International Trade Committee on June 18th, 2019

[Richard Hébert, Liberal, Lac-Saint-Jean, QC]

Thank you very much, Mr. Chair.

I thank the witnesses for coming and sharing some very interesting perspectives on this issue.

Under our government, over the past three years, one million new jobs have been created and the unemployment rate has fallen to its lowest level in 40 years. When Mr. Trump came to power, he said that NAFTA was bad and that it had to be completely eliminated. He was even talking, with great vigour, about destroying supply management. However, after very intense negotiations, we succeeded in maintaining supply management. We are one of the only countries in the world that still benefits from this protection for our producers. Not everything is perfect, but at least we have been able to keep a good part of this protection.

I would like to ask a question of Mr. Kingston, who, with his colleague Mr. Wilson, gave a very eloquent speech this morning.

This agreement is about to be signed. We all hope it will be. However, if it were not signed, what impact would this have on jobs, the unemployment rate and wealth creation?

Mr. Kingston, you have the floor.

[Brian Kingston]

If this agreement is not signed, we definitely expect it will have an impact on investment, first of all, because companies that were planning to invest and use the accelerated measure that was introduced in the fall economic statement won't do so if their number one market is the U.S. and they're suddenly concerned about their ability to access that market.

If you have a pullback in investment, the immediate consequence is drops. It would be negative for the unemployment rate in Canada.

As much as we've had these fantastic efforts to diversify, we will never change the fact that we sit right beside the U.S. and it is our number one market. Anything that impedes that existing relationship will be bad for the Canadian economy. There's just no way around that.

[Richard Hébert, Liberal, Lac-Saint-Jean, QC]

Thank you.

My next question is for Mr. Wilson.

In recent years, we have signed 14 agreements with 51 countries. This opens up a market of 1.5 billion new customers. Our trade is doing well: daily trade south of the border is close to $2 billion. As for the impact of other agreements, notably the CETA agreement, ocean freight rates have increased by 9% in Montreal over the past year.

In your opinion, will the other agreements that are in the process of being signed or about to be signed have as favourable an effect as CETA, and the one you want to see signed as soon as possible, as do we?

Mr. Wilson, you have the floor.

[Mathew Wilson]

Yes, we should sign it as quickly as possible and show a leadership that has been mentioned here before.

In terms of the other trade agreements, they're different. In many cases, we're sending finished goods to those other markets. We're not sending manufactured products.

What I mean by that is we're not sending auto parts to Europe. We're sending investment for companies to make auto parts in Europe, in many cases, or sending the finished vehicles to Europe. Therefore, it is fundamentally different in that trade relationship with any other market around the world than it is with the United States.

That's why the trade agreement with the United States is so big and so important, because it's not just about sending a car; it's about sending all the thousands of bits and pieces that go into that car, starting from the raw materials, through the steel, through electronics and different components. It's a very different trade agreement.

Those other trade agreements are really important, but also it's often a very different type of company that is trading in those agreements. It's the Lululemons and Arc'teryxes of the world and hopefully wine and other producers that are making finished consumer products. However, 85% of what we make in Canada are subcomponents of parts that go into other things, and those other agreements don't really support those as much as NAFTA does.

[Richard Hébert, Liberal, Lac-Saint-Jean, QC]

Thank you.

[The Chair, Liberal, Mark Eyking]

You're good?

[Richard Hébert, Liberal, Lac-Saint-Jean, QC]

Yes, thank you.

[The Chair, Liberal, Mark Eyking]

Thank you very much.

That wraps up our first panel, folks. We're doing well for time.

Witnesses, thank you for coming on short notice and being first up with good dialogue, good mix, good questions, and everybody was on time.

We're going to suspend for 10 minutes so the MPs can say goodbye to our panellists and welcome the new ones.

[The Chair, Liberal, Mark Eyking]

Before we continue with the second panel, I have a little housekeeping to do. As you know, this study does cost taxpayers some money and we have to get approval for it.

I need approval, if everyone agrees, for a maximum of $14,300 for the study. It will be below that, but we have to make sure there's enough for people's flights and accommodations.

All those in favour?

[Some hon. members]

Agreed.

[The Chair, Liberal, Mark Eyking]

Thank you.

The first session of our pre-study of Bill C-100 went quite well with the first panel. Maybe we'll keep the same schedule for this one.

I'd like to welcome the panellists. We have two witnesses by video conference from Toronto and Montreal and two with us here.

Welcome guests and thank you for coming on short notice.

We'll have each panellist do five minutes, give or take, and then we'll have a good dialogue with the members. In case there are emergency votes, I'm going to let the panellists get all their presentations done first. You never know, there might be a vote, but it doesn't look like it right now.

We'll begin with the video conference from Montreal, Quebec.

From the Council of Canadians, we have Ms. Dey.

[Sujata Dey, Trade Campaigner, National, Council of Canadians]

Good morning.

I am the head of the international trade campaign at the Council of Canadians.

I will make my presentation in English, but it will be my pleasure to answer questions in French.

The Council of Canadians has been keenly interested in issues of free trade since the initial agreement between the U.S. and Canada.

With over 100,000 supporters, we believe strongly that trade agreements cannot be the exclusive domain of industry representatives. Trade agreements impact our regulations, our public programs, our democracies and our ability to protect the environment.

With the rise of global inequality and a looming environmental crisis, our trade agreements unfortunately are often complicit in promoting corporations' rights over our democracies. This is why, during the NAFTA negotiations, over 30,000 of our members wrote MPs to share their concerns about what should be in a NAFTA agreement. Our honorary chairperson, Maude Barlow, wrote 10 guidelines for what should be included in the new NAFTA. Some of our guidelines have been met; others haven't.

First, the good news: In the new NAFTA, the chapter 11 investor-state provisions are no longer in effect between the U.S. and Canada. This provision has cost us $300 million. It has hurt our ability to develop social and environmental policy. Since Canada has been the biggest loser under chapter 11 and the U.S. the largest litigant, this is an important development.

Going forward, this should be the new standard for all our trade agreements. Unfortunately, this is not the case for the recently adopted CPTPP or CETA. As well, the mandatory energy proportionality provisions mandating us to export a quota of energy to the U.S. has been removed from the new NAFTA. That will give us more policy space to meet our G8 and Paris commitments.

However, the fact remains that this agreement gives disproportionate power to corporations. Chapter 11 may be gone, but now a whole host of new rules puts industry voices, or so-called interested persons, at the regulatory table before any of us—the public or politicians—can see the actual regulations. Under so-called regulatory co-operation, regulators have to follow a new series of stringent practices to make rules.

While industry folks may see safety, food, environmental or labelling regulations as red tape, those of us who are concerned about the safety of our products or what we put on our plates or in our bodies may see things differently. Regulators now face industry-positive criteria that hamper their ability to translate our collective will into rules.

Much has been written about the attacks on the family farm and the allocation of an additional 3.59% in Canadian market share for American dairy products. At the Council of Canadians, we are worried about the standard of this new U.S. milk that will be coming over the border. In the 1990s, we successfully campaigned to end the licensing of bovine growth hormone in Canada. This hormone makes cows produce 25% more milk, but at the expense of cows' health. BGH is used in the U.S. and is not labelled.

The new NAFTA also gives protections that can raise the cost of prescription drugs. The deal gives biologics, a new class of drugs made from human or animal tissue, 10 years of data exclusivity. Currently in Canada, we only give eight years of data exclusivity. Biologics are very important. They include drugs like insulin, or drugs that treat cancer, rheumatoid arthritis, Crohn's disease and ulcerative colitis.

The Parliamentary Budget Officer said the cost would be $169 million just in the first year this agreement would be in effect. Just at the time when the Advisory Council on the Implementation of National Pharmacare is recommending a universal single-payer system for drugs, the new NAFTA would raise the cost of such a program. Recently, a number of MPs signed a declaration asking for these provisions to be taken out of the new NAFTA. Luckily, Democrats in the U.S. are trying to get rid of these drug provisions, as well as demanding improved and enforceable environmental and labour provisions, which are currently lacking.

U.S. Democrats have the vote, and as history has shown, the U.S. has reopened the last four enacted trade agreements after they were signed. It is simply premature to ratify the agreement in its current form. Many important changes still need to be made. The idea that this deal is finished is an illusion.

Thank you.

[The Chair, Liberal, Mark Eyking]

Thank you.

We're going to the next guest on video conference. From Toronto, we have Mr. Adams from Global Automakers of Canada.

Welcome, you have the floor.

[David Adams, President and Chief Executive Officer, Global Automakers of Canada]

Thank you, Mr. Chair and honourable members.

On behalf of the 15 members of the Global Automakers of Canada, I appreciate the opportunity to testify before you this morning, on the important subject of Bill C-100, an act to implement the agreement between Canada, the United States of America and the United Mexican States.

As you may know, the Global Automakers of Canada is a national trade association that comprises the exclusive Canadian distributors of all vehicle manufacturers, with the exception of the Detroit-based automakers and Tesla.

The members of the GAC have a long-standing history of supporting transparent, open, rules-based trading relationships between Canada and its major trading partners. Traditionally, that has meant the United States and Mexico. While that continues to be the case, we have also strongly supported the Canada-EU CETA and the CPTPP, as well as the Canada-Korea free trade agreement.

With respect to the talk at hand, however, the Canadian automotive industry and Canadian consumers have benefited significantly from special access to the United States market via a system of managed trade agreements and free trade agreements, dating back to the Auto Pact in 1965, which provides jobs, economies of scale and efficiencies for the industry in Canada.

Our members support the ratification and passage of the CUSMA, as it will allow our members which have a footprint in all three countries continued preferential access to the U.S. market. Without putting too fine a point on it, members of the GAC are very concerned that the uncertainty associated with finalizing this outstanding trade negotiation is having a deleterious impact on business, not only the automotive business, but far beyond.

Thus, the sooner the agreement is ratified the better. Ratification will provide certainty in the North American manufacturing region that is currently lacking, and the appropriate context for investment and business planning.

Over the course of the negotiations, the GAC has been part of each round of the discussions. Some have said that any deal is better than no deal. We don't believe this to be the case. It was important for Canada to be able to work constructively and creatively among the shifting sands of the negotiations.

Given where the U.S. started with this negotiating position regarding the automotive industry, we believe the deal that has been signed represents the best outcome that could have been achieved. Is it ideal? Perhaps not, but as noted before, it provides industry with access, certainty and the opportunity for review, which were missing from the NAFTA.

The members of the Global Automakers of Canada encourage the ratification of this agreement.

Thank you for your time. I would be happy to answer questions in due course.

[The Chair, Liberal, Mark Eyking]

Thank you, sir.

We're going to the Canadian Agri-Food Trade Alliance, with Ms. Citeau.

Welcome again.

[Claire Citeau, Executive Director, Canadian Agri-Food Trade Alliance]

Thank you for inviting the Canadian Agri-Food Trade Alliance to present its views on the new agreement between Canada, the United States and Mexico.

Our members have a very simple message: CAFTA calls for the swift ratification of CUSMA to ensure continued stability in the North American market, and strongly urges parliamentarians in both Houses to pass Bill C-100 quickly.

CAFTA represents the 90% of farmers who depend on trade, and producers, manufacturers and agri-food exporters who want to grow the economy through better access to international markets. This includes beef, pork, meat, grain cereals, pulses, soybeans, canola, as well as the malt sugar and processed food industries. Together our members account for more than 90% of Canada's agri-food exports, which in 2018 reached record levels of $59 billion and which support one million jobs across urban and rural communities in Canada.

A significant portion of these jobs and sales would not exist without competitive access to world markets. Despite the strong performance, opportunities for further growth are being threatened by unprecedented uncertainty and a rising protectionist sentiment in certain corners, as well as the erosion of predictability in both traditional and new markets.

Last week, CAFTA released its 2019 federal election priorities, entitled “Realizing Canada's Export Potential in an Unpredictable and Fiercely Competitive World”. It is a prescription for what is required to allow Canadian agri-food exports to continue setting records as trade is under threat and increasingly linked to geopolitical and global events.

First on the list of recommendations is to preserve and enhance accessing key export markets and with that, the call to ratify and bring CUSMA into force as quickly as possible.

CAFTA attended all negotiating rounds for the new CUSMA and applauded the news last fall that Canada concluded talks. CAFTA also welcomed the recent resolution of the tariff issue between the Government of Canada and the U.S. related to aluminum and steel products. Tariff-free trade has been an incredible success for businesses throughout North America and for agri-food exporters in particular.

Over the last 25 years, Canadian agricultural and food exports to the U.S. and Mexico have nearly quadrupled under NAFTA. Today, the U.S. and Mexico are our first and fourth-largest export markets, making up about 55% of our total exports last year.

CUSMA builds on the success of the NAFTA agreement. It preserves and secures the duty-free access upon which the North American agriculture and food sector has been built over the past quarter century. Our members, the hundreds of thousands of farmers, ranchers, food processors and agri-food exporters, who rely on trade for their livelihood, are pleased that the Canadian government is taking steps to ratify the new agreement and bring it into force.

Our members emphasize the following outcomes as key benefits of the new CUSMA.

The agreement contains no new tariffs or trade-restricting measures. All agricultural products that have zero tariffs under NAFTA will remain at zero tariffs under CUSMA. Maintaining predictable duty-free access to the North American market is a major win for our members. This will help to strengthen the supply chains that have been developed for the past generation in North America.

This new agreement also includes meaningful progress on regulatory alignment and co-operation. In particular, I would note the establishment of a committee on agriculture that will serve as a forum to address trade barriers, a working group for co-operation on agriculture biotechnology, and the creation of a new sanitary and phytosanitary committee that will help ensure regulations are transparent, based on science, and that trade in North America flows freely, fairly and abundantly.

Another key benefit for our members is the preservation of the dispute resolution provisions that are vital to ensuring fair and transparent processes are in place for when disagreements arise. Preserving chapter 19 in its entirety and much of chapter 20 from the previous NAFTA agreement are also major wins.

Market access improvements for Canadian agri-food exporters include increased quota for refined sugar and sugar-containing products as well as gains for some processed oilseeds products like margarine. These are all welcome news for our members.

All these advances will help to consolidate the gains of the original NAFTA and provide certainty in the North American market, which is essential to the success of our Canadian agri-food exporters.

In closing, CUSMA represents a meaningful upgrade to NAFTA for our members, by keeping our trade tariff-free, establishing processes that will help remove remaining technical barriers to trade and maintaining vital provisions to deal with disputes.

We look forward to working with the government to bring CUSMA into force so that our members can realize its benefits as quickly as possible.

[The Chair, Liberal, Mark Eyking]

You represent a lot of farmers and people in the supply chain for agriculture, so thanks for coming.

We're going to Mr. Volpe now, from the Automotive Parts Manufacturers' Association.

[Flavio Volpe, President, Automotive Parts Manufacturers' Association]

Thank you. It's good to be here.

As most of you know, APMA is Canada's national association of original equipment automotive suppliers. I represent about 300 companies that employ about 100,000 people in this country. Notably for the NAFTA negotiations, Canadian supplier firms employ 43,000 people in the U.S. in 120 plants and about 43,500 people in Mexico in 150 plants.

Throughout the NAFTA negotiations, as some of you know, we were present for every round. In addition to meetings with Canadian officials on a very regular basis, we had time at the White House, the USTR, the Palacio Nacional and all spots in between. Our Canadian positions and Canadian interests found voice on the front page of the Wall Street Journal, the New York Times, the Washington Post, the Economist and so on. We were very active and we were very vocal. I think the agreement is a positive reflection of what we were looking for.

This is a negotiation that no one asked for, from a party that cared only about headlines and Twitter. After four rounds, we finally got the American proposal. It was a self-destructive one. In automotive the proposal was that every vehicle manufactured in North America should have 50% U.S. domestic content.

Canada, importantly, with Mexico, stayed at the table, spent time over the next two rounds highlighting self-harm. Industry associations and stakeholders like ours spent time at the USTR and in Mexico talking about the American self-harm. They countered themselves twice, in March 2018 and then again in April 2018. Our strategy for staying at the table produced the fruit we wanted. They backed off their 50% U.S. domestic content. They came up with other tough terms, but they were negotiable terms.

This current government made a conscious effort and a decision on the NAFTA negotiations to consult openly and frequently with industry. We didn't do it altruistically. Industry was quite vocal about the fact that the Mexicans had an advantage because they took their industry with them in a model they call the “room next door”. The first meeting with this new government was actually at the APMA office with a trade minister, a chief negotiator, an ISED minister and his deputy minister. I thought that was a good step. That's how it is supposed to be done. We saw TPP with both the outgoing government and the incoming government done mostly in the dark; for suppliers, at least, I think the results reflect that.

The new CUSMA is the first increase in regional value content ever in a Canadian trade agreement. For automotive rules of origin, that means an increase in supplier volumes for Canadian plants and footprints of about 25% in shipments. That's $6 billion to $8 billion a year in new purchases, incremental purchases, of an industry that ships about $35 billion a year. To put that in context, that's the equivalent of landing two new greenfield investments in Canada. The last greenfield investment in Canada by a major automaker was in 2007. The upside is unprecedented. This deal for automotive suppliers, from our perspective, must be ratified. I spent time all over the continent during and after; I have spent a great deal of time since in Germany and Japan especially, as well as China. Current suppliers will see the most benefit of this new agreement and its terms, but we are of the opinion, shared by our American equivalent, that the current North American supply base does not have the capacity to meet the requirements for automakers to meet the compliance of 75% North American domestic content.

What it means is that we're also looking at an opportunity that we've been selling very plainly to the Japanese and the Germans especially: We're expecting a great deal of new capital investment in this country from new suppliers who will help their current automakers meet that 75% quotient. This deal has a regional value content level that goes to 75% from 62.5%; on parts, that number is 65% to 70% from 60%, and 70% of those core parts, if they are made with steel and aluminum, must be sourced in North America. In NAFTA we had 29 parts categories that were tracked for compliance. Essentially, we've doubled that.

There is an immediate transition to rules of origin post-ratification. We're hoping that ratification happens in all three countries this year, and there's a three-year phase-in for the RVC levels.

Please ratify this deal without delay. That's been our message in Washington. That's our message in Mexico City.

I'm happy to take questions.

[The Chair, Liberal, Mark Eyking]

Thank you, sir.

I have a quick question. You represent parts manufacturers on both sides of the border, right?

[Flavio Volpe]

I represent the parts suppliers' interests in Canada, but those head office interests, the GNP interests for major companies like Magna, Martinrea and Linamar, they have investments in the U.S. and in Mexico that in some cases are bigger than their Canadian interests.

[The Chair, Liberal, Mark Eyking]

So, you're kind of indirectly representing them all because you're representing them in Canada.

What about Mexico? You just represent Canada, but because they're affiliated, that's how you represent the others.

[Flavio Volpe]

In Mexico, in meetings with the President of Mexico and with the secretary of the economy and the secretary of foreign affairs, our message there was that we—Canadian companies—own 150 plants that employ 43,500 Mexican workers as well. So if this doesn't work out and we end up on the other side of a big tariff wall here, we're speaking to them as Mexican investors and employers.

[The Chair, Liberal, Mark Eyking]

Thank you, sir.

We're going to do the same as we did with the last panel. It worked out quite well. MPs kept their questions tight and the answers were pretty tight, which is good because we have four panellists and we want everybody to get their thoughts out.

We're going to start right off the bat with the Conservatives. We're going to Mr. Carrie for five minutes.

[Colin Carrie, Conservative, Oshawa, ON]

Thank you very much, Mr. Chair.

I want to thank the witnesses for being here. I'm going to start right off with Mr. Adams and Mr. Volpe.

Everybody around the table is aware of the announcement of General Motors in Oshawa. We are going to be able to retain some parts and stamping manufacturing there, but the quote that I've heard more often than not with our manufacturers is that they can handle bad policy and they can handle good policy, but this uncertainty is a real problem. They're competing for international mandates and Mr. Trump wants to bring a lot of that investment to the United States, and if companies locate there, that's where they get the most certainty.

This deal—as Mr. Adams said, it's not a perfect deal—is really important for my community. So, thank you for your input.

Because we have such integrated trade and integrated supply chains and we build cars together in North America—that's the way it has been going—what would it do to our supply chains, our ability to win investment and certainty if this were not ratified, if we dithered in ratifying this agreement?

Maybe we could start with Mr. Adams and then go to Mr. Volpe.

[David Adams]

I think, as you say, uncertainty is the real challenge here. I think we've reached a point where this deal has essentially been finalized and we just need to get it over the goal line. That's why we think it's important that this deal get done sooner rather than later, because uncertainty and confusion about where things stand are the worst things for business investment.

Yes, as Mr. Volpe mentioned, nobody wanted this negotiation. The fact of the matter is that the whole negotiation was focused around bringing more investment into the United States, not necessarily Canada or Mexico, but I think the reality is that we are where we are and we just need to move forward now.