Evidence of meeting #104 for International Trade in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was agreement.
A recording is available from Parliament.
Liberal
The Chair Liberal Mark Eyking
Before we get into our meeting, there are a couple of items of business I'd like to take care of. One is that I need approval for the budget to go on a study of Mercosur.
Liberal
The Chair Liberal Mark Eyking
The second thing is that we have gotten notification that we're going to be travelling to Washington, barring some unforeseeable circumstances. I think all parties have figured out who is going. This is just to let you know.
That's all I have for business. We're going to go right to our study.
As you know, our committee is very busy with all the various trade agreements we have around the world. Right now we are embarking on a new study. It's a study of potential trade with Mercosur. The Mercosur countries are four: Brazil, Argentina, Paraguay, and Uruguay. That's 260 million people. They have a GDP together of $2.4 trillion.
This is a great opportunity for us to look at. We're going to have four meetings on this over the next few weeks. Today we're fortunate to have our first two witnesses with us. We have witnesses from the Brazil-Canada Chamber of Commerce and a witness from the Canadian Steel Producers Association.
If this is your first time in front of our committee, note that we usually like to keep the presentations fairly tight so that we have lots of opportunity for dialogue with MPs.
Without further ado I'm going to ask the Brazil-Canada Chamber of Commerce, Ms. Paola Saad, to address us.
You're the first to come before our committee on Mercosur, so welcome. You have the floor.
Paola Saad Vice-President, Brazil-Canada Chamber of Commerce
Thank you.
Mr. Chair, fellow panellists, and members of this committee, on behalf of the Brazil-Canada Chamber of Commerce and our president, Mr. Marcelo Sarkis, we are honoured to participate in this important panel, to discuss the potential Canada-Mercosur free trade agreement. As you may know, my name is Paola Saad, and I am currently the vice-president of the BCCC.
Our chamber has been in existence since 1973. Our mission is to strengthen and develop links between Brazil and Canada, chiefly in trade and investment. The chamber's members include Canadian organizations that invest and trade in Brazil, as well as Brazilian companies with a presence in Canada. Our membership ranges from multinationals to small and medium-sized businesses, active in many sectors, mirroring the strategic sectors of the bilateral trade between Canada and Brazil.
In terms of Canada's trade diversification strategy, pursuing a comprehensive trade agenda with Mercosur would allow access to a wider market, increase trade for Canadian goods and services, and allow for further knowledge sharing. It would also mean that 85% of Canada's trade would be covered by trade agreements.
Mercosur is the fourth-largest trading bloc in the world and represents 260 million people and a GDP of $3 trillion. Currently, bilateral trade represents $8.9 billion, of which over half is between Brazil and Canada alone. We can definitely do better. If we look at trade with the Pacific Alliance grouping of Mexico, Colombia, Peru, and Chile, that's $48 billion a year. These four countries already have FTAs with Canada.
Brazil is the largest economy and market in South America, with a population of 207 million people, largely composed of middle-class consumers.
In our view, a Canada-Mercosur agreement would certainly enhance trade and open the door for more opportunities between both parties. Historically, Canada and Brazil have had long-standing relations in terms of business, and collaboration in a range of sectors, including health care, mining, infrastructure, agriculture, innovation, education, and defence, among others. We expect a Canada-Mercosur FTA would lead to a harmonization of rules and models in these key industries as well, which is a problem.
In 2015, Brazil was the seventh most important source of foreign direct investment into Canada, with $19.7 billion in investment. Canada has a bilateral science and technology agreement with only five countries in the world, and Brazil is one of them. Since 2011, they have established a joint committee on science and technology to discuss common areas of interest, including developments in clean technology, nanotech, and marine technology, among others. Even more recently, as a part of this venture, Canada and Brazil entered an aerospace agreement between Airship do Brasil and Buoyant Aircraft Systems International. A Canada-Mercosur free trade agreement would open the door to further such co-operation and increase knowledge sharing. There is also an opportunity to bring both countries closer in intellectual property rights, with the potential of Canada and Mercosur to agree on a patent prosecution highway, or PPH.
Since last year, the BCCC has had the honour of participating in round table discussions regarding a potential Canada-Mercosur agreement, including two meetings with the honourable Minister Champagne. One was this year, actually. Based on those conversations and the opinion of our members, some of the main barriers in trading with Brazil that we currently face are the high taxation rates, both internal and external, labour laws, and significant bureaucracy, which is an understatement. Certification requirements are also a problem. All these are items that we look forward to addressing in the Mercosur free trade agreement and during the negotiations to further allow for Canadian businesses to increase their commerce with Brazil.
We see the movement of goods, information, money, and people as key. Canada is the country of choice for Brazilians studying abroad. This exchange promotes Canadian values of tolerance, striving for excellence, doing the right thing, and strength through diversity. Let's expand this to all the Mercosur countries.
Diversifying the marketplace stabilizes our economies. Both the Canadian government and the Brazilian government are assertively promoting exports to their businesses.
Therefore, let's get on with the negotiations. Yes, let's start at home, sharing with Canadians the potential for business and social improvement. We believe in good, fair, free trade that can lead to exciting new benefits for Canada and the Mercosur bloc. We look forward to what the future brings.
The BCCC will continue to reach out to its members, partners, and entities doing business between Brazil and Canada and consult on the main challenges, the main opportunities, and how a place at the Mercosur table would benefit the parties. In addition, the Brazil-Canada Chamber of Commerce remains entirely committed to continue strengthening ties between Canada, Brazil, and Mercosur, and we are here at your disposal.
Thank you.
Liberal
The Chair Liberal Mark Eyking
Thank you. As you mentioned, these agreements are not only important for the trade of goods but the exchange of people, which is so important. I'm glad you mentioned that.
We're going to move on now to the Canadian Steel Producers Association, and its president, Mr. Galimberti.
Welcome, sir. You have the floor.
Joseph Galimberti President, Canadian Steel Producers Association
Thank you very much.
Good morning to the honourable members of the committee, and thank you, as always, for the opportunity to present today on behalf of the Canadian Steel Producers Association, as this committee undertakes its important task of studying the implications of a potential Canada-Mercosur free trade agreement.
CSPA is the voice of Canada's $14-billion primary steel production industry. Our producers are integral to automotive, energy, construction, and other vital industrial supply chains in Canada, producing roughly 13 million tonnes of primary steel and an additional one million tonnes of steel pipe and tube on an annual basis. This activity employs directly 22,000 Canadians, while supporting an additional 100,000 jobs indirectly.
As an organization the CSPA supports open and fair trade. We appreciate the value of a diversified trade portfolio and understand the importance of free trade agreements to Canada's economic future.
With that in mind, we also believe that the growth of and investment in advanced manufacturing in Canada should be a key consideration in the negotiation and ratification of any free trade agreement. Successful agreements should enhance employment opportunities while ensuring Canadian enterprises retain the ability to compete fairly in domestic markets; promote fair, open, and mutually beneficial trade; facilitate the global export of high-quality Canadian products; and promote Canadian socio-economic values, including strong environmental and health and safety standards.
To ensure that a given agreement has the best chance to benefit Canadians, we believe that any negotiation in which Canada is engaged should be informed by open consultation with affected industries and rooted in the following principles: the preservation of reciprocal, market-based trade with strong provisions to mitigate unfairly traded imports; the encouragement of foreign direct investment in Canada; the enhancement of domestic supply chain relationships; the promotion of the overall economic interests of Canadian manufacturers; and effective and enforceable controls for state-owned enterprises and/or currency manipulation.
Specific to Mercosur, the CSPA would like to highlight considerations for Canada's steel industry, which we think the Government of Canada should be mindful of during this negotiation. First, there is virtually no primary steel and very few steel-containing goods currently exported from Canada to Mercosur countries. This is unlikely to change in the context of a free trade agreement. We don't expect any noticeable increase and would in fact note that there are presently Canadian International Trade Tribunal anti-dumping remedies in place on certain Mercosur countries relating to imports on hot rolled carbon steel, alloy steel sheet, steel strips, and steel plate.
We would also note that there exists real potential for market share erosion within the steel-using community in Canada, particularly as it relates to those involved with automotive manufacturing and the makers of energy, pipe, and tubular goods, as the result of an agreement with Mercosur.
To mitigate these exposures the CSPA would propose a parallel domestic policy implementation process to blunt potential impacts of a Canada-Mercosur agreement on our sector. These would include the continued improvement of Canada's trade remedy system, and increased enhanced resources for investigation and enforcement at the CBSA to properly ensure that Canadian companies and workers are protected from harms associated with dumped and subsidized goods.
The fundamental principle of two-way gains from free trade agreements is founded on market-based trade, and the contravention of WTO rules through product dumping and subsidization undermines those goals. This behaviour distorts markets, displaces domestic production, and undermines Canadian supply chain opportunities.
An effective trade remedy system needs to detect unfair trade activity and engage, as appropriate, the required tools to enforce measures already in place, accurately guide those investigations, and discourage circumvention. There should be no free ride for dumped products through free trade agreements, and no trade agreement should ever include measures that would weaken the trade remedy system in Canada.
I would also note the importance of the development of government procurement guidelines that account for greenhouse gas emissions, the state of sustainable development principles, and overall respect for the environment. Greater use of Canadian steel in government procurement programs significantly reduces the carbon footprint associated with those projects. The steel in Canada is by far the cleanest steel for use in the country in terms of a full life-cycle GHG analysis.
As such, domestic preferences for Canadian steel products would reduce global GHG emissions while increasing demand for our domestic steel products and offsetting potentially increased competition from Mercosur producers.
Finally, we would also suggest the inclusion in the final agreement of a broad, enforceable discipline or a series of disciplines on state-owned enterprises, which would discourage government ownership of entities that operate in a commercial context, require a state-owned enterprise to operate according to commercial considerations, prohibit those enterprises from discrimination against foreign suppliers, restrict the ability of SOEs to give or receive subsidies, and recognize that any subsidies that may be provided to SOEs are actionable and subject to countervailing measures.
Finally, I would also note from a Canadian steel perspective, the overarching importance of the preservation and modernization of the North American Free Trade Agreement. That agreement and the ongoing negotiations as relates to the future of that agreement are of overwhelming importance to our industry and certainly more impactful to the Canadian economy than a potential Mercosur agreement. In engaging in any additional international negotiations at this time, the Government of Canada should be especially mindful of the consequences in the NAFTA context and should avoid any discussions or activities that would potentially undermine or negatively affect in any way those vital negotiations.
In closing, thank you again to the committee for the opportunity this morning. I would be happy, of course, to answer any questions you may have.
Liberal
The Chair Liberal Mark Eyking
Thank you very much, sir, for that presentation. Like you said, you're no stranger to our committee. Every study we do we value the input of the steel industry. Of course, you are well aware we did a study on steel over the last couple of years. Thank you for that participation.
We're going to start our dialogue with MPs, but before I start I would like to welcome the member from Saskatoon—Grasswood, Mr. Waugh. As you're going to find, this is the most exciting and well-behaved committee on the Hill.
Without further ado, we're going to start the dialogue. For five minutes, we're going to start with Mr. Allison.
You have the floor.
Conservative
Dean Allison Conservative Niagara West, ON
Thank you, Mr. Chair. To our witnesses, thank you for being here today.
Ms. Saad, as we deal with these countries in Mercosur, I think probably they have certainly had conflicts in trying to work through things, so how do you feel as a bloc they could behave, they could act, in terms of...? How would this work for us in terms of this? There are challenges.
What are your thoughts of them working as a cohesive unit as a trading bloc?
Vice-President, Brazil-Canada Chamber of Commerce
That is a very good point. I've given that a lot of thought, especially when you come to conflict resolution. That can be a problem. The way Mercosur works is that they have an agreement and each country has to ratify their agreement. For example, in Brazil a lot of the negotiations that were done were ratified right away, but if the congress decides to make a new law, that would supersede what was agreed before.
I see it as an issue, and I'm glad you brought it up. We will have to be dealing not as a bloc but country to country in certain instances, because, you see, all the countries are quite different in resources, in population, and in the capacity of importing and exporting.
Conservative
Dean Allison Conservative Niagara West, ON
Right, so it's something we really need to be mindful of as we enter negotiations.
Vice-President, Brazil-Canada Chamber of Commerce
Exactly. I believe so. In conflict resolution they are all different so I would look at that for each country.
Conservative
Dean Allison Conservative Niagara West, ON
That's hopefully the advantage of a trade agreement. You can have the conflict resolution or dispute resolution, whatever you want to call it. Thank you.
Mr. Galimberti, my question is on how—and you alluded to this, although it didn't come right out—Brazil has had a large history of subsidizing their steel. Let's talk a bit about that because the challenge is that you don't have to do a whole lot of business with Mercosur now, by and large. Do you think we could get a fair deal? We will talk about the second part, which is what you talked about in terms of trade revenue and these things, because you did mention those in your remarks as well. That would be the second part of the question.
Do you think we can get a fair shot at actually selling goods given the history of huge subsidies?
President, Canadian Steel Producers Association
I don't believe there is going to be a significant export opportunity for Canadian steel in Mercosur. The transportation alone is prohibitive. To compete you're getting into a fairly low-grade product that I don't think the Canadian industry wants to be a participant in just to have the shipping make sense. You have to compete on volume at that point, and it's not what we're doing up here.
I don't anticipate there is going to be a particularly strong, or any, uptick in exports.
Conservative
Dean Allison Conservative Niagara West, ON
Okay. I don't have a lot of time. I think we did mention we have 12 days until May 1st when we may see—
I guess you read the paper like the rest of us do, but do you have any insight for us in terms of how you feel NAFTA is going and whether you're going to see an extension of what's going on with you guys?
What are your thoughts right now and concerns?
President, Canadian Steel Producers Association
We do have an exemption on May 1. I am not aware of any discussions presently between the Government of Canada and the U.S. administration on what a final arrangement would look like, so I guess we're hoping for an extension of the exemption.
Potentially of interest, as it relates to this committee's study, is that the U.S. 232 investigations initially identified 12 nations they specifically wanted to restrict. One of those nations was Brazil, for exactly the reasons you mentioned, in terms of the history of dumping and subsidy. We have to be especially mindful of diversion to Canada in the context of section 232. There will be tariffs. I understand certain Brazilian producers are in the process of negotiating hard-cap quotas. Making sure that that steel does not come to Canada is important from a Canadian industry perspective. It is equally important because our friends south of the border will know if it's coming here and will act appropriately to make sure that it's not pushing Canadian steel south of the border.
Liberal
The Chair Liberal Mark Eyking
Thank you, Mr. Allison.
We're going to go over to the Liberals for five minutes.
Mr. Dhaliwal, you have the floor.
Liberal
Sukh Dhaliwal Liberal Surrey—Newton, BC
Thank you, Mr. Chair.
Good morning.
Once Canada goes ahead with the agreement, could this agreement increase the level of competition with respect to trading fields? Are there any particular trading fields that would become more competitive?
Vice-President, Brazil-Canada Chamber of Commerce
Are you asking if they would increase competition between Brazilian and Canadian products in the Canadian market or in the Brazilian market?
Vice-President, Brazil-Canada Chamber of Commerce
I'm going to talk from my perspective. I have a company. We do international business development. We work a lot with the Canadian government doing trade missions to Brazil, so I've personally dealt with over 200 companies entering the market in Brazil. The big problem here is the tariffs in Brazil. Canada has considerably lower tariffs and barriers than Brazil does. Brazil is quite protectionist. Even when you look at different tariffs.... For example, on automobiles and parts, the current tariff is up to 35%, but really that 35% is about 100% when you add the other taxes, which are compounding, and then sort of a GST that we have, which is about 25%. Everything you're looking at in Brazil, even if it says here 18%, 14%, or 16%, or for pharmaceuticals 14%, is going to be more because it's a compounding tax. There's even tax on top of the shipping, so what he said is really true, because it comes in and it's not competitive.
The chamber believes that if we can not only cut down those tariffs but also negotiate with Brazil directly to help change the structure—and I have to say that Ambassador Rick Savone, and the Consuls General Evelyne Coulombe and Stéphane Larue, are doing an amazing job in the commercial part to try to change those things. A lot of the Brazilian imports here that we have now I don't think are competing. A lot of them go to the local market of Brazilians that they attend to, but I think it would be good. This treaty is much better for Canada than for Brazil, in my opinion, just because of how protectionist Brazil is right now.
Liberal
Sukh Dhaliwal Liberal Surrey—Newton, BC
If you say it's much better for Canada, do you believe that Canadian businesses and business firms are aware of the current or future potential opportunities in regard to this or that more can be done?
Vice-President, Brazil-Canada Chamber of Commerce
I do believe that. I believe Canada has great products, products that are differentiated from those in the Brazilian market.
Brazilians are really big on technology, and Canada has a lot to offer that way. Everything that's new is a big thing for Brazilians. People like to keep up to date and always upgrade. For example, I took a company to Brazil, a Quebec company—I forget the name now—and they make this apparatus to check doors of cars at the factory. I booked meetings for them with 11 of the 13 major automobile manufacturers in Brazil. I just happened to sit beside a guy on the plane a couple of weeks ago and they're doing great. They have an office in Brazil. They're doing great because they have a differentiated product. It really depends on what's going to come into Brazil and how differentiated the products are and the angle the company comes in with. These are all very important things.
Also in the oil and gas industry, you're looking at a lot of knowledge, especially from eastern Canada, where they have the marine technology for oil and gas. That will be better for Canada, with the lowering of local content in the quotas for Petrobras, which is a big deal, and also in importing not only products but also knowledge transfer and software. We're paying a lot for that right now, but they are buying from Canadians. Canadians are very well seen in Brazil when you look at quality, especially now that there are so many Brazilian students here. They're getting to know Canada. They're bringing them back and they want more.
Liberal
Sukh Dhaliwal Liberal Surrey—Newton, BC
Mr. Galimberti, I was recently in Taiwan. I had the opportunity to visit a steel company, an amazing outfit. They have ups and downs in their steel industry as well.
Even though you say this is not going to make a difference, when it comes to the steel industry, what else can be done so that we are competitive and do better?
Liberal
The Chair Liberal Mark Eyking
Sorry, you're going to have to give that question to one of your colleagues because your time is up. It was a good question, but I can't let it go on because your five minutes are up.
I'm going to have to move over to the NDP. I know you wouldn't want to rob any time from the NDP, would you?