International Trade Committee on May 14th, 2009

[The Chair, Conservative, Lee Richardson]

Ladies and gentlemen, I'm sorry that we're getting started a little late this morning.

Welcome to the 19th meeting this session of the Standing Committee on International Trade. This morning we'll be speaking on Canada-United States trade relations. We have witnesses here from the United Steel Workers; the Communications, Energy and Paperworkers Union of Canada; the Canadian Manufacturers & Exporters Association; and from Washington, trade lawyer Elliot J. Feldman.

I'm going to introduce the panel and then ask each of them to give a brief opening statement, at which point we'll go to questions.

First I want to welcome Mr. Feldman. Thank you for coming again. Mr. Feldman is a trade lawyer from Washington. I also welcome, from the United Steel Workers, Erin Weir; from the Communications, Energy and Paperworkers Union of Canada, Guy Caron; and from the Canadian Manufacturers & Exporters Association, Jayson Myers. Thank you all for coming.

I'm going to ask you to start. Each of you will give a brief statement.

Perhaps we'll start with Mr. Caron.

[Guy Caron, National Representative, Special Projects, Communications, Energy and Paperworkers Union of Canada]

Mr. Chairman, and members of the Standing Committee on International Trade, thank you for inviting me to appear before you.

Our secretary-treasurer, Mr. Gaétan Ménard, was originally supposed to make a presentation to you, but he has unfortunately been detained in Montreal on matters pertaining to the AbitibiBowater situation.

The Communications, Energy and Paperworkers Union represents 150,000 members and over 60,000 forest workers across Canada, 7,500 of whom are employees of AbitibiBowater. Issues related to the situation of the forest industry are a very great concern to us.

I'm going to talk to you briefly about two specific issues that affect trade relations between Canada and the United States in the forest industry, that is to say softwood lumber, but more particularly black liquor. With respect to softwood lumber, the Communications, Energy and Paperworkers Union of Canada supported the agreement, but somewhat reluctantly because we could already see the perverse effects of the agreement. Time unfortunately has proven us right. The industry has now lost its ability to compete with the U.S. industry.

For example, in the following charts, you can see that the prevailing monthly price of lumber since the agreement was signed has never exceeded the minimum amount that would permit a lower tax or higher quotas to apply. Consequently, since we signed the agreement, export taxes for options A and B have been at their maximum level, that is to say 15% and 5% respectively, and the quota to which those who selected option B have been subjected has always been at its lowest level, 30% of the U.S. market.

In that sense, the softwood lumber agreement has been satisfactory for the U.S. industry. The impact on exports has been major. Chart 3 on page 3 shows that, since the signing of the agreement, Canadian exports have fallen by half. This shows once again that the agreement has had an impact. However, it is not the only cause. The impact is also attributable to the major real estate crisis in the United States. The combination of these two factors has resulted in the very tough situation the Canadian industry is currently experiencing.

Rather than talk to you about softwood lumber, I'm now going to address an issue of great concern to us right now, but which you probably have not heard much about, and that is black liquor. Black liquor is a residue from the processing of wood chips into kraft pulp. This residue, which comes from forest production is considered to be renewable fuel. The mills themselves use it to meet their own energy needs and reduce their power consumption and consumption of other forms of energy from the outside.

In 2005, the United States adopted a tax credit on renewable fuels in order to support ethanol, among other fuels. The credit is the equivalent of a 50¢ per gallon subsidy for a renewable fuel mixed with a fossil fuel. However, last year, four years after the tax credit went into effect, the American forest industry realized that by adding 0.5% diesel fuel to the black liquor it already produced, it became eligible for this tax credit.

Ultimately, by adding a pollutant to a renewable fuel, the forest industry is taking major advantage of what could be characterized as a loophole. We estimate that, for 2009, this tax credit will result in subsidies for the U.S. pulp and paper industry that, based on estimates, will amount to between $5 billion and $10 billion. The impact is major as well because a number of American mills that were closed have reopened in order to enjoy the tax credit. The American industry is thus flooding the North American market with subsidized pulp and paper.

To give you an idea of the extent of the tax credit, I note that, at 50¢ a gallon, the advantage is approximately $200 or $250 per tonne of pulp produced. The current production cost is approximately $500 per tonne. In other words, the American tax credit currently subsidizes nearly half of pulp production costs in the United States.

International Paper, which is the biggest producer of corrugated cardboard in the United States, alone received approximately $1 billion for 2009. It has received $330 million to date. The impact in Canada is massive. There are already lost orders in Espanola, in northern Ontario. The Domtar mill there transferred its orders to American mills in order to take advantage of the tax credit. You probably heard about the Fraser mill in Thurso, which has unfortunately shut down for an indeterminate period. That closing is directly related to black liquor. The Edmundston mill, in New Brunswick, is in danger, and we can anticipate that other Canadian mills will be closing for the same reason.

What can we do in these situations? First, you have to understand that the forest industry has a future. It's often said that this industry is in decline, but that is not true. In Canada, the forest industry has a future. We have the resource and the expertise to develop it. This industry has made mistakes in the past—we won't conceal that fact—but it now has to react and start adjusting to new situations. It has to explore new niches, move away from basic products like newsprint and market pulp and start developing new products. That could be, in particular, biofuels derived from waste, that is secondary products that can be developed.

The forest industry is not a minor industry in Canada. It carries the same economic weight as the automotive industry. It also employs twice as many people as the automotive industry. And yet the automotive industry has received considerable support from the federal government. That is why we are asking that, in order to adjust to new market realities, the forest industry be granted the same type of support as has been enjoyed by the automotive industry to date.

We applaud the loan guarantees that Quebec has offered to AbitibiBowater. On the other hand, Mr. Blackburn and Mr. Lebel said it was impossible to grant those loan guarantees. What we hear from the government is that it may violate the Canada-U.S. softwood lumber agreement. However, we have two legal opinions. One was sent to us and the other was sent to the Conseil de l'industrie forestière du Québec. They demonstrate that loan guarantees do not contravene the softwood lumber agreement. It is therefore impossible to use that excuse to deny the industry the assistance it needs. It must also be understood that the softwood lumber agreement is used to facilitate management of the softwood lumber trade between Canada and the United States. It was never meant to be a suicide pact for the Canadian industry.

As for the black liquor issue, neither Congress nor the White House appears to want to move. Closing this loophole would have been the ideal solution, but the American lobby is currently very powerful. They're now saying that the tax credit should expire in December 2009, but, according to some rumours, it might be extended for a few more years, which would definitely sound the death knell for the Canadian industry. If we cannot convince the White House or Congress to close this loophole, the only recommendation we can make is that the Canadian government offer the same tax credit to the forest industry to guarantee it a level playing field.

You'll no doubt have a lot of questions to ask me on this subject, and I invite you to do so.

[The Chair, Conservative, Lee Richardson]

Thank you, Mr. Caron.

Mr. Feldman, please.

[Dr. Elliot Feldman, Trade Lawyer, Baker & Hostetler LLP, As an Individual]

Thank you, Mr. Chairman.

I'm again honoured to appear before this committee, and I thank you for the invitation. I have provided the clerk with a more complete text, and in the interest of the very short time permitted me, I'm going to be very summary in my spoken remarks.

I do need, perhaps, to identify myself a little more. I've laboured over relations between Canada and the United States for 35 years, since I taught at the University of British Columbia in the faculty of commerce and business administration. I later directed the university consortium for research on North America at Harvard University.

For 20 years I've represented Canadian interests as a practising attorney in the United States, mostly in trade disputes. I was among the first to represent Canadian interests within the framework of the free trade agreement between Canada and the United States. I believe I've appeared before more FTA and NAFTA chapter 19 panels than any other lawyer. For a time, I was on the chapter 20 roster of the United States. I've also litigated under chapter 11.

I'm the first outside counsel retained in a century by the International Boundary Commission, defending the commission in the first lawsuit ever brought against it in the United States. The International Boundary Commission was created by treaties of 1908 and 1925 between the United States and the United Kingdom on behalf of Canada. It's generally understood to be counterpart to the International Joint Commission, the former for the land border, and the latter for water.

My theme is independence, not as to sovereignty but as to neutrality and impartiality, the essential ingredient of the rule of law and the surest guarantee of justice. I'm going to suggest that this concept is in difficulty in Canadian-United States relations, leached out of NAFTA and under attack in the International Boundary Commission. Both federal governments are responsible. This loss of independence means the two countries may be destined to fight an increasing number of conflicts with growing difficulty in resolving them fairly. Alternatively, they will have to search and find new common ground. While I favour fixing what can be fixed, I think that, particularly as to NAFTA, Canada must look elsewhere, to a new agenda, and for nothing less than a new treaty for North America, adapted to a 21st century agenda.

The heart of NAFTA is in innovative dispute resolution. There are three relevant chapters: 11, 19, and 20. NAFTA is not required for a state-investor dispute mechanism. Chapter 11 has been treated in a manner that has accorded fewer rights to Canadians than nationals of other countries enjoyed through bilateral investment treaties. Canadians probably would be better off with new bids with the United States and Mexico rather than trying to fix the shortcomings of chapter 11 within NAFTA.

Neither Canada nor the United States has utilized chapter 20 in more than a decade. If you want to address buy American disputes, chapter 20 is the designated route in NAFTA. Plenty of disagreements over NAFTA have festered, but the governments have not seen fit to use the mechanism NAFTA created to resolve them.

Chapter 19 is unique. It was created, according to its own rules, for the “just, speedy, and inexpensive review” of trade disputes. The Government of Canada has been unsparing in its criticism that NAFTA panels are slow and expensive. The charts I've distributed, which I hope you now have, prove that they have become notoriously slow, although there is no evidence that they are more expensive than legal alternatives. Canada has found much justice in them.

Rather than commit, however, to fixing chapter 19's problems, the Canadian government, while claiming the contrary, has written it off. The federal government collaborated with the United States to prevent a binational panel from finalizing the decision finding that Canadian softwood lumber was not subsidized. The government took $50 million from Canadian industry to fund an alternative to chapter 19 that repudiated all of chapter 19's principles, and it has exposed Canadian industry to monetary damages for the first time in international trade, with the first award of another $68 million and much, much more likely to follow.

The government's treatment of chapter 19 has cost Canadian industry far more money than chapter 19 proceedings ever cost, and with decidedly worse results. Unfortunately, there is no going back. The United States would not agree to fix chapter 19 even if Canada wanted to try. The effective independence of chapter 19 is over, and with it, the innovation and effective utility of NAFTA.

NAFTA was designed to reduce tariffs, to expand trade, and to improve trade dispute resolution. The tariffs have been lowered. Canadian-U.S. trade, however, has flatlined for nearly a decade. I've given you charts showing you that.

By contrast, trade has grown substantially within the European Union. The dispute resolution system in NAFTA has been discarded. The consequences are a decline in North American competitiveness and an absence of institutions to address a 21st century agenda.

This loss of independence, of reliable, neutral adjudication of disputes, has occurred not only in NAFTA. When President Bush asserted that the international organization that marks and maintains the border between Canada and the United States, the International Boundary Commission, or the IBC, is in fact an agency of the United States, so the administration claimed, and that the commissioner appointed to participate in consensual joint decision-making with Canada in fact must follow presidential instruction, the Government of Canada said nothing.

However, the Bush administration begged for Canadian support for its battle in U.S. courts over presidential power and eventually got it, first through a diplomatic note from its embassy in Washington, and subsequently through an acquiescent letter from the commissioner from Canada. Thus, the Government of Canada has been cooperating in order to curry favour with the Bush administration in the conversion of an international organization into an arm of the White House.

The Bush administration, despite Canada's help, has not had its way. U.S. ports have not accepted the newest positions advanced with Canada's help. Nonetheless, the future of the IBC, its independence in marking and maintaining the border, is in serious jeopardy, in significant part because of the self-destructive way in which Canada has played its part.

Treaties that make Canada a co-equal and that assure continuity in essential bilateral tasks such as the 1908 and 1925 treaties creating the IBC need to be protected and preserved. Agreements that cripple Canada's freedom to manage its own affairs and that retard North American prosperity and competitiveness do not. The late 20th century agenda that justified and promoted NAFTA—reducing tariffs, facilitating trade, and resolving trade disputes—is not the agenda today. Today's bilateral agenda is about green technology and competition from Asia. It's about energy independence and continental security on the ground, with threats more likely from individuals with dangerous luggage than from intercontinental ballistic missiles.

The swine flu pandemic has been a warning and, conspicuously, has been called by some the NAFTA-flu, because it seems to have originated on a pig farm in Mexico owned and run by Smithfield Farms of Virginia. It could become the poster child for President Obama's desire to change North American environmental agreements.

NAFTA's architecture is ill suited for the new agenda. It says little about the threats at the border, preoccupied as it is with efficiently moving goods, not people, and with getting across the border, not protecting it. Nothing about NAFTA helps with the flu pandemic. NAFTA helps not all to resolve the presidential grab for control of the border through effective seizure of the IBC. It is preoccupied with producing more energy, not with diversifying and not with cleaning up the environment.

NAFTA has become an obstacle to an institutional, economic integration that is critical for North American prosperity and security. The economy, which has spiralled downward since last September, has proved the reality, if not always the attraction, of globalization. Canadian-U.S. interdependence is inescapable but largely unmanaged. There should have been a coordinated, coherent North American response to the global financial crisis, especially in light of Canada's superior and more stable financial institutions. But NAFTA has done nothing to enable one, and as long as it is the dominant institutional feature on the continent's landscape, there will not be one.

The alternative to deeper North American integration for Canadians is not a splendid and prosperous isolation, but more a marginalization in the world economy and in world affairs. Canada now has an opportunity for leadership, but only a brief moment to seize it.

I'm not the first to note what must be on the 21st century agenda, but perhaps I'm the first to call for a new treaty for North America to get there: environmental cleanup linked to trade and public health, green technologies at the heart of commerce, border security that is continental, trustworthy enough at the peripheries to relax the internal borders, financial institutions that at least coordinate in response to pressures from the rest of the world, genuinely shared security burdens, and the invigoration of international institutions governing shared borders. The agenda should not be compartmentalized, listed assignments to different line agencies and ministries. Instead, the agenda should be seen as a single responsibility that might be addressed in one treaty, in one set of institutions, coordinated and managed jointly.

Canadians have long imagined themselves greener, more environmentally conscious and socially responsible than Americans. Often they claim a superiority even as they confess reluctantly a dependence. Canadians trumpet the rule of law but routinely retreat to diplomacy. Now they can use diplomacy to restore the rule of law, and with it their influence in North America and around the world.

Thank you very much.

[The Chair, Conservative, Lee Richardson]

Thank you, Mr. Feldman.

We'll go now to Erin Weir of the United Steelworkers.

[Erin Weir, Economist, United Steelworkers]

Thank you very much, Mr. Chair.

In the past when I've appeared before the finance committee, I've been held very strictly to five minutes, so I'm delighted that the timeframe is a little bit looser here at the international trade committee.

I'm here on behalf of the United Steelworkers Union, which represents 250,000 members in all of the different sectors of Canada's economy, many of whom produce products that are exported or that compete with imports within the Canadian market. I'd like to provide a bit of an overview of the state of Canada's international trade and then move into some specific policy proposals.

In January 2009, Canada ran its first merchandise trade deficit since 1976. We did return to a surplus in February and March, but it's very likely that Canada's overall trade balance is still in deficit if one includes services. We'll find out for sure on May 29, when Statistics Canada releases the current account information. This deterioration in Canada's trade balance has really been caused by falling commodity prices, which have reduced the value of Canada's resource exports. This has revealed a severe underlying imbalance in our trade in manufactured goods. In essence, other countries sell far more manufactured products into the Canadian market than they buy from Canada.

It's important to make a geographic distinction. Despite this deterioration, Canada continues to run a modest trade surplus with the United States. Our trade problems really lie offshore. Another set of problems relates to provisions of free trade agreements that do not have much bearing on actual trade flows but restrict the ability of the Government of Canada to make policy in the public interest.

I believe solutions can be found to both of these kinds of problems in collaboration with the Obama administration.

The first specific area of policy I'd like to address is trade remedy loss. One contribution to Canada's trade imbalance in manufactured goods is the fact that some offshore producers dump products into the Canadian markets or use government subsidies to export products to Canada for less than the cost of production. Canada's Special Import Measures Act provides for countervailing duties against such unfairly priced goods. However, the enforcement and scope of this act need to be improved. One of the reasons the Special Import Measures Act has been weakly enforced in Canada is that unions do not have any standing either to make complaints or to participate in ongoing trade complaints under the act. In this area, I believe the United States provides a much better model. South of the border, unions do have standing to file trade complaints, which results in much more robust enforcement of trade remedy laws in the United States.

I'll move on to the scope of the legislation. The act deals with explicit government subsidies to exports. It does not address the subsidies that are sometimes provided when governments turn a blind eye to violations of labour rights or violations of environmental standards. I believe Canada should, in cooperation with the United States if possible, develop a regime that applies import duties that are equal to any cost advantage that foreign producers derive from violating labour and/or environmental rights. Essentially, if a producer in another country is gaining a cost advantage relative to Canadian producers by infringing on internationally recognized labour standards or by not enforcing basic environmental provisions, Canada should be able to have a countervailing duty to remove that cost advantage. This would safeguard Canadian producers against unfair competition, and it would also tend to militate against the international race to the bottom, whereby countries continually weaken their labour and environmental standards in an effort to gain competitive advantages.

An area where this nexus between the environment and international trade is of particular importance is climate change. Of course Canada should put a price on carbon emissions in order to reduce our greenhouse gas emissions.The policy challenge, however, is to prevent corporations from responding to a price on carbon by simply relocating carbon-intensive activity to other countries that choose not to put a price on carbon.

A major part of the solution to this problem for Canada is to have the same carbon price as the United States. I would recommend finding a way for Canada to participate in the Obama administration's cap and trade plan, because if that were the case, Canadian producers would face the same carbon cost as their American competitors, and there would be no incentive to relocate production south of the border to avoid Canada's carbon pricing.

However, even with a North American approach to climate change, North America would still face the challenge of corporations potentially relocating their carbon-intensive activities offshore to avoid carbon pricing. Such a relocation would not only eliminate jobs but would also tend to increase carbon emissions, because it would concentrate more of the world's production in the countries that have dirtier technology and weaker environmental standards.

The solution to this challenge is to apply the same carbon price to all goods sold in North America regardless of where they are produced. The mechanism to achieve this could be a carbon tariff on imports from countries that choose not to price their carbon emissions, or it could involve requiring importers to buy permits under the cap and trade arrangement if they are bringing goods from such countries into the Canadian market.

The final area of policy I'd like to speak about is the North American Free Trade Agreement. As I'm sure members of this committee are well aware, President Obama recently backed away from proposals to renegotiate this deal. But I would submit that part of the reason he backed away is that Canada rejected the prospect of renegotiation. However, there are real problems with NAFTA.

I think a very useful role for this committee would be to develop a set of Canadian proposals to change NAFTA to address these problems. A top priority, in my judgment, should be removing NAFTA's chapter 11, which empowers corporations to directly challenge public policies that allegedly interfere with their potential future products.

There have been some outrageous challenges launched against Canada under chapter 11. For example, in July 2008, approximately 200 American businessmen filed a $155 million chapter 11 challenge to Canadian medicare, on the grounds that it would interfere with the potential business opportunity of setting up private medical clinics in Canada. The last comprehensive summary of chapter 11 challenges that I've seen goes up to January 1, 2008. At that time, Canada had borne the brunt of chapter 11: more challenges had been filed against Canada by foreign investors than against either the United States or Mexico. A majority of all the chapter 11 challenges filed were against environmental or resource management measures.

In contrast to this excessive enforcement of investor rights, there has been essentially no enforcement of labour rights under NAFTA's labour side agreement. In effect, NAFTA provides no material penalties for member states violating labour rights.

In a nutshell, the United Steelworkers Union believes that reforms to the North American Free Trade Agreement should rein in investor rights while at the same time strengthening labour rights, with the objective of ultimately putting them on an equivalent plane.

Thank you very much for your time. It has been a real pleasure to appear.

Now I will turn things over to Mr. Myers.

[The Chair, Conservative, Lee Richardson]

Thank you. Let me do that for you.

From the Canadian Manufacturers and Exporters Association, president Jayson Myers.

Mr. Myers.

[Dr. Jayson Myers, President, Canadian Manufacturers & Exporters]

Thank you very much, Mr. Chair, and bonjour, mesdames et messieurs. Thank you for the invitation to come to speak to you on a number of issues with respect to Canada-U.S. relations.

We certainly have a number of concerns right now, extending from the growing complexity of costs and time delays at the border, Canada's lack of enforcement of rules that would prevent counterfeit product going into the United States from Canada, the imposition of export controls, as well as a number of opportunities, I think, as previous speakers have said, for Canadian and American businesses to work together.

I'd like to focus my remarks on one particular issue, which is the challenge we see right now with the imposition of buy American provisions in U.S. legislation. I have circulated a brief to committee members on this issue. I won't go through it point by point but look at the highlights. This is the same brief that has been circulated to the Prime Minister's Office, the international trade minister's office, and the industry minister's office. It has been circulated throughout the Canadian government. It has been circulated to congressional representatives in the United States and to a number of business associations in the United States. We have the latest version of the brief.

In short, the concern has to do with the provisions that were first contained in the American Recovery and Reinvestment Act signed into law by the President in February. The restriction is that all iron and steel manufactured goods that are used in public works projects funded under this act are to be made in the United States. There's a question mark about what that actually means, but we think it means substantial transformation of goods taking place in the United States. Now, that act also contains three waivers. The rule would not apply if a waiver were granted because the impact of the provision would substantially increase the cost of the project or if particular products were not available in the United States or if it were against the public interest.

The recovery act also requires these provisions to be implemented consistent with U.S. trade obligations here. What we're also seeing is not only the appearance of these provisions in the recovery act itself, but in other pieces of legislation that are emerging from Congress. In fact, we know of seven other pieces of legislation right now, the Water Quality Investment Act being the one that is causing the most headaches. It is an act that would provide $13.5 billion over the next five years for clean drinking water and municipal waste water improvement projects, but we're also seeing this appear in other pieces of legislation, most recently on Tuesday in an act presented before the House of Representatives, the Green Schools Act, covering construction materials for schools in the United States.

Canada's concern here is that under the provisions of NAFTA, state and local procurement is not covered. There's no safeguard for Canadian exporters to the United States under NAFTA provisions. NAFTA, the WTO procurement agreement, covers only federal procurement as far as Canadian exporters go, although I would argue that what has changed here is that these provisions are contained in federal law. They are provisions that affect how federal funds are being spent at state and local levels, and I would say there is an argument that at least in terms of the spirit of NAFTA this should be covered under NAFTA. I think that's a good negotiating argument for the Canadian government to make, but in essence, right now there is no clear safeguard for Canadian exporters here. Buy American content provisions have existed for a long time at state and local levels. Usually those are threshold content provisions. What is contained in the federal legislation that is now coming out are out-and-out restrictions that will apply to exporters of certain products, particularly in the water and waste water sector, which is the area right now, although structural steel producers, foundry producers, are also being affected.

These markets were fairly open to Canadian exporters. As a result of the introduction of the Water Quality Investment Act, we are now seeing contractors in the United States requiring Canadian suppliers to sign affidavits saying that the product was made in the United States. If they're unable to sign those, they're losing contracts. A number of companies have been affected. They've lost business in the United States. One company in particular, IPEX, which is based in Don Mills, has had its pipes ripped out of the ground by a contractor. That's simply because the contractors themselves don't want to be put in the position of having to remove the equipment if these provisions are actually employed. This is a growing issue of great concern. It directly affects Canadian exporters and a number of Canadian communities.

As a result of this, we're also seeing quite a wide array of sentiment on the part of Canadian companies that are finding themselves restricted from the U.S. market even as provincial or local procurement markets remain wide open for American suppliers in Canada. A number of municipalities are passing resolutions that provide some form of reciprocal access. This began in Halton Hills, and it's going to be debated by the Federation of Canadian Municipalities. Under these resolutions, municipalities would provide open access to their markets for suppliers from other countries as long as those countries provide open market access for Canadian exporters. So there is some form of reciprocal market access resolution.

I can tell you that there is growing pressure for some form of retaliatory action here in Canada. I think it could be used as a negotiating lever. It's one of the most important levers that we have. One thing that American businesses and American officials take very seriously is the threat of retaliatory action on the part of their trading partners. If other countries also undertake retaliatory action, what we're left with is a world that goes back to the 1930s and the imposition of trade restrictions. In the midst of a global downturn, I don't think that you come into recovery by restricting business opportunities. It's much better to keep markets open so we can grow business opportunities together. But in other sectors, the of retaliation is very real.

Since the commitment of the G20 leaders in November not to restrict markets, the WTO has counted 137 cases around the world of increased tariffs, new non-tariff barriers, or new procurement restrictions. In spite of President Obama's commitment not to restrict market access, these buy American provisions provide quite substantive restrictions, particularly towards Canadian companies exporting into municipal and state procurement markets.

CME is trying to identify affected companies. We want to make sure the government knows what the impact is. We are the only business association in Canada with an office and representative in Washington. Our representative has been very active on this file and has found business allies in the United States. At the end of the day, it's important for U.S. businesses to make the case to legislators that these buy American policies are bad for the United States because they slow down infrastructure projects, complicate them, and increase costs. If Canadian businesses are losing opportunities in the United States, then U.S. suppliers to those businesses will also be losing jobs. I think it's very important that we bring U.S. allies on side.

As for our recommendations for what the Canadian government can do, there are four things.

First of all, the Prime Minister and the President need to discuss this issue and come to an agreement that conditions should not be imposed on how federal funding is spent at state and local levels, in the spirit of NAFTA.

Second, we have to make very clear presentations before the U.S. Congress. I know that the Minister of International Trade will be doing that, but I think it's even more important that we continue to build allies in the United States so that U.S. business interests express their concerns to their congressmen and senators.

Third, there is an opportunity here on the part of the United States to open negotiations to develop a new agreement on procurement. I think the U.S. authorities are waiting for a proposal from the Canadian government to do that, and I think they would treat that proposal very well.

And fourth, very frankly, the message that there may be some reciprocal restriction imposed on the part of Canadian municipalities is a very strong negotiating message that the Canadian government has to deliver to U.S. counterparts. The current motion that is going to go forward to the Federation of Canadian Municipalities may cut both ways. It is a motion that would provide for reciprocal restriction. But you could also see it as a motion that provides reciprocal market access: Canadian municipal markets will remain open to suppliers from countries whose markets remain open to Canadians.

Thank you.

[The Chair, Conservative, Lee Richardson]

We will now move to questions.

We probably have time for about an hour. We do have some business at the conclusion of the meeting, but we'll get through a round if we stick to seven minutes on the first round for questions and answers.

Clerk, I'll ask you to keep pretty close tabs on the time today so that everybody can get in. It has been a fascinating presentation, and I think everybody wants to have time to ask questions.

So the first round will be seven minutes, and if we can get to a second one, we'll do a five-minute round.

For the first seven minutes of questions and answers I'll go to Mr. Brison. I understand that you want to share some of that time with Mr. Silva.

[Scott Brison, Liberal, Kings—Hants, NS]

He's going to do the second round.

[The Chair, Conservative, Lee Richardson]

Fine, we'll go that way.

You have seven minutes, then, Mr. Brison.

[Scott Brison, Liberal, Kings—Hants, NS]

Thanks very much to each of you for your presentations.

Mr. Feldman, you have challenged some conventional wisdom, and that's always good at committee. But I feel that we ought to have a longer conversation, and I look forward to that.

On the issue of NAFTA and some of the issues you've raised, there's a risk in the emerging trilateral approach in the U.S. to borders and potentially to trade issues as well. Mexico and Canada are being seen as identical or very similar and ought to have a similar approach from the U.S. That's bad for us in terms of security-related issues and the thickening of the border. It is also potentially very bad for us, if we enter a new trade negotiation, to be treated identically, because there is a significant difference in labour and environmental standards.

In the past, it was largely viewed as a two-speed approach. The U.S. would work with Canada at one speed, given the similarity of conditions, and with Mexico at a slower speed, recognizing the divergence of conditions. Is it not a significant risk to us to open up NAFTA at this time, during a period of very high protectionist sentiment in the U.S., which often masks security initiatives?

[Dr. Elliot Feldman]

Thank you for the question. It's a complicated and multi-layered question.

If I can unpack it a little bit--

[Scott Brison, Liberal, Kings—Hants, NS]

It requires a fairly short answer, because I have some other ones.

Thank you, sir.

[Dr. Elliot Feldman]

Let me try to unpack it a little bit.

I was present when Secretary Napolitano delivered the speech to which I think you're referring. There is a danger for Canada. The remarks I've made about the International Boundary Commission, I think, go to the heart of that problem.

Canada has an opportunity to protect a separate treaty, a distinct treaty, with respect to its border with the United States, and it's not doing so. To the contrary, it's capitulating on the terms of that treaty with reference to the previous administration. That's dangerous. That's precisely what I was addressing.

In your larger terms as to reopening NAFTA, I counsel against reopening NAFTA, but not for the reasons that are conventional in Canada. I don't see a sigh of relief as being appropriate when the President says that he is not interested in moving on this right away. To the contrary, it should be interpreted as an opportunity to do something else.

The concerns expressed by everybody on this panel were concerns that are reflected, it seems to me, in the failure of NAFTA to provide any institutional support for a response to any of the problems of the last 12 months. In particular, for example, is the procurement question. If you recall, when NAFTA was negotiated, there was to have been a further negotiation for reciprocity between provinces and states and for opening up state and local governments. That negotiation began and failed. It was never resumed.

The Australians, with an agreement only four years old, have agreements with 33 states. Canada has agreements with none.

[Scott Brison, Liberal, Kings—Hants, NS]

To Mr. Myers' focus on the buy American side, the Americans have been pressuring Canada to get our provinces to sign on to the agreement on subnational government procurement. Isn't that one of our biggest vulnerabilities, the fact that we have not successfully engaged our provincial governments to sign on to those provisions on subnational procurement?

A significant part of the stimulus package in the U.S. will be delivered by state and local governments. So Obama can say, “We're going to respect our trade treaties,” and he's correct. They can still screw us through subnational procurement because that's not covered.

What should we be doing? Should that be added to your policy prescriptives, Mr. Myers?

[Dr. Jayson Myers]

It's certainly an issue of concern here. You're right that it's not clear that Canadian exporters are safeguarded here under the NAFTA at state and local levels. Of course, it took longer for Canada to negotiate an internal procurement agreement than it did for us to sign the NAFTA. So there are certainly some issues. I think, too, we're lagging behind on this particular issue because we have the provinces lined up on a procurement agreement if we're going to be proceeding with negotiations on a Canada-EU treaty. Let's build on that relationship, but even at the provincial levels and even with the WTO general procurement agreement, that still does not cover municipal and local spending. Even the signatories to the GPA are not covered—

[Scott Brison, Liberal, Kings—Hants, NS]

You said something interesting, that your chapter, your representative in Washington, is working on U.S. stakeholders to apply pressure to U.S. legislators. A congressman running for office is looking for money one year and looking for votes the next year. If you're a Canadian legislator, you represent neither votes nor money, so it's a polite meeting but not particularly effective.

Are you suggesting that we get more mercenary in our approach in the U.S. and that we hire the kinds of lobbyists people hire to get things done in Washington, to build those stakeholders and, frankly, take a more practical approach? Do you think there's merit to our at least expanding on that? It's not like any other country in the world to do trade negotiations with. Should we have a different approach?

[Dr. Jayson Myers]

I think that's right, but as you'll find yourself among your own constituents, the people you pay attention to most are people within your district, your constituency. Of course, it's the same thing with U.S. legislators. What will make a difference is if U.S. business groups or U.S. labour groups come to their congressman or their senator and say, “This is bad policy because it's killing jobs in your district.” That's what will get the attention at the end of the day.

[Scott Brison, Liberal, Kings—Hants, NS]

I have a quick question for Mr. Caron.

On the “black liquor” issue—not Lamb's Navy Rum like we think in Nova Scotia—we've been counselled by the Forest Products Association that the government shouldn't do the same policy here, that it's bad environmental policy and bad economic policy, and the Americans, including people like Max Baucus, are coming out against it and are going to get rid of it anyway.

So we don't want to retaliate with the same measure, but we have to do something. However, you're saying we should match it, and I just want to square that.

[Guy Caron]

Matching it is actually the second option. The first option is to convince the White House or Congress to change their mind. That's the first option, definitely.

I'd like to be confident that Mr. Baucus and Congress will actually reverse that loophole. I'm not that optimistic. Right now what I hear, especially from the White House, is that the credit is there to stay until December 2009, at which point it's supposed to expire, but the lobby pressure is actually very strong for it to be continued past 2009.

[Scott Brison, Liberal, Kings—Hants, NS]

I have a question as well for Mr. Weir. But thank you all.

[The Chair, Conservative, Lee Richardson]

We'll have to catch you on the second round. We're trying to stick close to our time today.

Monsieur Cardin.

[Serge Cardin, Bloc, Sherbrooke, QC]

Thank you, Mr. Chairman.

Good morning, gentlemen, and thank you for being here. You've flooded us with information that we share at a number of levels.

Mr. Feldman, you've noted the failure of NAFTA. Mr. Obama does not want to reopen the agreement to talk about Canada's concerns. We can see that this is a failure. However, how should we proceed? Would it be through letters of understanding, but without reopening NAFTA? Should we operate through letters of understanding in an attempt to correct all the irritants?

[Dr. Elliot Feldman]

Thank you for that question.

My proposal is to initiate, with some imagination, negotiations on a different agenda and to set NAFTA aside. What NAFTA is, it is. Much of what's at the heart of NAFTA can't be fixed. Chapter 19 could have been fixed years ago, and we developed a full analysis of that. I've discussed that in front of this committee. But no one showed enough interest in doing so. There was a brief moment when Prime Minister Martin did indicate he wanted to fix chapter 19, but there were no takers.

So I'm now saying there is an agenda and you're hearing it at this table. You're hearing it about procurement, you're hearing it about black liquor, you're hearing it about climate change. That agenda needs to be the subject of a different agreement. If Canada were to take the initiative in structuring that negotiation and say we want a different understanding in North America, we want to do things jointly, we want to bring imagination to the agenda that we hear in the White House from President Obama, I think it changes the relationship in ways that can only benefit Canada. But I think if you keep scratching on all the scabs of NAFTA, it will not be beneficial to Canada and it won't be beneficial to the continent.