International Trade Committee on June 18th, 2019

[Terry Sheehan, Liberal, Sault Ste. Marie, ON]

Thank you very much to all our witnesses for coming in today.

I'll start with Mathew from the Canadian manufacturers association.

You made a fairly powerful statement. You felt that the removal of the section 232 tariff onto itself was more important—and I'm going to paraphrase—than CUSMA per se, itself, as well as many other things.

You know I'm from Sault Ste. Marie. Algoma Steel and Tenaris are there, as are a whole bunch of other small and medium-sized manufacturers. You really can't find too much in Canada that isn't manufactured without steel or aluminum in some fashion.

Perhaps you could expand on the importance of removing the section 232 tariff, the strategy that was employed, your thoughts about it and how we arrived at that, as well as the fact that President Trump had.... A lot of people think that the section 232 tariff maybe was just on Canada, but it's really a world tariff, if you will.

He had also mentioned about applying the section 232 tariff on auto. If that happened, what would have happened?

Mathew.

[Mathew Wilson]

Well, I'll maybe start with where you ended. If steel was the appetizer, I think auto would have been the full course. It would have sunk us, frankly, if that had been put in place. That's why those side agreements that were signed back in the fall were so critical: to make sure that we were exempted from it. Now, it's not a full exemption, obviously, and the administrative burden that could come with that could be significant for the companies involved. They're not even sure how they would administer it, because at some point you have to trace what you're sending in order to be able to fall underneath the requirements that were set out in that side agreement.

The other thing I would say on the agreement on section 232, which was made very clear to me by several of our steel members, including Tenaris and Algoma, is that it is important to understand that it is an agreement and not a full written legal text, but even that in and of itself is a significant step forward, because it wasn't just the fabricators themselves that were hit by it. Almost every single manufacturer in the country was being hit by the tariffs on the importation or exportation of those products, depending on what you are actually making.

The costs were escalating pretty substantially. You're talking about 30% to 40% in input cost increases in a very short period of time. Those aren't costs that they can pass along to their customers. They were starting to lose business. They had pretty full order sheets in terms of producing, but once they go into the next cycle for getting the next round of investments in, say, auto parts fabrication, for example, which would be shipped to the United States, they would have to start factoring in those additional costs on all those bids, and the chances of them winning those bids, even with a depressed Canadian dollar, would be pretty slim.

I know that a lot of the focus was put on the big producers of the steel, but the really big impact in many ways was on the user of the steel. It's not that the big producers weren't impacted by that. It clearly was discussed a lot at length in public, but a lot of the users of the steel, both for import and for export, had significant cost increases that were a real problem for production in both the short term and the long term. That's why getting rid of those, even in an “understanding”—quote, unquote—was critically important to move the economy forward.

[Terry Sheehan, Liberal, Sault Ste. Marie, ON]

Some of the people early on had suggested settling for a quota. As well, the Ford government actually even stated that we should have removed our counter-tariffs as some kind of gesture to the United States that.... I don't know. I can't follow the logic, actually. In going about our counter-tariffs in particular, how successful were they, in your mind, in getting rid of section 232?

[Mathew Wilson]

Well, I think it brought it to the attention of lawmakers in the United States, particularly those who have influence in different sectors. I think it was good. If you don't retaliate.... Look, we weren't in favour of slapping tariffs on American imports to Canada, but at the same time, we were in favour of retaliation, for the same reason that we're in favour of Canada slapping on restrictions of U.S. exports into government procurement markets: because we can't get into their markets.

We believe in full reciprocal market access. If you sign a free trade agreement, and I don't care what sector it's in, you should have free and unfettered access to those sectors. Government procurement is one. Steel is another. Potentially, auto—let's hope not—is another. While we don't like the idea of tariffs, we like the idea of the reciprocal action that Canada was willing to take. Yes, it causes pain, but at the same time, if you don't do it, you don't get their attention.

[Terry Sheehan, Liberal, Sault Ste. Marie, ON]

Thank you.

Brian, you as well as Mathew mentioned your support for Minister Morneau's Bill C-101. In particular, we're asking for unanimous consent so that we can get it through expeditiously. Can you explain to this committee the importance of Bill C-101 as it relates to getting back to free trade?

[Brian Kingston]

I'm sorry. Could you please clarify Bill C-101 again?

[Terry Sheehan, Liberal, Sault Ste. Marie, ON]

Yes. It's Bill C-101 about the surge, the safeguards.

[Brian Kingston]

Yes. On safeguards, the number one thing we heard in our various meetings with the U.S. administration and officials was this ongoing concern around Canada's treatment of transshipment. It was never defined but was always raised, so it's very important that we're taking measures to address perceptions of transshipment even if there is no clear evidence that that is happening. I think what the government has done on steel and aluminum is doing that, is sending that signal, and it will help the industry and, hopefully, insulate us from future U.S. actions.

[The Chair, Liberal, Mark Eyking]

Thank you, sir.

We're going to move over to the Conservatives.

Mr. Carrie, you have the floor.

[Colin Carrie, Conservative, Oshawa, ON]

Thank you very much, Mr. Chair, and I thank the witnesses for being here. I have so many questions that it's hard to know where to start.

Brian and Mathew, I've been doing a lot of round tables with manufacturers. I hear over and over again that some companies are right at the precipice of maybe closing up or moving their business. One guy put it to me this way. He said, “Look, Colin, I can handle good policy and I can handle bad policy, but I can't handle the uncertainty.”

Even though this is not a perfect deal and, as Randy was saying, there are still issues with fabricated steel, buy American provisions and softwood, what do you think the consequences would be if we weren't able to ratify this as far as that uncertainty question goes?

Brian, perhaps you could start.

[Brian Kingston]

Our worry is that if this deal doesn't get ratified, and particularly, if the President feels frustrated with Democrats, he may decide to withdraw from NAFTA. I still think there's a very real risk of that happening.

It then becomes an open question of what we return to. There's a legal debate under way about whether we would go back to the Canada-U.S. FTA or go to nothing at all. We know the U.S. business community is prepared to launch legal challenges in that event to try to delay it, but I would not downplay that risk. It's still a huge concern for business. Then we'd revert to WTO tariffs, and that would be disastrous for the Canadian economy, for companies that depend on access into the U.S.

That uncertainty continues to hang. That's why we want to see Canada ratify, Mexico ratify, to get this behind us and get into 2020 with, hopefully, no discussion of North American trade in the presidential elections.

[Colin Carrie, Conservative, Oshawa, ON]

Mathew.

[Mathew Wilson]

The WTO bound rates for tariffs really aren't that high, so you'll hear about the impact being very minimal. I heard it out of Global Affairs when NAFTA was first being renegotiated, to not worry, that it's a small amount, 1.5% on average or something like that.

That's not the problem. The problem is all the trade rules that come with NAFTA. Take, for example, the business visa that you talked about earlier. If that goes away, we're in very deep trouble.

It's not just the bound rates and the tariffs; it's all the other uncertainty, the rules we trade by. That's what matters.

[Colin Carrie, Conservative, Oshawa, ON]

That's what I'm hearing over and over again, that we have to get some of that certainty back.

Can you comment on the relationship with the United States? Mathew, you said if we have a free trade agreement, we should have a free trade agreement. But I've heard some complaints that the U.S. is going towards managed trade. We've seen the use of tariffs, quotas and these types of things.

We didn't have that with the original NAFTA. In my community, of course, there's the auto sector, and the quota situation. There are questions about that and what it means.

Are you seeing a move towards this institutionalization of tariffs and quotas with the United States? What does that mean in our trading relationship?

[Mathew Wilson]

What we hear a lot about is unfair trade with the United States. I think we've done a decent job—and we can always do better—at talking about how Canada is not that. It's very different in Canada—and Mexico, in the same way—from what their trade relationship is with Vietnam, China, Brazil, Russia, eastern Europe or anywhere else. We are a level playing field with them. We build stuff with them to compete against all those countries together.

I think that's what separates us from everyone else. When we hear these conversations about managed trade, controlling trade, we need to get inside that discussion and say, “We have exactly the same problems you have. We are getting stuff dumped into Canada from a lot of those same markets. How do we work together, not to protect our markets, but to be treated fairly by those other countries?”

That's why it's so important to get that competitiveness chapter inside the CUSMA going. It's going to look at those global problems that manufacturers, the integrated economies, have and how we can work better together to compete against the rest of the world.

I don't see it as a problem with Canada, but it could be a significant problem if we don't stay on top of that discussion in terms of the integrated nature of our economies and how important it is that we work together on those problems.

[Colin Carrie, Conservative, Oshawa, ON]

I agree. You mentioned this coordinated trading bloc. I think for decades we've been moving towards more integration, regulatory co-operation. There was a feeling for a while that Canada was on team North America, and with these section 232s and stuff, the feeling was that we weren't.

Getting on to that question about the section 232s, I believe there was $2 billion collected, tax dollars, with the tariffs, and it hasn't been disseminated. It was supposed to help out the companies that were really affected.

Can you comment on what should be done with that money and who it should be going to?

[The Chair, Liberal, Mark Eyking]

Make it a short answer, please.

[Mathew Wilson]

It should be going back to the people who paid it, for example, the steel producers and the people who are making the steel. That's where it was supposed to go in the first place, to help them invest in technology and production capacity.

[Colin Carrie, Conservative, Oshawa, ON]

That would be nice to see.

[The Chair, Liberal, Mark Eyking]

Thank you, Mr. Carrie.

Ms. Ramsey, you have three minutes.

[Tracey Ramsey, NDP, Essex, ON]

It's so difficult to do something in three minutes.

This renegotiation is a once-in-a-lifetime opportunity. In my neck of the woods, in southwestern Ontario, we saw over 400,000 manufacturing jobs bleed out of our country over the course of NAFTA. It has had a very real impact on people, on my community, on people who work in the auto sector, as well as in other manufacturing. There's a lot of anxiety right now about what is happening around this deal, and the things that, quite frankly, the Liberal government won't even discuss with people are what's causing a lot of it.

I want to talk a bit about enforceability and the work that's being done in the States around the Democrats. We need effective enforcement tools, not just for labour and the environment, which are certainly incredibly important, but across the entire agreement.

If we don't have enforceability, which we have seen has been very poor in the original NAFTA, has not worked well, has resulted in a lot of both job and economic losses, we really put ourselves at great jeopardy. I applaud the work the Democrats are doing in Congress to address this critical issue for the entire agreement.

My question is whether you think there's value in waiting for the Democrats to achieve improvement in enforceability, and then Canada being a party to that?

[Brian Kingston]

You've hit the nail on the head with enforceability. That is the critical issue that the Democrats are worried about. They talk about labour and environment, but it's all about being able to enforce the commitments in the agreement.

I've just learned that Mexico has 700,000 collective bargaining agreements, and while they've made changes, really important changes to enhance labour rights in the country, the Democrats are rightfully worried that once this agreement is signed they will lose any leverage to make sure that those 700,000 collective bargaining agreements are actually updated the way they're supposed to be done.

I don't think we necessarily need to wait, though, for the Democrats' process to play out. We should watch it over the next couple of weeks, but we can still move ahead and ratify, because you can address the enforcement issue through side agreements, side instruments. There are ways to make sure that chapter 31, the state-to-state chapter, is enforced and their panel-blocking can occur. It can be done, and I think—

[Tracey Ramsey, NDP, Essex, ON]

However, I think the issue, which the Democrats have raised as well, and so have New Democrats here in Canada, is the fact that the enforceability of side agreements, the eligibility of those, is quite weak. We saw that in the original NAFTA, that when things are in side agreements, we haven't been able to enforce those provisions. That's the fear, that if we add on, after the fact, in side agreements, we won't be able to actually enforce them at all.

[Brian Kingston]

It's a legitimate fear, given the experience of past agreements, but I've seen various proposed texts that would address that and make sure that the agreement itself is enforceable. I think it can be done. There are creative ways to do it and we would support that.

[The Chair, Liberal, Mark Eyking]

We have a slot for one more MP this morning on this panel.

Mr. Hébert, you have the floor for five minutes.