International Trade Committee on March 27th, 2014

[The Chair, Conservative, Rob Merrifield]

I'd like to call the meeting to order.

I want to thank our witnesses for being here.

In this first hour of the panel we have with us, from the Canadian Council of Chief Executives, Ailish Campbell. Thank you for being here. You've been here before and we look forward to your testimony.

Also, we have, from the Canadian Generic Pharmaceutical Association, Jim Keon and Jody Cox. Thank you, both, for being here.

I'll just make mention that I've been on the trade committee a long time, and I've never seen so many new faces around the table. This is actually great. It should be very interesting.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

It says something about your leadership.

[The Chair, Conservative, Rob Merrifield]

That's right. They're falling off the rails. Well, we'll see how well behaved they are. We'll put it to a test.

Nonetheless, let's start with the Canadian Generic Pharmaceuticals.

Mr. Keon, the floor is yours.

[Jim Keon, President, Canadian Generic Pharmaceutical Association]

Thank you very much, Mr. Chair.

On behalf of the Canadian Generic Pharmaceutical Association and our member companies, I would like to thank the chair and honourable members for this opportunity to participate in your study of the Trans-Pacific Partnership Agreement.

I am joined by Ms. Jody Cox, CGPA's Vice-President of Federal and International Affairs, who leads intellectual property and international trade files for our association.

The generic pharmaceutical industry operates the largest life sciences companies in Ontario and in Quebec. We are Canada's primary pharmaceutical manufacturers and primary exporters, and we are among the top research and development spenders across all industrial sectors in Canada.

The CGPA member companies directly employ more than 12,000 people, primarily in Ontario and Quebec but also in Manitoba. These are highly skilled research, development, and manufacturing positions.

Our industry is a strong supporter of free and open trade, and we export our high-quality, made-in-Canada generic medicines to more than 100 countries. These include many Asia-Pacific countries and many, if not most, of the TPP member countries. The Asia-Pacific region is also an important source of raw materials and other input for our made-in-Canada medicines.

Canadian generic pharmaceutical manufacturers are globally focused, and they all play an integral role in their companies' sophisticated global supply chains.

In addition to being of industrial importance to the Canadian economy, the generic pharmaceutical industry plays an important role in controlling health care costs in Canada. Generic drugs are dispensed to fill 66% of all prescriptions—so two out of three prescriptions in Canada now are with generic medicines—but we account for less than one-quarter, only 24%, of the total spending on prescription medicines in Canada.

We have had a strong interest in the TPP right from the outset of the negotiations. We participated in the early TPP consultations through the Canada Gazette process, and we're participating in the webinar updates provided by the chief negotiator. CGPA, in particular Jody, also attended some negotiating rounds of the TPP and participated in the stakeholder days held during the negotiating rounds, which the chief negotiator mentioned earlier this week during her testimony. As well, we've had meetings with negotiators from all of the TPP countries.

We understand that reaching consensus with 12 parties at the negotiating table will be no easy task. It is a very unique negotiating dynamic. Domestic policies, priorities, and motivations vary from country to country, making for a messy and complicated business. While the negotiations present opportunities in many areas, this dynamic also poses considerable risks.

We paid particular attention to the appearance earlier this week of the chief negotiator, who shared with you the Government of Canada's objectives with respect to pharmaceuticals and indicated that the current position of the Canadian government—which we support—is not to exceed current Canadian law and policy. Kirsten Hillman also noted that she and her negotiating team are pushing very hard to achieve this objective.

To exceed current Canadian law and policies on pharmaceuticals we believe is clearly not in the best interests of Canadians, particularly given the challenging and carefully balanced outcome on pharmaceuticals that was made to reach an agreement in principle, announced just a few short months ago, in the CETA negotiations. We'd be happy to explain that further.

There are a wide range of proposals on the table in the TPP negotiations, and other proposals that have been discussed but not formally tabled. The generic pharmaceutical industry remains concerned that some of these proposals are aimed at providing excessive monopolies going beyond Canada's already high intellectual property standards. Others are aimed at respecting intellectual property rights without creating new obligations for TPP countries.

The CGPA supports the position taken by the Government of Canada in the TPP pharmaceutical IP negotiations. We specifically request that the Government of Canada refuse to sign a TPP or any other trade agreement if it includes provisions exceeding our current law, policies, and treaty obligations, including the recently announced CETA obligations with respect to pharmaceutical intellectual property. We also ask members of this committee to include that recommendation in their report on the TPP.

What are the generic pharmaceutical industry's interests in the negotiations? From a domestic market perspective, we want to ensure that no provisions in the final text have the effect of denying pharmaceutical competition in Canada. Delayed generic market access in Canada would have a direct impact on the ability of our member companies to attract new R and D and production mandates, particularly to our major industrial plants already existing in Ontario and Quebec. In addition, drug competition saves Canadians between 75% and 80% on each purchase. Longer delays until savings can be achieved mean higher drug costs for Canada.

As nearly half of our domestic production of generic pharmaceuticals is exported, ensuring that no new barriers to trade are erected for our industry is also a key priority. The final outcome on TPP must not undermine in any way the commitment of the Government of Canada in its CETA negotiations to allow for the unfettered export of generic medicines following the expiration of a 20-year patent but during the term of the patent extension.

We also look at the TPP from a global policy perspective. Along with our colleagues in the International Generic Pharmaceutical Alliance, with whom we work carefully, we have an interest in the precedent that the negotiated outcomes may have for future trade negotiations. It is our view that less emphasis should be placed on intellectual property provisions in trade negotiations and more emphasis should be given to other areas, such as regulatory harmonization, regulatory cooperation, and mutual recognition of inspection standards. These are areas that reduce cost, introduce efficiencies, and benefit the entire life sciences sector, not just one part of it.

In addition to advocating for a non-excessive level of pharmaceutical IPR provisions, the generic industry also encourages negotiators to table proposals aimed at establishing safeguards against abuse and misuse of IPR. By penalizing both abusers and infringers, countries can help to ensure balance between the goals of rewarding innovation and promoting competition.

We also advocate for provisions that help to promote competition and support well-functioning intellectual property systems in pharmaceuticals. I won't go into detail on these, but these include such things as a strong Bolar provision, which is an early working exception; a best mode for patent disclosure, so that the information can be clearly and effectively identified; and incentives to encourage generic companies to challenge patents and come to market. I'd be happy to answer questions about those when we get to the question period.

Before concluding, I would like to leave the committee with a few other important thoughts with respect to pharmaceutical IP and trade negotiations. Negotiating pharmaceutical intellectual property is not the same as a negotiation around a reduction in tariffs. A tariff line can be reduced on a bilateral basis or on a plurilateral basis. Intellectual property obligations in a trade agreement, in contrast, have national treatment. You make changes to your national laws and you give the protection to all inventions regardless of where the invention was made. It is not country-specific.

As a second point, Canada already had high and internationally competitive levels of intellectual property protection for pharmaceuticals before the announcement of the CETA agreement in principle. The implementation of CETA provisions will be crucial.

CGPA is aware of some brand name efforts to undo the Government of Canada's important commitments to end dual litigation under our patent linkage system. We are also aware and are wary of any attempt to make the export exception cumbersome and unworkable, which would not preserve Canadian manufacturing jobs—the Government of Canada's objective in making the commitment.

Excessive intellectual property standards for pharmaceuticals, which have been proposed in TPP by some countries, would disadvantage the generic pharmaceutical manufacturing facilities in TPP member countries, including Canada. That would put us at a disadvantage compared with non-TPP countries such as India and China.

My final point is that excessive intellectual property standards in TPP would undermine the objectives of the Government of Canada and other countries to have still other further countries, perhaps Korea and others, sign on to TPP after the negotiations conclude. It would create a major barrier to entry that in our view many Asia-Pacific countries would be unwilling to accept.

Thank for this opportunity to appear. My colleague and I will be happy to answer questions afterward.

Thank you.

[The Chair, Conservative, Rob Merrifield]

Very good.

Ailish Campbell from the Canadian Council of Chief Executives, the floor is now yours, ma'am.

[Ailish Campbell, Vice-President, Policy, International and Fiscal Issues, Canadian Council of Chief Executives]

Thank you.

Mr. Chairman and committee members, thank you for the invitation to appear before the committee on this important subject concerning the benefits to Canada of the Trans-Pacific Partnership agreement.

The Canadian Council of Chief Executives is a not-for-profit, non-partisan organization composed of the CEOs of 150 leading Canadian enterprises. We are responsible for an active program of public policy research, consultation and defence. The CCCE is a source of well-thought-out and well-founded comments reflecting the business perspective on issues of national importance regarding economic and social structure in Canada.

On behalf of the Canadian Council of Chief Executives, today I plan to answer three questions concerning the Trans-Pacific Partnership. Number one, why should Canada have an ambitious approach to the TPP? Number two, what would a successful outcome to the TPP negotiations look like? Number three, what else should Canadian firms and governments do to prepare for the opportunities provided by Asia?

First, why should Canada have an ambitious approach to the Trans-Pacific Partnership agreement?

The TPP is an agreement that, with its current members, would cover an area with about $28 trillion in annual economic output. The region is responsible for about 40% of the world's economic output. An ambitious outcome to the TPP would reduce barriers for Canadian firms to provide products to almost 800 million customers. If the TPP remains open to additional members, as the CCCE believes it must, this market could grow even further.

The answer as to why Canada should engage in the TPP and why Canada needs an Asia strategy is clear. Asia is a powerful engine of global growth. It is essential that Canadian firms and the Canadian government engage fully with the region during this remarkable period of economic and geopolitical transition.

Canadian merchandise exports to the 10 nations in ASEAN, plus China, Hong Kong, India, Japan, Taiwan, and Korea, have doubled over the past decade and now account for about 2.2% of Canadian GDP. However, Canada is underperforming when compared with the scale of the opportunity. Canada's exports to Asia—again, 2.2% of GDP—pale in comparison to Germany's 5.7% and Australia's 10.8%. Clearly, there is room for improvement across a range of sectors, and in particular for Canadian energy exports.

Asian prices for gas are in the range of three to four times the current North American price. Even if a world price closer to European levels were reached for LNG exports, the impact on Canada's GDP could be roughly $28 billion a year. This could add $6 billion in revenue for all levels of government, according to research published in 2013 by Kevin Lynch and Karen Miske.

Closer relationships between people, between firms, and between governments, as part of an Asia strategy, would certainly advance the case for the purchase of Canadian energy products. The TPP is a key element—but just one—of a made-in-Canada Asia strategy.

Question two: what would an ambitious TPP outcome look like?

An ambitious outcome to the TPP means one tariff schedule that eliminates all tariffs. Ambition means simple and straightforward rules of origin and cumulation in the region that let a producer truly produce a duty-free item inside the TPP region and move it around to customers.

Simple rules of origin are vital for Canada, as many firms import inputs, add value to them, create a final product, and then re-export. Simple rules of origin are important, particularly for small businesses that do not have the benefits of legal departments and compliance teams. Complex rules equal cost.

Ambition means services liberalization. Ambition means developing common rules for consumer goods, agrifood, and health and safety issues, the regulatory issues that Jim mentioned in his remarks. Non-tariff barriers also need to be transparent, and then TPP members need to work on eliminating those barriers. Ambition means disciplines on state-owned enterprises so that market-based firms can compete fairly for customers inside the TPP region. Strong common rules for investment and IP are also essential.

Secondly, the TPP should include completely open agricultural market access. The TPP promises access to markets of 800 million customers and a growing middle-class group of consumers. These customers will buy high-quality Canadian agrifood and seafood products. If an ambitious deal is reached that includes access to the protected sectors in Japan, the U.S., and elsewhere, this will require Canada to open its agricultural markets. If our peak agricultural tariffs and quotas are not removed, Canada's access to other nations will in return be diminished. Much depends again on the level of ambition of the final TPP agreement.

Third, the TPP should include strong environmental protections and labour laws.

What the TPP must not be is a spaghetti-like bowl of unique bilateral agreements between each of the partners. It must not be a hub-and-spoke agreement in which one nation receives better access than all of the other partners. For example, faster phase-outs of agricultural duties for one country but not for all partners; that would be bad. Some economists like to refer to this as a suboptimal outcome. I will just use the simple word “bad”.

Another way of looking at this is more liberal rules of origin for products from one nation and not the others. This would be bad. Greater liberalization in the auto sector for one nation that is not extended to all partners; this would be bad. A bad outcome would create a confusing web of rules that businesses may well ignore due to cost. At worst, such outcomes could distort Pacific trading patterns. The TPP, in short, must be ambitious, simple, and straightforward for firms to implement, include agricultural liberalization, and must have strong environmental and labour laws.

Question three: what else should Canada and Canadian firms do to prepare for the opportunities provided by Asia?

Simply put, Canada needs a clearer and more coordinated Asia strategy with short- and long-term targets for flows of trade, investment, and people. An ambitious TPP is a key part of that strategy, but the CCCE would put it to you that the TPP cannot be Canada's only plan for engagement with Asia at the government-to-government level, and it's not. First, this is because the TPP is missing nations key to global value chains that are home to millions of customers, such as China. Second, it is because the TPP may move more slowly than hoped for. As such, Canada must prioritize negotiations with Japan and with India, and the South Korea free trade agreement is to be warmly welcomed. The free trade agreement with Korea must be implemented as quickly as possible so that Canadian firms are no longer at a disadvantage.

Canada should create a strategic partnership with China, similar to Australia's, that could lead to deeper commerce in sectors of mutual interest, or as New Zealand has done, a free trade agreement with China that has resulted in exports growing more than four-fold between those two nations.

Another way of looking at an Asia strategy is to ask what Canada's competitors are doing that possess similar economic and political structures. In addition to the bilateral arrangements I've just described, Australia and New Zealand have what I would call a plan B for the region, the regional comprehensive economic partnership, or RCEP, with the 10 ASEAN nations plus Japan, Korea, India, and China. I would encourage this committee to study the RCEP negotiations, which cover three billion people.

I would encourage this committee to ask "What is Canada's Plan B?" Is our current suite of negotiations sufficient or must Canada add a plan for deeper engagement with countries such as China? For their part, firms of all sizes require strategies for specific Asian markets: countries, regions, and even cities.

In 2011, the Canadian Council of Chief Executives launched a multi-year initiative intended to raise awareness across Canada of Asia's growing economic power and influence, and to identify key policy solutions that would enhance our country's ability to succeed in a transforming global economy. The results of that work are available on our website for the public, for policy researchers, and for firms. We continue this research. We're partnering with Deanna Horton at the Munk School of Global Affairs and her master's students to create a Can-Asia map creating a footprint of the thousands of Canadian firms that are present in the Asia region. That work has begun and some of it will be made public shortly.

I would also underscore that examining Canada's merchandise export trade is insufficient to understand Canadian commercial activity. This committee may be well advised to ask Statistics Canada for an update on how they're measuring trade and services, foreign affiliate sales, joint ventures, and other new forms of commercial relationships between Canadian firms and Asian firms, and how Canadian firms are now selling into those Asian markets.

To conclude, open markets, strong regulation, a skilled and healthy workforce, and great products make Canada a global destination of choice for investment and production. Canada is an open economy with tariffs that are already very low. Trade agreements therefore tend to bring down other countries' barriers disproportionately as a result.

In addition to our robust agreements with the U.S., Mexico, and the EU through CETA, updating our relationship with the U.S. and Mexico must remain a priority. But I would offer that in addition to these two traditional theatres of engagement—North America and Europe—Canada must have a third rail, a third strategy for deeper engagement with Asia.

An ambitious outcome to the TPP negotiations is just one element. But to fail to create a strategy for Asia would be a monumental error. To be clear, the TPP is not the outcome. It is the process by which governments can play their part to encourage investment in Canada, to sell more Canadian products to Asian consumers, and in so doing create jobs and grow the Canadian economy.

Thank you.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

We'll now go to our question and answer.

We'll start with, Madam Liu. The floor is yours.

[Laurin Liu, NDP, Rivière-des-Mille-Îles, QC]

Thank you, Mr. Chair. Thank you to our witnesses for coming in today.

I would like to start with Mr. Keon. Firstly, has your association been consulted by DFAIT concerning the TPP? If so, in what manner?

[Jim Keon]

As I indicated in my remarks, we participated early on in the Canada Gazette process. We follow the briefings through the webinar process. We have had the opportunity to go in and present our views to the negotiators. As well, we are part of the International Generic Pharmaceutical Alliance, so we exchange information amongst our colleagues in other countries in the generic pharmaceutical industry. So through those mechanisms, yes, we have had opportunity to make our views known.

[Laurin Liu, NDP, Rivière-des-Mille-Îles, QC]

Are the minutes of your meetings with...[Inaudible--Editor]...have they been taken down? Are they public? Or were those meetings held behind closed doors?

[Jim Keon]

No, at those meetings we have presented our positions. Our brief that we submitted to the government is on our website. So we are consistent in the positions we are putting forward.

[Laurin Liu, NDP, Rivière-des-Mille-Îles, QC]

Thank you very much.

As you mentioned, similar to CETA the IP chapter of the TPP could cause an increase in the cost of pharmaceutical drugs. Is this true? Is there a study done in the context of the TPP to investigate the impact of the IP chapter on the cost of drugs in Canada?

[Jim Keon]

Under CETA there will be an increase in the length of the patent protection in Canada. That's been discussed. The reason why that could increase costs is that generics, which are much lower priced, will be delayed coming into the Canadian market.

As indicated earlier this week in the appearance of the Canadian chief negotiator, the Canadian position that we understand is that Canada should not agree to further intellectual property extensions as part of the Trans-Pacific Partnership agreement. Canada already has intellectual property provisions in pharmaceuticals that go well beyond many of the trading partners we're negotiating with, so we are confident and we support the position that there should be no further extension of patents in Canada. If that is the case then of course there shouldn't be new and extra costs for the Canadian pharmaceutical system.

[Laurin Liu, NDP, Rivière-des-Mille-Îles, QC]

Just to reiterate, we understand that recent versions of the IP chapter include more than a dozen measures that would actually limit competition and might raise prices in markets for drugs including, as you mentioned, provisions that would extend patent terms beyond 20 years and that would lower the standards of attaining patents. So what effect would this have on Canadian patients and the medicare system?

[Jim Keon]

Again, our position is that Canada should not go beyond the recently signed agreement with the Europeans. So we have patent extensions but in that agreement, under the agreement in principle and under very clear statements from the Canadian government, the patent extension will be for two years. Very important to our industry, during that period of time generic manufacturers will be able to develop products for export to countries where patents have expired or are not in force. That is very important for our competition and to bring investment into Canada. That is something we are stressing and advocating for in this negotiation. That is something again that, as I said, we would like this committee to recommend as well.

[Jody Cox, Vice President, Federal and International Affairs, Canadian Generic Pharmaceutical Association]

If I could just add, there's a wide range of proposals on the table. There are some that have been tabled by certain parties that could have a negative impact if all parties were to agree to them. So there are 12 different countries who are part of the negotiations. There are some good proposals that are on the table as well. It's very difficult at this stage to say what the final outcome was, and as I think we heard the chief negotiator say on Tuesday, Canada is fighting hard to ensure that the final outcome of CETA would not go beyond Canadian law and policy.

[Laurin Liu, NDP, Rivière-des-Mille-Îles, QC]

Thank you.

Ms. Campbell, my riding is found on the north shore of Montreal, so the aerospace industry is very important to my riding. Furthermore an important manufacturer of hybrid buses is in my riding as well. What would the TPP mean for those industries in my riding?

[Ailish Campbell]

They could move a lot more people, 800 million people potentially, in the region.

Cities that require advanced transportation solutions...we're seeing, of course, many more regional airports, so when it comes to the Bombardier CSeries, for example, and other aircraft, these are for regional markets, not necessarily for crossing the Pacific. The inter-regional trade and activity in Asia is, of course, growing at a rapid clip due to their development. Light rail solutions, buses, a whole host of Canadian clean-tech applied technology such as the hydrogen fuel cell buses that helped move people in the Vancouver Olympics, why not reach more customers for those fantastic Canadian products?

[Laurin Liu, NDP, Rivière-des-Mille-Îles, QC]

That's great news.

You also talked about the fact that the TPP would expand the market, allow us to access new markets, although Canada already has trade agreements with many of the countries that are part of the TPP.

So could you give us a better idea of the market share we would access through our TPP negotiations?

[Ailish Campbell]

We have an agreement with each of these nations in the World Trade Organization negotiations, the multilateral trading systems, and in many respects I think our first preference would be to see the World Trade Organization Doha Round negotiations create common rules so we have market access to all nations in Asia, including, for example, that WTO rules extend to China. But there are significant aspects of government procurement, of services, of investment rules that are not covered in the WTO. Without a regional agreement like TPP we can't move to some of those new forms of services, for example, new forms of moving people, which is increasingly important to bring highly skilled individuals and others who are needed to complete specific projects and engineering services in Quebec, for example.

[Laurin Liu, NDP, Rivière-des-Mille-Îles, QC]

But we can't say that we don't have any percentage of market share that we would access or there's no number that—

[Ailish Campbell]

Since we don't know what the agreement is going to look like, it's hard to do projections but certainly that could be modelled, based on various options.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Mr. Cannan, the floor is yours for seven minutes.

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

Thank you, Mr. Chair, and thanks again to both of you for appearing and providing your wisdom and insight to our committee and to negotiators as they continue to work hard on behalf of Canadians to develop a rules-based, level playing field for our trade opportunities around the world. The chief negotiator who was our witness last week alluded to the consultation with our stakeholders.

When Ms. Hillman talked about the issue of having input from groups.... We hear a lot that there's a lack of openness and transparency. Ms. Hillman said that something she hadn't seen in her career before was the issue of a stakeholder day and the opportunity to allow stakeholders to consult, not only the Canadian negotiators but other countries' negotiators as well.

I would ask both of you to comment. Do you feel the process is balanced between confidentiality and transparency, meeting your needs from an industry perspective?

[Jim Keon]

I'll start and then I'll let Jody say a few words since she participated in stakeholder sessions during negotiations.

As I said in response to another question, we've had good opportunities to make our views known. I think the negotiators have been open to us in terms of Canada's negotiating principles, so in that sense, yes, we've had an opportunity. We have never seen text formally. Text gets leaked and flies around on Internet sites. It's dated so you don't know whether it's up to date or not, so that is not necessarily all that helpful. But in terms of the principles, the overall approach, CGPA feels we are being heard and our views are getting to the negotiators and being taken into account.

Now, as I said, I'll let Jody comment on the negotiating sessions and the stakeholder involvement.