International Trade Committee on May 12th, 2016

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

I just wanted to be clear. Yes, I'm hearing you're for exports, you look forward to the free trade. It just has to be a fair deal and there has to be an equal level playing field. That's good to hear. Thank you for that.

Mr. Faubert, do you have any comments on that?

[Ron Faubert, Representative, Ontario Federation of Agriculture, Essex County Federation of Agriculture]

The level playing field is a big issue. We can be competitive. We've proven that, but we need things to be equal for all of our competitors as well. We have a large export opportunity, for which we keep increasing our production to try to keep our heads above water. The need for those exports is great. That is how we're going to move forward, and that's how we're going to expand.

[The Chair, Liberal, Mark Eyking]

Are you able to elaborate on what sorts of products—Ontario products, and from here in Essex County and Windsor—you can produce competitively and that would benefit from an expanded export market?

[Ron Faubert]

I think the tomato industry has demonstrated that very well. We are very competitive. We produce a larger tonnage per acre locally here than California does, and a very quality product under the restrictions that we have to work with. We are quite capable of doing it. We have everything in place to do that, and we just need to have a home to ship it to, and a processing facility to hopefully process it, with the value added to it so that we can increase our export markets.

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

We would want that processing facility here in Ontario, of course.

Okay, thanks for elaborating on that.

[The Chair, Liberal, Mark Eyking]

You have a minute.

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

I want to get back to Ottawa here, and it's hard not to.

Mr. Chiodo, it's good to have you here because you have some good insight from many perspectives. I wonder if you could elaborate. When I was at Magna, the CAW was still the union that we dealt with all the time, but I think a lot of Ontarians aren't aware that Unifor, in this case, in the auto sector, actually does work hand in hand, in partnership, to make sure there's a viable auto sector in Ontario. You elaborated a little on working with government and how they're trying to work with you to make sure this remains viable.

Can you elaborate more on the partnerships you have with some of the employers your members are employed by?

[Dino Chiodo]

Let's talk about Chrysler corporation first, obviously. We have a very good relationship. We went into bargaining in 2012 recognizing that we had to play a significant role with regard to the investment into our Windsor assembly plant facility. We've entwined and accepted a culture of world-class manufacturing that we didn't understand before. We were the first plant in North America, the first OEM, to become designated as a silver recipient for world-class manufacturing. There were discussions with our CEO, Sergio Marchionne, and governments with regard to getting investment and putting that investment into our facility. He decided to do it alone because of the component of being a political football, so to speak. However, the reality is that we have a great relationship with Chrysler corporation. We've had discussions with regard to where we needed to project ourselves so the company could be viable, the company could do what was necessary in order to make sure that its new launch would take place. Again, that's because we were willing to change the culture of the workforce, and we did just that. And that's one example.

We would do the same with Magna Corporation. We have a plant with 900 employees. We have conversations with regard to changing the culture. They've invested in a new product line within our facility, have paid almost $5 million, and have hired almost 300 new employees, which creates spinoff jobs. And that's because of the relationship between the union and the company. And they couldn't do it alone.

Thank you for the question.

[The Chair, Liberal, Mark Eyking]

We're going to our last MP for this panel, someone who is no stranger to this place.

Mr. Van Kesteren, you're up for five minutes.

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

Thank you all for being here this morning. It's been a great discussion. Congratulations on what's happening in the Chrysler minivan plant. Having been in the car business, I can say that we all know what a great vehicle it is. It's great to see the investment that's been made there.

I listen and it tears me up as much as anybody who lives in this area when I see the erosion of the auto industry. It's evident in Chatham-Kent-Leamington too. But the same thing is happening across the border. I think one has to recognize the fact that a lot of these vehicles you're talking about and a lot of these plants that used to produce vehicles have lost market share. I think about the General Motors transmission and engine plant that produced the three-litre three-speed automatic for the Lumina transmission, which was a great transmission in its day, but it lost market share. The fact of the matter is it's painful to see, but what we once called the Big Three, we now call the Detroit Three. They lost a lot of market share. Wouldn't you agree that there were some big mistakes made in the production of some of those vehicles and that they lost to competition because they just couldn't compete? Isn't that also a large part of the equation?

[Dino Chiodo]

I would disagree with that only because in 2008-09, there was a recession. Some people might not want to consider that, but some people even considered it a depression to an extent. The reality is that the elastic band was stretching. In the States, they call these “NINJA” loans. There were people with no income and no jobs, and they still got loans to buy houses, and the market couldn't handle that. And your SAAR rate went from 18.2 million down to almost 13 million vehicles over the course of the year. That's the seasonally adjusted annual rate of sales.

When you start to see that and the sales begin to drop, I don't think any company was facilitated to maintain that other than companies that had billions of dollars in a bank account someplace that could kind of wobble through it. But the reality is that we're stronger and better than we've ever been. We have month-over-month sales increases over the last sixty-five months. We just talked about a first quarter with one of our highest earnings, in which incomes for the company, I think, were over $500 million. Some great things are happening, and again, they did that alone. When you really take that into consideration with regard to the investment at the Windsor assembly plant, I think it's a great thing. Also, they paid back the loans from the government from back in 2008-09 within a few years.

I think they did some amazing things. I think they're on track and I think they're going to continue to be on track because they have a plan in place to be able to maintain that.

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

Let's leave those others alone.

I think we agree. You're pretty much substantiating what I'm saying. The fact of the matter is that a really great van is being built here in Windsor and it's being put together by people who really do it right, and the result is that the consumer out there wants the vehicle.

I'm listening to what you're saying. It's obviously not the first time we're heard that we feel we need to protect our markets. Are you concerned at all about what's happening across the border with the potential election of a president who is talking about even tougher tariffs than what the union is talking about on this side of the border?

[Dino Chiodo]

What I'm concerned with right now is that we have politics going on in the United States and the reality is that I can't change what the dynamic is going to be on that side. What I do know is when we have a bad deal in front of us.

What I also know, from a 2016 report by Jim Stanford, is that Canada's average annual trade performance is better with nations when there is no free trade agreement in place. We have that document. He's an economist. Other economists support that initiative. Canada's exports to FTA partner countries grew, not including the United States, by only 1.2% annually, while exports to non-FTA partners grew by 6.8% annually. That's between 2001 and 2014. That should tell you volumes that free trade agreements do not work. Again by extension, manufacturing exports to FTA partner countries declined by 0.3% each year, yet manufacturing exports to non-FTA partner countries grew by 4.2% each year.

Those are dynamic numbers that prove that free trade agreements just don't work, not the way they're being negotiated today.

[The Chair, Liberal, Mark Eyking]

Mr. Van Kesteren, your time is way over.

We'll have to end it there, and we'll have to end our panel there. It's been a good discussion with lots of information, and I thank the panellists for coming and giving us submissions and the good questions by MPs.

We're going to suspend now for just 10 minutes because we ran a little over time.

[The Chair, Liberal, Mark Eyking]

We're going to start our second panel of the morning here in Windsor and continue our consultation process on the TPP.

With us for our second panel we have the Cross-Border Institute, the Linamar Corporation, and the Windsor-Essex Regional Chamber of Commerce.

Welcome. It's great to be in your city. We had a great evening here last night. We're enjoying all the flowers that are so early here. Where I come from, we're just putting away our snow blowers, so it's great to be here.

We'll start with five minutes for the Cross-Border Institute. Mr. Anderson, go ahead, sir.

[William Anderson, Director, University of Windsor, Cross-Border Institute]

Thank you for the opportunity.

My comments today address the question of whether the Government of Canada should ratify the Trans-Pacific Partnership in the case that the United States also ratifies it. If the U.S. were not to ratify, the TPP would effectively be dead, so there's no need to discuss what Canada should do in that case.

If the U.S. ratifies then Canada is faced with a choice between two outcomes. The first is Canada being in the agreement, with the U.S. in; the second is Canada being out, with the U.S. in.

This means that there are certain issues of importance that are outside Canada's decision space. For example, some might argue that the TPP dilutes the privileged access to the U.S. economy that is currently enjoyed by Canada and Mexico under NAFTA. If the U.S. is in, however, Canada does not have the power to change that situation. Expanded access to the U.S. market occurs whether Canada is in or out. So I think it's more constructive at this point to discuss outcomes that depend on Canada's ratification decision.

There has been a lot of discussion around the rules of origin in the automotive sector, where the current requirement of 60% or more of NAFTA value content will be replaced with a requirement of only 35% to 45% of TPP content. This places more competitive pressure on Canada's automotive industry in both parts and assembly. However, consider what happens if Canada is out while the U.S. and Mexico are in. Cars and parts could receive national treatment in the U.S. and Mexican markets with 45% or less TPP value content, while they could only receive national treatment in the Canadian market with 60% or more NAFTA content.

In these circumstances, automobile assemblers with plants in the U.S. and Mexico wanting to sell cars into Canada would have three options. They could pass up the TPP rules and continue under the NAFTA rules. They could run separate production lines for cars destined to Canada, or they could adopt the TPP rules and pay the MFN tariff on cars exported to Canada. The third option seems the most likely.

Canadian auto parts manufacturers will continue under NAFTA rules of origin, with Canada out and the U.S. in. Parts production in the U.S. and Mexico will source under TPP rules, so their costs will almost certainly be lower. Furthermore, auto assembly in Canada would be subject to NAFTA rules of origin, while U.S. and Mexican assemblers could take advantage of the TPP rules, creating a competitive disadvantage for Canada. Thus, it's hard to see how either the Canadian automotive industry or the Canadian automotive consumer will benefit from Canada's staying out of the TPP if the U.S. and Mexico are in.

I want to stress once more that the point I'm making is, what's the situation if the U.S. and Mexico are in and Canada is out? That is different from the issue of having no TPP and having a TPP? That's a very important point.

I want to turn broadly to the potential for the TPP to open up new markets for Canada's international trade. For context, it's frequently noted that the potential TPP members account for 40% of world GDP—but bear in mind that 62% of the combined GDP is in the U.S. alone. Combining the U.S. and Japan brings us up to over 78%. Canada is actually the largest of the remaining potential members in terms of GDP, so when you add Canada to the U.S. and Japan, you have 85% of the TPP area GDP, which leaves only 15% of the TPP GDP, or 6% of the world GDP, in countries other than the U.S. and Japan that Canada can trade with.

At least in the short run the two most important questions are whether ratifying TPP will be beneficial to Canada's trade relationship with the U.S., and whether there are substantial benefits to liberalizing trade with Japan via the TPP. Given the limited time I'm just going to focus on the second question.

While Japan is now a slow-growing economy, it's very large, and its potential for trade expansion with Canada is great. Canada's trade relationship with Japan is currently based on Canadian exports of resources and agricultural goods, and Japanese exports of manufactured goods, with a substantial deficit for Canada.

Some of the largest tariff reductions in the TPP are in agriculture, so TPP membership could help Canada increase exports to Japan and reduce that deficit. There may also be potential for trade expansion outside the traditional pattern of Canadian resources for Japanese industrial goods. A recent report by McKinsey highlights that Japan is an important market for Canadian aerospace and financial services. More generally, Canada, with its more open immigration policy, has a comparative advantage in terms of the stock of skilled labour, thus sourcing from Canada may benefit Japanese businesses that are struggling with a contracting labour force.

Finally, while rapidly growing countries such as Malaysia and Vietnam make up a relatively small share of current TPP area GDP, their importance will increase in the future. This is the case not only because they will grow faster than the U.S. and Japan, but also because their number is likely to increase as more countries join the TPP. For example, the leader of Indonesia, with a population of 255 million, has expressed interest in eventually joining the TPP. The point is that it would be much easier for Canada to gain access to the Indonesian market as a TPP member than by negotiating a bilateral trade agreement.

To sum up, while there are elements of the TPP that are not especially favourable to Canada, under a scenario where the U.S. ratifies it, I believe it's in Canada's economic interest to ratify the TPP.

Thank you.

[The Chair, Liberal, Mark Eyking]

Thank you, sir, and thank you for a very informative presentation.

We're going to move on to Linamar Corporation. We have Ms. Hasenfratz.

Go ahead for five minutes.

[Linda Hasenfratz, Chief Executive Officer, Linamar Corporation]

Good morning. It's a pleasure to be here.

I'll start with a few quick words about Linamar. We're a diversified manufacturing company, primarily in the auto parts business. We also supply commercial vehicles, off-highway vehicles, energy markets, and access equipment under the brand name Skyjack, where we make scissor lifts, boom lifts, and tele-handlers. There's one out front, thank you very much. In our vehicle business, we manufacture precision metallic components and subassemblies. We're mainly a machining and assembly company, but we've expanded recently into casting and forgings as well. We focus on the engine, transmission, and driveline systems of the vehicle as well as the body.

In 2015 sales for Linamar were $5.2 billion. We should be over $6 billion this year, which would be a new record for us. Our current forecast for 2020 is to continue to grow our business both globally and right here in Canada. We're currently booked for $7.7 billion out in 2020. We have 24,000 employees. We're manufacturing in 11 countries in 57 facilities. The largest by far is right here in Canada. We have more than 9,000 employees and 23 plants in Canada, which has grown significantly over the last five or six years as well.

I think that there is a lot of rhetoric, which I'm sure that all of you have heard and read about, that Canadian manufacturing is not competitive. I have to say I completely disagree with that premise. I think that competitiveness drives out of two key factors.

One is innovation in the products that we're designing, the processes that we design to make those parts, and the efficiency with which we run our operations. When I look at our costs in Canada, they are globally competitive. We manage our labour costs very carefully and we're constantly working to improve productivity every single day through the ideas of every single employee on how we can do things better.

Our labour burden rates, if we look at the combinations of statutory and non-statutory burden rates, are the lowest here in Canada as a percent of our labour costs than in any of the countries we operate in globally. Our productivity, our efficiency, and our purchasing strength in our Canadian operations are by far the best that we have globally. Certainly our Canadian plants are our most productive globally.

Other benefits are here in Canada. Our taxes are lower than in the U.S. and many of the other jurisdictions that we operate in. The support that we are getting from our government is fantastic in terms of SR and ED tax credits as well as in other ways our government is helping to support innovation. In fact, our SR and ED system is one of the most beneficial globally, I think only surpassed by France, in terms of support for innovation, which again is so critical to competitiveness.

So the bottom line is: are we winning business or not? The answer is, absolutely. We're winning hundreds of millions of dollars of new business for our Canadian facility. In fact, in the last three years, we have won $2 billion of annual sales for our Canadian facilities alone. More than half of that was well before the Canadian dollar moved to where it is. The Canadian dollar has very little impact on our business.

If I look back over the last several years since 2009, we've increased our sales just in Canada by 160%. That's almost three times. We've grown our Canadian employee base from 5,000 employees to more than 9,000. We've spent over a billion dollars in new capital just in our Canadian facilities and we've improved our productivity by 50% in that time frame, which, as noted, is our best globally.

To me it's really frustrating to hear these constant reports saying that Canadian manufacturing is not competitive, that we're shrinking, that we're not investing, and that we're not productive—that last one really upsets me—when that's absolutely not our story. I know it's not the story of a lot of other great companies. I think we should spend a little bit more time talking about the positives that can help inspire people to do the same, instead of telling ourselves that we're not productive, which doesn't inspire anything but maybe depression.

We will continue to invest hundreds of millions of dollars in our Canadian plants. We have an enormous amount of work that we're launching right now in our plants here in Ontario.

I am now going to talk about trade. How does trade fit into all of this?

[The Chair, Liberal, Mark Eyking]

Sorry, go ahead, but you have to wrap up. You only have a minute.

[Linda Hasenfratz]

I believe an important area to our prosperity and global competitiveness as a country is free trade agreements. I think we've made great progress in Canada in trying to open Canada to the rest of the world, and to enhance that with free trade agreements with Europe and South Korea, and with the TPP. I think that having bigger markets to buy from and sell to create more opportunities, and more opportunities mean more chances to grow our business.

Approximately 90% of what we make in Canada ships to the U.S. Without free trade, our story would be different. Free trade agreements have been critical in the decision-making of auto makers on where they put plants. For instance, BMW and Audi have put vehicle plants in Mexico in the last few years, with 100% tied to their access to global markets.

I think signing on to TPP is absolutely critical for a couple of reasons. To be left out of an agreement that covers 40% of the world's economy would be nothing short of a disaster, particularly if the U.S. is signing on and key competitors to all areas of our business are in this agreement, and we're not.

It's not just on the automotive side—although that would absolutely be the case in this sector—but also in terms of Skyjack. Our two key competitors are U.S. companies. If the U.S. signs on and we don't, that's a disaster for our Skyjack business. Even if the U.S. doesn't sign on, we should still sign on because it would give us an advantage over the rest of the world. I think that's key.

There's a lot of talk about Canadian content and local content, but to be clear, Canadian content requirements in NAFTA are zero. Canadian content requirements in TPP are zero. We've won billions of dollars of work for our Canadian plants, not because of protectionist trade policies, but because we're competitive, innovative, and efficient. That's what wins business, not trade policies that try to protect.

Thank you.

[The Chair, Liberal, Mark Eyking]

It's good to hear some positive stories out there. We're going to move on to the Windsor-Essex Regional Chamber of Commerce.

Go ahead, sir, for five minutes.

[Matt Marchand, President and Chief Executive Officer, Windsor-Essex Regional Chamber of Commerce]

I want to thank the committee, and I particularly Tracey Ramsey and Cheryl Hardcastle, for inviting me here today. It's good to see Dave here as well and former Minister Gerry Ritz.

My name is Matt Marchand. I am the president and CEO of the Windsor-Essex Regional Chamber of Commerce representing over 800 employers and 30,000 employee members with billions in sales. I was educated here and at the London School of Economics in London, England.

The lack of transparency during negotiation of the TPP was a source of frustration for many stakeholders, so thank you for the opportunity to participate today.

We are the epicentre of business, trade, and tourism, and we host the two most important economic sectors in the country—auto and agriculture. Depending on how you measure it, these are the number one or number two industries in Ontario that drive our economy.

Automotive could be described as the family jewels of Ontario with over 100,000 employees and $100 billion in trade related to auto. There are approximately 800 suppliers of auto and auto-related parts in Ontario, many of which are small to medium-sized with about 100 located in the Windsor-Essex area along with FCA, which directly employs over 6,000 at our Pacifica plant.

We also host Canada's most important trade corridor in North America, with nearly one-third of trade, hundreds of millions of dollars per day, supporting tens of thousands if not hundreds of thousands of Canadian jobs, so we certainly understand trade down here.

The Windsor-Essex Chamber does have serious concerns related to TPP in its current form, particularly as it relates to auto.

Canada is falling behind the lucrative auto sector globally. Our production, employment, and investment are falling both relatively and absolutely as measured against global investment. Auto is a large funder of the economy of Windsor-Essex, Ontario, and Canada.

The TPP is a comprehensive 12-country, 6,000-page trade agreement. The Windsor-Essex Chamber recognizes that some sectors and some employers in different regions of Canada do have the potential to benefit from TPP. However, the auto sector, Canada's largest and most valuable export sector, does have significant exposure.

I am familiar with the testimony of Dianne Craig, president and CEO of Ford, and Caroline Hughes, VP Ford Canada from March 8, 2016. I have it with me right here. Not only the Windsor-Essex Chamber but also chambers across Ontario support their views.

Chambers across Ontario just had our AGM at which we passed a resolution to address the fundamental concerns that Ford and many others in the auto community have with respect to the TPP. They are currency manipulation, tariff phase-out, and content requirements. We've all had discussions about those. I'm not going to get into them at the moment to burn time, but I will speak about them after.

I would respectfully request that the Ontario Chamber resolution be part of the official record, and I have a copy with me.

It is worth restating to the committee, though, the words of Dianne Craig as the CEO of Ford Canada:

The TPP auto terms will not increase Canadian...exports in any meaningful manner, but instead will put Canada's...manufacturing footprint at...risk.

I would also emphasize the comments of Flavio Volpe from the APMA, who on March 8, when asked if SMEs in the auto sector would experience job loss as a result of the TPP, answered “Without question.”

Let me add one more layer on top of this: the rising cost of doing business in Ontario. I have seen little commentary on the rising cost of business in Ontario in the record. Let me share with the committee the concerns of the chamber network. Ontario's electricity costs have tripled in the past 15 years and are getting higher. In fact, that's the number one issue that our business community faces across Ontario. Aggressive U.S. and other jurisdictions are actively courting southern Ontario businesses, including those in Windsor-Essex, to leave and are using our rising cost structure as leverage.

Windsor-Essex and Ontario business communities will have additional cost burdens facing them when the Ontario pension plan is introduced in 2018 and cap and trade is introduced in 2017. In addition, the province has undertaken a workplace review, which means more regulation and potential costs.

Many countries and jurisdictions that Canada and Ontario compete with did not have these costs, or worker safety regulations or environmental and social responsibilities. We need to ensure that we compete on a level playing field and not be in a position where we are exporting production and jobs to jurisdictions with different sets of rules.

Other jurisdictions that are successful in attracting and retaining auto investment view auto as a strategic asset. I want the committee to remember those words: “strategic asset”.

Here's what today's front page of the Windsor Star says:

Business, labour and academia came together yesterday, including Perrin Beatty, my national president, and Jerry Dias, national president of Unifor. We called for an executable automotive strategy that other jurisdictions have—

[The Chair, Liberal, Mark Eyking]

Excuse me sir, can you wrap it up with a conclusion.

[Matt Marchand]

Sure.

What can the government do? In once sense, I think we should look at past things and put TPP aside in the interest of time. I would suggest that the government look at doing what we can do right now without international trade agreements. One is to pass PACA, something that Perrin Beatty has requested at the agriculture committee—and I see Gerry Ritz and Dave Van Kesteren sitting here—and to pass sports betting, which would help our region as well.

In conclusion, layering TPP in its current form, on top of the existing rising cost environment in Ontario, sets us on an uncompetitive and damaging economic path—not just for Windsor-Essex, but with implications across Ontario and Canada.

[The Chair, Liberal, Mark Eyking]

Thank you.

Before we go to questions from the MPs, I have one question for Ms. Hasenfratz.

What does SR and ED mean?