International Trade Committee on March 10th, 2009

[The Chair, Conservative, Lee Richardson]

We shall begin. This is the eighth meeting of this session of the Standing Committee on International Trade.

Today we're going to begin a discussion of Canada-U.S. trade relations in anticipation of a possible visit to Washington in a month or a few weeks. In any event, I'd like to begin today with a briefing from the department.

Representing the department today is Don Stephenson, the assistant deputy minister, trade policy and negotiations. He has with him Deborah Lyons, who is the director general, North America commercial affairs; Martin Moen, who is the director of North America trade policy; and Callie Stewart, deputy director of technical barriers and regulations.

We have about an hour for this briefing, so I'm going to ask Mr. Stephenson to begin with a brief opening statement, and then we'll go to questions for about an hour. Mr. Stephenson has to leave to join the premiers, or the provincial trade representatives, I think, at 10, but his colleagues will remain if you want to carry on questions a little longer. We'll at least try to get through a first round of questions.

So to begin, I'm going to ask Mr. Stephenson to give opening remarks on Canada-U.S. trade relations.

[Don Stephenson, Assistant Deputy Minister, Trade Policy and Negotiations, Department of Foreign Affairs and International Trade]

Thank you, Mr. Chairman.

If I may, I will be making my comments in my first language. International trade is my second language as it is. However, I will attempt to answer questions in the official language of your choice.

Thank you, Mr. Chairman.

Good morning, ladies and gentlemen.

It's an honour to be here to talk to you about Canada's key commercial interests with our largest and most important trading partner, the United States.

With me this morning are colleagues who will be able to answer you in matters of specific detail on various files. Martin, in particular, might answer your questions on matters related to NAFTA and to the “buy America” program; Callie, with respect to issues related to COOL.

I apologize for the absence of Suzanne McKellips, who was also scheduled to appear. Suzanne is the director general responsible for import and export permits, but also for the operation of the Softwood Lumber Agreement. She has trusted me with that file because she is in consultations today with both the provinces and industry with respect to responding to the loss by Canada in an arbitration case under the softwood lumber agreement last week. Canada's response to that decision is an urgent matter.

More general matters related to the Canada-U.S. relationship are handled by Deborah.

I welcome the opportunity to discuss the importance of this relationship with the United States and how it contributes to Canada's prosperity. The visit of U.S. President Barack Obama to Ottawa on February 19 underscored the importance of this relationship. It provided an opportunity for our leaders to explore ways in which Canada and the United States could work together more closely to advance our shared bilateral and international objectives.

During the visit, the President and the Prime Minister discussed each country's efforts to strengthen our economies and our respective economic recovery packages, and identified how we can work together to restore confidence in international markets. The leaders also discussed North American security, including the management of the Canada-U.S. border, environmental protection, and the development of clean energy technologies.

The visit was also an important occasion to set a positive and forward-looking tone for our relations with the new U.S. administration. As both the Prime Minister and the Minister of Foreign Affairs have indicated, we're seeking to renew our bilateral relationship with our most important partner.

The continued good health of this relationship is vital to Canadian prosperity. I can assure you that we've been working towards engaging both the new U.S. administration and Congress for some time now. Through our embassy in Washington and at our 22 missions in the United States, we've been very active in advocating Canada's interests and engaging the incoming key players, both in Washington and at the state government level. We do this in close cooperation with other federal government departments in order to ensure a whole-of-government approach to Canada-U.S. engagement.

In the United States, our missions have been working to reinforce, through key American opinion leaders, that Canada is a key economic and security partner and their largest energy supplier. Both countries will benefit from working together to strengthen our integrated economies during these difficult times. Collaboration to protect our shared environment is in our mutual interest.

The deep and diverse relationship we share provides many opportunities for collaboration. We share political, economic, environmental, and social ties, and many values and interests. Our two countries share the largest bilateral trading relationship between any two countries in the world. NAFTA has helped develop this great trading relationship even further.

Trilateral merchandise trade among the NAFTA partners has more than tripled since the agreement entered into effect, reaching $943.3 billion U.S. in 2008. NAFTA also enhances Canada's attractiveness as a location for foreign direct investment. It helps to ensure that regional and global value chains continue to run through Canada, with our businesses and our workers contributing the enormous value of their skills, ingenuity, and energy. We are working with the United States and Mexico to further facilitate trade within the framework of NAFTA.

Another example of our close relationship is the Canada-U.S. softwood lumber agreement. The softwood lumber agreement has benefited Canadian industry since it came into force in 2006. It stopped years of punishing duties against Canadian companies and returned $4.5 billion of these duties to the companies that paid them.

Considering that 85% of our softwood lumber exports go to the United States, the stable and secure access to the American market provided by the softwood lumber agreement is critical for the well-being of this industry, now more than ever. As a result, both industry and the provinces express continued support for the access to the U.S. market provided by the softwood lumber agreement.

However, the U.S. industry, led by the U.S. Coalition for Fair Lumber Imports, continues to lobby Congress, and now the new administration, to press for an aggressive line with Canada on softwood lumber agreement enforcement. It is currently unclear how the new administration will respond.

In addition, a number of U.S. senators and governors have recently contacted President Obama, accusing Canada of violating the agreement. These accusations were not raised by President Obama during his meeting with the Prime Minister, and Canada is using formal and informal mechanisms to respond to these unfounded allegations.

In light of the current difficult economic circumstances, Canadian producers strongly support the secure market access provided by the softwood lumber agreement. They believe they would fare much worse under a new round of U.S. trade remedy measures if the agreement were terminated. The provinces also continue to express support for the softwood lumber agreement, which provides longer-term benefits, such as protecting their ability to manage their forest resources.

It is for these reasons, although Canada was disappointed with the recent decision in the adjustment factor arbitration, that officials, in coordination with the provinces and industry associations, are looking at means to implement the decision within the required timeframe. The softwood lumber agreement that maintains secure and stable access to the American market, a market that is critical to the survival and success of the Canadian industry, is important to us. Maintaining the agreement and that market access remains a top priority and must continue to be proactively pursued.

Returning to the broader context, our first and most important challenge will certainly be to address the global economic downturn and to take action to promote the recovery of our economies. Given the paramount importance of the Canada-U.S. trading relationship and the highly integrated nature of the North American economy, Canada and the United States must continue to work together to promote recovery and the strengthening of our economies.

President Obama has signed the American Recovery and Reinvestment Act of 2009, which seeks to provide a significant stimulus to the U.S. economy, now going through a major downturn. The cost of the act is estimated at $787 billion U.S. and includes extensive tax cuts, assistance to state and local authorities for education investment, new health care investments, unemployment benefits, and infrastructure and energy investments.

Of concern to Canada are the provisions in the act relating to the “buy American” requirements. These affect iron and steel and manufactured goods for public works and public buildings. Canada succeeded in having a commitment inserted into the act that the U.S. would only apply “buy American” provisions in a manner consistent with its international obligations. In addition, we are continuing to push for the U.S. to recognize the integrated nature of our two economies and to minimize the impact on trade when implementing these provisions.

The economic outlook is challenging for the United States in the short and medium terms, with some forecasters suggesting that the U.S. GDP will contract by 4% in the first quarter of 2009. More than 650,000 jobs were lost in February.

We have seen the fallout in Canada already, as Canadian manufacturing, heavily dependent on U.S. business, reported an 8% drop in December sales compared to the previous month.

We will continue to support Canadian businesses seeking assistance to deepen and secure current relationships or find new opportunities in the U.S. market. To do this, we have established a series of business development and advocacy networks on areas as diverse as energy, the economy, and defence cooperation, thus reaching out to a whole new range of stakeholders and business clients.

In order to protect and expand our commerce, there is no question that the Canada-U.S. border remains a policy priority for Canada and is also a key area for cooperation with the new administration. We have a long-standing security partnership that protects North America against terrorism. Our border, intelligence, and immigration agencies, with our police forces, have been cooperating for decades.

This cooperation must continue. It includes ensuring that the border remains open to legitimate tourism and trade, and closed to threats. Our highly integrated and interdependent economies, our collective competitiveness, and our economic recovery depend on smart and efficient border management at a time when our industries need all the help they can get.

In conclusion, Canada and the United States have a long and successful history of cooperation on global issues. We share the same values--freedom, democracy, human rights, and the rule of law. We welcome the new administration's enthusiasm for global engagement and its desire to rekindle U.S. leadership in the world. We are confident that our unparalleled partnership will remain strong and forward-looking as we work together to enhance North American competitiveness and for the security and well-being of our people. We must not lose sight of the value of our relationship, of the solid basis we've formed over the years that will see us through the challenges that we face today. We will continue to work on ways to make more out of the Canada-U.S. partnership for all Canadians.

Thank you very much.

[The Chair, Conservative, Lee Richardson]

Thank you, Mr. Stephenson.

We will go to questions now, as is our practice. We will begin with a seven-minute round. That is, each representative of the various parties will ask and have questions answered within seven minutes. The questions can be directed to any of our witnesses today.

We'll begin with Mr. Brison.

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

Thank you, Mr. Chair.

Thank you very much for briefing us this morning.

I just got back from a week in D.C. I was there for Canada-U.S. parliamentary association meetings. We participated in the National Governors Association meeting, and then had Congressional meetings. We had individual meetings with 27 governors, and we met with 46 senators and congressmen.

The issue that concerns me most, after those discussions, is the Western Hemisphere Travel Initiative, which comes into effect in June. It appears, based on our discussions with Congress, that it's on track to be implemented. If that does occur, and if a passport is required to cross the northern border, that will represent a significant thickening of that border, given the fact that only 25% of Americans have passports.

It particularly will have an effect on the efficient movement of people and commerce between our countries, across Canada and the U.S., but it's particularly ominous in terms of the 2010 Olympics. Governor Gregoire in Washington is working with Premier Campbell in British Columbia on the enhanced driver's licence initiative, but it won't be implemented to the scale required to reduce the clogging of the border that will occur as part of those Olympics.

I'd like to know what we're doing on that as a country to achieve a delay--not necessarily forever, but simply to give us enough time to replicate and to expand the successful EDL initiative that is now being duplicated.... I believe Ontario's working on this. I spoke with Colleen Manaher from the DHS, and she's promoting it within DHS across the U.S. I assume that our Department of Public Safety is doing the same.

We need that delay. That issue is crucial to us across the country. What is being done on that, and what is your view on the possibility of achieving a delay of WHTI?

[Deborah Lyons, Director General, North America Commercial Affairs, Department of Foreign Affairs and International Trade]

Thank you very much for that question. This is an issue we have been working on very closely with our counterparts in the U.S. As I'm sure you know, there has already been one delay in the implementation of the passport requirement, for land. It's in place now for air and seems to be working, after a period of adjustment.

With regard to the June deadline, what we're being told is that the U.S. feels that the numbers of people requesting and getting passports is increasing greatly. Here in Canada, we've dealt very well with the backlog of passport demands that we had and are in very good shape ourselves in moving forward for the June deadline.

At this stage of the game, we're watching it very closely with the U.S. Public Safety and our passport office are working closely with their counterparts. We do not anticipate, at this stage, a delay. If there is a delay, it will be because the U.S. feels that the number of passports, for the people who require passports, has not increased adequately. Our understanding is that the June deadline is going to hold, and the feeling on both sides of the border is that people are getting their passports in sufficient numbers to deal with what we anticipate will be a relatively smooth implementation.

As we get closer to the deadline, there may be an adjustment period. We're talking to the U.S. about that right now. Certainly we will push for a delay if we feel it's needed. We were successful in obtaining the first delay, with the U.S. determining to delay until June from January. But at this stage, I think the feeling is that both sides of the border are attempting to adjust to the June 1 deadline. Perhaps we should have the experts in this area meet with you to report from the perspective of our passport office.

But at this stage, our discussions with the State Department and Homeland Security indicate that the deadline will hold and that the uptake of passports is adequate to deal with the smooth flow back and forth across the border.

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

I think this is where the communication between legislators is beneficial. Your communication is with the administration, and largely with Homeland Security, who have a vested interest purely focused on the security side and are not as concerned about thickening at the border. But I can tell you, legislator to legislator.... Congressman Larsen from Washington has written a letter to Secretary Napolitano expressing concerns about this, and there are other congressmen who are doing the same.

My view, having been down there for some time—we had some very sound meetings discussing these issues—is that this is going to create a huge problem for us. I would urge you not to feel at all complacent. I cannot overemphasize what I'm hearing from our counterpart legislators in terms of their concern. They believe, as you suggested, it's difficult to get a second delay, but they believe it's imperative at this point.

Our representation to the administration is that this is not seeking a delay forever; this is seeking a delay until there could be concrete steps. Enhanced drivers' licences, in fact, through biometrics, can provide greater security intelligence than the passport. Louise Slaughter has suggested the idea of day passes, which could help get us through the challenge of the Olympics.

The other challenge we have is the emergence of the trilateral view in the U.S.: that the northern border is the same as the southern border. With Secretary Ridge, we had a Pennsylvania governor whose sensitivity to and understanding of the northern border was greater. Now we have Secretary Napolitano, a former Arizona governor. Her sense of border is the Mexican border. Her view of the world is shaped around the issues surrounding the Mexican border.

There is a completely different set of security issues around the northern and southern borders of the U.S. Mexico is not a failed state, but it is facing huge challenges around governance and the drug wars and the rest of it. I think we need to do everything we can to ensure that Americans recognize that the northern border has a completely different set of associated risks from the southern border. This has to be part of our message.

The other issue is country of origin labelling. We met with Congressman Peterson, chairman of the agricultural committee--

[The Chair, Conservative, Lee Richardson]

We have to go to the next round for that.

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

--regarding COOL. What are we doing on that? It's also going to have a significant deleterious effect on Canadian agriculture particularly.

[Deborah Lyons]

I'll finish quickly on the passport issue.

I don't want to leave you with the sense that we're being complacent at all. We're working very closely with our counterparts in the U.S. We certainly went through this when it was implemented for the air, and we're doing the same thing with regard to the land and the marine. We're working very closely with the provinces on the EDL implementation. As well, I'm sure you are aware that in addition to the passport, a pass card is also being seen as an option for the border crossing.

With regard to 2010, again, it's an area in which we're working very closely with the U.S. to make sure that there is smooth movement back and forth.

With regard to your comment on the northern border, we'll perhaps have a chance to talk about this later, after Mr. Stephenson leaves; his time is limited this morning. But with regard to Ms. Napolitano, she is, as I'm sure you're aware, very sensitive to the fact. She understands the southern border well, but the northern border not so well. She has made several attempts to try to understand better what's happening along the northern border.

That said, we can perhaps talk about that a little later on, after Mr. Stephenson has dealt with other questions.

Thank you.

[Don Stephenson]

I'll make an opening remark and let Callie debrief on what we're continuing to do to make representations on the issue of COOL.

As you know, Canada was very concerned that this was already beginning to have, even as an interim rule, a negative effect on Canadian producers. We entered into consultations under the WTO process with the United States, with the administration, and we were successful in getting additional flexibilities introduced in the final rule through that process.

Before the final rule came into effect, the new administration froze all regulatory matters where they were so they would have an opportunity to review them. Through that process, the Secretary of Agriculture has taken a rather novel approach, which is to introduce the rule as amended, with the additional flexibilities that had been discussed with Canada and other countries. At the same time, he wrote to members of the industry and suggested to them that on a voluntary basis they might wish to go further than the rule required.

It's our view that a request to implement measures on a voluntary basis, which is backed, by the way, by the threat of possible additional measures in the future, amounts essentially to a measure in the context of the WTO process. We are very concerned that this will have a negative effect on our industry. We have consulted, even in the last week, with Canadian producers. We are monitoring the application and the effect of the application of the rule and the voluntary measure very closely. We'll have to consider whether or not Canada should take additional steps under either the NAFTA or the WTO if indeed this has a negative effect that is measurable on our producers. We watch it very closely and remain extremely concerned.

Callie, do you want to add to that?

[Callie Stewart, Deputy Director, Technical Barriers and Regulations, Department of Foreign Affairs and International Trade]

No, I think that very well covers what we've been up to.

As you mentioned, we were in Calgary and Winnipeg last week speaking with producers and members of the provincial governments to try to ensure that we all understand how best to monitor the effects and how to gauge what the most appropriate steps are. We will continue to be closely in touch with the U.S. administration. The fact that there is no current USTR is a bit of a problem, one could say, as there is no political voice on that side to engage with Secretary Vilsack. However, we continue to work with members of the Office of the United States Trade Representative, and we'll continue to do so.

[The Chair, Conservative, Lee Richardson]

Thank you.

Monsieur Cardin.

[Serge Cardin, Bloc, Sherbrooke, QC]

Thank you, Mr. Chairman.

Good morning and welcome, ladies and gentlemen.

There are many subjects we could discuss regarding the United States. The first one that comes to mind is the Security and Prosperity Partnership, which we have heard a great deal about. Civil society and organizations responsible for protection have often said that we heard very little about negotiations between senior officials, in which no parliamentarians are involved.

To what extent is the North American Security and Prosperity Partnership still active?

[Deborah Lyons]

As you may know, the security and prosperity partnership has two ministers within the Canadian government: the Minister of Public Safety, on the security side; and the Minister of Industry, on the prosperity side. Although we're involved in supporting the meetings that take place, our department is really not the lead on the SPP. I think it would be more appropriate to have that question addressed to either Industry or Public Safety.

I will comment that the SPP has been a meeting of elected officials on both sides of the border, and of course Mexico, and it has the participation of the business community as well.

That said, I really think at this stage it's more appropriate for you to address the question to Industry or Public Safety. I'm not trying to dodge the question; our department is not responsible for the SPP.

[Serge Cardin, Bloc, Sherbrooke, QC]

If I understand correctly, the department and senior officials are not involved in this partnership.

[Deborah Lyons]

We certainly support the meetings in the sense that, as the Department of Foreign Affairs and International Trade, we work very closely with both the Mexican and the U.S. governments, and we maintain that bilateral relationship. But this particular structure that has been put in place is led by the two departments I just mentioned.

[Serge Cardin, Bloc, Sherbrooke, QC]

I referred to the North American Security and Prosperity Partnership. It was a well-known fact that many issues regarding comparable regulations in the two countries were being negotiated. People often feared that there could be a general lowering of regulatory standards as a result. For example, we know that under chapter 11, Dow AgroSciences is suing Quebec with respect to a specific product, 2,4D, which is a powerful herbicide. Quebec has banned this herbicide under its regulations.

The issue here is our relationship with the United States, NAFTA, chapter 11, and so on. In the past, Mr. Obama said that he wanted to re-negotiate NAFTA. What is the department's position regarding the legal action taken under chapter 11 of NAFTA, something that is also happening to a greater or lesser extent with the other agreements we have signed with the United States? Does the department think it can reach an agreement with the United States to put a stop to all these legal actions taken under chapter 11?

[Don Stephenson]

I would like to start by saying that there are discussions underway between Canada and the United States—and Martin could discuss this further—regarding regulatory harmonization. At the moment, these discussions are focused mainly on the standing working groups under NAFTA. This is not an area of intense activity. At the moment, we are looking at industries where regulatory harmonization could be helpful. So far, there has not been a great deal of progress on these matters. However, I do not think there is a trend to make regulations less stringent, as you were mentioning. Some people fear that this might happen in the discussions about regulatory harmonization. However, there have been no indications of this sort. The fact remains that people in industry on both sides of the border are interested in reducing their costs by having similar of identical regulations. That is the context of our work.

As regards chapter 11, no decision has been made with respect to the case you mentioned. It has not yet been proven that the complaint under chapter 11 had an influence on either provincial or federal regulations. At the moment, there are no discussions regarding a possible change to chapter 11 of NAFTA.

I could ask Martin to comment quickly on the discussions regarding regulatory harmonization under NAFTA.

[Martin Moen, Director, North America Commercial Affairs, Department of Foreign Affairs and International Trade]

Perhaps I could supplement that somewhat. There are two areas where we're engaged in regulatory cooperation discussions with the United States. One is in the context of the SPP through the regulatory cooperation framework. The other is in the context of the NAFTA work plan, where we're working on sectors and looking at areas where there are ways to either share data or harmonize regulations. Right now the sector we're most active in is swine, but other sectors are being considered and there's work potential there.

The principle here is certainly not to lower regulations. Rather, where there are differences that are not making a substantial difference to the intent of the regulations...to look at those and to see if they can be modified, or whether we can recognize each other's regulations.

It's that sort of work that's under way in these two contexts.

[The Chair, Conservative, Lee Richardson]

Thank you.

Monsieur Cardin.

[Serge Cardin, Bloc, Sherbrooke, QC]

Mr. Stephenson, you said that Canada had managed to ensure compliance with international agreements in the Buy American clause. The fact is that under NAFTA, the parties cannot file a complaint regarding government procurement. What can we do if American states and municipalities comply with the Buy American clause in purchasing material for infrastructure?

[Don Stephenson]

I said that Canada had managed to ensure compliance with commitments regarding international trade, and that is somewhat true. However, it should be pointed out that the whole world had called for theses changes and assurances. Canada's commitments under NAFTA, the WTO, or particularly the Government Procurement Agreement under the WTO, are less complete than they are in the case of other countries. The fact is that the provinces, and in the U.S., the states, did not make any commitments. We did not get that from the United States. This was the decision made by the provinces of Canada at the time, because they were trying to get some concessions from the U.S. concerning the Small Business Set-Aside Program. The United States actually had an exclusion for its assistance program for small and medium-size businesses. The provinces were also complaining about the Buy American programs that were already in place at the time. Since the Americans were not making any concessions about these procurement programs, the Canadian provinces were not prepared to make any commitments. It is true that others countries that signed the procurement agreement have greater protection than Canada does. This is particularly true at the domestic level.

[Serge Cardin, Bloc, Sherbrooke, QC]

Thank you.

[The Chair, Conservative, Lee Richardson]

Mr. Julian.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

Thank you, Mr. Chair.

Thanks for coming before us today.

Mr. Cardin asked about the SPP, and I know you referenced the Minister of Industry and the Minister of Public Safety. But can you confirm that the working group meetings continue to be supported by DFAIT, and that for the moment there has been no slowing down or reversal of the SPP process?

Second, what is the total budget for product promotion and publicity in the United States? I'm not talking about the trade commissioner offices or the missions; I'm talking about direct support for Canadian products in the U.S.