International Trade Committee on June 18th, 2019

[Flavio Volpe]

Companies take a longer-term approach than a single term. That being said, the power of a tweet from the President has been demonstrated over the last couple of years to cause marked confusion.

I view the Oshawa news the same way that you do. Lots of our member companies built generations of business out there. The Oshawa business, the decision in Oshawa, is unrelated to the NAFTA renegotiation and maybe the uncertainty with Trump, but it wasn't helped. It was a product mix that wasn't working and the volumes weren't there, but certainly if we didn't have this cloud hanging over our heads, you could convince a company to turn around and make a longer-term decision than the one that unfortunately hurt Oshawa but also hurt six other plants, mostly in the U.S.

We've seen a lot of the OEMs push back, maybe not as publicly as some of us would like, at least from a political standpoint, but they've pushed back and they've said these are 20-year investments.

Certainly it has worked in changing some decisions on allocation into Mexico that weren't yet installed, and producing vehicles. The real threat isn't if we don't have this deal. The threat is that we have somebody in the White House who takes a narcissistic approach to these things and has threatened to pull the NAFTA. In a scenario where we don't have the CUSMA and we have a NAFTA withdrawal, we're going to have a real big problem with investor confidence.

[Colin Carrie, Conservative, Oshawa, ON]

Yes, and I think these once-in-a-generation investments are so important that we're able to compete for that.

My next question, though, is about the complexity of the rules of origin.

I'm getting some feedback and concern because at the end of the day it's about jobs and keeping jobs in Canada, but if it gets so complicated, some auto manufacturers may just skip the whole thing, manufacture all of the product overseas, just ship it in and pay the 2.5%.

I was wondering if you could comment on the complexity for the rules of origin compared to the NAFTA. Is this a real concern that we need to be worried about? At the end of the day, it's about jobs and keeping jobs in Canada. If it gets far too complicated, are we at risk of losing that entire supply chain to countries that are offshore of North America or even towards the United States?

[Flavio Volpe]

I think it's a valid concern in general and I think the original American proposal was 85% regional value content, 15% U.S. domestic content, tracing parts down to their raw materials.

We said that the most important perspective from a supplier point of view is if our OEM customers were going to pass, then we were going to get hurt there. Our position was to listen to the OEMs. If they say they won't do it, as you said, the MFN tariff is 2.5%.

Over the course of those rounds, we got to a place on the rules where we simplified them more, dropped some of those content levels to a point that still made suppliers happy, but I think, without exceptions, OEMs are saying they can make it.

On silly things like tracing supplies right down to the raw materials, I pointed out that a lot of plastic products come from petroleum, so do we need to know where the dinosaurs died? That little insert of candour, I think, broke up that discussion.

[The Chair, Liberal, Mark Eyking]

Sorry, but we'll have to finish here—

[Flavio Volpe]

Sure, let me just finish the one I have here.

[The Chair, Liberal, Mark Eyking]

Go ahead, sir.

[Flavio Volpe]

Getting this right is important because the MFN tariff is only 2.5%, but the American intention, I think...using the section 232 tariffs and going back to WTO, our expectation in the industry is that this number is going to go way up.

[The Chair, Liberal, Mark Eyking]

Thank you.

We're going to the Liberals now.

Mr. Peterson, you have the floor. You're a man who knows auto parts very well.

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

Not as well as Mr. Volpe, but thank you, Mr. Chair, and thank you, everyone, for being here today.

I am going to pick up on the auto theme based on the number of auto parts jobs that are based in my riding and rely on a strong auto sector, of course.

I want to take a step back. When President Trump threatened to rip up NAFTA, that was an existential threat, I think, to the auto industry. I'm not sure, Mr. Volpe, if you want to elaborate on that. Mr. Adams, you can too, because I think we needed to put the new deal in that context.

[Flavio Volpe]

On his way into office, he said he was looking for a border tax on all goods coming in. He then turned around and threatened very specific companies like Ford and BMW, putting a tax specifically on.... Whether he could do it or not was not the question. The markets reacted to the fact that the President of the United States was threatening some type of action.

He threatened to pull out of NAFTA. Our industry knows no borders. Frankly, if you have an OEM customer, there are concentric geographic circles of supply and you have to be close to your customer. There are 10 OEM plants in Canada, but they're all selling goods to the U.S., so it's a big threat. This is the way the President likes to play. Frankly, Canada has had some big, crazy threats, which from a legislative point of view I'm not sure he could enact, but that's not the way capital flows and that's not the way customers pick their suppliers. It was a big threat.

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

Mr. Adams, do you want to comment?

[David Adams]

Sure. I think you're right. I think it's a characterization of different companies, too, in terms of the President saying that the BMWs of the world.... BMW has their largest plant in Spartanburg and it's also the largest automotive exporter. I'm sure a lot of Flavio's members supply the plant in Spartanburg as well. This was a real concern for the entire automotive industry, especially when you consider that regardless of manufacturer, about 85% of the production coming out of any Canadian plant is going into the U.S. market. It's not going to Europe or elsewhere; it's going to that U.S. market, so it was a very problematic issue, for sure.

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

Based on that, how important were the auto side letters to remove that threat from the industry and then when it comes to investment flows?

[Flavio Volpe]

The auto side letters are a funny instrument. On one hand, from a purely academic point of view, I would not like to see us in those types of discussions, whereby we concede some extra agreement against a threat that I thought was an improper use of legislation. Others have called it illegal.

The fact is that in our business, sometimes leverage is more important than the legislation. The leverage was we set quotas that, if they were to be reached, would mean that we would have to add three new OEM full capacity plants for us to get to those quotas. There is no prospect currently of seeing them in the future in this environment. Maybe one or two.... I offered to pay the tariff on every vehicle after the third one.

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

I'm pressed for time, so I want to get in one more question, if I can.

[The Chair, Liberal, Mark Eyking]

You have a minute and a half.

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

That's perfect.

Mr. Volpe, I think you were on the record as saying this achievement in the automotive sector benefits Canada immediately and directly. It's going to result in more investment, more volume purchases from existing investment, and underpins the kinds of jobs we want in this country. You elaborated on that. Right now you're saying we don't have the capacity to fully leverage this deal. Are you confident the investment will flow to get us to that capacity?

[Flavio Volpe]

Suppliers don't build plants or lines on spec. Either you have the contract or you don't. Of course all my members are bidding very aggressively on the new volume. The fact is that volume will be a 25% addition writ large. It won't be spread. Everybody is under the 25%. The winners may get 26% or 50% more volume. You have to do it in three years. To do it in three years is a message I took to Japanese suppliers in Yokohama at a supplier show last week. I told them if they were supplying Mazda, Toyota, Honda, Subaru and these specific items on vehicles that are being assembled there, come to Canada because they make those cars in the U.S. and Canada, and we need them.

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

Thank you.

[The Chair, Liberal, Mark Eyking]

We're going to the NDP now.

Ms. Ramsey, you have the floor for five minutes.

[Tracey Ramsey, NDP, Essex, ON]

Thank you so much.

Thank you to all of our witnesses here today.

My first question is for Ms. Dey because she's the first person to raise chapter 20, the intellectual property provisions around the cost of pharmaceuticals. New Democrats have been raising this. Quite frankly, this impacts all Canadians.

You raised the types of drugs, biologics, that are being looked at or that the extension is for, such as insulin, things for Crohn's, rheumatoid arthritis. These are extremely expensive drugs for Canadians. Even if they have some sort of pharmaceutical or drug plan from an employer, typically it won't cover the cost of these drugs. They're so incredibly effective. A lot of people say they will be the future of drugs.

I want to ask you about that and the concerns that not just the New Democrats have, but as you said, the PBO has as well. My colleague Don Davies is our health critic. He asked the Parliamentary Budget Officer to study the impact of pharmaceutical costs in the new CUSMA and the PBO came back with the stunning number of $169 million per year.

I wonder if you can speak to that. To me, this is a TPP hangover. The U.S. wanted this in the original TPP. It was removed in the new CPTPP, but here it is back again because—no surprise—big pharma in the U.S. and Canada is pushing hard for this.

Can you comment on the implications of this for Canadians?

[Sujata Dey]

It's an irony, because the first thing President Trump did in office was to say that he hated the TPP and he was going to rip it up. However, what has happened is that a lot of the provisions that were originally in the TPP made themselves into the new NAFTA. One of those is the biologics.

Basically, we have patent protection in Canada for 20 years. However, on top of that, we have what's known as market exclusivity for biologics, which right now, in Canada, is eight years. The new NAFTA would raise it to 10 years. What's important for this is that already it's shown that about 70% of all the new costs to the Quebec assurance médicaments program are these costs of biologics. This is the highest rising class of drugs with all public plans put together. This is something where you can spend about $5,000 to $50,000 a year for a patient on this class of drug. These are very important treatments. This is something that will be offloaded either to private citizens who will have to choose whether they can afford these drugs or not, or in the event of a public plan, it will be offloaded to us.

It is a very important provision. It is basically U.S. pharma that benefits from this, because it is U.S. pharmaceutical companies that are the producers of these biologics. There's no interest for Canadians at all, in terms of industry or our public plans, to have this.

Currently in the United States, the Democrats are asking for these provisions to be specifically removed from the new NAFTA. As I've said before and I can go into more detail, they have the votes, and it's important to note that in 2006 when the Democrats gained majority in the House with George Bush as president, they actually opened up three agreements precisely for pharmaceuticals. They opened up the agreements with Colombia, Panama and Peru to specifically go in and change the pharmaceutical language.

I know industry feels that they are reassured by the signing of this new NAFTA, that this is a done deal, that this is going to provide assurance. However, the elephant in the room is that the United States has to ratify this agreement, too, and the votes aren't there unless this agreement is opened up.

What I'm saying is that this illusion of security, especially when we have this President of perpetual negotiation, is just an illusion. Ratifying this agreement in this speedy form is not going to provide insurance, because there's a critical path element here that we don't control, which is the U.S. Congress.

That illusion of security is just that; it's an illusion.

[Tracey Ramsey, NDP, Essex, ON]

Thank you.

[The Chair, Liberal, Mark Eyking]

You have 20 seconds left.

[Tracey Ramsey, NDP, Essex, ON]

That went by so quickly.

I would just add a comment, then, that no Canadians believe the cost of drugs should be raised through a trade agreement. If there's an opportunity to join the U.S. right now to remove this provision, it's something that Canadians would strongly support the Liberal government doing, and I would encourage my colleagues to do the same.