International Trade Committee on June 3rd, 2013

[Dr. Michael Geist]

Okay.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

You talked about the $5,000 cap and the statutory changes. Then you went on to say that we're not alone, that Chile has legislation very similar to ours. So I expect that they would be a partner who would be looking to maintain the legislation, the same as we have.

What I'm saying is that I don't think.... You can summarize, but in ongoing negotiations we don't have an accurate piece of legislation to lay out there until the negotiations are completed. Although there may be two factions, one faction wanting to change copyright and another faction wanting to maintain copyright, that debate's not over.

[Dr. Michael Geist]

I recognize that it's not over. The concern that I would have, and that I think thousands of people who've been represented by civil society groups and others have, is that under the scenario you've just described, it gets presented to everyone as a fait accompli: here's the deal; we didn't have the opportunity, or we couldn't provide it to you, all along the way, but here's the agreement at the end. It's done on a take-it-or-leave-it basis.

On the copyright-related issues, maybe some of the issues I've just outlined aren't in the agreement and maybe some are. Maybe some of Ms. Des Chênes' issues are adequately addressed and maybe they're not. The position that's taken is that it's an agreement and you have to live with it.

What I'm saying is that on these copyright issues—you heard previously about patent, and we could talk about domain names—I think they'll have a significant negative effect. That's why I'm taking the position that it would be enormously problematic if that's where the TPP took us.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

Except you're taking a position that is presumptive; you can't accurately say what the end is until the negotiations are completed. That's the problem with your theory.

[Dr. Michael Geist]

Well, with respect, in that case, then, there's no reason to even hold the discussions, because we'll just wait to see what we get.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

To Madame Des Chênes, obviously we have an opportunity with forest products. We're a forest products producer. I would say we're a forest products giant.

You mentioned some of the advantages that Canada has that we've not taken enough advantage of in the past. I think you stated that there's little illegal logging. I'd say there's no illegal logging, or none that I'm aware of, at least on the east coast of Canada. Most of our forest companies already have green certification or sustainable logging certifications. When you look around the world, that's not the case in eastern Europe, that's not the case in Russia, that's not the case in much of Asia.

That should give us a serious competitive advantage at the table.

[Isabelle Des Chênes]

I agree. Particularly when you have countries like Vietnam that are emerging as global furniture manufacturers, for instance, they are being pressured to source legal supply because they re-export back to the United States and to Europe, where there is legality legislation in place. Australia is about to introduce its legality legislation.

So it's really important for us to take advantage of those opportunities. We are a source of very well-managed, third-party certified forests, the most certified forests in the world. Certainly it gives us a leg up on other jurisdictions that want to source legal supply.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Thank you for your presentations and for your time before the committee. This will be a very interesting study as we continue.

With that, we will suspend as we set up for the next panel.

[The Chair, Conservative, Rob Merrifield]

We call the meeting back to order.

We have with us two individuals. First is Charles McMillan, professor of international business at the Schulich School of Business, York University.

Thank you for being here.

Second is Michael Hart, professor and Simon Reisman chair in trade policy at the Norman Paterson School of International Affairs, Carleton University.

We have two experts and we look forward to your testimony before the committee.

I believe we will start with Mr. McMillan. The floor is yours, sir.

[Dr. Charles McMillan, Professor, International Business, Schulich School of Business, York University, As an Individual]

Thank you very much for the—

[The Chair, Conservative, Rob Merrifield]

Maybe just before I yield the floor to you, I see that you've handed me some information. One is an opinion piece and a paper, but it's unilingual, in English.

If I get unanimous consent, I will have it passed out.

[Dr. Charles McMillan]

I was going to explain that.

[The Chair, Conservative, Rob Merrifield]

If you're going to explain it, you just go ahead and we won't pass it out. Unless we get unanimous consent, we won't bother with it.

Go ahead.

[Dr. Charles McMillan]

Well, I was just going to say thank you for the invitation and mention that I've just spent three months in Tokyo and touring around some Asian capitals. Ironically, when I got the invitation I was in Paris and London talking to folks about the European deal, which is another story. So I've provided some copies of summary papers, obviously in English. I apologize that they're not in French. Having worked for the Prime Minister, I know all about bilingualism, and I'm 100% in favour of it, etc.

[The Chair, Conservative, Rob Merrifield]

We can get this translated and passed out. Go ahead.

[Dr. Charles McMillan]

Yes, exactly.

There are three papers: one on Canada-Japan; one on the TPP; and one on the study I did with George Stalk of the Boston Consulting Group on the “North American Gateway”, which is an outcome of the flow of goods and services from Asia and Europe into all of North America, using Canadian infrastructure. It's would be enormous job creator if we got our act together, but I'll leave that for the moment.

I'll make a couple of comments quickly and then turn it over to my old friend Michael, who I worked with several years ago on the U.S.-Canada free trade agreement.

The TPP, as most of you know, because several of you were at our big conference in Tokyo on the Canada-Japan agreement, which has overlapped the TPP discussions and a recent conference in Toronto with the chamber of commerce, talking about the TPP and the Canada-Japan EPA..... As you know, in Asia there are at least four related sets of agreements, and it's hard to disentangle them. You have the TPP, but only recently with Japan as a partner, and I regret that Canada was the last country among the partners that endorsed Japan to become part of the TPP.

One geopolitical issue on the TPP is that it's a U.S. strategy to contain China. If that is the case, it's going to fail, because in Asia there are other agreements. When the Japanese prime minister announced their entry into the TPP—and the partners have to agree for each new member, which happened to Canada as well—he also singled out the China-South Korea-Japan free trade agreement. In the last 10 years, there has been—to use a phrase used in Asia—a plethora of agreements. There are several bilateral deals, such as India-Japan, for instance, and Korea-Japan, and that has a bearing on the TPP, which I'll come back to. Then, of course, for us in Canada, which I think is a central issue, there is the Canada-Japan EPA.

So we have to put these in context. All of these agreements, with overtones of the previous discussion, are political agreements, and you have to get agreement. With anything involving the United States, as we know with free trade, they have a fast-track procedure: it's all or none. You can't just pick and choose as you see fit, which I think is going to be the central issue for the TPP.

The TPP now has 12 partners. It would be phenomenal if it were successful, but Japan has just joined and, for political reasons, Abe has to face the upper house elections in July. It will be a real problem if he loses those elections, but I don't think he is going to. But as you know, anything in Japan involving trade is rice farmers, with roughly a 780% tariff, and these rice farmers have enormous political clout in the Japanese system. I just mention that.

That leads us to Canada-Japan, wherein we're now facing the third round of negotiations. The last one was in April in Ottawa. The next one is in July in Tokyo and another round is scheduled for the fall, probably in Canada. It may not be in Ottawa.

I'll end my remarks with this: if we can get the European deal and the TPP deal, it will be enormously advantageous for Canada, but unfortunately time is against us.

I was out for dinner in Tokyo and my wife was watching a replay of President Obama's address to Congress. He was talking about the EU-U.S. agreement. The worst case for Canada, in my view, is to have a Japanese-U.S. free trade agreement and a U.S.-European free trade agreement without Canada having an agreement with either. It would put Canada in a situation of being almost like a spoke in the hub of the United States.

If we can get the European deal possibly in the next month, and the Japanese deal perhaps at the end of this year, we will be in a very good position regarding the European deal with the United States, and the TPP. These deals are not only political in nature, but timing is extremely important. We can't wait. If we wait—because we can't get an agreement—we will be in a very defensive position.

Let me leave it at that and turn it over to Michael, and then I'll be happy to answer questions, en français, en anglais.

[The Chair, Conservative, Rob Merrifield]

Very good.

Go ahead.

[Professor Michael Hart, Professor and Simon Reisman Chair in Trade Policy, Norman Paterson School of International Affairs, Carleton University, As an Individual]

Thank you, Mr. Chair, and my thanks to all of you for inviting me to participate in this committee's deliberations.

I don't have a long prepared statement. Let me just give you some thoughts, and then I'd be happy to answer questions.

I'm of two minds on the Trans-Pacific Partnership. At one level, I think it would not be wise for Canada to absent itself from these discussions. Having looked at them from the outside for a few years, I think that this would probably not be a good strategy. I think it makes sense for us to participate in it, even if in the end it's not going to become much of an agreement. But the ideal of having a high-quality agreement that involves one of the most dynamic economic regions of the world is, at a minimum, a good idea.

That being said, I have some strong reservations about things as they stand. The TPP originated as an idea among the New Zealanders, the Singaporeans, the Chileans, and the Bruneians. The four of them thought it would be useful for them to negotiate a quality agreement. Given the high level of activity going on in the Asia-Pacific region, they wanted to make sure they set some parameters for what a high-quality agreement would be. But as the number of members has increased, the chances of getting that high-quality agreement have decreased, because the more partners you have, the more difficult it is to find common ground.

I think that was particularly the case when the United States became a party. The United States has a very strong agenda. It has more or less taken over these negotiations and indicated that it's their agenda or no agenda, and yet they do this without any allusion to the fact that they have no negotiating authority. As a former trade negotiator, one of the first things I learned when I became a government official back in the early seventies was that you never negotiate with the United States unless they have a mandate. In fact, during the Tokyo Round, the Uruguay Round, the FTA negotiations, and the NAFTA negotiations, one of the most important things that we considered was what the U.S. mandate really was. What mandate had Congress given to the administration? Well, that mandate ran out in 2007. That's six years ago. President Bush did not think it was worth his political capital to seek new authority at the end of his mandate, and President Obama has shown no interest whatsoever in gaining that kind of mandate. Even if he were to seek it, I don't think he would get it, because his view of what a successful negotiation would involve is very different from what the Republicans and Congress think a successful negotiation would involve.

If you're negotiating with the United States when they don't have a mandate, one result is that you have an agreement that must meet the standard of a treaty, which means it has to go to the U.S. Senate and get a two-thirds majority there. This is an extremely difficult thing to achieve, as we have learned to our regret in earlier negotiations. The most famous case was the east coast fisheries agreement, where two senators successfully destroyed an agreement that had been faithfully negotiated between the U.S. administration and the Canadian government. There are also—and this may come as a surprise to the committee—other agreements sitting in the in-basket of the chairman of the foreign relations committee that were sent to Congress by President Truman. In other words, the Senate foreign relations committee doesn't always act with the kind of expedition that we would like. That's one chance. That way it would, in effect, be the Senate saying yea or nay on the basis of a two-thirds vote.

The other way, which was the case until 1933, when Congress first mandated the President to negotiate agreements, was that an agreement would come to Congress and Congress would pass legislation to bring it into force, but Congress had no obligation to bring it into force without changing the agreement to suit its liking.

So the idea of a TPP being negotiated by all 12 parties, and then going to the U.S. Congress for some fixes, is not one that appeals to me. You end up with two negotiations, and you have no idea what the second negotiation is going to be all about because you're not party to it. Given the U.S. lack of negotiating authority, that is a very large question mark that I would raise.

Secondly, the most dynamic and interesting markets in the Pacific are not participating, and those are China, Indonesia, and India. If they were to participate, it would be a very different kind of negotiation, and it would probably be much more variable. But all three of them have shown no interest. They are much more interested in negotiating their current interests on a bilateral basis. As you know, the Chinese leadership kind of tweaked Mr. Harper on his last visit and challenged him to enter into a negotiation, and we're supposedly studying this. I understand that is on the back burner, and not much studying is going on.

Thirdly, I think the committee should keep in mind that we have well functioning agreements with all the current partners to the TPP. It isn't that we don't have agreements with these countries. We have. First of all there's a very good agreement through something called the World Trade Organization. In addition to that, we have the FTA, and the NAFTA with the United States and Mexico. We have FTAs with Peru and with Chile. We're negotiating FTAs with some of the other ones. So the idea that negotiating with these countries is the only game available is false. We do have good agreements with these countries, and we can pursue further agreements bilaterally. So negotiating multilaterally sometimes has an advantage in that you have the larger leverage that other members can bring to bear on a negotiation, but there is also the risk that you're looking for the lowest common denominator among the participants, and with a large country like the United States participating, the U.S. agenda is the real agenda, and the rest of the parties are part of the chorus.

The United States does have an agenda. I think the previous panel spoke to you about part of that agenda that is problematic, which is the intellectual property part of the negotiation for which the United States basically has an agenda that is different from that of the rest of the world. If you analyze it, it comes down to looking after the interests of the pharmaceutical companies and the audiovisual companies. The rest of the U.S. industry really isn't all that concerned about IP any more. The bargain that was struck in the Uruguay Round, which is reflected in the TRIPS agreement, is considered by most serious analysts to balance well the competing interests that you try to deal with in an intellectual property agreement. Those are the interests of consumers and competition and the interests of innovators. I think that balance was struck in the TRIPS agreement. The desire of both the European Union and the United States to strengthen that agreement in order to benefit their rights holders is one I can see from their perspective. I don't see it from our perspective. I don't think there are very many benefits to be gained by Canadians from strengthening the IP provisions.

Finally, I think that much of the agenda that's being pursued at the TPP, to the extent that we can understand what the agenda is, is the wrong agenda. At one point a kind of draft agreement was available on the Internet, and then it abruptly disappeared about 18 months ago. What we have is a text that was put out by the ministerial meeting in November 2011, which outlined what a good agreement would involve. If you look at those issues, I would say it's the wrong agenda. It's not the agenda that is important to the world of commerce as we know it today. It is what I would consider to be a backwards-looking agenda that is to perfect the trade agenda of the past, rather than to address the trade issues of the future. It's all well, and I think all these negotiations that Canada's engaged in now are of great interest to officials. They are of interest to the legal community. They are of minimal interest to the business community. The business community is basically sitting on its hands and saying to the government, “Negotiate these agreements and if they're of interest to us, we'll let you know.” But they're not going to put out any political capital to convince the government to negotiate these agreements, and there's a reason for that.

Many of the kinds of remaining problems that exist in the world of trade policy after the Uruguay Round and the NAFTA agreement are the most difficult politically, but commercially they're fairly marginal. So from a commercial point of view, most businesses have found their own solution to these problems. What they want governments to do is to look at the agenda of the future to deal with the really ticklish problem of how to ensure that the emerging markets, particularly in east Asia but also in countries like Brazil and South Africa, are truly contestable and to deal with the trade policy issues that are enshrined in the WTO. Free trade agreements will not do it.

Those markets are very similar to the Japanese market. They are what I call “permissions economies”, that is, economies where the government and business are heavily intertwined with each another, where much of what takes place in the economy is dependent on government involvement either through permissions in licensing or through state-owned enterprises, or other kinds of ways. That's where our businesses have a hard time.

We have many successful businesses that have made their way into those markets, but they've had to do this with some fairly expensive strategies.

What they would like is to see the government negotiate are agreements that make those markets truly contestable. That would involve negotiating agreements that include disciplines on competition policy, investment policy, intellectual property rights, and state trading rules. If you are able to negotiate an integrated set of rules governing that, which is judicial in settlement provisions, then you would have an agreement that is of great interest to the business community, and that would have a major impact on Canadian economic interests.

Thank you.

[The Chair, Conservative, Rob Merrifield]

Very good. Thank you very much.

I'll now move to questions and answers. You've stimulated a lot of thought, I'm sure.

We'll start with Mr. Sandhu. The floor is yours.

[Jasbir Sandhu, NDP, Surrey North, BC]

Thank you both for being here today.

Professor McMillan, we heard earlier in the committee today that the government trade minister has been consulting a secret group, and also debriefing certain sectors of the Canadian economy. Have you had any approach from the government? Have you been consulted? Have you been debriefed? No?

I have the same question for you, Professor Hart. Have you been consulted by the government on these negotiations?

[Prof. Michael Hart]

No, I have not.

[Jasbir Sandhu, NDP, Surrey North, BC]

Professor McMillan, you talked about the timing of the EC and European deal, and also the Japanese deal, which it critical that we absolutely sign. If there is such an urgency for the government to sign this, do you think we can compromise our positions?

[Dr. Charles McMillan]

I'll answer both questions together.

Michael and I were heavily involved when we set up the U.S.-Canada free trade negotiations with the mandate of both governments. We set up strategy structures, so that in Canada some 15 industry groups were consulted. We did all kinds of studies, building on the Macdonald report, etc., which was an enormous help to our negotiators, seeing the impact industry by industry, sector by sector in Canada—and the same with the U.S.

Most trade agreements—I half agree with Michael, but half disagree—are ongoing. So we went through seven rounds with the GATT, Uruguay Round, the WTO, or whatever. These are not in stone, and obviously the big change in the last 20 years is the emerging markets—the BRIC countries, if you want to call them that. For a variety of reasons they want to do their own thing first, because they don't feel they're in a position to go up against big Europe and big United States. Canada and Chile are little players on that.

Quite apart from this mandate issue in terms of timing, the problem is that each government only has a certain number of negotiators. For Europe, they're going to be faced with dealing with the United States. It's the same thing with Japan dealing with the United States, because there are ongoing talks with the U.S. and that's going to tie up political capital and time.

Obviously, without compromising all that kind of stuff, we have to be aware that each government has only so many people who can negotiate. If the Europeans move to the U.S. soon, and Japan moves to the U.S. or to the China-South Korea regional agreement, where does that leave us?

[Jasbir Sandhu, NDP, Surrey North, BC]

It's my understanding that we have only seven chief negotiators, and I agree with you that if we have a limited number of chief negotiators, going into these different trade deals might be problematic for the government.

Professor Hart, I have a question for you. You talked about the intellectual property rights and the interests of pharmaceutical companies in the States and in Europe. Knowing what you know of some of the trade agreements that are being negotiated, what impact would that have on drug costs in Canada?

[Prof. Michael Hart]

It would raise them.