International Trade Committee on May 8th, 2018

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

Thank you.

You mentioned these side letters for culture and autos. How about the environment? Is that a particular issue because that's also an issue among certain Canadians? Has that been addressed, and if it has been addressed, how would it differ from other agreements that we have signed with side letters for the environment?

[Bruce Christie]

We made a conscious decision at the outset to not reopen the text of the agreement, and specifically to not reopen market access. Our collective belief was that if we started to open up the texts and the market access provisions, the whole process would unravel.

Similarly, we had a very ambitious, robust environment chapter already negotiated. The environmental provisions in the CPTPP are subject to the dispute settlement mechanism. Therefore, they are binding and enforceable commitments. We didn't feel the need to add any side letters related to environment, given the ambitious nature of the chapter itself.

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

You mentioned the side letter with reference to autos for Australia and...there's another country.

[Bruce Christie]

Malaysia.

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

Malaysia. How would the auto industry proceed?

[Bruce Christie]

In the original agreement, we would have been able to meet the 45% rule of origin for the value of an automobile, given that a significant number of parts sourced from the United States would be counted in a Canadian-made vehicle. Without the United States in the agreement, we could not meet that 45% threshold in all cases.

We looked at the countries with which we already had a free trade agreement and, therefore, had duty-free access. Then there were three other countries, including Japan, that had a most favoured nation tariff of zero. Aside from those countries, there were three that had prohibitive tariffs: Australia, Malaysia, and Vietnam.

The side letters we were able to negotiate and sign with Australia and Malaysia basically provide us with more liberal rules of origin, given the fact that we would not have been able to meet the 45% threshold to sell cars in their markets duty-free. In the case of Malaysia, there is a 30% auto tariff. In Australia, it's much lower.

Even though these are not, at present, key export markets for Canadian vehicle manufacturers, we wanted to ensure there was a level playing field and that they had access to those markets on a duty-free basis.

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

Thank you.

[The Chair, Liberal, Mark Eyking]

We're going to move over to the NDP.

Ms. Ramsey, you have the floor.

[Tracey Ramsey, NDP, Essex, ON]

Thank you for being here today.

I would like to pick up on that thread about the side letter and, in particular, on auto. It's no surprise to any of you sitting here that auto's quite unhappy with this deal in our country, aside from Japanese auto, I would say. The CVMA, the Detroit Three, APMA, and Unifor have been outspoken about the risks and losses. I come from Ontario, from the auto capital of Canada down in Windsor-Essex, so it's of grave concern to us that this deal has been signed now.

When you talk about the manufacturing sector, in the original analysis that came out from GAC, there was an acknowledgement that it would harm this sector. Then with regard to the continuation on to what we see in CPTPP with Japan, I think it needs to be noted that for every one vehicle that Canada exports to Japan, Japan exports 900 units to Canada. They are one of the most prohibitive markets in the world to us. It has been said by these groups that the side letters you just mentioned with Malaysia and Australia are insignificant when viewed in this broader context.

My question today really is about the manufacturing sector. How did we arrive at these weakened provisions? Why did we not spend more time at the table to secure a better deal for manufacturing?

[Bruce Christie]

As I mentioned a few minutes ago, we had come to the decision that we were not able to reopen the market access provisions of the agreement. The side letters that you referred to with Australia and Malaysia were just intended to level the playing field.

With regard to Japan, yes, the Japanese vehicle producers export a lot more cars to Canada than we export to their market. I think it's fair to put in context the fact that 80% of the Japanese cars sold in this country are made in North America. That's 80%. What we're talking about is the 20% that aren't made in this country that will now benefit from duty-free access.

[Tracey Ramsey, NDP, Essex, ON]

I just want to add that there's actually a number for 2017. From Japan to Canada there were 180,283 vehicles that came. From Canada to Japan there were 162.

[Bruce Christie]

Yes, absolutely. We would like to export more cars from Canadian vehicle manufacturers to the Japanese market. The purpose of our side letter was because through our consultations, Canadian vehicle manufacturers explained to us that, since there is no automobile tariff to export into Japan, they're facing non-tariff barriers. In our view the key non-tariff barrier is that Canadian vehicle producers need to build right-hand drive vehicles for that market. Left-hand drive vehicles will not be sold in Japan because consumers won't drive those vehicles.

Some of the non-tariff barriers that Canadian vehicle manufacturers identified to us include dealing with noise and exhaust remissions, financial incentives that the Government of Japan provides only to Japanese auto producers, and other safety standards. Those key issues were identified in the side letter that we negotiated with Japan, and this is the side letter that wasn't ready at the time of Da Nang. That side letter is a binding and forceful instrument, and it will clear the way for Japan to not be in a position to impose those types of trade barriers in the future.

[Tracey Ramsey, NDP, Essex, ON]

Just to be fair, I think that that's quite well documented as being countered from the groups that I mentioned, which have done their own analyses. My question really is, at this point, you've signed us on to this agreement, so what did you attempt to do for the auto industry, for manufacturing, for working people who will be impacted by the negative ramifications of this deal? Was there anything that was thought to be attached to the deal? Was there anything to be negotiated to acknowledge those losses?

[Bruce Christie]

As I said, we negotiated and signed those three binding side letters with Malaysia, Australia—

[Tracey Ramsey, NDP, Essex, ON]

I was thinking more about working people and the impact of job losses in the manufacturing sector. Previously there was a package that was being offered under the Conservative government for manufacturing. That seems to have disappeared. Was there any discussion around bringing that back?

[Bruce Christie]

We've had no discussion of financial incentives to the auto sector among officials. Those are consultations, I understand, that are ongoing between the government and our automobile sector.

[Tracey Ramsey, NDP, Essex, ON]

Thank you.

My next question focuses around labour. Although this is titled the comprehensive and progressive agreement for trans-Pacific partnership, the labour provisions that were previously achieved with the U.S. and between some of the TPP countries have disappeared. I'm wondering if you could speak to your attempts to ensure that labour is protected and explain why we see these labour consistency plans disappear in the CPTPP.

[The Chair, Liberal, Mark Eyking]

It'll have to be a very short answer, because we only have 15 seconds left in her time.

[Bruce Christie]

In my view, we have a very robust labour chapter already. It's the first time that the chapter is enforceable through a dispute settlement mechanism, and it gives parties the ability to impose trade sanctions. The only change we made vis-à-vis labour was relevant to Vietnam, and we gave them some time to bring their labour legislation up to par with the agreement.

[The Chair, Liberal, Mark Eyking]

Thank you.

We're going to move over to the Liberals.

Mr. Peterson, you have the floor.

[Kyle Peterson, Liberal, Newmarket—Aurora, ON]

Thank you, everyone, for being with us this morning.

I just want to follow up on the line of questioning on the auto sector. Auto is a big employer in my riding, too. Magna International is based in it. We have thousands of jobs. The auto sector, of course, isn't just the OEMs. It's also, in our case, the tier one suppliers and the tier two suppliers that are throughout my riding. Their response to the new TPP seems to be relatively positive on balance. They supply both Japanese and North American OEMs, so they see an upside to the deal.

However, I just want to take a little step back. I think the numbers that my colleague, Ms. Ramsey, pointed out show the landscape as it is today. There's virtually zero export of autos to Japan absent of this deal. Do you think the new provisions of the deal, including the side letters, will open up the Japanese market to North American manufacturers given the non-tariff barriers that you also spoke about? Do you think there is actually going to be a viable market in Japan for North American producers?

[Bruce Christie]

It's a good question.

Right now, upwards of 96% of the Canadian vehicles produced in this country are exported to the United States. It's a choice that our Canadian auto producers make. Our job is to open up the Japanese market, and other markets, for them to benefit from.

What we're trying to do is clear those barriers away. There is no automobile tariff that Canadian vehicle producers face if they choose to export to the Japanese market. We've addressed some of the non-tariff barriers in the side letter and through other areas of the agreement. Once this agreement enters into force, we will be using our trade commission network to make a concerted effort to encourage Canadian vehicle manufacturers, as well as other producers, to access these key markets through our trade commissioner service abroad.

We feel that the market is more open now to Japan. The figures I have are that over the last three years, we've sold on average about 500 cars to Japan. I understand that some of our vehicle producers are in a position to have a more versatile production line where they can convert from a right-hand drive to left-hand drive, and that would open up markets for certain Canadian-made vehicles. We are very hopeful that there will be new opportunities as a result of this agreement.

[Kyle Peterson, Liberal, Newmarket—Aurora, ON]

Thank you.

You mentioned in your opening statement the binding agreement between Japan and Canada. I assume that's the side letter that we're referring to. It has commitments to automotive standards and regulations. If you look at NAFTA, the auto sector would certainly agree that NAFTA is the gold standard for regulatory compliance with each country, and it's almost seamless going across the border. Some of the safety and health issues are virtually the same on either side of the border.

Are these the types of things in that agreement, or is it more like you said, manufacturing issues like the right-hand drive, and other things like that?

[Bruce Christie]

In the original agreement, the United States and Japan negotiated a bilateral annex to the agreement that addressed some of these non-tariff barriers faced by North American auto producers. After that negotiation, Canada negotiated a parallel agreement with Japan. Essentially after the United States left, the agreement was no longer in effect, and that was the purpose of the side letter. It deals with the same issues that were negotiated in the original agreement between Canada and Japan.

The main issues addressed in the side letter are that Japan has agreed to streamline certain testing procedures that provide national treatment for financial incentives under Japan's preferential handling program; Japan will now recognize the United States federal motor vehicle safety standards, including with respect to cars made in Canada; and we've agreed to work together with Japan to promote greater international harmonization of requirements through other multilateral fora. These, along with the noise and exhaust emission certification procedures, for which Canadian-made vehicles will be treated as Japanese vehicles, are all enforceable by a binding dispute settlement.

[Kyle Peterson, Liberal, Newmarket—Aurora, ON]

A quick question, because I think I only have a few seconds.

In the previous agreement, there were no articles dealing with compensation for any sectors, or anything like that in the agreement itself, were there?