Industry Committee on Feb. 24th, 2020

[The Chair, Liberal, Sherry Romanado]

Good morning, everyone. Happy Monday morning.

We are meeting today at the Standing Committee of Industry, Science and Technology to study clauses 22 to 38 and clauses 108 to 122 of Bill C-4, an act to implement the Agreement between Canada, the United States of America and the United Mexican States.

With us this morning we have Mr. Lawrence Herman, who is joining us by video conference from Toronto. We also have with us Mr. Matthew Poirier from the Canadian Manufacturers & Exporters; Mr. David Cassidy, UNIFOR Local 444; and Jonathon Azzopardi, from the Canadian Association of Mold Makers.

Since we have a large panel, we will ask that you each present for approximately five minutes. At the end of the testimony, we will then move into a rotation for questions.

We will start with Mr. Herman, who is joining us by video conference. Just in case we have a technical problem, we want to make sure we get his testimony on the record.

With that, Mr. Herman, please feel free to begin your testimony.

[Lawrence Herman, Counsel, Herman and Associates, As an Individual]

Thank you very much.

I'm happy to be able to provide some views. I should make it clear that I'm not representing any particular party or any particular interest. I've been asked to appear in my personal capacity.

To give you a bit of my background, I'm a trade lawyer by profession, but I used to be in the old Department of External Affairs. I've been involved in international trade at the GATT and the WTO, and in Canada-U.S. trade for many years. I deal regularly—every day—with trade policy issues.

I'll be very brief. This is a bill to implement an agreement that has been concluded, signed and ratified by two parties, the United States and Mexico. It is now up to Canada to ratify this deal. The deal is done. It is not open for renegotiation. It is totally impractical to think that the United States Congress would be prepared to change anything in an agreement that they have approved and the President has ratified.

What we're talking about here—and I think the committee understands this—is changes to Canadian laws to bring our laws into line, where necessary, with a concluded agreement. When you look at the clauses you are examining, you will find that they are consistent, at least in my view, with everything that has been agreed to in the CUSMA. The task is to approve legislation to make some adjustments, if necessary—and frankly, I don't think I see any areas where adjustments are needed—to bring our laws technically into line with what has been concluded in the trade agreement.

As I said, in every practical sense, the agreement is not on the table for renegotiation. What is necessary on Parliament's behalf is to enact legislation that, where necessary, brings our laws into line with what has been agreed to with the United States and Mexico. Some of these adjustments are purely technical. They are nothing more than some moderate tweaking of Canadian statutes to comply with the agreement. There are some substantive provisions, as you all know, dealing with customs matters, tariffs and rules of origin, but that's something Canada has agreed to in CUSMA and now it is up to Parliament to pass the necessary implementing legislation.

As a final word, if Parliament were to reject this bill or to refuse to approve the Canada-U.S.-Mexico agreement, it would be unprecedented and, frankly, would set our economic trade and political relations back many years. It would be an astonishing result if Canada did not proceed with ratification.

Those are my views.

[The Chair, Liberal, Sherry Romanado]

Thank you very much.

Next we will move to Mr. Matthew Poirier.

[Matthew Poirier, Director of Policy, Canadian Manufacturers & Exporters]

Thank you, Madam Chair.

Good morning, everyone. It is my pleasure to be here on behalf of Canada's 90,000 manufacturers and exporters, and our association's 2,500 direct members, to support Bill C-4, an act to implement the agreement between Canada, the United States of America and the United Mexican States, also known as CUSMA.

Before I begin, I'd like to commend the efforts of the Prime Minister, Deputy Prime Minister Freeland, Chief Negotiator Verheul and all their staff for negotiating CUSMA. Being part of the process, we at Canadian Manufacturers & Exporters, or CME, understand how difficult these negotiations were. It was crucial to achieve a positive outcome for Canadian businesses and all their employees, and we did just that. As such, CME fully supports this bill. We urge the government and all parliamentarians to ratify CUSMA as soon as possible.

My goal today is simple. I want to explain why free trade is important to manufacturing and how CUSMA will improve on NAFTA.

Why is free trade so important? Simply put, North American trade is the basis upon which Canada's manufacturing industry is built. Our sector alone employs 1.7 million workers in every community across the country. In 2019 we shipped 455 billion dollars' worth of merchandise exports to the U.S. and Mexico. This represented 77% of our total exports to all countries that year. Two-thirds of these exports, worth about $305 billion, were manufactured goods. The numbers simply speak for themselves.

You see, Canadian, American and Mexican manufacturers don't really compete with one another. Rather, we build stuff together in a continental manufacturing ecosystem bound together by integrated supply chains. North American free trade is therefore a pillar of our national economy. It is why the manufacturing sector produces the bulk of Canada's exports. It is how the sector can compete against the rest of the world. This is why CUSMA—NAFTA before it—is so important. Without this agreement and without integrated production with the U.S. and Mexico, we simply would not have the scale necessary to be a global player. Canada's ability to take advantage of any other trade deal is only possible if North America continues to manufacture and grow.

How does CUSMA improve on NAFTA? CUSMA preserves the integrated manufacturing operations that allow the relatively free flow of goods and services between our three markets. Going into the negotiations, our members made it clear that the primary objective of Canada must be to do no harm to this integrated manufacturing economy. CUSMA accomplishes this. In fact, CUSMA preserves many of the key elements of the original NAFTA that were targets of the U.S. for elimination. This includes the dispute settlement mechanisms and business traveller visa exemptions. This was by no means assured at the outset, but there they are, alive and well.

Importantly, CUSMA updates critical areas of NAFTA, dragging it into the 21st century. This alone will significantly enhance North American trade. For example, the new digital trade chapter recognizes that the Internet is a thing, and establishes a framework for e-commerce in North America. The customs administration and trade facilitation chapter will also go a long way in modernizing borders throughout North America, enabling the free flow of goods.

Lastly, chapter 26, the new competitiveness chapter, has not garnered a lot of attention, but in our estimation it is one of the biggest accomplishments. Why? It sets up a framework for three sovereign countries to become a unified trade bloc. It will do this by promoting better coordination and integration of our manufacturing industries so that it can tackle global trade challenges together. This is a significant accomplishment. We have consistently urged the government to start work on implementing the parts of the agreement—parts like chapter 26—that do not require legal changes. We should be looking to make early progress by establishing committees for North American competitiveness and good regulatory practices, as outlined in the agreement. This would show Canadian leadership, signal to our other partners that we take CUSMA seriously and let us hit the ground running.

Once CUSMA is the law of the land, we need to pivot towards helping manufacturers and exporters take advantage of the new deal. The U.S. is, and always will remain, our largest export market. We must leverage such excellent government resources as the trade commissioner service and Export Development Canada to help companies transition from NAFTA to CUSMA.

Limited access to the U.S. government procurement market is also a big challenge.

This is how government can play a positive role in helping companies capitalize on CUSMA once it's in force—

[The Chair, Liberal, Sherry Romanado]

Your time is up. Can you wrap it up quickly?

[Matthew Poirier]

Certainly.

In the final analysis, CUSMA is a good deal for Canada and, given the very challenging negotiations, it's an impressive achievement.

Thank you. I look forward to the discussion.

[The Chair, Liberal, Sherry Romanado]

Thank you very much, Mr. Poirier.

Mr. Cassidy, I'll invite you now for your presentation.

[David Cassidy, President, Unifor Local 444]

Thank you.

Good morning, Madam Chair and members of the committee. My name is Dave Cassidy. I'm the president of Unifor Local 444 in Windsor.

Local 444 represents just under 10,000 active members working across a range of industries including gaming, long-term care, aerospace, energy and transportation. Of course, we also do auto assembly and make auto parts.

Our local represents approximately 6,500 workers at the Fiat Chrysler Windsor assembly plant, producing vehicles like the Grand Caravan, the Voyager and the Chrysler Pacifica. We also represent thousands more workers at nearby feeder plants, right down the supply chain.

I want to thank you for the opportunity to address you today with respect to Bill C-4 on the implementation of the Canada-United States-Mexico trade agreement. As the committee members will know, our union international president Jerry Dias took a very active interest in NAFTA renegotiations. I can tell you, coming from Windsor, that reopening, or even getting rid of NAFTA, has been top of mind for workers ever since that original deal came into force back in 1994.

I know the terms of NAFTA stretch beyond just the auto sector. It's a deal that touches nearly every good and service that crosses our continental borders, yet among them the auto industry seems to grab the headlines, and for good reason. Building and developing an advanced auto industry is lucrative business. It is also a tool for significant economic development. Canada is fortunate to have invested heavily in the auto sector. Every one job in auto assembly helps generate 10 others throughout the economy.

An auto assembly plant is like a centre of gravity for additional manufacturing investments. Supplier parts, whether seats, doors, wheels or other components, are intentionally located nearby to help meet production schedules and demand. This is exactly the case in Windsor where the auto industry is still a vital cog in the local economy, this despite years of devastating closures, plant reallocations, job outsourcing and layoffs.

In 1994 NAFTA changed the terms of trade and redefined the North American supply chain. It is no surprise that automakers and parts manufacturers started relocating production to low-wage Mexico or in some cases the low-wage U.S. south.

We used to have a $3.5 billion auto trade deficit with Mexico for cars and parts. The deficit is now nearing $30 billion. We expected this would happen. This is part of the reason Canadian auto workers have long been opposed to NAFTA. Over time and through our collective bargaining, we've managed to secure decent wages and benefits for our members doing very difficult, repetitive and skilled labour, but all that gets undercut as Mexican factories pop up and workers are paid a wage that's a fraction of what we earn.

I don't know if you know this, but a new Audi assembly plant located in Mexico, producing a $40,000 luxury SUV, for instance, will pay workers around $2.25 U.S. per hour. Canadian workers will not, and should not, have to compete with that. I'll tell you there is rarely a time when Canadian auto companies fail to point out these disparities when they're trying to lower our wages, trim our benefits or overhaul our pensions. This is NAFTA's effect on working conditions in Canada.

As I said, our union put a lot of time and resources into engaging in NAFTA renegotiations and working with federal officials to make meaningful changes. No one was under any assumption that tinkering with NAFTA would, by itself, undo decades of damage and neglect, but certainly, meaningful changes were made, and we recognize that.

Under CUSMA there is now a much higher threshold to determine a North American-made car than there was under NAFTA. Giving tariff preferences to carmakers that build a car actually made from North American components strengthens the integrity of the deal. This is far different from the approach the Harper government took when renegotiating the TPP wherein they committed to weakening the NAFTA threshold. Under TPP, which Unifor strongly opposed, more than half a car didn't have to be built in a trade zone to receive tariff preference.

It's good news that under CUSMA the trend is reversed. We think that this could help locate production of tier-1 and tier-2 suppliers into Canada as carmakers attempt to meet the new rules.

CUSMA also strengthens rules of origin on key component parts over and above the original deal. For the first time, there are auto rules of origin that apply to steel and aluminum resources, requiring OEMs to purchase at least 70% of these materials in North America.

[The Chair, Liberal, Sherry Romanado]

Your time is up. Thank you.

[David Cassidy]

Okay. I'm just trying to figure out where I'm going here. I was told I had 10 minutes. I'm sorry, Madam Chair.

[The Chair, Liberal, Sherry Romanado]

I'm sure that once we get into the questions you'll have an opportunity to address this and add more comments.

[David Cassidy]

Perfect. Thanks.

[The Chair, Liberal, Sherry Romanado]

Thank you.

[David Cassidy]

In the CUSMA text, there are provisions to give automakers some reprieve from these labour rules. R and D spending, for instance, certainly can help them lower the 40% commitment. Labour value content can be shaved down to as low as 25% if the right conditions are met.

Let's work to streamline investment supports between the federal and provincial governments like Ontario's rather than work at cross-purposes. Let's commit to comprehensive oversight of new auto rules to ensure that things like the labour value content are being properly applied.

Also, let's have this industry committee undertake a detailed study on the future of auto production. Let's fully assess the gaps in Canada's supply chain and the skills needed to lead the electric and autonomous vehicle transition—

[The Chair, Liberal, Sherry Romanado]

Mr. Cassidy, I'm sorry.

[David Cassidy]

Thank you for the invitation to speak.

[The Chair, Liberal, Sherry Romanado]

Thank you.

What I'll do when we're getting close to 30 seconds remaining is lift up a paper, just to give you a cue.

The next presentation is from Mr. Azzopardi. Thank you.

[Jonathon Azzopardi, Director, International Affairs, Laval Tool & Mold Ltd., and past Chairman, Canadian Association of Mold Makers]

Good morning, Madam Chair and committee members. Thank you for the opportunity to appear before you.

My name is Jonathon Azzopardi, past chair of the Canadian Association of Mold Makers. I am the current director of international affairs for the association and president of Laval, a mold and part manufacturer in Windsor, Ontario.

Our association is 100 members. There are 216 mold manufacturers in Canada, as well as 14,000 skilled workers, over 230 associate members and over 1,400 companies just in southwestern Ontario alone in manufacturing.

I have to start out by saying that I don't admire the position you're in. A committee that is asked to push through ratification that's already negotiated, but that's trying to put the structure together to be able to create a net to be able to capture those opportunities, does not have an easy task, but it is necessary. We're here to support the ratification of Bill C-4, or CUSMA.

To be a manufacturer in Canada is not easy, but it is a privilege. It comes not without its many challenges. I won't take my time to mention all those challenges, but I will say that if you make things or grow things in Canada, exporting is critical.

I will take the 10 minutes—or the five minutes—to show you the ways in which this agreement can help us and create leverage or a springboard. I believe it is important that we start with a timetable. In 2015 Donald Trump, at the time the president-elect, announced that he was going to renegotiate NAFTA. I have to admit that when you fast-forward to 2016, when the president-elect became President, it sent a shock wave through our industry. That shock wave, through its uncertainty, real or unreal, caused a lot of disheartenment among workers and companies. At the time, our industry was under a great amount of pressure because it wasn't a fair trading relationship. Made in America was causing enough problems, not to mention the fact that 85% of our exports going to the United States were already under pressure from low-cost countries like China that do what we do at a fraction of our costs.

We have the blessing that this agreement was negotiated quickly. I believe our U.S. trading partner made sure that the rules were in their favour, but dragging out ratification can only hurt us more. We only lose more opportunities every day. Why is ratification important? It will dispel the uncertainty. You have to understand that we've been in this uncertainty since 2015, which is nearly five years, losing opportunities every day. You also have to understand that because of our cycles and our agreements with our clients, we won't see all of the bad news until five years after ratification.

The second reason I want to talk to you today concerns future investments. Future investments in Canada, because of this agreement, will fall very heavily on tiers one, two and three. It's very important that you understand that the further down the supply chain in the auto sector, the less likely you have to be in the United States. By moving this agreement forward, all assembly factories—over $20 billion in investments in the United States since 2016—will now become our new clients. That's if this ratification happens quickly.

The next point is that I represent the mold-making industry, which is typically a tier-two industry. This is very important. We must mirror our trading policies with our largest trading partner. For example, in December of 2019, a 25% tariff was imposed on molds coming into the United States from China. This is an example of where, if Canada is not adopting mirroring policies, we will become a dumping zone for Chinese products. It's important that, in stage two, upon ratification, Canada adopt mirroring policies for U.S. steel, aluminum and molds. Without doing this, without adopting these policies, you will begin to erode our manufacturing sector from the inside out.

The last point I'd like to make concerns our vulnerability regarding CPTPP. Without the new CUSMA agreement, I agree with David, this agreement is a disaster waiting to happen in Canada. CPTPP has no apparent value for Canadian manufacturers without CUSMA. It will not help us but actually hurt us, because we'll become a dumping ground for companies wanting to gain access to the U.S. If Canada does not adopt strong RVC policies, it will be an opportunity missed. We'll actually lose ground.

Canada needs to ratify CUSMA as soon as possible, and create protective measures to protect against this dumping by mirroring U.S. protective measures within our own country so that we can take advantage of this agreement fully. One way to protect this is to expand the list of products and strengthen the methods of calculating RVC. Mirror trading policies with the U.S. and get this agreement in place as soon as possible.

I'd be happy to answer all your questions and also to play an active role in helping you move this forward.

Thank you.

[The Chair, Liberal, Sherry Romanado]

Thank you very much.

We'll begin our round of questions with Ms. Gray.

You have six minutes.

[Tracy Gray, Conservative, Kelowna—Lake Country, BC]

Thank you, Madam Chair.

Thank you for being here.

I have a question for you, Mr. Poirier. Your organization had a press release on December 10, 2019. In that press release, you stated that you were looking for a better understanding of “the potential impacts of concessions” on our aluminum industries. Would you say that your concerns have been addressed since that time? What can the federal government do to better address those concerns?

[Matthew Poirier]

At the time of that release, I think everyone was wondering what was going on because there weren't a lot of details out in the media. Now, with the new exigencies put forward in NAFTA for steel and aluminum content in auto, that's certainly a win for the industry and, hopefully, will bring back investment into Canada for those industries.

[The Chair, Liberal, Sherry Romanado]

Do you want to share your time? You have five minutes remaining.

[Tracy Gray, Conservative, Kelowna—Lake Country, BC]

Yes, I'll share my time.

[Michelle Rempel, Conservative, Calgary Nose Hill, AB]

Thank you.

I'll direct my question to Mr. Poirier. I understand that there's a greater degree of benefit to Canada in this agreement. My concern is less with that and more with the lack of information in terms of long-term economic impact. We've seen reports recently, over a few days, especially from the C.D. Howe Institute and others, saying that perhaps this will have a long-term detrimental impact. I also saw a quote from Jared Kushner earlier this month, who was talking about the fact that the sunset clause, and basically the re-review clause, would allow for the United States to exert leverage.

Are you at all concerned that this particular provision perhaps is going to chase away long-term investment in Canada, given that six years is barely a blink of an eye in terms of investment, perhaps not in your industry but in industries where we're dealing with intangibles such as data or intellectual property?

[Matthew Poirier]

I have a few thoughts on that.

You're right. I think that having a review mechanism is good, but the six-year timeline is pretty short. In what we just got over with the negotiations, what we learned is that once we're renegotiating, there is all this uncertainty that hits the market, and where does the investment go? It goes to the safest harbour, which is typically the United States, not Canada.

That's a concern, but that said, this negotiation was a fight for dear life to try to maintain the basic access we had to that market and all the protections in NAFTA that we currently enjoy, so given that this was what we were up against, where we ended up is pretty good. That thought about the renewal and the uncertainty of every six years notwithstanding, where we could have ended up could have been really bad for the industry. We're pleased with what it is and, under that alone, we're very supportive of CUSMA.