International Trade Committee on June 5th, 2013

[The Chair, Conservative, Rob Merrifield]

You're not sure if the wheat has gone through that process in the United States?

[Rick White]

I'm not sure.

[The Chair, Conservative, Rob Merrifield]

That's fair enough.

I'm glad you made reference to the fair rail freight piece of legislation. It should get royal assent next week, hopefully, and it is a great piece of legislation that got support from every member in this room and from every party. I'm pleased to see that going forward.

With that, I want to thank you for coming forward.

We will suspend as we set up our next panel.

[The Chair, Conservative, Rob Merrifield]

I call the meeting back to order.

We thank our witnesses for coming forward.

We have with us Mr. Peter Clark, president of Grey, Clark, Shih and Associates Limited. I believe you have been with us before a few times. Very good, I appreciate that.

From the Grain Growers of Canada, we have Richard Phillips, the executive director. We want to thank you, Richard, for being with us.

I believe we'll start with you, Mr. Clark. The floor is yours. I look forward to your comments.

[Peter Clark, President, Grey, Clark, Shih and Associates Limited]

Thank you very much.

We've prepared a lot of background information and given you a link to a study that's several hundred pages long. What I'd like to touch on in the opening remarks are some of the developments in the TPP, and then I'll answer in advance a couple of questions you might ask.

Is the TPP valuable to Canada? Yes, it is. It's valuable as a bridge to Asia, not so much for trade among the participating countries at the present time other than Japan, where we have another negotiation going on in parallel, hopefully a little more advanced than the one for the TPP.

The bridge to Asia is very important. My view of trade agreements is that you shouldn't look at them the way a corporation looks at its quarterly reports. You have to take the long-term view.

When I'm asked whether with CETA we are getting beaten up a little bit, yes, we are, but we shouldn't be looking at the CETA for now or next year or two years from now. We should be looking at it in terms of decades, because we're building a structure that is eventually going to lead to the various big groups around the world coming together to do something that the WTO hasn't been able to do, which is to create true global free trade.

I think Canada really doesn't have any choice but to support that. We're an exporting country. We're a trading country, and we have to be there.

Dealing with the TPP, I've been on the record as saying the TPP isn't really very interesting for Canada without Japan. That's because we have agreements with everybody on this side of the Pacific, and the countries on the other side, with the exception of Vietnam, are pretty small. I've come before this committee previously to talk about our negotiations in South America and Latin America, and I described those as looking for love in all the wrong places—an awful lot of effort for very small markets.

So now we're going after the bigger fish. I think the negotiations with Japan are very important, and I think we're going to have to get on board with the Pacific Alliance fairly quickly.

Will the TPP be finished in October? Nobody really thinks so, not even the people close to President Obama. He has a habit, every time there's going to be a new leaders' summit for APEC, of setting that as the next date. Well, you don't set final dates according to photo ops. Maybe he does, but nobody who's negotiating does.

I do see changes coming. When we were asked back in December whether we thought there would be a TPP, I said what you're really looking at here and what you're looking at in Europe is that these negotiations—notwithstanding all the hype about comprehensive nature, no exclusions, and all that nonsense—are really about exclusions.

Why do I see more hope for the TPP now? Because the Americans are now consulting with their stakeholders. They're asking their stakeholders whether they could redefine their priorities in these negotiations. That means they're going to be backing off some of their more serious demands. But from our perspective if we want to get something out of this deal, there are certain American exclusions that have been there from the beginning that we have to be very wary of and we have to get at.

Our negotiators are first rate. We talk to them fairly often. They can't talk to me about the TPP for some reason because I write columns for iPolitics from time to time or National Newswatch, and we journalists can't be trusted.

[A voice]

That's true.

[Peter Clark]

That's true, yes. Notwithstanding the fact that the official secrets act that I signed when I was in the Department of Finance a long time ago is good for life, and I've been reminded about that.

In any event, it is coming together better, but we have problems with the way the Americans approach this. They've excluded the States from certain important parts of the deal.

They're playing a bit of a cagey game on market access with cumulation. When you have a plurilateral deal like this with 12 countries, you should be able to cumulate the content of each of the members to qualify for the rates. They're under a lot of pressure from Mexico, which doesn't want to buy candy and confectionery from Canada that's made with Australian sugar.

There are games like this going on that we have to be very careful of. I'm glad you're having these committee hearings because you're doing a major service to the country, exposing the issues that we need to deal with.

I'm concerned about the automotive industry. The Americans are doing their own negotiation with Japan, and I'm not sure we'll be able to get the same deal. This is one of the problems we had with Korea. We were nearly there. We stopped negotiating with them. Then the Americans got their deal and now the Koreans don't want to give us the same deal.

You have to face it, we're smaller. Why should they pay the same price for access to our market as they do for the United States?

These are the types of issues that you need to address. I'm happy to talk to you about any of these things, but I'm trying to set a framework. Number one, it's very important for Canada. Canada can't be left out of big deals. If we're not in there for offensive reasons.... Now you heard all kinds of good offensive reasons from the canola people, and I'm sure you'll hear them from my friend Richard as well.

What you're looking at in a trade agreement like this with preferences, and particularly when you have high tariffs, is playing a defensive game. It's far better to be inside the tent sharing the preferences than outside the tent and having people discriminating against you. That's just a basic fact of life in trade negotiations. When you look at Canada, we have to take a look at the size of the package compared to what we're offering because we are a relatively small market.

The last point I'd make is that everybody has problems and everybody tends to get them looked after if there's going to be a deal. The big problem with getting the deal with the United States is that even though they're diluting their ambition, and they're taking serious steps to dilute their ambition to try to get a deal sooner rather than later, the people who support it in Congress are the guys they are trying to dilute and they haven't spoken to Congress yet.

Mr. Easter was asking about people seeing copies of the text. Congress hasn't seen the text. They haven't seen the text, which I find hard to believe.

We were at Capitol Hill dealing with another issue for the Canadian pork industry and we asked them that specifically. They said they haven't seen the text. It's a funny way to run a railroad. In order to get fast-tracked in the United States, they have to go to Congress. Congress holds hearings, and Congress tells the negotiators how they want them to negotiate.

The big issue for them now is that because of the automotive industry and because of Japan, they want a permanency clause in the agreement, which is going to be very difficult to negotiate.

Now China is coming out of the woodwork. Hillary Clinton and somebody else suggested to them that maybe they should join the TPP. They said, “Well, yes, we'd like to join the TPP, but we want it to be more flexible. We want it to be more pragmatic and we want it to take account of differing stages of development.”

If China gets there, it will go longer than Doha.

[The Chair, Conservative, Rob Merrifield]

That's very good. That will stimulate a lot of questions, I'm sure.

We'll now hear from Mr. Phillips.

The floor is yours, sir.

[Richard Phillips, Executive Director, Grain Growers of Canada]

Thank you.

I'm going to be referring specifically to the deck that was passed around. I'm going to take you through it. There are a number of photos and some facts in there. I'll be referring to that continuously as I go through, so I will ask people to follow along with me.

Thank you very much, on behalf of the Grain Growers, for the invitation to be here to talk a bit about TPP. I looked at the witnesses you were calling and there are some people giving you lots of stats and arguments for and against, and I thought I would to take a little different tack today. I'm going to back it right back down to the farm gate and why this is important for farmers and how we farm today in Canada.

The Grain Growers of Canada represents over 50,000 producers. We grow wheat, durum, barley, oats, corn, soybeans, lentils, canola, peas, rye and triticale. Those are the commodity associations that directly belong to the Grain Growers of Canada.

We're excited about a large regional deal because, as Peter talked about, you can make more gains than you can in a simple bilateral deal.

Coming back to the farm gate, in the next picture here you see a field full of weeds. This is a field of corn and it's full of weeds. The reason I show this to you is that this is how it happens if you plant some crop in the ground in Canada. Whether you're in Quebec, Prince Edward Island, or in the Prairies, a lot of weeds will come up like this. It will choke out the crop. It takes away the nutrients and takes away the water and your yield suffers a lot.

[Wayne Easter, Liberal, Malpeque, PE]

But obviously not P.E.I., though.

[Richard Phillips]

Not quite. The weeds would be bigger.

[Some hon. members]

Oh, oh!

[Richard Phillips]

Wherever you farm, if you have a lot of weeds growing you have only a couple of solutions.

One is hand tillage. Here's a photo out of Africa. I used to work for an international organization and I did a lot of work in Africa. This is how you control the weeds in Africa. If you were to go back far enough in Canada, you'd find that people controlled weeds this way in Canada, as well, before we were mechanized.

In the next photo there is a tractor in a cornfield. This would be more of a North American model, where you would till the weeds. If you did not farm with modern methods, you would simply use that tractor. You would drive up and down that field three times, four times, five, six, maybe even seven times in a season, burning fuel, continually cultivating the soil, and drying out that soil, as well. Again, there's an effect on your yield, and you burn a lot of fossil fuels. You spend a lot of your time on that tractor seat, farming that way.

Those are two options.

The next picture is a tractor with a lot of dust on it. This is how I grew up farming on our farm. What happens is, if you don't use biotech and you don't use pesticides, you have to kill all the weeds with cultivation, this is exactly what your fields will look like. Many of you from the Prairies would have seen this, people driving down their fields with dust blowing everywhere. The soil erosion, alone, is incredible. I can tell you that farmers do not want to go back to farming this way.

After you've worked your land and you get a big rainstorm, there's soil erosion. This happens in Africa, as well, if they overwork the soil. The soil washes away when you're trying to kill all those weeds by working the fields. In Canada and in many countries, in fact in a growing number of countries, we're seeing far more spraying to kill the weeds. You'll see the sprayer coming down the field. We don't work the soil nearly as much. We farm much more sustainably than we used to.

In this next slide you see the total number of acres seeded to biotech in the world. The green line is the developing countries. This is the developed world. The blue line, which has actually surpassed us now, is the developing world. This is Africa and Central America. You see that farmers in both developed and developing countries are adopting the new technologies.

When you hear the canola people and others talk about how in this agreement we should have maximum residue levels and low-level presence policies, how we need to get biotech approvals, and how we need to do all these things so that trade can continue, it's because all over the world farmers are adopting these new technologies. We need to have trade agreements that, in the modern era, will take into account what's really happening on farms, not the way it was 20 years ago.

I can tell you that once he starts farming with the new tools, there isn't a single farmer in Africa or a single farmer in Canada who wants to go back to putting that hoe in his hand and hoeing those weeds. Nobody wants to go back to that. That's why you see the graph continually going up.

You see a photo of me in my wheat field. If you farm the new way, this is what you get when you use the new tools. You end up with clean fields. You end up with good yields because you haven't overworked the soil. In fact, in many places we're seeing the soil organic matter coming back because we've stopped cultivating so much. In the next photo, you see me in a field of canola.

In summary, it is absolutely critical in a deal like this, which has so many countries in it, that we find tools within these trade agreements to deal with these non-tariff trade barriers. There are countries that are really good at putting them up. Peter knows far more about tariffs than I'll ever know in my life, and he can answer questions on that. But on the non-tariff trade barriers, the reality of modern agriculture today and the growing acres in it, these agreements need to have clauses with effective dispute resolution mechanisms and effective levels that we can manage for the reasons of both trade and food security in the world going forward.

Thank you very much.

[The Chair, Conservative, Rob Merrifield]

Thank you.

Mr. Davies, the floor is yours, sir.

[Don Davies, NDP, Vancouver Kingsway, BC]

Thank you both for being here today.

Mr. Clark, I have a copy of the speaking notes that you prepared, dated May 22. I want to use these to ask you some questions.

You point out that the TPP will not be comprehensive:

Forget everything you have heard about the TPP being a comprehensive or an all inclusive deal. It is not—and it never was.

You point out the following:

The wholesale exemption of U.S. states from many of the important proposals currently on the table is clearly a colossal gap between the spin and reality.

Is that the case? Will U.S. states be exempted from many of the important proposals on the table?

[Peter Clark]

The United States drafted the texts, and they drafted the texts on procurement, leaving out state procurement. They drafted texts on investment and investment challenges, leaving out subnational governments. The controversial provisions about state-owned enterprise do not include subnational governments.

Even when you go within the procurement, they still have exclusions for minority-owned business, whether the owners are women, minorities, or aboriginal. These are big holes in the agreement. The United States has no intention of doing anything on sugar. The United States has no intention of doing anything on cotton. The United States is not likely to give Australia anything on beef, and the United States' dairy farmers are adamant that they are not going to open up their market to Fonterra for dairy products.

[Don Davies, NDP, Vancouver Kingsway, BC]

I'm going to focus on state procurement. In your brief, you ask the question, “Will the TPP protect Canadian jobs?” Your answer is no. It says:

NAFTA did not. And there is nothing in the TPP to discipline or limit domestic subsidies in the U.S. to agriculture and to manufacturing.

The U.S. offers generous locational subsidies that often take the form of financing of plant construction and training through tax-free revenue bonds. This is cheap money to attract investors and jobs.

Why did Hyundai and Kia locate in Georgia and Alabama? Because local governments contributed over $650 million towards the companies’ $3 billion investment in creating what was expected to be more than 5,000 jobs....

The State of Tennessee paid Electrolux $188 million to build a $190 million plant which moved jobs from...Quebec to Memphis.

You're telling me that, in the TPP, the Americans have no intention of changing the states' ability to pay subsidies to take jobs, and this will have a net effect on jobs in Canada. Is that still your position?

[Peter Clark]

They can't. I don't have positions, by the way. I'm telling you the facts.

[Don Davies, NDP, Vancouver Kingsway, BC]

From a jobs point of view, TPP cannot be good for Canada.

[Peter Clark]

It's no different from having NAFTA. We haven't addressed those things in NAFTA. In the Canada-United States Free Trade Agreement, we used a mechanism whereby we would allow companies to get duty remissions on imports of finished goods and parts. Mr. Flaherty has gotten rid of all the duties on parts now, but that's the way we used to attract investment. That's how we attracted Michelin. That's how we attracted some of the early auto investments. We had to give up our ability to do that to get the Canada-U.S. agreement. We have no discipline on domestic subsidies in the United States.

Frankly, it doesn't matter. If we bring a greenfield plant to Canada, it's going to export 70% to 80% to the United States. If we subsidize it, we're exposing ourselves to the countervailing duties. If the United States puts up a world-scale plant, they might export 5% to Canada. That's a pinprick.

[Don Davies, NDP, Vancouver Kingsway, BC]

You also say:

At this point, participation in the TPP raises more questions for Canada than it answers. Gordon Ritchie, who was so pivotal in negotiating Canada-U.S. Free Trade, suggests the TPP will not be worth much to Canada. I agree.

You say, “the near-term prospects are, frankly, underwhelming.” You point out that Canada already has free trade agreements with four participants.

...there is thus little new market access that Canada can gain from Chile, Peru and Mexico. And, the U.S. has made it clear that market access discussions with Canada will be one way—[going] South.

There was a sermon from my honourable colleague, Mr. Holder, about the value of trade agreements, but you point out that “Canada has negative trade balances with all members of the current TPP group other than the U.S. and Australia.”

For the countries we have trade agreements with, there are negative trade balances. With Chile, we have a $1 billion deficit. With Mexico, we're have a $21 billion deficit. With Peru, it's a $3 billion deficit. We've had trade agreements with some of these countries for a long time. We have deficits with Vietnam, Singapore, New Zealand, Malaysia. Brunei is a wash. With Australia, there's a slight surplus, and the same with the U.S.

When you point out that we have negative trade balances, even when we have trade agreements with some of these countries, can this possibly be of economic value to Canada?

[Peter Clark]

I would suggest that it would be an awful lot worse if we didn't have trade agreements with them, but other people did.

[Don Davies, NDP, Vancouver Kingsway, BC]

That's hard to tell, though, isn't it? Would it be better if we didn't?

[Peter Clark]

Everything is hard to tell, but my first comments suggested that you have to look at trade agreements in the long term. The gorilla in the room, which deals with our trade balances with a lot of people, is the current strength of the Canadian dollar. If we had a Canadian dollar that was more competitive, our trade balances would be different.

[Don Davies, NDP, Vancouver Kingsway, BC]

You also say:

Don’t look for fairness. As Harvey Logan told Butch Cassidy—there are no rules in a knife fight. Those who saw the movie will remember what happened to Harvey.

Do you foresee a Paul Newman result for Canada?