Foreign Affairs Committee on May 18th, 2017

[Carlos Dade]

Oh, yes.

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

The review of the tax system will also have a certain impact. I would like to hear your thoughts on the potential impacts, and also on the likelihood of a measure such as the border adjustment tax being adopted.

[Carlos Dade]

What exactly is the tax called? The actual term is something like

“distance-adjusted tax”.

This is a subject on which I'm going to admit to being completely confused. You've heard the old joke about how you'd like to meet a one-handed economist, because an economist will say “on the one hand” and then “on the other”. I can't get two economists to agree as to how this would work, whether it is a replacement for the VAT or it's completely different, whether the WTO will rule on this or not.

What I can say is that it is primarily designed as a revenue enhancement measure in Washington. They have huge increases to defence spending and cuts in other areas that don't equate to the increases they're making in defence, so they would have to enhance revenue. It's questionable as to whether or not revenue enhancement measures would work. You'll see the U.S. exchange rate change and any revenue gains would be short term. Whether or not you can get people to repatriate profits from abroad under this is another question. However, we didn't see this show up in the administration submission for tax policy, so that's a sign that they may be backing away from this.

Again, I'll admit to being completely and totally confused by the distance-adjusted tax and I can't get two economists to sit in the same room and debate. You guys should actually have four economists here, with two on each side, and spend an hour watching them yell and scream at each other about this. Then you can try to come up with your own conclusions.

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

In Washington, I had the opportunity to hear an economist, a former advisor to Ronald Reagan, who had a very clear and straightforward opinion. He had a mathematical formula that worked it all out. It was quite interesting to see the reaction of the people in the room: his opinion was not well received.

[Carlos Dade]

Yes, I can imagine.

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

I listened to him and took notes in English. I will switch from English into French, as I do too often; my apologies to the interpreters.

Can you provide more information about the trusted traveller programs, the expansion of these programs to Mexico, and their operation, status and how things are progressing?

[Carlos Dade]

There are two trusted traveller programs in North America. One is a bilateral program between Canada and the United States.

The other system is managed by the United States and applies to Mexico. Mexico has in fact declined the U.S. invitation to create a bilateral system south of the border.

We have two systems in North America. The Canada-U.S. system is a bilateral system that we have together. The SENTRI system is run by the U.S. for Mexican nationals. Linking the two systems together would allow those Mexicans who have been vetted as part of the SENTRI program to access the U.S. and also to access Canada through the NEXUS program. That's my understanding. You'd have to call in CIC and Public Safety. I've always had difficulty getting answers out of them, but I think that would be a very good point.

If I could also humbly suggest for the committee to look into that because it would also solve some of our problems with Mexico, like the rise of false refugee claimants once again. This is another way to look at diminishing the problem by enhanced use of those who have been cleared by SENTRI for those who have U.S. visas.

In terms of dealing with the problems we have, it also could eventually create a North American space, where people can come into North America, be cleared once, and travel. This is what we're seeing around Asia. With respect to the APEC business travel card, Canada again—I keep saying this—was the last country to adopt the APEC business travel card, after the United States. We fell behind the United States in terms of opening our borders to business people. What's worse—sorry, I'm going on a diversion here—with the APEC card is it appears that we've completely turned over management of Canadians applying for this to the U.S.

I've actually tried to apply for an APEC business travel card. You have to be a NEXUS member, so I applied. I wound up getting bounced to the U.S. global entry system and I filled out things and they asked for identification, but it wouldn't let me use my Canadian passport. I'm binational, so I have two passports and the NEXUS system has my Canadian passport and my American passport, but when I tried to apply for an APEC business travel card, it wouldn't let me use my Canadian passport.

I had to send an email to the U.S. GOES people saying, “Hey, I have a Canadian passport. I'd like to use my Canadian passport. I don't want to use my U.S. passport to apply for the APEC card.” I'm still waiting to hear back from the Americans as to whether or not they're going to let me use my Canadian passport to apply for an APEC business travel card.

Again, get the folks from CIC in here and you may want to ask them about that, but don't tell them I said that.

[The Chair, Liberal, Bob Nault]

It's too late.

Thank you, Madame Laverdière.

We're going to Mr. Saini.

[Raj Saini, Liberal, Kitchener Centre, ON]

Good morning, Mr. Dade, and thank you very much for coming. I want to personally thank you for this great graph you sent us. As a science guy, I love graphs.

I'd like to drill down a bit on this graph. In light of the news this morning from Washington, if we roughly follow your timeline, what we're trying to do and what the United States is trying to do is all fine and good, but what we haven't talked about is the Mexican domestic situation.

If you look at the three main contenders for the Mexican presidency, the one who is emerging as a front-runner is Mr. Obrador, from the Morena party, who is anti-trade.

If you look at your timeline, and if we look at the fastest way we can get there, you have six months until negotiations end, on March 1, 2018. That will be within striking distance of the Mexican election. If the domestic election is anti-trade or if the public is anti-trade, then whether it's PRI or the Morena party or PRD, they are going to have to focus.

The best deal we could have gone with is with President Peña Nieto. Even with him, he's going to have to adjust his enthusiasm because he's going to have to pass power, probably to Secretary Videgaray, who is the emerging front-runner.

I don't understand. We're having this dialogue, which is great, but we're not focusing on the elephant in the room, which is the Mexican domestic situation. Could you highlight or provide some commentary on that?

[Carlo Dade]

Thank you for bringing that up. This is an issue that's been troubling several of us. There has been one piece in the Canadian press on this, but I'm glad that it's coming to attention. You've read the recent piece we had on the Canada West Foundation blog about this.

This really is troubling for the North American negotiations. In Andrés Manuel López Obrador, AMLO, you have a candidate of whom to say he's anti-trade or critical of trade is an understatement. He has also hinted that some of the reforms that Mexico has undertaken may be rolled back under his administration. It's populist, the populism that we've seen in Latin America before and with which we're quite familiar.

This election in Mexico rolls out July 1. The entire Congress changes. There is only a single term in Mexico. The president will change. This election will take place, generally, starting three months before, so in May.

The earliest you can finish is not March 1, but August 28. Once the negotiations finish, the administration has to give Congress 180 calendar days' notice, so you're looking at the agreement not being signed. Even if you have negotiations that are six months long, the agreement can't be signed until August 28 unless Congress unilaterally decides to waive the 180 calendar days' notice, which is a possibility but I would discount that.

You're looking at the agreement coming out August 28, which is after the Mexican elections. Then you have the period where it has to be submitted for legal scrubs and other things. You're looking at implementing a bill in Congress on September 27. This is right during the lead-up to the U.S. mid-term elections.

You can imagine that you've had an election in Mexico where trade and NAFTA negotiations, because of Trump, are criticized. You've had NAFTA used as a stalking horse, whipping boy, or whatever you want to call it, in the U.S. mid-term elections, and you can imagine the rhetoric that's going to come out of the U.S. on this at the mid-term elections. Every congressperson is going to be fighting for their seat, throwing NAFTA under the bus and saying anything to get elected again. You're going to have a Mexican Congress that will be installed on September 1, in time to hear the debate in the U.S. mid-term elections about this, and which is not going to do anything until a new president comes in, in December.

Yes, I've used some colourful language to describe this before, but “cluster” begins to describe the sort of situation we're heading for.

You're looking, then, at having to wait until the new president is in power. He needs to been in for a while, so you're looking, at best, at the second quarter of 2019 for any real progress to come out. If you miss that deadline, then you're looking at maybe running into the next U.S. election in 2020 and Trump trying to run again, not having got NAFTA through.

The process, because of the election and the interaction between the elections and the timetables.... We're actually thinking about turning this into an interactive thing, where you can move the negotiations back and forth and take a look at different scenarios.

This is something we have to think about. The Mexico we know might not be the Mexico we have after the coming election.

[Raj Saini, Liberal, Kitchener Centre, ON]

The second question I want to ask is about the Pacific. I think that because we have a close proximity to the American-Mexican border, Canadian business has a built-in advantage, especially with the United States. We share the same language, same culture, generally the same set of rules and laws. The one thing right now, if you look at where growth is really happening, it's really happening in Asia and I don't think we're taking advantage of it.

Yes, trade deals are important, but they have to be the right trade deals with the right framework with those emerging economies, not economies that are not doing so well.

I know you've written about this. What can we do to pivot that way? If you look at what Australia is doing, they have not gone around the world saying they're going to sign free trade deals with everybody. They've focused on their part of the world and said they're going to get the best trade deals they possibly can with the countries that surround them.

Because in North America we really only have two countries, what can we do to pivot and go toward the Pacific where the growth is going to probably be the strongest? You could also argue Latin America, but specifically with the Asia-Pacific countries, what can we do?

[Carlo Dade]

This is going to seem to counter what I said earlier, but I don't know that there's much that we can do other than open the door for Canadian business by signing good trade agreements, by putting them on the same level playing field as their competitors. The issue we have is that we've been blessed and cursed by access to the fattest, richest, and easiest market on the planet. Canadian business looks around the globe and says,“Why should I go to Honduras to work twice as hard for half the money?” Can you really blame them? Every place after the U.S. is harder. It's more difficult, more distant, and there's generally less money and higher risk. As a result, we become dependent from a logical business decision on a market that is close and easy and very lucrative.

Even in cases with Mexico, we've underperformed in Mexico. Somehow, Canada is third or fourth in the softwood lumber export market to Mexico. Canadian producers continually complain that we're losing the U.S. market, but we've had access to Mexico and we haven't taken it up. Chile has taken the Mexican market from us. Brazil has taken the Mexican market. Yes, housing construction in Mexico is different; it's not that big. The U.S. Softwood Export Council has an office in Mexico because it's that important and that big a market, yet we've chosen to ignore it. Even though we've had NAFTA, even though we've had access, even though we have four class 1 rail lines that run down there, even though we have highways, the businesses in Canada have chosen not to follow up on that opportunity.

It's frustrating at our end, on the trade front, when we talk to businesses about going abroad. The only thing we can do is to provide services for business and trade commissions and other things, and to sign good agreements. Getting business to go, that's not your responsibility. It's not your fault that businesses don't take up the opportunities that are put forward. It's the fault of Canadian business for not going forward to take up those opportunities.

Australia has no choice. Australia does well, because they're so far from the U.S. and they have no choice; they have to do this. We have a choice, and our choice is the easy market in the U.S. The Australians would change places with us in a New York second. They would give up Asia to have the access that we have to the U.S. market.

Let's not be too hard on ourselves, but also let's be cognizant of how difficult the task is ahead of us.

[The Chair, Liberal, Bob Nault]

Thank you, Mr. Dade.

Let's go to Mr. Levitt, please.

[Michael Levitt, Liberal, York Centre, ON]

I want to explore climate change a little bit. Obviously, as you know, for our Prime Minister and government, it's very clear that addressing climate change is a priority, whereas in the tone coming from the current U.S. administration it has certainly not been addressed the same way.

In April, 17 states filed a legal challenge against efforts by the U.S. administration to roll back climate change regulations, like EPA regulations that had not yet been implemented regarding coal-fired power plants. What role will state-level politics play in the shape of U.S. climate change policy? Will we see progress despite federal actions or reversals on these policies?

[Carlo Dade]

You need my colleague Trevor McLeod from our natural resources centre. This is his area. I'll just throw Trevor a torch on this one.

You'll see different responses from different states. We see states like California on emissions standards, New York on the climate pact, the greenhouse gas pact. You'll see some innovation from the states and some difference from the states. The larger push to roll back EPA from the federal level I think is going to be devastating to the climate agenda, and the potential to withdraw from the Paris agreement is still on the table.

The President has the ability to withdraw from treaties but he doesn't have the ability to rewrite legislation that Congress enacted to bring those treaties into effect. While the President can withdraw from a treaty, it's an open question in Washington as to whether or not his right to rescind the proclamation that brought the treaty into effect includes the right to rescind laws and changes that Congress passed to bring the treaty about. Even if the President does withdraw from the climate change treaty, can he get Congress to go along and change any laws they may have on the books to implement or to deal with that?

You'll still see a fight, I think, between the administration and Congress, but I don't think it's the same fight you'll see over NAFTA, so I think a lot of folks in Congress are more inclined to follow Trump's agenda. At the state level, you probably will see some experimentation and some difference and we can work with them at the provincial level.

[Michael Levitt, Liberal, York Centre, ON]

Thank you.

In an article for Policy Options last November, you wrote that serious resources and attention need to be devoted to trade education and promotion in Canada. Can you speak to why you came to this conclusion, and what you see as the solution in how we should be educating in Canada?

[Carlo Dade]

We spent a lot of time and effort on this with trade commissioners, the Alberta service, the Saskatchewan Trade and Export Partnership, and every province. We spend more resources on this, I think, than the Americans do, or at least we have more actors involved on this than the Americans do.

There are two things. One is continual experimentation with what we're doing. We tend to fund, and we don't really spend a lot of time thinking about experimentation, testing new ideas and new models. The other is to work with businesses before trade agreements are signed. We tend to see this about to be signed; let's rush out and do seminars on CETA. We should be talking to businesses while the negotiations are under way. We do consult with some businesses, but those businesses are already trading. If you want to expand, you need to start talking more broadly as the agreements are being developed.

It takes a lead time of years for companies to develop contacts and context, looking at getting information out and starting to reach out. We have a series of publications coming out on Korea. We're trying a new storytelling method to speak to businesses about the experience of Canadian companies in Korea, not business case studies, not the stuff that the trade export promotion agencies put out, but a more popular style of writing to present lessons. We're trying the experimentation route. That came from a session where I had STEP, the Alberta guys, EDC, and the trade commissioners around the table. Everyone was complaining about their inability to get businesses to take up opportunities. As a result of that discussion, we thought we'd try a new way to tell stories based on this. That's a type of experimentation I think we need: continual experimentation on the trade promotion front and getting to people before the agreement is signed. Let's not wait until it's signed; let's start when we start negotiating and start talking to people.

[Michael Levitt, Liberal, York Centre, ON]

Thank you.

[The Chair, Liberal, Bob Nault]

Thank you, Mr. Levitt.

I'll go to Mr. Kent for the last round.

[Peter Kent, Conservative, Thornhill, ON]

Thanks very much, Chair.

Thank you, Mr. Dade, for your attendance today. Your policy advice is always thought provoking and stimulating.

I'd like to ask you about the request by British Columbia in the late days of the election campaign that Canada impose a ban on thermal coal through British Columbia ports in a tit-for-tat for the softwood lumber dispute, and whether or not Canada should be responding tit-for-tat should there be other initiatives or impositions by the U.S. administration on Canadian economic interests.

[Carlo Dade]

I've done several call-in radio shows in western Canada recently, and when the softwood lumber issue comes up, the anger on the part of the people calling in—not just Danielle Smith's show, but also CBC—is real and visceral. People want to cut electricity. People want to cut oil shipping to the United States. People want to stop sending water down to the United States. Yes, people still think the Americans are taking our water. The anger is visceral, and it's understandable.

It's understandable that politicians would react the same way, but I think that sober second thought really shows that this is going to impact not just our relations with the United States but also with Alberta. The ban would not just include Wyoming and Montana, but also Alberta; so thank you very much for a move that would hurt western Canada.

This elicited a strong reaction in the U.S., but you look at our ability to retaliate: thermal coal impacts, as I mentioned, Wyoming and Montana, six electoral college votes. They're very important states in Congress—again, I'm being sarcastic—very important states in the trade negotiations. We're going to anger the Americans for inflicting no damage on them and not changing their minds, but look at what Mexico's done.

Mexico is the United States' largest customer for corn—70% of the corn. On the resolution that the Mexican Senate has on redirecting corn exports from the U.S., if Mexico decides to redirect corn imports from the U.S., that's a large swath of the Midwest, very important states, politically active. It's a signal of the wider damage that can cause.

If you're going to retaliate, you have to do it in a way that's serious. With coal, we're just going to bleep the Americans off for no impact. Mexico, with corn, is scaring the Americans, with impact. That's what you want to see. Unfortunately, we really don't have the same ability as Mexico has.

Mexico can also stop security co-operation with the U.S. If you think there's a crisis on the southern border now, wait until Mexico starts waving folks from Central America through to the northern border, or stops co-operating and banning folks from countries—Pakistan and elsewhere—from entry into Mexico, or stops checking that they have a U.S. visa before they let people in. Mexico has ways to retaliate that we don't because of the difference in our relationship.

We have to be very careful as we think about this. With softwood lumber, our best retaliation with the Americans is the fact that U.S. homeowners are going to be priced out of buying new homes. Every $1,000 that a U.S. home increases in price, prices 153,000 Americans out of the ability to buy a home. It also increases the price of everything in that home. Your box-spring set is made with Canadian softwood, because U.S. southern pine squeaks when you put it into a box set. Everything in that house, not just the house itself, is going to go up. We've seen that impact in Fort McMurray, with our duties on American drywall, and how those impacted the home-building industry. At the end of the day, our integration may be our best defence, not retaliatory measures.

[Peter Kent, Conservative, Thornhill, ON]

Thank you.

[The Chair, Liberal, Bob Nault]

Thank you, Mr. Kent.

Mr. Dade, on behalf of the committee, I want to thank you very much for your presentation and your graphs for our science guy. It's always useful because it brings back the reality of how the political system works in the United States and the complexities of making major changes, as has been suggested, through tweets by the President of the United States. The outer-lying structure of our discussions is always about being relaxed and calm and not getting too uptight about the process because we have a long way to go.

[Carlo Dade]

Could I make one final suggestion?

[The Chair, Liberal, Bob Nault]

Yes, you may.