigned on repealing NAFTA and taking the United States out of TPP, the trans-Pacific partnership. The response of the congressional Republicans to that was that while they didn't like NAFTA, they thought a better way to deal with these issues would be through tax reform. As you quite rightly outlined in the question, you see a whole series of proposed measures coming from the House Republican leadership on tax reform that they intended to incentivize exports and disincentivize imports to try to get more companies to create things to manufacture here in the United States and then sell them abroad.

That was the policy reaction, because Congress really doesn't want a tough vote on NAFTA. They would rather deal with a multitude of things through tax reform, including trade policy. That's sort of the context—the border adjustment tax maybe being a way, instead of renegotiating NAFTA—that was the thinking of Chairman Brady, of Paul Ryan, the Speaker of the House, and of the House Republican leadership.

We haven't had comprehensive tax reform in the United States since 1985. Think about where you might have been in 1985. That's a long time ago. It looks like the President is intent on some kind of tax policy reform, but what form it takes and what it looks like will be the subject of massive internal discussion in the United States. On border adjustability, for example—you didn't point to it, but it's related—you have whole coalitions in the United States of companies and interest groups that are for a big border adjustment tax, because they're mostly exporters. Then you have people, companies and stakeholders, who are really connected to the global supply chain and the North American supply chain who think border adjustability would be a disaster.

The politics, then, are quite divided in the United States. I think you rightly point out that if the U.S. succeeds in lowering the corporate tax rate to a level that's closer to what Canada has, which is relatively lower.... Canada enjoys a very good economic competitive position for lots of reasons, and the tax rate is one of them. If the U.S. gets closer to that, it presents a challenge to Canada, for sure. I know that the Business Council of Canada and other groups here are looking at Canadian competitiveness in light of potential tax reform.

You talked about the one-time repatriation of foreign proceeds. That is definitely something that sticks in the craw, if you will, of many U.S. policy-makers. You've seen the phenomenon of inversions, whereby a company will leave the United States, move its corporate headquarters elsewhere—which is a legal thing to do, but not a patriotic thing to do—to benefit from the relative discrepancy in tax policy.

There is definitely an appetite to deal with all of those things. If the United States is successful in lowering the corporate tax rate, in incentivizing exports over imports, in putting in preferences on procurement for “buy and hire American”, that success presents a very, very important challenge to Canada, to Canadian businesses, and to those of us who are really interested in the integrated nature of the Canada-U.S. economy.

[The Chair, Liberal, Bob Nault]

Thank you, Ms. Greenwood.

We go now to Mr. McKay, please.

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

Thank you, Chair.

Thanks to both of you for appearing today.

I probably shouldn't admit this in public, but from time to time I do read Mr. Black's articles. Occasionally I've even supplemented his bank account with the purchase of a book.

[Maryscott Greenwood]

I do too. It's useful when I have to debate him on TV.

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

I have been known to also take the newspaper and fling it against the wall with some concern. Whatever else, what I do notice in your writings, Mr. Black, is that you are internally consistent, that there is a framework within which you write and within which you think. However, I have not been able to determine any internal consistency with President Trump. He blows hot and cold on NATO. He blows hot and cold on Russia. He blows hot and cold on Putin. He blows hot and cold, and the only consistency seems to be his inconsistency.

The problem with this is that when you are trying to negotiate with someone who is inconsistent and for whom there does not appear to be a set of values other than “I win and you lose”, it makes it difficult to approach negotiations. Your latest writings seem to hold out the contrary view to this. I would be interested in your expanding upon why you think that President Trump is actually far more consistent than maybe the rest of us can perceive.

[Conrad Black]

Mr. McKay, I agree that it is difficult to perceive that, but I do believe it to be true on the basis of my experiences with him. We had him as a business partner in Chicago, where we owned the Sun-Times newspaper. I don't know if the committee knows that city well, but we had a low-rise building right downtown, right behind the Wrigley Building, near the Tribune Tower, so it was prime development land right on the Chicago River. We put it out for bids and his bid won. My American directors, a very eminent group, Dr. Kissinger and others, said, “Hang on to your wallet, he's a scoundrel”, and so forth.

We were very careful, but he did engage, even then, in the sort of tactical manoeuvring that you've referred to. He would take outrageous positions opposite certain contractors and the building trades unions, and negotiating zoning changes with the municipal government. The Democratic Party has been in power in that city since 1929, so they're pretty well entrenched.

The ethical standards both politically and in the building trades unions in Chicago are not the highest I've ever seen, and his techniques are extremely aggressive, subject to apparent change, but always towards an unchanging purpose, which you summarized well: that he'll get a good deal for himself. In this case, we were on the same side, and he was negotiating for both of us. He did a very, very good job. He came in exactly on budget, exactly on time. Though it's a rough city, Chicago is proud of its architectural heritage—the city of Frank Lloyd Wright and so on—and he produced a design that was very widely admired. He had it filled with absolutely top-grade tenants well before it opened. It was just completely successful.

That obviously is no guide to how he's going to negotiate with North Korea or Canada, but maybe it is partly a guide. My impression of him is that he doesn't change his views as much as one thinks, but he does alter the mood and the ambience according to the level of his pleasure or displeasure with the other side. Some of it is preparatory, just flustering people and muddying the waters before substantive negotiations begin, and some of it is just agitating for the purpose of keeping the people he's negotiating with off balance. He doesn't move around in terms of what he wants that much, and I don't think he has particularly with Putin or the Chinese. I think he's made it quite clear that relations with China have been altered somewhat because the aggressive nuclear development of the North Koreans has moved that issue up well above any other that could be contentious between the United States and China. He quite properly responds to events, and that takes precedence over whatever reservations the United States might have about, for example, monetary policy in China.

In the case of the Russians, it was always nonsense that he was particularly involved in any collusion with the Russians. The allegation that there was any Russian collusion with the Trump campaign is absolute bunk, and will come down, as I wrote in the National Review earlier this week, around the heads of the Democrats like a toilet seat. The fact is that he recognizes Russia as an eminent nationality, but he does not recognize it as anything like the force it was when it was the Soviet Union, with more than twice its population, military parity roughly with the United States, and the vast communist espionage and agitprop apparatus all around the world. He believes it has to be treated not as a pariah but as one of the world's important countries.

My guess, for what's it worth, is that the best indicator we've had of what can be done between those countries was in the meeting that took place in early March between the chairman of the joint chiefs of Russia, Turkey, and the United States. The plan clearly was to make Turkey the incumbent power in the Middle East, recognized by the Americans and the Russians, and to replace and reduce Iranian influence.

The American goal would be to act on the fact that it can offer a great deal more to Russia than its alliance with Iran does, that there's not any great natural disagreement now between Russia and the United States and what's needed in Syria is some kind of confederation where Assad runs the Alawite part of it, and some others, and the western-sponsored proteges there have autonomy, and the four million displaced Syrians can be relocated durably.

In Ukraine it appears that what might happen is that the Americans would be prepared to acquiesce in the resumption of Crimea by Russia, which had it up until 1955, but the Russians would have to stop meddling in irredentist affairs in Ukraine and the Baltic states. In exchange for that, the U.S. would relax the sanctions. Now, that appears to be.... It's my intuition, but not a completely uninformed intuition, that that's where they're headed. There's no inconsistency in that. The interruption with the air raid on Syria, the firing of the 59 cruise missiles, was a specific point indicating that the U.S. simply would not tolerate the continued use of sarin gas on civilians in Syria after the Russians purported, with the Syrians, to have removed all such gas from Syria.

I'm sorry to be so loquacious, but my answer is that I wouldn't be overly preoccupied by the atmospherics. He has his techniques, but he is not all over the map. He knows what he wants, and he's quite good at getting what he wants. His theatrics are often entertaining, and they can be appreciated for that, but they're just tactics. I mean, what he wants is what he says he wants.

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

You covered quite a waterfront there. Let me just zero in on one element, and that is the apparent new relationship between Turkey and Russia and also Mr. Trump's conversations with Erdogan. Is it your view, therefore, that between them, Russia and the United States have nominated Turkey as the new big player in the Middle East? In the Middle East, there is no action that doesn't go unreciprocated in some way or another: so where does that leave Iran?

[The Chair, Liberal, Bob Nault]

Mr. Trump, I'll just—

[A voice]

Mr. Trump?

[Voices]

Oh, oh!

[The Chair, Liberal, Bob Nault]

That's not very good, is it, Mr. Black? I was thinking of Mr. Trump.

I'll leave it at that, because Mr. McKay's time is up, and I want to make sure that other members and also Ms. Greenwood get into this discussion.

I'll go to Hélène Laverdière.

[Hélène Laverdière, NDP, Laurier—Sainte-Marie, QC]

Thank you very much, Mr. Chair.

Thanks to the two witnesses for being here this morning.

Ms. Greenwood, thank you for your presentation. I hope we can get a copy of it because I am very interested in your list at the beginning of the issues on which President Trump has essentially reversed his position. It went too quickly for me to take notes.

In your presentation, you said that truly trilateral negotiations between Canada, Mexico and the United States are not likely given the current political climate, even though you consider trilateral negotiations to be the best option. I just wanted to make sure that I understood this correctly and give you a chance to elaborate.

[Maryscott Greenwood]

Thank you very much for your question.

I'll answer in English, unfortunately.

Just to be clear, the Canadian American Business Council is 30 years old this year. We were created as proponents of free trade and as champions for Canada-U.S. free trade in particular. Our members believe that, with the global interconnectedness of the world, free trade is the right approach. We like the idea of free trade. We really liked the idea of the trans-Pacific partnership. We thought that was a very good modern trading agreement to create rules of the road going forward. Unfortunately, the current U.S. government has stepped back from that. That may not hold back the other 13 countries, but it holds back the United States at the moment.

We like free trade around the world. Our next choice is trans-Pacific, a big arrangement, and then trans-Atlantic, modelling somewhat, perhaps, on the Canada-EU agreement, which is currently the most modern agreement there is. We like free trade across the board, big blocs if you can get it, the more countries in the better. In the context of NAFTA, we think a trilateral agreement makes a lot of sense, so we're for that. We're already pretty well integrated trilaterally.

Our point is not to get hung up on that. If it's politically impossible for the U.S. to move forward with a comprehensive economic relationship with Mexico, for various reasons—Mexican politics, U.S. politics, etc.—then we think we shouldn't be delayed by that but move forward with a bilateral negotiation. Our point is that we prefer TPP. If we can't have TPP, we prefer trilateral. If we can't have trilateral, certainly we should move forward on a new agreement between Canada and the United States. We think it's doable and possible.

The clerk has copies of my remarks, which you asked for at the beginning. I'm happy for you to have those, to make those available. Also, much of what we talk about is available on our website.

[Hélène Laverdière, NDP, Laurier—Sainte-Marie, QC]

I have another question to follow up on what you said.

You said you prefer global models. Should we be apprehensive about a change in attitude or hardening on the part of the American administration at forums such as the World Trade Organization? At recent meetings, there were attempts to soften the language and remove certain traditional expressions such as “rule-based system”.

What are your thoughts on the position that the new administration might adopt in this context?

[Maryscott Greenwood]

Thank you very much for the question.

I'll tie this with something that Mr. McKay said earlier. What the Trump administration is consistent on is wanting to promote American investment and stand up for what it perceives as unfair practices around the world. This whole “make America great again” and “put America first again” is real. There is real support by millions of Americans for that idea. What that means is that you have an aggressive trade enforcement regime. We see that with Secretary Ross. We see that with Mr. Navarro. I think you'll see that with Mr. Lighthizer when he's confirmed as the U.S. trade representative. You have a very “America first” attitude, and that is supported. That's politically popular in the United States, just as a “Canada first” position would be here, in theory, although Canadians are more globalists and more trade supporting, as a general statement, than Americans are at the moment, politically.

That having been said, you're right to observe that the President is flexible in his tactics and approaches, so whatever negotiating posture he thinks gets him the furthest along in what he needs to do is what he'll take. I think the reality of the position of president is really sinking in. Whereas the campaign rhetoric was really strong—isolationist, “America first”, and whatever—the reality of an interconnected world in U.S. foreign policy is that you have to govern in a much more nuanced way. I think we've seen that with the President not backing down on Russian sanctions, not calling out China as a currency manipulator, and all of the other things that he said. I think he's consistent in the “America first” idea, but I think the reality of a complicated foreign policy is dawning on him. However, on trade in particular, enforcement will be what he leads with. That is what is so troubling to our trading partners—in particular, our best trading partner, which is right here in Canada.

Merci.

[Hélène Laverdière, NDP, Laurier—Sainte-Marie, QC]

Thank you.