International Trade Committee on April 21st, 2016

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

Maybe you could elaborate on some of the benefits we could see coming to Canada, besides the increased export market. Maybe there is some new processing or some valued added on the value train that's going to be present in Canada. Is that going to be a reality out of the TPP?

[François Labelle]

There is a tremendous potential, in the last few years and again internationally, with the pulse and the recognition of pulse fractioning, to be able to export the proteins and some of the isolates, and so on. I think the opportunity to see that growth, and we're starting to see an interest, will come. It is coming to Canada, and we will be able to process it here and export a more advanced or finished product instead of a raw material.

[Cam Dahl]

Yes, absolutely. Our initial estimates are of a 20% increase in wheat alone. Just to focus on one country, again Vietnam, it has a rapidly growing middle class and a rapidly growing economy, and we're not part of that game. A big reason we're not part of that game is because Australia has a free trade agreement with Vietnam, and we don't. The TPP would correct that, so those growth opportunities are in fact about that. It's significant.

[The Chair, Liberal, Mark Eyking]

We're going to go to the Conservatives and whatever you want to do with the last few minutes.

[Dave Van Kesteren, Conservative, Chatham-Kent—Leamington, ON]

I have a comment and maybe just a quick question.

This has been an amazing experience. I'm from southwestern Ontario, and we get a little bit smug about our production and our crop potential. But I'll tell you, when you come out west and you see what has happened here—I'm speaking as a southern Ontario boy—it is nothing short of astounding to see the potential and to see the energy. I just want to commend you all on that. As a businessman, when I go to a place like this, I get pumped when I see all that energy. I think it's just fabulous, and I hope we can accommodate you to continue to move on as you press forward.

My question is this. We talked about growth potential, but is there still land you haven't gotten to? I know our crop yields are getting higher and higher, but are there still areas you can go to and exploit so that as this market continues to grow, and the demand gets higher, it can be met?

[Patti Miller]

In the canola industry, we really are focused on yield growth and not land. Canola's expansion throughout the years has been land-based, taking over acreage from other crops. Now our focus is on yield, on getting more out of the land we have and making sure, in that context, that it's sustainable production. It's not about breaking new land.

[Cam Dahl]

I would concur with that. The growth will come from innovation.

Innovation is really expensive, and it requires significant long-term investment, and for that long-term investment to occur, we need to have those strong, stable markets. The opening up of markets for Canadian product will actually stimulate that investment and innovation and growth.

[François Labelle]

Interestingly enough, I fully concur with my two colleagues here that the growth is going to come from within, from the acres we have.

But to speak to that point, I was reading an article yesterday that was talking about opening up more land in the Peace River country, which I was surprised about.

[The Chair, Liberal, Mark Eyking]

Thank you very much. That was a good question. We had good questions and good submissions here this morning on our first panel. That wraps up our first panel.

Thank you folks for coming in and being with us, and you'll see all the results in our final report.

Thank you.

[The Chair, Liberal, Mark Eyking]

I see that our witnesses are here, as are our MPs and our staff. We're good to go for the second panel.

Welcome to everybody who just came in. Our trade committee is travelling across the country and consulting with Canadians on the TPP agreement that's in the mix right now.

We're going to get started. We have three groups here: the Canadian Centre for Policy Alternatives, the Canadian Oilseed Processors Association, and the Western Grain Elevator Association. We're going to start off with Lynne Fernandez for five minutes.

Go ahead.

[Lynne Fernandez, Errol Black Chair in Labour Issues, Canadian Centre for Policy Alternatives]

Good morning.

As you go across the country, you will likely hear from some who worry that the TPP is no more than a contract to prevent governments from interfering with corporations' ability to seek profit and even at times extract economic rents. Under the TPP, the right of the corporation to seek profit is made paramount to a government's obligation to set policy that best serves the public. The justification for this is that to do otherwise would be protectionism. It is an odd argument given that the global economy is already more open than ever.

Canada already has free trade deals with four of the TPP countries: Peru, Chile, U.S., and Mexico, and ironically, we have a $5-billion to $8-billion annual trade deficit with these countries. Furthermore, tariffs on trade with the others are already very low, and the TPP countries with which Canada does not have a free trade agreement make up 3% of total exports and 5% of imports. Insofar as the TPP could grow these percentages, it will only serve to increase the trade deficit we already have with these countries.

Eighty per cent of Canadian exports to these countries are raw or semi-processed goods. Eighty per cent of imports from these countries to Canada are high value-added goods such as autos and machinery. This composition of exports and imports is found in Manitoba as well, where exports are heavily influenced by agriculture. Twenty-one per cent of all exports are from crop production. Of the top 10 international exports by commodity in 2014, seven were raw or semi-processed.

We feel that Manitoba needs to move up the value-added chain. We are not suggesting that we should not have trade that benefits these exports, but there are elements of the TPP that will result in a net loss to Manitoba and Canada.

The strong patent protection in the TPP is an example. U.S. economist Dean Baker notes that:

Patents are a form of protectionism, a government granted monopoly. While economists usually go ballistic over a tariff in the range of 10-20%, patents can raise the price of a drug a hundredfold, as in the case of the Hepatitis C drug Sovaldi.

He concludes that:

This gap between the protected price and the free market price has the same impact as 10,000 percent tariff. In addition to making it difficult for patients to get the drug, this enormous price gap provides incentives for rent-seeking and corruption that impose costs on society and jeopardize people's health. We should be looking to more modern methods of financing drug research, not shoring up a relic from the 15th century.

But it is the investor-state dispute mechanism that presents perhaps the greatest problem for Canada. The ISDS mechanism in the TPP is similar to chapter 11 in NAFTA, but worse.

Canada is already the most sued developed country in the world. For example, a recent Canadian NAFTA ISDS suit ruled in favour of a U.S. firm that had been denied a permit to dig a massive quarry in an ecologically sensitive part of Nova Scotia. The government had to pay $300 million in damages. The dissenting tribunal member called this ruling a remarkable step backwards for environmental protection in Canada.

There may well be ways to better accommodate trade for Canadian producers, but this agreement is not really about trade. It is about harmonizing financial, health, and labour and safety standards, reinforcing intellectual property rights, and opening up new sectors to privatization and foreign investment.

One pro-TPP study estimated that GDP in the U.S. would increase a mere .13% by 2025 if the TPP came into effect, so it's not really about growing the economy.

Many prominent economists, including Paul Krugman, Joseph Stiglitz, and Dani Rodrik feel that the trade impacts of the TPP are far less important than the serious concerns it raises about excessive intellectual property rights, regulatory harmonization, and investor-state dispute settlement.

There are better ways to grow our economy and help producers. Please do not enforce this heavy price on the rest of Canadian society.

Thank you.

[The Chair, Liberal, Mark Eyking]

Thanks very much and thanks for doing it within the time limit.

It's good to hear from you today.

We're going to move on to our second witness. From the Oilseed Processors Association, we have Chris Vervaet.

Go ahead for five minutes.

[Chris Vervaet, Executive Director, Canadian Oilseed Processors Association]

Good morning, members. It's a pleasure to be here today to share how the TPP will bring value to the oilseed processors in Canada.

COPA is a federally incorporated non-profit industry association that works closely with the Canola Council to represent the interests of oilseed processors in Canada. COPA's membership consists of six companies that own and operate 14 processing facilities located in five provinces, from Quebec to Alberta. The western plants process canola, and the eastern plants process canola and soybeans. The facilities process the raw seed into two distinct value-added products: oil primarily for human consumption, and meal for livestock feed, which in turn are sold to domestic and international customers.

I'll now turn to some of the value that oilseed processing brings to the Canadian economy. In 2013 it was estimated that the Canadian processing and refining industry contributed $1.3 billion in annual economic impacts to the domestic economy. More than 9,700 Canadian jobs are directly or indirectly attributed to the processing, refining, and delivery of canola meal and oil. These include a wide range of stable and high-paying jobs in both rural and urban communities. These jobs are directly supported by international trade.

To give you a sense of the growth we've experienced in our sector, over the past decade nearly $2 billion has been invested in plant construction, and processing capacity has more than doubled, reaching a new high of 10 million tonnes in 2015 for canola. More capacity has led to more seed processing in Canada, capturing higher value along the supply chain, which is directly injected back into the Canadian economy. This expansion is primarily attributed to the strong demand in international markets, as Canada's market is limited in population and growth in per capita consumption of both oil and meal.

Here are some specific values for canola to illustrate our industry's growth during the past 10 years and our reliance on international markets. In 2005 we were crushing 3.1 million tonnes of canola seed in Canada. In 2015 we are now crushing 7.7 million tonnes of canola. To give you a sense of how important the export market is for that growth, in 2005 we exported $708 million worth of vegetable oil to global markets, versus $2.7 billion in 2015. On canola meal, the livestock feed, in 2005 we exported $228 million, and in 2015 $1.3 billion.

We're talking almost a quintupling of growth in both meal and oil exports. This growth is largely attributed to existing FTAs that Canada has signed, primarily NAFTA, so really it points to the success of our industry and how it relates to free trade agreements.

For future growth, we are aligned with the Canola Council's plan to meet the world's growing appetite for healthier oils and protein, and have set a goal to increase our canola crushing capacity to 14 million tonnes by 2025. But how will we get there? We've relied on the success of previous trade agreements for our previous growth, but for future growth we will rely on the TPP. It is a critical opportunity for processors, and the entire value chain quite frankly, to earn more value from international markets.

Processors will benefit from the TPP, as tariffs on oil and meal will be eliminated in such key markets as Japan and Vietnam, estimated to increase the value of our exports by up to $780 million a year. In particular, Canadian oilseed processors have sought access into Japan's market for nearly four decades. We've been trying hard to access this market for a very long time. With the TPP, processors will finally be able to access this lucrative market, allowing more seed to be processed in Canada, which will support jobs in communities across this country.

In closing, the oilseed processors make a substantial value-added contribution to the oilseed supply chain and the Canadian economy. COPA's member companies require that Canada implement the TPP as soon as possible in order for the benefits to materialize and grow this value-added sector. I really want to underscore that point: we are a value-added sector.

I look forward to answering any of your questions this morning.

Thank you.

[The Chair, Liberal, Mark Eyking]

Thank you.

We're going to move over to the Western Grain Elevator Association. We have Wade Sobkowich and Jean-Marc Ruest.

[Jean-Marc Ruest, Senior Vice-President, Corporate Affairs and General Counsel, Richardson International Limited, Member, Western Grain Elevator Association]

Good morning, Mr. Chairman and committee members.

The Western Grain Elevator Association is an association of six of Canada's major grain exporters, which collectively handle more than 90% of western Canada's bulk grain exports. They own the vast majority of grain elevators across the Prairies, along with port terminal handling facilities in Vancouver, Prince Rupert, Thunder Bay, and in the St. Lawrence Seaway.

The members of the WGEA are also by and large members of Cereals Canada, the Canola Council of Canada, and the Canadian Special Crops Association, two of which were on the panel prior to us. Having heard at least some of their answers to your questions, we endorse their positions on those questions.

The WGEA supports the views put forward by our commodity and sector organizations to ratify the Trans-Pacific Partnership agreement. We know the TPP will be integral to the future of the Canadian grain sector. The countries represented by the TPP have high population levels and continued strong economic growth in their futures. Together, the TPP countries represent approximately 40% of the world's gross domestic product.

The United States and Asia are key markets for western Canadian grains and oilseeds, and we see a high degree of benefit in strengthening our relationship with them. Diversifying market and expanding market access in these key areas of growth will pay long-term dividends for our exports of grains, oilseeds, and pulse crops and for Canada's overall economy.

Collectively the grain industry estimates the TPP would mean billions of dollars in additional sales for our sector. In canola alone, the value of exports to TPP markets could increase by $780 million annually. For Canadian barley product, sales are expected to grow in the near term by an additional 400,000 tonnes or $100 million annually. The Canada-specific quota on food wheat will also mean growth for our largest crop and will put us at an advantage over our competitors outside of the TPP.

We see not only the tremendous opportunity the TPP holds for our sector, but also the great risks involved, if Canada were not a participant. If Canada is not a ratifying partner of the TPP, the Canadian grain industry will be forced to cede some of its more lucrative markets to our U.S. and Australian competitors. A TPP without Canada will mean the loss of preferential access to Japan as well as to emerging markets where we see the potential for growth, such as Singapore, Malaysia, and Vietnam. Being left out would mean that our U.S. and Australian competitors would gain preferential access to both our long-standing high-value markets and the emerging markets as well.

Another noteworthy advantage of the TPP is its commitment to addressing non-tariff barriers relating to biotechnology and sanitary/phytosanitary issues. As we know, these issues present very real and significant impediments to trade in grains and oilseeds. Agreement by the signatory countries to meaningfully address these issues on the basis of sound science will ensure that the advantages we have just listed can be practically enjoyed and not frustrated, as is increasingly the case in international trade. Furthermore, with such parameters being negotiated at the TPP, countries that subsequently seek membership will be bound by these same terms and not be subject to new or watered-down provisions.

As Canada makes decisions to increase trade and grow its economy, we must not forget that our ability to maintain and grow high-value trading relationships is heavily dependent on the efficacy and consistency of our collective ability to reliably move product by rail to tidewater and the southern corridor.

In order to fulfill these trade opportunities, Canada requires a rail freight system that is demand-driven and in which commercial participants in the system are held accountable to each other. Normally competition, which equates to a threat of loss of business, is the natural force that leads to commercial relationships and commercial accountability. The rail freight market for grain is not a competitive market, since shippers are generally captive to one of the railways. In those circumstances, legislative measures are required to ensure that performance obligations are well-defined, balanced, and measured and that proper consequences flow from a failure to meet those obligations.

The member companies of the WGEA are united in their position that the TPP is a critically important deal. We expect it to allow us to grow and diversify our exports, create jobs, and grow the Canadian economy. The WGEA strongly urges the government to ratify this agreement for the future viability of the Canadian grains, oilseeds, and pulse crops sector.

Thank you very much for the opportunity to share our views.

[The Chair, Liberal, Mark Eyking]

Thank you, and thanks to all the witnesses for their submissions.

We're making good time this morning. If all members keep within their five minutes, we can get all your question slots in.

We're going to start off with questioning from the Conservatives, with Mr. Ritz.

[Gerry Ritz, Conservative, Battlefords—Lloydminster, SK]

Thank you, panellists, for your presentations today. It's always good to hear from all sides of the debate.

I wanted to start with the Western Grain Elevator Association, and of course Chris, too, from the oilseed processors.

Were you both involved in the briefings? You signed the non-disclosure agreements and so on. Were you involved in the discussions over the past three or four years leading up to the agreement?

[Jean-Marc Ruest]

Yes, we were. Our input was sought to the extent to which we trade or saw trade expanding in these countries...what the obstacles were, and the impact of negotiations.

[Gerry Ritz, Conservative, Battlefords—Lloydminster, SK]

Yes, we often hear that it was done in secret and that nobody had any kind of input and so on like that, but I know there were hundreds of groups like yourselves that actually took advantage of the ability to do just that.

Welcome, and thank you for that.

You did mention logistics, and we won't get into that, but I totally agree with you. The CTA review is ongoing and we're going to have to see what comes out of that. There are some good recommendations in there, some that go too far, and some that don't go far enough, but there's always that balance that's sought, because it's more than just grain.

On your membership, how many of your members—you talk about the six that you represent—are global in nature and how many are unionized?

[Jean-Marc Ruest]

If you talk about “global” in the sense of how many of us carry out international sales, we're all global. We all carry out international sales. Some of us have an international presence in the sense of offices or traders that operate internationally. I believe we all have unionized elements of our respective operations.

[Gerry Ritz, Conservative, Battlefords—Lloydminster, SK]

We hear the same story, that it's only the big companies that are going to benefit from this. It's all written, and skewed to you, but I made the point with Viterra yesterday, too. They're fully unionized. Their workers aren't going to go on strike because of the TPP. They're welcoming it and looking forward to the expansions this will create.

At the same time, we hear some concerns about ISDS. It's more the concern that somehow we're giving away our sovereignty. Of course, in Canada, we have the rule of law and a good court system, but some of the countries we're moving toward don't. I've been there. A lot of you have, also, to Vietnam, Malaysia, and so on. There are tremendous opportunities to build infrastructure you could ship to your own port—Viterra does own a crush facility in China—and to have more of that type of thing going on.

Do you welcome something like the ISDS to cover your investments in those countries?

[Jean-Marc Ruest]

Absolutely. When we're talking about investment in infrastructure in the type of business we're in, we're talking about hundreds of millions of dollars per asset. In the case of just a standard grain elevator, we're talking about $35 million to $40 million and more so for processing plants.

Predictability is key for us. We need to know the ground upon which we're making these investments is not shifting on an ongoing basis. We have to be able to predict the environment in which we're investing, and understand that, for a number of reasons, it can change, but it can't change on a whim, and it can't change in a manner that harms the underlying premises under which we made our investments, and that were predicated by government decisions. There has to be a fair means of addressing those issues.

[Gerry Ritz, Conservative, Battlefords—Lloydminster, SK]

Absolutely, and there's also a tremendous opportunity to expand and value-add to what we do. We don't just ship out bulk commodities to the same extent that we used to. I think a lot of those communities that we're now negotiating with have rice- and noodle-based diets, with some protein from the pulse side and so on.

There's a tremendous opportunity for us with the work that we've done at the CIGI and the grain commission and that you have done as well on your own in-house. There are now barley derivatives that replace and have more nutrients in them. There's now the ability to blend proteins from pea fibre and lentil fibre and so on into the noodle, so that it's not just a carbohydrate and there's actually protein as well.

Do you see more potential when we look at these markets such as Brunei and Malaysia or, for that matter, Vietnam or even Japan?

[Jean-Marc Ruest]

Yes, absolutely. We in Canada distinguish ourselves from our competitors in the world by the high quality of our grains and oilseeds that we produce in Canada, the high level of the people we have, and our capacity in Canada to extract those capacities in that high-quality production that we have. We have great people and great product.

What we have that's problematic are barriers to trade, tariff and non-tariff barriers. I think this addresses both the tariff and non-tariff barriers and allows us to bring those new applications and those new technologies to those marketplaces.

[The Chair, Liberal, Mark Eyking]

Your time is up, sir.

Ms. Ludwig, go ahead.