International Trade Committee on May 3rd, 2018

[The Chair, Liberal, Mark Eyking]

Good morning everyone, and welcome, especially colleagues. We had a very rough day, a tragic day, here in the House yesterday. My sympathies go to all of my colleagues, especially to the Conservatives and those who were really close to Gord.

Gord would want us to continue, so we're going to continue with today's meeting. Today's meeting is all about studying a potential Canada-Mercosur free trade agreement.

I think this is our final meeting, and we're saving our best witnesses for last. We have three witnesses with us, and one through video.

If you haven't been here before, let me tell you that we like to keep the presentation to five minutes, or less if possible, to give ourselves time to have dialogue with MPs.

I'm going to go right into the video conference. We have, from the Canadian Centre for Policy Alternatives, Mr. Sinclair.

Welcome, sir. I think you were with us before.

[Scott Sinclair, Senior Research Fellow, Canadian Centre for Policy Alternatives]

Yes. It's good to see you again.

Thank you to the committee for the opportunity to be part of your study on a potential Canada-Mercosur free trade agreement.

The Canadian Centre for Policy Alternatives is an independent, non-partisan research institute.

In the testimony you have heard to date, a recurring theme is the at-best lukewarm support for the Canada-Mercosur free trade agreement, even from industry groups that have typically pushed for free trade agreements.

The Mercosur bloc is made up of some of the most important countries in the Americas. It is critical that Canada engage with them as partners on a range of matters. But on the trade front, the opportunities are constrained by both geography and highly similar trade profiles. For example, the list of top exports of Brazil and Canada includes fossil fuels, minerals, vehicles, and forestry products. In agrifood products such as oilseeds, red meat, grains, and cereals, Brazil and Argentina tend to compete with Canadian exporters in world markets.

A similar composition of our exports limits potential trade growth. Moreover, Canada currently has a negative trade balance with the Mercosur countries, a situation that has been worsening in recent years.

Negotiating a Canada-Mercosur FTA should not be considered a high trade policy priority. This is especially so given the pressing challenges Canada faces related to the renegotiation of NAFTA.

CCPA has long been concerned with the impacts of Canada's bilateral and regional FTAs on public policy matters only loosely related to trade. In our view, to create a fair and more just trade and investment model, it will be essential to eliminate investor-state disputes on mechanisms that threaten the right of duly elected governments to regulate in the interests of their citizens and the environment; scale back excessive intellectual property rights, especially those that threaten user rights, privacy, and access to affordable medicines; fully protect the right to preserve, expand, and create public services without trade treaty interference; ensure parties adopt and implement key international human rights commitments including those that protect indigenous rights and sovereignty; build in binding obligations to reduce and mitigate the effect of climate change; and include robust protections for cultural industries and cultural diversity.

The prospects for moving towards such a model in the context of a Canada-Mercosur FTA are limited at best. In their external trade negotiations, Mercosur countries, particularly Brazil, have traditionally been cautious about embracing WTO-plus commitments on intellectual property, trade and services, investment, and regulatory co-operation provisions of the sort that have been problematic in many recent Canadian bilateral FTAs.

This creates some space for a more progressive or at least less intrusive trade treaty model. If talks proceed, we strongly recommend that any Canada-Mercosur FTA not include investor-state dispute settlement mechanisms. Currently, Brazil has no foreign investment protection agreement with Canada. In fact, Brazil has never ratified an investment protection treaty that includes investor-state dispute settlement. Canada should also pursue the opportunity to eliminate ISDS from its current FIPAs with Argentina and Uruguay.

The flip side of Brazil's cautious approach is that it has also been critical of including binding labour and environmental standards in trade agreements. This creates a problem for our federal government's recent embrace of a progressive trade agenda. To be called progressive, a trade agreement must, at a minimum, include strong, fully enforceable labour standards. It is also essential to include obligations to ensure that each country enforces high domestic environmental standards while abiding by commitments under multilateral environmental agreements. Achieving these two prerequisites of a progressive trade agenda will likely be difficult in the context of an FTA with Mercosur.

To conclude, in our view, pursuing a standard market access deal with Mercosur based on our current FTA template should not be a priority. If the negotiations proceed, CCPA calls on this committee to urge that the government commission independent human rights and environmental sustainability impact assessments of the proposed agreement, and this should occur early in the negotiating process.

Canada should strive to have its policies mutually support each other. Environmental, human rights, and cultural policies and goals should not take a backseat to trade.

As this committee has also heard from previous witnesses, there needs to be a shift in emphasis from simply signing more bilateral market access deals to providing support for Canadian firms and workers to sell competitive products our international trading partners want while promoting good jobs, healthy communities, and a clean environment at home.

Thank you.

[The Chair, Liberal, Mark Eyking]

Thank you, sir, you're right on time.

We're going to move over to the Mining Association of Canada. Mr. Marshall, you have the floor.

[Brendan Marshall, Vice-President, Economic and Northern Affairs, Mining Association of Canada]

Thank you, Mr. Chair, members of the committee, clerk, and fellow attendees. Thank you for the opportunity to appear today and contribute to the committee's study of this important topic.

On behalf of the Mining Association of Canada I'm pleased to communicate MAC's support for a robust free trade agreement between Canada and Mercosur. Mining is a significant engine in the Canadian economy, contributing 3.4% or $58 billion to national GDP. The sector employs nearly 600,000 people directly and indirectly. It supports one of the largest supply sectors in the world, and is a top employer of indigenous peoples.

Mining-associated activities, both domestic and international, generate and support these Canadian economic benefits. For example, metal and non-metal mining products accounted for 19%, or $88 billion, of the total overall value of Canada's exports in 2016. That's one-fifth of Canada's total value of exports.

Mining also accounted for a significant volume of Canadian direct investment abroad, exceeding $90 billion in 2016, or 9% of Canada's total. Much of the above investment that is raised on the open market is transacted in Canada, which represents found money for Canada. As the global centre for mining finance, the Toronto Stock Exchange and TSX Venture Exchange list 57% of the world's publicly traded mining companies.

Recent data indicates that roughly 1,200 of the firms listed on the TSX and TSXV are mining companies, and that together they have a combined market value of nearly near $300 billion. Historically the TSX raises more capital for mining than any other exchange on the planet, and a significant volume of this is raised for projects in Latin America, which jurisdictionally comprises the largest number of TSX-financed projects—18% or over 1,100 projects—outside of Canada.

The assets of Canadian companies operating in Brazil and Argentina combined exceeded $22.2 billion in 2015, underscoring the significance of these two countries as they account for 5% and 8% of the value of Canadian mining assets abroad respectively for that year.

Further, research across a sample of nine MAC member companies indicated that Canadian combined mining investment into Argentina and Brazil in 2016 exceeded $1.9 billion, underscoring that these investments are active and ongoing.

The positive economic impacts created when mining companies procure goods and services in their host countries and communities can be game-changers for economic and social development. While civil society and the public at large have tended to focus heavily on the level of tax paid by mining companies, procurement is the single largest payment type a mining operation will make over its lifespan. Recognition of the role that local procurement can play in helping to achieve the sustainable development goals is increasing. Organizations such as Mining Shared Value, a non-profit initiative of Engineers Without Borders Canada, are promoting awareness with the power of local procurement. For example, a single mine operated by one of MAC's members can spend hundreds of millions of dollars on procurement in a host country. This often represents several times the amount of official development assistance the Canadian government may provide to that country.

Beyond investment and assets and associated benefits, Canadian mining companies are exporting best mining practice. The most significant recent example of this is in Argentina where the Argentine chamber of mining entrepreneurs adopted MAC's toward sustainable mining initiative for use at its members' mine sites. One of six such jurisdictions to do so beyond Canada's borders, Argentina's adoption of TSM represents a significant step forward in co-operation on responsible mining standards between Canada and a very significant mining jurisdiction in Latin America.

MAC supports Prime Minister Trudeau's November 2016 initiative to foster an ongoing dialogue on deepening the Canada-Mercosur trade and investment relationship and is pleased this has progressed to studying the opportunity a free trade agreement presents for both Canada and Mercosur. We encourage the pursuit of such an agreement.

Thank you for your time and I'd be happy to take questions after my fellow presenters.

[The Chair, Liberal, Mark Eyking]

Thank you, Mr. Marshall.

We're going to go the the Agricultural Manufacturers of Canada and we have two representatives today. We have Gene Fraser and Leah Olson.

Leah Olson, are you taking the floor?

[Leah Olson, President, Agricultural Manufacturers of Canada]

Yes.

[The Chair, Liberal, Mark Eyking]

Welcome, and you have five minutes.

[Leah Olson]

Thank you, Mr. Chair, ladies and gentlemen, members of the committee.

Thank you for the opportunity to be here today as you continue your study on a potential Canada–Mercosur free trade agreement.

One of our members, MacDon Industries, is represented today by Gene Fraser, vice-president of global sales and marketing. Gene can also speak to the realities of current trade with Mercosur countries from the perspective of MacDon Industries.

The Agricultural Manufacturers of Canada is a national, member-driven organization, founded in 1970 to promote a strong and healthy agricultural equipment manufacturing industry in Canada. Our members are export businesses and there are significant market opportunities in Brazil and Argentina, so this is a very important issue for our industry. We wholeheartedly support a free trade agreement with Mercosur.

With just under 300 member organizations, our members manufacture specialized farm equipment, including but not limited to grain handling and storage, seeding and harvest equipment, livestock handling and feeding systems, hay equipment, spraying equipment, etc. Just over 50% of agricultural equipment manufacturers are located in rural communities with populations of fewer than 10,000, and despite this remote location, 80% of our members export.

Canadian-made farm equipment is amongst the highest quality and most sought-out in the world. In 2017, Canadian farm equipment manufacturers exported more than $1.9 billion of implements to 154 countries. A number of our members export to more than 40 countries per year, and we have one located in a rural setting that is exporting to over 60 countries per year.

Our members lead the world on intellectual property of agricultural equipment. Innovation happens every day because our members are talking directly to farmers and responding to their needs by further refining and enhancing their products. Trade is a vital part of our industry. Not only do we want to work with the government as a partner addressing climate change, we also support ambitious trade goals, opening up new markets for Canadians, especially Canadian farmers.

We recently met with Minister Champagne and encouraged him to pursue new opportunities in China and Asia as they open up timely and expansive opportunities for Canadian farmers. Latin America is another market that many Canadian agricultural equipment manufacturers are focused on and pursuing.

Argentina and Brazil regularly come up among the top 10 countries Canadian agriculture equipment manufacturers export to. We have some members, like MacDon, that have been investing people, time, and real dollars into the Mercosur region. The other part of our export story is our many other small to medium-sized organizations that employ people in rural Canada that are not yet able to access the region. Canadian farm equipment manufacturers seeing challenges in the Mercosur region range from those of fewer than 100 employees to those with 500 plus. They are the small to medium-sized enterprises that could employ more Canadians if their export sales potential in Mercosur were made possible by a free trade agreement.

The key challenges our members highlight regarding Mercosur include tariffs, import taxes, unclear regulatory processes, flow of money, stealing or lack of protection of intellectual property, or a combination of all of the above. One of our members, the WGI Westman Group, which manufactures grain storage and handling equipment, affirms:

We have looked at the Mercosur market in the past, with Brazil being the most important market due to the size of the agricultural market and the population. Current tariffs are at a level which makes exporting to Brazil impossible. The current political climate in Brazil is such that entering the market as an outsider is prohibitively difficult. Our perception of the political situation in Brazil is that it doesn't support bringing new companies into the country to make the products and clearly favours local well-established businesses. This lack of support makes the risk of expansion into Brazil far too high. Due to these issues and the fact that other international markets are easier to access, we have not focused much energy on Brazil.

Another member, Soucy International, which designs, develops, and manufacturers track systems in Quebec, says:

We have been actively developing the Mercosur market for the last five years as a pioneer in that market with our rubber track system. Argentina's import process is very complex with the requirement to get an import permit on a piece-by-piece basis. It is a very long process to attain it. For us this is a huge limiting factor because a portion of our products are sold in emergency harvesting situations and time is critical for the farmers to avoid the loss of their crop.

In conclusion, we encourage the federal government to aggressively pursue a free trade agreement with Mercosur that will reduce the tariffs in Argentina and Brazil for Canadian-made farm equipment. AMC members help drive the Canadian economy, especially in rural areas. They are global leaders in innovation, and entrepreneurs who are helping to feed the world. Opening up international markets is integral to Canada's innovative and sustainable future. We understand the government is pursuing a progressive trade agenda. On the environment and climate change, exporting Canadian agricultural equipment is the right thing to do. AMC will be very supportive of truly open access to the Mercosur market for Canadian farm equipment manufacturers.

I'm happy to answer any questions you may have.

Thank you.

[The Chair, Liberal, Mark Eyking]

Thank you.

Before I go to the MPs, Mr. Fraser, does your company make machinery also?

[Gene Fraser, Vice-President, Global Sales and Marketing, MacDon Industries Ltd.]

Yes, in Winnipeg.

[The Chair, Liberal, Mark Eyking]

What kind of machinery do you make?

[Gene Fraser]

We make headers for combines. That's the front attachment that goes on a combine to cut crops like soybeans, wheat, various crops, grass seed, etc., around the world. We also make windrowers, which are used in grain harvesting and canola harvesting here in Canada and places like the CIS regions of the world. We also make hay equipment, pull-type hay equipment, sold here in Ontario and throughout North America. We have OEM-style agreements—original equipment agreements—with companies like Claas, John Deere, AGCO, and Krone. These folks are large world players on the agricultural manufacturing stage. We compete with them and also are customers.

[The Chair, Liberal, Mark Eyking]

That's impressive. It's good to see you here.

We're going to go right to questioning.

We've got Mr. Allison for the Conservatives for the first five minutes. Go ahead, sir.

[Dean Allison, Conservative, Niagara West, ON]

Thank you, Mr. Chair.

Thank you to our witnesses for being here today.

Mr. Marshall, I'm going to probably direct most of my questions to you. I know Mr. Hoback knows this other industry very well, so I'll let him focus on that.

You talked about one of the greatest things that a country can do where mining's great as a whole procurement process. Talk to us a bit about what the tariffs are like for you guys right now to operate in some of these countries like Argentina and Brazil.

[Brendan Marshall]

I'm not going to speak about the tariffs for accessing product, because in this instance, a lot of the products that are produced in both Canada and Argentina or Brazil aren't exported to the other jurisdiction; they're brought to international markets. When you think about China as consuming 50% of global demand for minerals and metals, and the supply chain distance between our mining industry and the mining industry down there, the physical movement of product isn't a principal concern. What's more of a principal opportunity, I would suggest, is the movement of capital, the movement of people, and the strong linkages that already exist between Canadian mining companies and operations in those jurisdictions.

What we see as opportunities through this free trade agreement would be to strengthen the security of the movement of that capital, to strengthen the protections around those capital investments in those particular countries, as well as to enhance access for labour mobility, labour movement, and other non-tariff related areas of progressive trade agreements.

[Dean Allison, Conservative, Niagara West, ON]

What's your experience been like now with your members that deal with these countries? We've heard as we chat with some of the witnesses that it's complicated and a lot of times the countries themselves have a hard time agreeing on best practices or rules and change in them and all these other kinds of things. From your membership's point of view, what has the experience been? I totally get that the reason we look at deals is to create rules-based trade.

[Brendan Marshall]

Yes, exactly—

[Dean Allison, Conservative, Niagara West, ON]

[Inaudible—Editor] exactly what you're saying. What's the experience now? It sounds to me as if it is a challenge for your membership in dealing, maybe because of some of the uncertainty, and you're hoping that is what would be different about a deal: to create more certainty.

[Brendan Marshall]

Sure. I'm confident that, given the longevity of this committee's study of this opportunity, there's been briefing on the instability in recent years in Argentina in particular. However, I would also suggest that the country has recently undertaken a relatively significant reform initiative to try to bring that economy back into eligibility for greater levels of partnership with world-leading economies.

This is an opportunity, I think, for Canada to really demonstrate leadership to help support that reform initiative.

To get to your question about what some of the historical challenges have been, the reality in mining is that minerals are in the ground. If you're going to develop a mine, you're going to spend a minimum of a billion dollars to dig a hole and extract those materials. Political uncertainty is a reality when you operate outside of a jurisdiction like Canada that is historically very politically stable. Investment protections, though they are seldom used, provide companies and investors, in particular, with a greater level of confidence that the particular investment will have a greater degree of security, a greater degree of reliability than comparable investment that's without those types of opportunities, those types of protections.

As a general principle, and for that potential for a stranded asset to move forward, the mining industry supports investment protection mechanisms in free trade agreements.

[Dean Allison, Conservative, Niagara West, ON]

I have another really good question but I only have 15 seconds left so I'll have to pass.

[The Chair, Liberal, Mark Eyking]

We can bunt that fear into your colleague.

[Dean Allison, Conservative, Niagara West, ON]

Thank you very much.

[The Chair, Liberal, Mark Eyking]

We're going to move over to the Liberals now.

Mr. Dhaliwal, you have the floor.

[Sukh Dhaliwal, Liberal, Surrey—Newton, BC]

Thank you to the presenter.

Mr. Sinclair, just as you said, support for this agreement is lukewarm. Many others who came here as witnesses had the same view. In your view, besides NAFTA, where should our focus be? You think we shouldn't be putting too much effort here.

[Scott Sinclair]

I think, as you heard from the Canadian Manufacturers & Exporters, Canada has been engaged in serial market access negotiations for some time. The previous Conservative government signed many agreements, but I think the focus should be more on supporting Canadian firms to be more internationally competitive, and that involves significant investment in innovation and productivity enhancement and the kinds of diplomatic and other supports that can be provided outside the context of free trade agreements.

In your previous testimony, I was struck that groups that had been very strongly supportive of CETA and other agreements were saying that their early experience had not been positive, including the agrifood exporters. I think there has to be a lot more investment in supporting our firms and our workers to be successful in global markets, which is essential.