International Trade Committee on June 3rd, 2013

[Jasbir Sandhu, NDP, Surrey North, BC]

You're saying that the drug costs for—

[Prof. Michael Hart]

If you extend the patent time for an original drug, that means you are reducing the time that you can have a copycat drug, a generic drug, on the market, and there may be some regulatory issues with generic drugs to put more pressures on the generic maker to reduce their prices, but prices by both the original manufacturers and the generics are extremely high. They are much higher than they need to be. The drug companies try to tell us that much of that money goes into research and so on, which is nonsense. Most of the research is done with grants either from the NIH in the U.S. or by medical societies here. Most of the money goes into advertising and distribution; in other words, get more people to take the drugs whether they need them or not.

As I get older and I become more dependent on them, I appreciate their efforts, and, yes, they do have a wonderful impact, but the price for them is outrageous, and therefore I see no reason why a government should extend this monopoly power even further to keep those prices that high.

[Jasbir Sandhu, NDP, Surrey North, BC]

Mr. Hart, I'm actually looking at the article you wrote back in 2006 in Policy Options. The title of the article is “Waiting for Conservative Trade Policy”. In 2006 we had a trade surplus of $18 billion, and now we have a trade deficit of $50 billion.

You don't seem to be too enthusiastic about where we're going. You talked about this being a wrong agenda. The businesses are taking minimal interest in these trade agreements. Can you expand on that? Maybe you were right back then and you're right now.

[Prof. Michael Hart]

I must have been, or else I wouldn't have written the article.

[Voices]

Oh, oh!

[Prof. Michael Hart]

At the time I thought that the government was being awfully cautious, not all that interested in pursuing what I thought was the kind of agenda we should be pursuing. I have not changed my mind.

You asked me earlier whether I had been consulted. I have not been consulted, but I certainly have expressed my views to the minister, indicating that I think we are majoring in minors rather than pursuing what I think are the issues that are of grave moment to the Canadian economy as a whole. Most of the trade agreements we are pursuing can be characterized as retail trade agreements.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Mr. Shipley, you have seven minutes.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

Thank you, Mr. Chair.

Thanks to our witnesses.

It's been quite an interesting day, and you've raised a number of points.

First of all, let me congratulate you and say thank you to both of you. In the history of our country, we developed and worked on one of the greatest trade agreements that is out there, a Canada-U.S. one that is now obviously Canada-U.S.-Mexico. It has done so much for Canada, not only in terms of trade but in terms of labour also.

This is for Mr. McMillan. We know there are 12 partners in the TPP. Japan, as we know, has been asked to join. The comments have been pretty specific, not only from you but also from earlier witnesses, that when the U.S. gets involved, it's sort of all or nothing, and they sort of elect as trump whatever rules fit their domain. Though they are our closest neighbour, those of us in Canada do recognize from time to time that this scenario falls in place.

We have Japan. As we know, rice is one of their main crops. I may have the numbers wrong, but I think you talked of a 780% tariff just on that one product alone. If it becomes an all or nothing, what happens?

[Dr. Charles McMillan]

Well, there are two or three things.

Just to pick up from earlier, CIBC put out a report. The last decade was a lost decade for exports. One of our largest exports is gold to the U.K. Then you could take out energy from our export performance.

I'll give another example. Fifty companies, led by Boeing, account for 50% of U.S. exports. When you look at U.S. agreements and all of that, some very big powerful companies guide U.S. trade policy, which means that a vast number of smaller companies don't even export to a neighbour. In new technologies, whatever, we—Canadian companies, and smaller provinces as well—have to become engaged in exporting.

What Michael didn't quite refer to is that when we did the bilateral deal, we were a multilateral country, and so was Japan—the European round up to the Kennedy round setting up the GATT, and then the WTO. We were a multilateral country, because small countries.... Don't forget that Canada, roughly, has the same population as 20 cities in Asia—Shanghai, Tokyo, Osaka, or whatever. We're a small open economy, whereas there's this big group called the United States, and a collective Europe, which may not be so collective.

We knew from day one, and that was part of the negotiating team, that the bilateral deal between U.S. and Canada would be consistent with that of the WTO and would add to it by covering a number of areas, including dispute settlement.

I think the Canada-Japan negotiation can become a model on a number of issues, including intellectual property, which will guide us in future negotiations. These two conferences were very high level and specific, and whatever. The good news about Canada-Japan is that they're complementary economies, and we don't grow rice. So these really sticky problems on the Japanese side, let's say, don't affect us.

In a lot of cases, we have complementary issues—autos, for example. One really good area where we're in the driver's seat if we play our cards right is energy, including alternative energy. Hydro-Québec has operations in Japan, and the Caisse de dépôt invests in Japan. The Japanese have gone through a lot. They are sitting on $12 trillion, and they're only now getting back into the stock market.

The problem with the TPP is that.... Take the rice thing. There are rice equivalents in a lot of these developed countries. One example would be textiles. The governments want to protect the textile trade because they need the jobs. Vietnam is a communist country. They need the jobs. There's a problem in China. They need the jobs to protect their position in the government. So they're not going to allow intellectual property, or whatever. With the TPP, the problem is that there's going to be a massive number of exemptions, and it's going to be a son-of-a-b of a problem getting that agreement through the Congress, even if you had a mandate.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

I'm going to thank you for expanding on it. With your comments about Canada-Japan, quite honestly, you've hit the target of why it is so important for Canada to continue to move quickly on it. It's the same with CETA.

It goes back to my thought. You raised a question—and maybe it was Mr. Hart, also. The United States has now become the holder of the trump card in their eyes about how this deal is going to move forward. They don't have a mandate to be negotiating is what I understand from the discussion. If they don't have a mandate, why do the partners, especially the original ones, allow them to continue on in that manner?

You might have to be fairly frank.

[Dr. Charles McMillan]

I will be frank.

It's geopolitics. A lot of these TPP countries, including Vietnam, which is communist, are afraid of mother China. There's a massive number of border settlement problems, the islands, or whatever. There is even conflict between Taiwan and China. So the geopolitics—the U.S. Navy, the 5th Fleet—has a lot to do with it, as you know, in the United States, with their bases in Japan.

That paints the issues, if you want to call them that. Therefore, the United States gets away with a lot, even though they don't have a mandate.

[The Chair, Conservative, Rob Merrifield]

Your time has gone. That's what happens when you're having a good time.

Mr. Easter, seven minutes, please.

[Wayne Easter, Liberal, Malpeque, PE]

Thank you, Mr. Chair.

I'm sorry I missed your presentations. They were the ones I really wanted to hear, especially Charlie being a fellow islander. I don't know if he's a resident there or not; we have some who are not. In any event, you both know how this place operates, so I had to go over and give the government a little praise for their current budget implementation bill.

Both of you had fairly extensive involvement in previous agreements on the inside, and one of the things that we're hearing a lot about at this committee is the extreme secrecy surrounding TPP. In some previous negotiations, committees, a broad section of Canadian society, did actually see the texts. We're under confidentiality, and that's understandable, but I think in the past it did provide the public and organizations with some confidence that they were getting firsthand knowledge of what was happening in the negotiations and that they could sincerely critique or praise that relevant sections of the agreement.

In this one there's no such thing. There are briefings but there's no text. How do you see getting around that and how important is it to be at least relatively open? You have to protect confidentiality and I think we all understand that, but how do you see getting around that?

[Prof. Michael Hart]

This is a really ticklish issue. As a former official and a negotiator, obviously there's a great advantage in not having to deal with the political noise off-stage of people criticizing you for things that you're not doing—because that's often what happens. Much of the criticism has very little to do with what you're actually doing, but at the same time, because of the delicate nature of the negotiations, you don't want the other side to know exactly what you're thinking, and so on. So you need a certain level of confidentiality.

We worked out a compromise during the FTA and the NAFTA negotiations and the Uruguayan negotiations, which was basically the same compromise. We regularly briefed members of the sectoral advisory groups as well as the broader international trade advisory committee, and whenever we had an opportunity we wrote speeches for ministers in order to outline where we were going with things. The thing that we feared the most was ministers making statements in the House that would compromise our ability to negotiate.

You will appreciate, for instance, what kind of impact Mr. Clark's announcement in the House had one day, in response to a question, that supply management was part of the very warp and woof of this country and would not be part of the negotiations. Poof! Out went an important piece of coinage of ours that we needed to use. So, pfft, it was gone. So the less said by ministers without having a clear idea of what you're doing and thinking it through strategically, is helpful.

But in the case of the TPP, I have no idea what they're negotiating, other than a very broad outline based on the document they put out two years ago—which any first-year graduate student could write up for me as to what would be contained in a quality trade agreement. It didn't take ministers sitting around a table approving it. It's a fairly rudimentary document, and that's all we know.

I think it is not in the best interests of either the negotiators or the government to maintain this level of secrecy.

[Wayne Easter, Liberal, Malpeque, PE]

Before you answer the same question, Charlie, I'd like you to tie this into your answer as well. I read a lot of your work from Japan, and I know you're one of the real experts on Japan and that you've been working toward better trade with Japan for decades.

My concern is that the current government is all over the map. On TPP, the Prime Minister was down on the Pacific alliance. We did a study on the Pacific alliance; we've already got trade agreements with those countries. Wouldn't it be better for the government to...? If Japan isn't in a TPP—well, they are now—but it really means virtually nothing to us anyway. The government should be establishing some priorities, rather than being all over the map, and Japan should be one of those priorities.

I only wanted to make that comment, and let you answer with your thoughts on that and the previous question.

[Dr. Charles McMillan]

I have talked to some of you as individuals and some of you were in Tokyo. At a conference, I talked to you as individuals and friends and whatever. To me, the current negotiations are with Japan and Europe—and I've advised various people in Ottawa.

Picking up on Michael's point, Simon Reisman was our negotiator, but inside the negotiating team—the American and Canadian—we had people on both sides who would engage on the political pitfalls for both countries of certain issues. We would meet regularly. We had a cabinet committee, chaired by Mike Wilson, and it was cabinet secrecy so you know....

Australia is the country pushing the most for the secrecy. Australia was against Canada's coming in initially and against Japan's. Unfortunately, we were basically the last country to approve Japan. But the private sector is fundamentally at this stage interested in two agreements, with Europe and Japan, because they know the practical political pitfalls of the TPP and some of these other agreements.

Some of these other agreements may be retail, but they're trivial. They don't amount to much. Trade with some of these countries, as I wrote in an article, is like a day's trade with the United States or three days or a week with Japan.

Concentrate on a limited number of issues, with a limited number of negotiators on the two big issues. The Europeans, by the way, would love a deal with us, as a prelude for negotiating with the Americans.

[The Chair, Conservative, Rob Merrifield]

Okay, very good. The time has gone.

Ron Cannan will be our last questioner, and then we'll go in camera for committee business.

Go ahead.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Thank you, Mr. Chair.

And thanks to our witnesses. I know you both have a plethora of wisdom and experience, so I thank you for sharing your time with us today.

To Mr. Hart, first of all, I know that Mr. Sandhu referred to your 2006 Policy Options article. When I started on the committee seven-and-a-half years ago, there was lots of optimism or a somewhat optimistic sense the Doha Round was maybe going to be resuscitated with a defibrillator and all the rest. I see now that it's maybe not even in the ICU. But if you were the trade minister looking at the opportunity, as you alluded to in your opening comments, we're probably wise to go the direction we are—at least in taking a participatory role in the TPP. Maybe you could expand a little bit more, from where we've come from 2006 to today, and what you see in the future.

[Prof. Michael Hart]

In the 2006 article I was doing what a former official loves to do, which is to criticize their former colleagues and indicate that they're not doing enough serious work, and so on. By that time I'd been retired for 10 years, and my colleague in crime, Bill Diamond, had been retired for six years, so we were having a lot of fun at the expense of officials, more than of ministers.

I don't envy Ed Fast and his predecessors in their job. If you look at it, the Minister of International Trade really has three jobs.

The first job is to be the minister of trade promotion and to lead trade missions and so on. Once you've done two or three of those, it's not a terribly exciting thing to do. Sure, officials are constantly looking for ways to get the minister to open another fair and do that kind of stuff, but the minister, from a political perspective, looks upon that as not a terribly sexy activity. It certainly is not going to get his name in the newspaper and so on, so that's not great.

The second thing is he's the minister of trade disputes, and given the way the system now works, that we have a good set of rules and a good set of settlement provisions, we're going to lose more than we win. So he then becomes the minister of losing trade disputes, because that's the way the system works. We are now using the system in order to make sure that some of the sins we have committed in the past are righted. So we're going to lose them. No matter how many nice speeches the minister makes about how hard we're going to work, etc., we're going to lose them—because we should lose them. For example, the recent one on the Ontario FIT program was a loser from day one. Any trade official would have told the Ontario government that, but the federal government has a duty to put on the best face and so on and to try to protect that.

Third, he's the minister of trade negotiations. Their officials are saying, “Minister, if you go here, you can announce this negotiation, and if you go there you can announce that one, and you'll get a lot of good press, people are interested in what you're doing”, and so on. The difficulty is in closing those negotiations. It's very easy to open them, as we've done. The Prime Minister is going to Morocco. What's he going to do there? Oh, well, let's announce a free trade negotiation. Has any homework been done on this? Well, you know, it would help our wheat sales. All right, let's do that. It's the same thing with Ukraine, and one country after another. And the trade minister says “Wonderful, it's activity for me and I'm going to get my name in the paper”, and this is all positive stuff until it comes time to deal with the hard issues, and then we find it very hard to close.

For instance, the Korea negotiation is the biggest of the ongoing ones that are useful—other than Europe. And I won't speak about Europe, as we'll let Charlie have his view on that one. With the Korea negotiation we got off to a good start, and it's hung up by one industry and one interest group in that industry. We should have given up on that a long time ago. We don't make entry-level vehicles; we import them from Korea and Taiwan and Malaysia and so on. Yet that one interest group is strong enough to convince the government not to proceed with it. The Koreans knew that was a vulnerable point and used their own hard knocks on beef and so on to get what they wanted.

Trade agreements, once you get into the smaller agreements where you don't have a broad spectrum of economic interests supporting you, are very hard to close.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Thank you for that scenario.

That's basically where we're at, that we're going for the close.

Mr. McMillan, I would appreciate your views on Japan. I was there with the committee in November. Coming from British Columbia, I think the ports are very important. You had an article on innovation in the global supply chains, and that trade is central to Canada's wealth. We all agree with that around the table.

Maybe you could expand a little bit more on the potential opportunities with these bilaterals and with the TPP for enhancing not only the Atlantic port of Halifax, but also the Prince Rupert and Vancouver ports.

[Dr. Charles McMillan]

I'll just pick up on Michael's earlier comment about forward-looking agreements. The supply chain is now central, so you mentioned autos, Korea, or whatever.... Hyundai put a plant in Canada. I was in Korea when we negotiated, and I predicted it would fail if they put it in Quebec, which they did, because it's outside the supply chains.

Energy, textiles, a whole bunch of things.... Europe as a union is the most integrated region, followed by Asia and then NAFTA, through these.... Walmart accounts for roughly 13% of Chinese exports. Canadian Tire has a rising number of imports from Asia. But as the Japanese firm Makita saw, it's advantageous to have parts and components from Korea and assembled in China. These firms can use Canadian know-how and technology, including auto parts, but in terms of the vehicles produced in North America, Canadian auto parts are in decline. Actually, imported auto parts are going up. There is something wrong here.

Having said that, to me it's not just trade promotion for your committee. The new link is trade and transportation. Ninety-two per cent of world trade is done on the oceans, and you need ports. And we would have four outstanding ports if we got our act together. If we could get 3% to 5% of Walmart's goods to Prince George, instead of from Long Beach, it would be bordering on 50,000 jobs, paying $100,000.

Our strength is in the North American gateway, but that's a link between the companies, the ports, the terminals, the railways, and the trucking firms. They have to start working together. The good news is—and I'm seeing a guy tomorrow—is that they are looking, for example, now, and not at Halifax, which I think is sinful, at the dwell times. When a ship arrives at Prince George or Vancouver, for example, how long does it sit there?

[An hon. member]

That's true.

[Dr. Charles McMillan]

We can vastly improve that, and shipping companies and firms like Walmart will then start looking at Canadian ports because of the infrastructure.

[The Chair, Conservative, Rob Merrifield]

That's very good and probably very accurate.

We want to thank you both for coming and presenting and being part of this study that we'll continue. I'm sure we will find it very interesting as we continue.

With that—

[Wayne Easter, Liberal, Malpeque, PE]

Mr. Chairman, to do business are we—?