Foreign Affairs Committee on May 4th, 2017

[The Chair, Liberal, Bob Nault]

Ms. Laverdière, please go ahead.

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

Thank you very much, Mr. Chair.

I would also like to thank the two witnesses for their most interesting presentations.

Professor Hampson, you talked about Canada's issues in the likely renegotiation of NAFTA. There are also problems between the United States and Mexico. I am wondering how much Canada could work with Mexico so it is not just one-on-one negotiation each time.

What are your thoughts on that?

[Dr. Fen Osler Hampson]

Thank you very much for your question.

This is a trilateral negotiation that is going to take place, but I think we should be under no illusions that it's going to have its own bilateral elements to it. The Americans, as quite frankly they did with NAFTA, will try to play us off against the Mexicans. What's different is that Canada's relationship with Mexico has changed quite dramatically since the origins of NAFTA. They're now our third most important trading partner. That has to do with the nature of North American value chains. We're a major investor in Mexico. We did a study at CIGI that showed that some 3,000 Canadian companies are doing business in Mexico. It's an important destination for tourists.

The reverse flow of Mexican investment in Canada is small, but it's also beginning to change. Bimbo, which is a bread manufacturing company, has set up operations in Canada, and I suspect that as the Mexican economy matures, there's likely to be more investment. That is to say is that Canada, the United States, and Mexico have a real interest in maintaining open supply chains across our respective borders. That's particularly true in the automobile sector. However, there are some differences. Trump has made no secret of the fact that he wants to have tighter content rules of origin, particularly in the manufacturing sector, and his target there is automobiles.

Mexico has a bigger problem than we do, because the Chinese have been using Mexico as a beachhead and exploiting those supply chains to their own commercial advantage, which is a perfectly rational thing to do. When it comes to Canada, we're pretty much in alignment with the U.S. on that issue, so I think that's going to be a pretty contentious issue.

We will have common interests with the Mexicans on some issues. That would certainly be true when it comes to energy, for example, the free flow of energy and investment in the energy sector. That is also true, I would say, in the area of agriculture. But on an issue like migration, which is very contentious, our interests are quite different from the Mexicans'.

I think it's going to be a mixed approach. We join hands with the Mexicans when it suits us and, quite frankly, when it suits them. The Mexicans, by the way, don't need lessons in negotiations from Canadians. They've shown, as we saw in the trucking incident some years ago, that they can play real hardball. They're very effective at mobilizing supportive constituencies in the southern border states of the United States to their advantage. Are we going to be in lockstep with them? No. But does that mean it's divide and conquer when it comes to dealing with the Americans? No.

[Prof. Charles Doran]

Perhaps I could just add a footnote.

I think that it may happen that on some of these trade issues, Canada is going to have to decide whether it wants to go along with some provisions that are, quite frankly, not first choices, but that would involve looking at North America as a true united, integrated economy, or whether they would like to go for their priorities, their preferences, and risk being locked out of a much more coherent and maybe in some cases protectionist American market.

Now, those are tough choices, but I think that may happen.

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

I have another question for you both.

As mentioned, President Trump cannot do much without the approval of Congress. I would like to hear your thoughts on the position of Congress.

The committee is planning a trip to Washington. Do you think that all of us here can play a useful role?

[Dr. Fen Osler Hampson]

I think everybody wants to know where Congress stands on certain issues. It's not unified, as we all know. Even the Republican Party is not unified.

I think it's fair to say that there are many free traders. Historically the Republican Party has been the defender of free trade, and there are still those voices. We're hearing less about border adjustment taxes coming out of Congress, but I would say that this one is still not dead, and it would be enormously damaging. It's just another way of talking about tariffs.

In terms of stressing obviously mutual advantage and getting our numbers right in terms of who really benefits, particularly in those northern tier states, from an open trading relationship with Canada, I think we're doing a lot of that already. Both the cabinet and the premiers are. This really is Team Canada. It may not be Team Canada when it comes to the home game, but when it comes to the overseas or the cross-border game, it's Team Canada. I think that has to continue.

I think your meeting with your counterparts can be enormously beneficial, but that means going with a well-honed brief, clear message lines, and a recognition that, yes, we can make the status quo better: we don't have to go backward, we need to look forward.

I'd just like to add that one area in which we should be looking forward is the whole area of e-commerce. That is where, with regard to the growth of the middle class, to come back to your point about Mexico, huge opportunities will emerge in Mexico in the whole e-commerce field as Mexicans get credit cards and start shopping online.

[The Chair, Liberal, Bob Nault]

Thank you.

We'll go to Mr. Saini.

[Raj Saini, Liberal, Kitchener Centre, ON]

Good morning, gentlemen. Thank you very much for coming here today.

I want to pick up on something you said, Professor. You talked about the timing and said that it's in our best interest right now that free trade negotiations happen quickly. I want to get your commentary on one point, because logistically, going through to let's say July 2018, we have right now a situation whereby the President has not informed Congress. That will take 90 days.

We also know that there will be a presidential election next year, by July 2018. We also know that President Peña Nieto is not eligible to run.

Logistically, there is a 90-day provision. Beyond that you're going to get into a lame duck presidency for the Mexican president. The domestic considerations in Mexico right now are not favourable toward the United States. Over the next year, how are we going to get it done when we're going to have one partner? I think the commentary has been that there should be a trilateral agreement, that we should not do one-offs bilaterally.

How would the timing work, under these circumstances, to do it before July 2018? If we're going to get a deal, it should be with the current Mexican president, who is more favourable, as compared with delaying it beyond the election and allowing someone else to come in who may not be that favourable.

[Dr. Fen Osler Hampson]

I think the real issue and the pace of the negotiation will obviously be driven by the Americans. There will be a presidential election in Mexico. That may certainly stall things on the Mexican side. The Americans, as the big trading partner—the elephant in the room—will drive the timetable. But there's a big question mark there. Wilbur Ross, the Secretary of Commerce, has said that he wants a deal next year. He has also said that he wants to revisit every single chapter of NAFTA. He's not going to be able to have it both ways. If he wants to revisit every single chapter of NAFTA, they're looking at a three-year negotiation, if they're lucky. They're going to have to make some tough choices.

As I said in my opening remarks, I think the President is looking for the quick fix. That works to our advantage. It works to the Mexicans' advantage, as they can play the clock too, not just with the Americans, but in the context of their own domestic political situation. The quick fix means going for some hits where we're willing to take a bit of pain and get something in return. That would also be true on the Mexican side so that Trump can say he's delivered.

We'll see the fate of the health care bill today, at least in the lower house, but he's not doing very well, and he has to deliver on something.

[Prof. Charles Doran]

Mr. Chair, may I add a footnote?

I see the plausibility of the argument that Professor Hampson is offering. In the past, I think it would have been absolutely clear and a convincing position to take, but I'm not so sure that the new administration follows the same rules that existed before. I would have to say that I'm not totally convinced that if the outcome was considered to be unfavourable to the United States, they wouldn't say, “Okay: it's over.”

That doesn't mean that it couldn't be revisited. It doesn't mean that there wouldn't be all kinds of interesting things that would happen. It doesn't mean that it wouldn't be extremely damaging to existing supply chains and so on. But I think the assumption that the United States is just going to be boxed into a corner because of time might not be something we want to test.

[The Chair, Liberal, Bob Nault]

Mr. Saini, you have time for one more question.

[Raj Saini, Liberal, Kitchener Centre, ON]

Thank you.

Professor Doran, you mentioned the revisiting of every chapter. The rules of origin are a bit complex. You also mentioned that the Chinese are integrating themselves into the supply chain through Mexico.

[Prof. Charles Doran]

I think that was my colleague. Give him credit where credit is due.

[Raj Saini, Liberal, Kitchener Centre, ON]

Sorry.

You were talking about trade deflection. There's also the other policy of cross-cumulation and making sure that trade is much better. If we are going to enter these negotiations, we have two options. One option could be to create one whole market between the three countries and have the same external tariffs. That would make it easier for companies to do business. Sometimes, with the onerous obligations under NAFTA, it's probably easier to deal with the most-favoured trade nation status. Do you think that's a much better or much more efficient approach—to prevent trade deflection and to have a better policy of cross-cumulation?

[Prof. Charles Doran]

First of all, I think you're right that there is concern—that I have perceived—about the way in which NAFTA could be exploited by outside trading partners in a way that the biggest market would feel would be at its disadvantage. I think that's the right thing to look at.

Frankly, I don't know how great the problem is. One should look at it and see if it really is serious. If it is that serious, then there will to be some remedies. Maybe the remedies you're talking about are the ones that should be looked at. Certainly some of them should be considered. I think the kind of openness you're talking about—the flexibility, the willingness to consider all other alternatives, to see where real problems exist and to try to deal with them—is important.

I would just say this. My perception of this government is that it is very concerned about non-tariff barriers wherever they occur, and particularly occur in Asia, but insofar as we're discussing NAFTA, that would be looked at as well.

What are non-tariff barriers? Well, I don't know. They're all kinds of things. They're everything from regulations to fiscal policy to a host of things. But one should recognize that these people are business people. They're not academics. They're not theorists. They're solid business people. Some of them are in businesses that are having a pretty rough time.

I'm not sure the solutions are out there. I looked at the difference in the labour costs between China and the United States and Canada. Wow: they're enormous. How are you going to deal with all of that? That's the kind of thing they're trying to grapple with, to try to figure out a way to level the field. They want to bring business back into North America, including manufacturing business.

Let me just give you an example of how earnest they are. A study was done recently by Professor Blinder at Princeton. He's a labour economist. He argued in the study that in the near future, at least from his analysis model, 40 million jobs in the service industries, as far as the United States is concerned, will be offshored.

It's not just the Trump people who are concerned about this. A lot of other folks are too. I know that you are. So the openness that you're suggesting, of looking for solutions—that's really what has to happen here, I think.

[The Chair, Liberal, Bob Nault]

Thank you, Mr. Saini.

Mr. Doran and Mr. Hampson, as always, there's not enough time to get into this. We could spend a few more hours sitting here with you. This was a very good start. We do welcome further discussion vis-à-vis reports, ideas, or things you're hearing that the foreign affairs committee would be pleased to know about. This is a long-term discussion we're going to have at this committee. As you might imagine, it's a very important part of Canada's relationship abroad.

Again, thank you very much for your presentations and for the time you spent with us.

Colleagues, we'll take a short break. Then we'll get right back to our next witnesses.

We'll suspend for a few minutes.

[The Chair, Liberal, Bob Nault]

Colleagues, we'll bring this meeting back to order.

First of all, I understand that we have students here from Havergal College. They're here to listen to our committee's deliberations. I welcome them to the committee.

We'll go right to the individuals who will be making presentations today. From the Canadian American Business Council we have Maryscott Greenwood, the chief executive officer.

Welcome, Ms. Greenwood.

[Maryscott Greenwood, Chief Executive Officer, Canadian American Business Council]

Thank you.

[The Chair, Liberal, Bob Nault]

We're waiting for Conrad Black to get to the video conferencing centre. I understand he's on his way. We'll start with Ms. Greenwood's presentation, and then hopefully we'll hook in with Mr. Black in the next number of minutes.

With no further ado, we'll go straight to Ms. Greenwood, please, and then we'll get into questions.

[Maryscott Greenwood]

Thank you.

Hello, everyone. I am very pleased to be here today.

Mr. Chairman and members of the committee, thank you very much for the invitation to appear before you on behalf of the members of the Canadian American Business Council. I am here from Washington. I'm actually from Washington, so I represent the swamp, which apparently is currently being drained. We can talk all about that and about our role in that.

It is certainly an interesting time to be focused on Canada-U.S. policy matters, and more broadly on the common ground and uncommon friendship that we have long shared, a hallmark of the enduring, affectionate, and productive relationship between Canada and the United States.

In the first 100 days since President Donald Trump's inauguration, he has walked back several key campaign promises. You heard a little bit about that from the professors earlier today, and I will just underscore and elaborate.

The President decided not to call out China as a currency manipulator. He opted not to lift sanctions on Russia. He decided against moving the U.S. embassy in Israel from Tel Aviv to Jerusalem. He chose not to abandon decades of U.S. policy on China and Taiwan with the so-called one China policy. He decided not to walk away from the Iran nuclear agreement, not to close the EXIM Bank, and not to upend President Obama's diplomatic outreach to Cuba. The President even did an about-face on his isolationist, non-intervention rhetoric by enforcing President Barack Obama's red line on Syria with a missile strike in response to atrocities perpetuated by the Assad regime.

Due to all the reversals, supporters of the North American Free Trade Agreement—like us—took note. The President, in a similar fashion, as you well know here, decided against his recent threat to tear up NAFTA. But it is far too soon to breathe a sigh of relief on any of these issues. The 45th President of the United States has demonstrated repeatedly that he is nothing if not unpredictable. For now, the U.S. is not pulling out of NAFTA. However, it is planning, as you know—it's why we're all here, I suppose—a significant renegotiation.

NAFTA is, after all, a 23-year-old trade agreement, negotiated during an entirely different era. It was enacted when a lot of people had yet to log on to the Internet. The iPhone was more than a decade away. Some of the biggest and most robust sectors of the North American economy did not exist when NAFTA was negotiated. It is in legitimate need of an update.

Now that the conditions seem right for a new NAFTA, the Canadian American Business Council, the organization I represent, has come up with a list of top 10 suggestions on how to grow the Canada-U.S. economy by giving NAFTA a shot in the arm. We refer here strictly to the bilateral Canada-U.S. relationship. Although we do see merit in a trilateral negotiation, and as desirable as that would be, I'm not sure the politics are there to have a full-on trilateral negotiation. If there are two or three bilaterals—U.S.-Canada, U.S.-Mexico, and Canada-Mexico—so be it.

Our first recommendation is simple. Create a chapter in NAFTA on regulatory co-operation that codifies and strengthens the Canada-U.S. regulatory co-operation council as a permanent entity. The fruits of that bilateral labour are frustratingly slow at the moment, yet they are integral to the health of both economies, since they will eliminate costly red tape by harmonizing regulations on both sides of the border. Later today, in front of another committee, I will be talking about specific recommendations on regulatory cohesion. I know you will want to tune in for that. It will be spellbinding, for sure. Formally recognizing RCC in a new NAFTA would ensure that the governments work in tandem on new regulations that align existing regulations.

There's also, I would add, an argument to be made in favour of a, quote, “negative list” approach to new regulations. Such an approach would deem that all new regulations are harmonized—everything would just be deemed harmonized, Canada-U.S.—unless you set it aside on a negative list. It's a pretty big idea, but we advocate for it.

Our second recommendation is to mutually recognize voluntary product standards testing and certification, and to implement zero tariffs on all products, so that we truly have a free trade agreement. A question was asked on that earlier, here in this committee. It's probably too much to hope that dairy and lumber would be included in a zero-tariff regime, so for these sectors we encourage new arrangements that are mutually acceptable. The swift resolution of the dairy and lumber disputes indeed constitutes our third recommendation.

Fourth, we advocate revamping the Buy American provisions into one Buy American/Canadian requirement, or, stated another way, considering Canada as domestic for the purpose of U.S. procurement. There is a model for this. The 1956 Canada-U.S. defence production sharing agreement requires that Canadian suppliers are treated the same as U.S. suppliers for the purposes of procurement. We think that the reciprocity would need to be genuine, with a level playing ground for both Canadian and American companies on each side of the border.

Our fifth recommendation is to support further integration of our North American energy markets by building robust and interconnected infrastructure systems to connect supply and demand. That will require a push for predictable, efficient, and expedited regulatory regimes to ensure cross-border infrastructure that's up and running in a timely fashion. This one seems self-evident, yet it's surprising how little coordination exists in otherwise integrated electricity, energy, and transmission cross-border systems.

Our sixth recommendation is to enhance the protection of intellectual property, including but not limited to exploring policy options in Canada to counteract judicial interpretations of IP rules, which serve to invalidate long-standing patents, particularly in the life sciences sector. It is time for Canada's Parliament to fully explore legal options that in recent years have been left solely to the Canadian courts, to the serious detriment of innovation and foreign investment in Canada. We actually explore this issue, if you're interested, in a deep-dive discussion on innovation policy in a paper on the Canadian American Business Council's website. I'm happy to talk to you more at length about it, if you want. The observation here is that it's a policy area that for a couple of decades has been interpreted by the courts, but the Parliament hasn't opined; it hasn't set policy. We think it's time for that.

Recommendation seven involves the establishment of rules to promote and govern digital trade, including provisions prohibiting data localization and digital customs duties, enabling cross-border data, and securing basic non-discrimination principles for digital products.

Eighth on our list is updating the rules governing the movement of people across our common border, to reflect the modern categories of employment, including those who work in the digital economy. All of you have travelled back and forth across the Canada-U.S. border into the United States. Some of you have experienced some of the challenges with respect to crossing. It's time to update those lists and that collaboration.

The ninth recommendation calls for enhancement and modernization of joint security arrangements to foster freer cross-border movement of goods and services and more reliable and predictable border processing. Here I refer a lot to pre-clearance legislation that the U.S. Congress passed and signed into law. I know that the House of Commons here is considering it. I'll be back in a few weeks to another committee to talk about the importance of pre-clearance, but I'd also be delighted to talk to you about our perspective on how important that is, if you like.

Finally, since the new NAFTA will potentially serve as a model for future agreements the way its predecessor was, we suggest taking a stand against currency manipulation. It's not an issue obviously here in North America but can pose a problem with other economies. Even if President Trump isn't willing to take China on at the moment, we think it's important.

These 10 recommendations aren't easy, but they are possible. If achieved, they could provide a meaningful boost to the flow of commerce, the pace of trade, and the health of the economies of both Canada and the United States—and Mexico, if it's part of it. They'd lead to minimal disruption, and in fact would ease regulatory burdens on countless businesses, citizens, and industries on both sides of our common border. They'd cut costs and red tape. They'd open up lucrative new markets for those sectors that have existed under protectionist regimes for too long.

We are headed into a dynamic new age of technological advances that are demanding that the United States and Canada come together as partners like never before. These new advances are almost as unpredictable as the next 100 days of the Trump administration. In both instances, though, it is worth focusing on what needs updating in NAFTA and to create a blueprint for how our countries can do business together for generations to come.

I'd like to conclude by thanking you for having me.

Thank you for having me on this particular day, May 4. I must end by saying, “May the fourth be with you.”

[Voices]

Oh, oh!

[Maryscott Greenwood]

Thank you.

[The Chair, Liberal, Bob Nault]

Thank you very much, Ms. Greenwood.

We've now been able to hook up Mr. Conrad Black, who I understand was delayed by an accident on his way to the conference centre.

The normal practice in the committee is that witnesses are given an opportunity to make opening comments. Ms. Greenwood went first. I understand you know each other.

We'd like to give you an opportunity to make any opening comments, and then we'll go to questions from there.

The floor is yours.

[Maryscott Greenwood]

We haven't met in person, actually; only on TV.

[Conrad Black, As an Individual]

I have to say that I wasn't aware that I was expected to make an opening comment. I can certainly improvise one, but it would be rather platitudinous, and I don't want to inflict that on the committee. Would it be a dereliction if we just did without an opening comment? Perhaps I could say something at the end.

It's something of a mystery to me exactly what I'm supposed to do, Mr. Chairman, but I'll do whatever you want.