Foreign Affairs Committee on May 30th, 2017

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

Actually, they were manufacturing in some other country.

[Mathew Wilson]

Well, they did have major Canadian manufacturing operations, and now they are almost exclusively in software.

I think we need to take a different look at it. Frankly, in a lot of ways—

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

Excuse me, does software fall within manufacturing?

[Mathew Wilson]

No, it would be in the IT sector.

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

So BlackBerry is not a manufacturer?

[Mathew Wilson]

No, it would fall under technology and IT, and more and more manufacturing is moving in that direction. There's a massive blurring of the line between, not just technology, but even services in and of themselves. The value of companies' profits and the wealth they're creating while they're making tangible products is tapping into more in the services and the technology side of things rather than the products themselves.

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

In the negotiations of CETA and TPP, was the definition of manufacturing addressed?

[Mathew Wilson]

Not that I'm aware of. Again, it's more of a domestic definition for how you capture you own stats. You'd have to look at things on a product-by-product level. You don't really define a segment; you define a product. You would define software services and steel, and even different elements of steel in automotive, but you wouldn't define it as a whole, right? You'd define it more specifically. Those definitions tend to really revolve around the rules of origin and transformative change for what's allowed to move freely between the countries.

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

Before my ever-so-charming chairman cuts me off, I want to ask you one final question. This goes to both of you. When the dollar was high, economic theory said that you should be investing in technology. Our productivity numbers barely budged. What's wrong with that?

[Mathew Wilson]

Companies aren't investing enough, plain and simple. I think our investment dollars between 2014 and 2016 dropped by about 15%.

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

Why don't Canadian manufacturers get that?

[Mathew Wilson]

Well, I think there are a couple of things we heard when we asked them about it, and certainly I'll talk generally, and if Joseph wants to he can add specifics.

I think there is a lot of investment that goes on in a lot of companies, but our challenge comes back to what we were talking about earlier, the structure of the manufacturers: really small companies, uncertain about what type of technology to invest in, and in a lot of ways, a lack of support for investment in new riskier technologies.

When you're talking about a 15-person company that's focused on meeting payroll at the end of the week—do they meet payroll, or do they invest $1 million in a new 3-D printer—it's not that hard for them to make the decision. Unfortunately, that's where 90% of companies are: that really small end of the spectrum. The larger companies are continuing to invest, maybe not as much as we would like them to. But that's a big part of Canada's structural problem with a lot of these things. We have a lot of really small companies. We need to help them invest and scale up.

[Joseph Galimberti]

Our member companies tend to be on the much larger side. They're in international competition for investment dollars. It's not a decision about whether you invest in Canada; it's whether you invest in Canada, whether you invest in your facility in the United States, or whether you invest in your facility in Europe.

This goes back to the competitiveness question. They're looking at a holistic sort of business environment. They're looking at structure around trade remedy. Are you protected from dumped and subsidized goods? They're looking to see what kind of support is available. What kind of power rates are they going to be dealing with? What does the general business environment look like?

I think Canada lacks, in a lot of instances, a coordinated approach among jurisdictions as to how to attract that investment. We simply do not have the flexibility that you see in other jurisdictions. And it goes across sectors. I heard the chemistry industry very recently make the same argument at the international trade committee that where Canada used to get 10% of an investment in that particular industry, it is now attracting about 3% of investment in North America. It is not unique to any particular sector.

[The Chair, Liberal, Bob Nault]

Thank you, Mr. McKay.

Mr. Genuis, go ahead, please.

[Garnett Genuis, Conservative, Sherwood Park—Fort Saskatchewan, AB]

Thank you, Mr. Chair.

And thank you to our witnesses.

I'm pleased to represent Sherwood Park—Fort Saskatchewan, which is a real hub of energy-related manufacturing. Speaking of the definition of manufacturing, that's one of those other areas where people don't necessarily make the connection. There is the importance of our energy sector, but also the relationship to manufacturing.

I did appreciate the mention of pipelines as well. I would be remiss if I didn't mention, of course, that we could be building more pipelines here as well, which would support our steel industry. Just coming off the heels of a leadership campaign, I know that our new leader has an Evraz steel plant, which makes pipeline, right in his riding. That is an important part of our energy economy, but also supporting manufacturing and supporting the steel industry. Those are good unionized jobs at Evraz that are helping working families.

Having made that point, I want to ask Mr. Wilson about your comments around expanding and strengthening the agreement. There's a lot that sounds good there, but on the other hand, my impression is that the prism through which the American administration is seeing this is instinctively one of kind of wins and losses. It's one of trying to get a better deal for America relative to other countries.

That's not how I see international trade. I see it as an opportunity to create a space of free exchange where people can prosper together. Speaking of the real practicalities of this, is there a way of achieving a win-win not just economically but also politically, of kind of speaking into that prism of you're winning or you're losing in a way that, yes, allows the American administration to point to some results it's achieved in a way that is also advantageous or at least not disadvantageous to our interests?

[Mathew Wilson]

I think Canada has a great story to tell. If you look at our overall trade balance with the U.S., we're running a surplus because of energy, which they are looking for. On manufacturing products, we're running a small deficit with the U.S. It's very equal, and Joseph mentioned the steel-specific one, but pretty much across the board, we're equal.

I think for us it's that story of joint competitiveness globally. If we can structure and build on the existing deal and tell the story to the Americans that by working together on global trade we stand to benefit.... The U.S. in a lot of ways—and the China story in terms of steel dumping is one example—feels like they're alone in a fight on a lot of these issues globally. That's just one example. There's currency manipulation and other examples.

We have exactly the same problems as the U.S. does in a lot of ways. If you look at our trade deficits, for example, we're running similar types of trade deficits with exactly the same countries: China, Europe, South America. On the CME's part—and we've been saying this for a while now—we should be going to the U.S. and offer to work with them in areas of mutual interest to benefit both economies. If we can strengthen the integrated level of the economies between our nations—we're selling goods to each other, and we're their biggest customer—we have an opportunity to really tell them a good story about joint competitiveness and growing our economies together.

All you have to do is look at what's happened since the signing of the Canada-U.S. Free Trade Agreement. The U.S. hasn't lost massive numbers of jobs to Canada or anything like that. We've actually developed really strengthened integrated economies that mutually benefit each other. I think that's the great thing I've seen about the government's effort and the team Canada approach in telling that story in the U.S.

I do think we have a lot of positive things to tell them about and a lot of positive areas where we can work together to build off of. In my mind, rather than just trying to pick fights all the time with them, we need to pick two or three areas where we say, we're going to be your partner on this, let's work together on it.

[Garnett Genuis, Conservative, Sherwood Park—Fort Saskatchewan, AB]

Thanks so much.

If I could maybe develop where I think where you're going with that and maybe combine it with some of the other things that were said, instead of emphasizing the competitive dimension between Canada and the U.S., if we can get the administration in the U.S. to see that some of the major trade irritants they're dealing with are ones that we can help them on....

We've made this argument before that if we take an approach that says we're going to align with China and not with the U.S., that sends the wrong message. But if we take an approach that says we can help the U.S. address these major economic issues that come from the unfair trade practices of China, we can be a partner with them on it. But we have to be working together as a team. You mentioned team Canada, but we even need a team North America approach to advance our interest.

Is that something that is worthwhile strategically for us to be doing?

[Joseph Galimberti]

Yes, absolutely. Just to jump in there, I want to mention that there's a great example in Edmonton of this. NAFTA is not a calculation of wins versus losses between Canada and the United States. This is where I think the work of this committee is excellent. NAFTA is a calculation of how North America wins versus the globe.

A great example of that is a steel company in Edmonton, AltaSteel. Their primary ownership is now out of the United States. It was an acquisition made by a U.S. company so they could fortify their corporation to better compete globally. That's what it's about. When you talk about dealing with unfair trade practices—and on that I mentioned mutually assured defence—part of that is customer satisfaction. Part of that is combining forces to be more competitive. That's how North America gets ahead. It's not about a series of singular disputes across individual products between our borders.

[The Chair, Liberal, Bob Nault]

Colleagues, that wraps up our first hour.

I want to thank Mr. Wilson and Mr. Galimberti for their presentations. In fact, this is a very important matter. I think all of us are extremely interested in the next generation of NAFTA. If I'm hearing correctly, most of the industry seems pretty supportive of the idea that it's probably time to refresh NAFTA and make it a little more worldly in where we're headed—not where we've been. I think the discussion we're having is extremely important to all of us.

So again, on behalf of the committee, thank you for your presentations. We'll be keeping a close eye on this, as you have been, with the idea of making Canada more successful.

So thank you.

[Mathew Wilson]

Thank you.

[The Chair, Liberal, Bob Nault]

Colleagues, we'll take two minutes and then we'll go to our next witnesses.

[The Chair, Liberal, Bob Nault]

Let's get started on our second hour.

Welcome back, colleagues.

In front of us is the Association of Canadian Port Authorities, and Wendy Zatylny and Debbie Murray.

We're going to get right to it.

Wendy, you can get started, and then we'll get into questions from there.

The floor is yours.

[Wendy Zatylny, President, Association of Canadian Port Authorities]

Thank you very much.

Good morning, honourable members.

My colleague Debbie Murray will be joining us shortly. She is my director of policy and regulatory affairs, and certainly is involved in the nitty-gritty of all the work we do at the association.

On behalf of the association, thank you for the invitation to speak this morning. I want to take a few minutes to set the context and sketch a picture or an image for you of what port authorities are, and then how we interact within the North American transportation system.

To start, we represent the 18 Canada port authorities that exist across the country. We are on both coasts, the Atlantic and Pacific, but we also have to remember that we are within the St. Lawrence Seaway and the Great Lakes system. We hear a lot about Canada comprising three coasts. I always say we are four coasts, the fourth coast being the interior of the country.

The ports are both bulk and container ports, and they handle collectively over $200 billion worth of cargo every year, incoming and outgoing, with trading partners in more than 160 countries. This carries some economic heft with it. We are responsible for creating nearly a quarter of a million direct and indirect jobs that, it should be noted, pay higher than average wages.

We are also committed environmental stewards and are contributors back into our communities. We did an economic impact analysis recently that showed that just in baseline terms, we donated some $22 million back into our communities over the past five years.

In terms of foreign policy, I was looking at the mandate and the questions of the committee, and we very much approach these questions through the lens of trade. As I said, I want to draw a picture for you today of the points of intersection that Canadian ports have in the transportation supply system in Canada and the U.S. The picture is certainly about cargo flows, but we are also going to talk about passengers, people, as well as other areas of collaboration, because the system we have is much more complex than it appears on the surface. Then I'll end with a few words on the issues that we are keeping an eye on as our relationship with the United States evolves.

In terms of cargo flows, clearly the committee has heard ad nauseam about the strength of the relationship between Canada and the U.S. and the volume of trade that goes back and forth across the common border. However, we have to remember that a lot of this occurs through intermodal connections that link ships, ports, rail, and road. What does this look like in terms of numbers? This is seen most obviously in the movement of containers, and 25%—or 1.2 million TEUs—of total laden containers handled in Canadian ports were destined for or received from U.S. destinations in 2015. In 2016 this amount decreased slightly to 23%, which is about 1.1 million TEUs.

Containers flowing through Canada and into the U.S. supplied everything from consumer electronics, furniture, and clothing to auto parts and other inputs into the American manufacturing system. The majority of the containers, whether they are coming in from the east coast or the west coast, flow into the American Midwest, especially Chicago, for processing or onward movement.

Again, the story goes beyond simple container movements in that the two nations have evolved a symbiotic relationship in transportation that worked to improve the cost-effectiveness and the efficiencies on both sides of the border. The best example of this, again, is in the St. Lawrence Seaway Great Lakes region, where cargo inflows and back-haul arrangements have been worked out to maximize the cost efficiencies of the system. Remembering that transportation operates on extremely narrow margins, it has led to a matter of survival to try to eke some profit or sustainability out of the system. Again, this system has evolved to become extremely efficient and extremely cost-effective.

To put it in context, the Great Lakes St. Lawrence Seaway is an integrated binational marine corridor that goes 3,700 kilometres into the heart of North America. It's unique in the world as a system, and it provides marine access for two provinces and eight U.S. states. It has a combined GDP of some $7.8 trillion, which represents about 30% of the economic activity in that region on both sides of the border. The importance of the Great Lakes St. Lawrence Seaway, as a key enabler of economic prosperity, led the governors of the eight states and the premiers of the two provinces, Ontario and Quebec, to adopt a Great Lakes St. Lawrence maritime strategy in 2016.

We were part of those discussions. They were multi-stakeholder discussions. The strategy's objectives were to double maritime trade, shrink the environmental footprint of the region's transportation network, and support the region's industrial core. The strategy is designed to help grow the region's maritime sector, which already contributes some $30 billion to the U.S. and Canadian economies, and frankly, accounts for some 220,000 jobs on both sides of the border.

On the Great Lakes, most of the cargo is bulk or project cargo, and it comes out to an estimated 1 billion tonnes that moves every year on the water and supports key industries such as grain, auto, and steel, which I believe you heard from earlier.

I keep saying the word “symbiosis” because it's an important concept. An interesting symbiosis has evolved to make the system as efficient as possible. For example, you get trans-shipment along the points of the system to maximize the efficiencies of the ships. Iron ore is loaded by Canadian ships and carried to the Port of Quebec, where the ships are either topped up or they're trans-loaded onto ocean carriers for onward transport to Asia for steel production.

We're also seeing American lakers carrying iron ore from Duluth/Superior to Conneaut, then picked up by Canadian domestic ships again for transport up via the seaway.

Similarly, within the Great Lakes St. Lawrence Seaway system, grain exports are concentrated at the ports of Thunder Bay, Duluth, Superior, and Toledo. From these ports, wheat is either directly transported overseas, again, by ocean-going ships that will load, go up the seaway, top up in Quebec City where they've got greater depth, and then head out across the ocean. But it's loaded on as back-haul cargo, or is loaded onto lake vessels for, again, trans-shipment at ports along the St. Lawrence. From there, the larger vessels carry the cargo to overseas destinations.

It's important to note that everybody in the system recognizes how well the system works, and our American friends certainly recognize the value of this. The Duluth Port Authority has talked about how project cargo makes it way through this waterway, and the back hauls of grain along the same trade lanes are what make the freight rates even more competitive. Similarly, the Port of Milwaukee has suggested that one of the keys to their success for agricultural product exports is the importing of steel. The ships bringing in steel are looking for returning cargos, so it's more economical if there are products like grain to ship out. It's important to think of this as a circuit or a closed system.

Looking further at integration within cargo movement, if you take it outside of the Great Lakes St. Lawrence system, we've had pilot projects where the Canada Border Services Agency has conducted examinations of U.S.-bound containers on behalf of the U.S. Customs and Border Protection staff. These pilot projects were held at the Ports of Prince Rupert and Montreal, and both projects were designed to test, validate, and shape the implementation by sharing information, adopting common standards for security screening, and inspecting inbound marine cargo at the first point of arrival in North America.

The success of these pilot projects led to improved cross-border clearance procedures such as developing tamper-evident technology on container seals, standardizing regulations on wood packaging materials, harmonizing the trusted trader programs, and developing electronic single window data transfer initiatives. It's been successful, certainly more so coming out of Prince Rupert on the west coast.

I mentioned earlier that I was going to talk about cargo, people, and collaboration. Another significant area of synergies is in the burgeoning cruise industry that Canadian ports also host. In 2015, Canadian ports hosted over 1.5 million cruise passengers who came in. This is obviously on the coast, but also within the St. Lawrence Seaway and the Great Lakes system.

If you look at percentages, Port of Vancouver gathers the most precise data, and 62% of their passengers were U.S. residents. Overall, the number of cruise passengers is growing. On the eastern seaboard, earlier in May, Quebec City announced that they've become a new port of call and a new itinerary for Disney cruises. Disney also calls at the ports of Saint John and Halifax, but also calling on Canadian ports with very active cruise itineraries are ships from Royal Caribbean International, Celebrity Cruises, and Carnival Cruise Lines.

Again, this has lead to synergies within the system, so Canadian ports, especially Port of Vancouver, have worked with U.S. Customs and Border Protection Services to provide pre-clearance at the port to maximize the customer experience, if you will. They provide pre-clearance for passengers boarding a cruise ship bound for Alaska, which is considered re-entering U.S. jurisdiction. The Port of Vancouver has installed 10 automated passport control kiosks at Canada Place cruise terminal, which help speed up the passenger processing rates through U.S. Customs and Border Protection.

There are two big areas, and the last one I will mention is simply that of collaboration. Beyond cargo and passenger movement, by virtue of our having to work together to essentially deal with the same kinds of issues, we've developed a whole number of areas of joint collaboration. Safety is a great one. We have shared icebreaking and pilotage duties in the Great Lakes–St. Lawrence system. In fact, we have a memorandum of understanding with the U.S. in which we have to alternate American and Canadian pilots to transit ships in the system and bring them into Canadian ports.

On the security side, the port of Windsor is probably the best example, but we all collaborate closely with American ports. Port Windsor collaborates closely with the Detroit police, the FBI, and the U.S. Department of Homeland Security to jointly manage public events and respond to safety and security issues on the Detroit River. In fact, they're now working on the potential and possibility of a joint command centre on Canadian soil to be used by both jurisdictions.

We also have examples of joint market development. Most recently, the ports of Three Rivers, between Quebec and Montreal, and Indiana formed a first-of-its-kind marketing partnership. They will explore conducting joint studies for new maritime shipping opportunities and holding trade ventures overseas to help build their commercial activity and explore short-sea shipping possibilities.

Lots of work has been done, both on cargo flows and certainly on passenger flows, but also dealing with, say, the softer issues that touch us on both sides of the border in the marine sector. Certainly, collaboration, partnership, and integration are the realities of such a highly specialized continental and global supply chain. Over decades, we've collectively built up this highly sophisticated supply chain and an effective symbiosis—there's that word again.

Looking ahead as we watch things evolve both in Canada and the United States, we do have a few concerns. There are some areas that we're keeping an eye on that we need to be watchful of.

The first is the border adjustment tax, of which there has been a significant amount of discussion with our friends in the United States. Much has been said on this topic, and we certainly would like to add our voices to the chorus of concern on this. There is no doubt that any border adjustment tax would in effect thicken the border and add costs while slowing cargo movement, and increase cost to manufacturers, shippers, ports, and ultimately the consumer, both in handling and then the add-on costs.

At the same time, there is the potential for border thickening through regulatory impediments. The question of how quickly and freely goods and people move across the border has been touched on a number of times. One-sided security or cargo screening requirements and slower data processing for cargo movement would undermine the efficiencies and relationships that have been established and refined over the years. We noted in the recent U.S. budget—although it still has to pass Congress—that significant dollars have been earmarked for border security initiatives, which, depending on how they're designed, could increase the requirements on goods crossing the Canada–U.S. border. These are requirements that our CPAs may have to accommodate to compete for the same markets and shippers.

On the positive side, as an off-setting measure, strengthening bodies such as the Regulatory Cooperation Council would certainly make them even more valuable forums for dialogue, the goal being to avoid unintended consequences. We would ask and must seek to move towards a regulatory playing field where equivalency, or at least mutual recognition of respective regulatory regimes, allows for the safe, secure, and efficient, continental and international movement of goods.

With that, I will stop. It's a huge story, and there's so much to say. There's a big difference between coastal ports and inland ports. I hope I've been able to sketch a bit of the picture of what the integrated ports and North American transportation system look like.

I look forward to your questions.

[The Chair, Liberal, Bob Nault]

Thank you very much.

We're going to go straight to questions.

I'll start with Mr. Allison.

[Dean Allison, Conservative, Niagara West, ON]

Thank you, Mr. Chair.

I have a couple of questions.

You talked about a decrease, although slight, from 25% to 23% of products coming in from or going to the U.S. Is there any specific reason for that?

My second question revolves around Canadian infrastructure—and I don't know if it has anything to do with that.

But in your estimation, is it because of the economy, or have they chosen other places to go? Can I get your thoughts on that?