International Trade Committee on May 12th, 2016

[Linda Hasenfratz]

We look at innovation as being two parts. In the products that we're designing, we try to solve market issues, for instance, fuel efficiency and lower emissions. We're redesigning products to try to reduce emissions and provide fuel economy. That brings our customers back because we're helping to solve problems that they have or helping them to do something that their customers are looking for.

Then there's innovation around process, and we're trying to manufacture those components for the very best costs and best reputability, quality, and technology. If we can do all those things, we're solving industry issues, we're reducing costs, and we've got a compelling reason to bring our customers to us. That's why I'm saying that innovation is so critical to competitiveness. Then of course efficiency is critical, how you're running your operation and how you're managing your labour costs, and your relationship with your labour is critical. Purchasing, planning, and continuous improvement to be constantly trying to drive costs out and find better ways to do things is absolutely critical to staying competitive.

[Linda Lapointe, Liberal, Rivière-des-Mille-Îles, QC]

Thank you very much. That's very interesting. We could certainly talk about it some more.

That said, I have a question for Mr. Anderson.

We all know that there is a presidential election now in the United States. Depending on the outcome of the election, we may end up having to hold another round of negotiations for the Trans-Pacific Partnership. You talked about the need to participate if the United States does too. If renegotiations were possible, what would you like to see changed in the agreement as drafted right now?

[William Anderson]

I don't know that I would necessarily change the rules of origin. I think in terms of the phase-in, obviously the phase-in deal that Canada got was not as good as the phase-in deal that the United States got. Of course, that was a phase-in on a 6.1% tariff for Canada versus about a 3.1% or something like that for the United States. In some sense that balances out.

On the rules of origin, I think it would probably be better for the automotive industry in Ontario if you could get those percentages up a little bit. However, you have to look at that in the light of other global arrangements, for example.

One of the ones that I've studied is the ASEAN economic community. Those sort of 35% to 40% types of regional value content rules are kind of what's the standard in those, whereas, if you look at the west, the NAFTA, or the European Union, 60% is more typical for that. In some sense, it's a bit of a compromise among the countries from the different regions that are in the agreement.

[Linda Lapointe, Liberal, Rivière-des-Mille-Îles, QC]

Thank you, that's very interesting.

Mr. Marchand, earlier you talked about the manipulation of currencies. I would like to know specifically which countries you were referring to.

[Matt Marchand]

Many countries globally have the ability to manipulate their currencies vis-à-vis their central bank. The TPP does not necessarily have enforceable mechanisms by which you can prevent that.

You've read stories about China, for example, devaluing its currency, and Thailand with the baht. All sorts of examples globally have happened over the last 10, 20, or 30 years involving currency manipulation. I don't think countries put out a news release to say, “By the way, we're doing this”, but it happens globally, and it's something we have to take into account when doing international trade deals; there is no question about it.

[The Chair, Liberal, Mark Eyking]

The time is up for Madame Lapointe.

We're going to move over to the Conservatives for five minutes, and Mr. Hoback.

[Randy Hoback, Conservative, Prince Albert, SK]

Mr. Marchand, do you know of any other trade deals that have made dealing with currency manipulation enforceable?

[Matt Marchand]

The TPP is a wide-ranging deal across—

[Randy Hoback, Conservative, Prince Albert, SK]

There are lots of countries with trade deals, and not only Canada is involved, but the U.S. is involved with other deals, with Mexico. Do any of them have currency manipulation charters in them?

Once you do that, everybody worries about loss of sovereignty. If you were to negotiate it into your TPP, we'd have Canadians screaming about the loss of sovereignty of our central bank.

[Matt Marchand]

Well, I can throw it back at you. Why would you get into an agreement with someone who can devalue their currency and make themselves more competitive?

[Randy Hoback, Conservative, Prince Albert, SK]

They can do it right now, today, if they so choose. Whether it's a trade agreement or not, if they want to devalue their currency to make themselves competitive on the global stage, if they're going to go down that avenue, what do you do? The IMF has policies in place, but that's basically all you have. Whether it's in a trade agreement or not is irrelevant, because they can still do it in or out of a trade agreement.

[Matt Marchand]

Yes, but if you do it within a trade agreement, now you've legitimized it and have a set rules of trade.

[Randy Hoback, Conservative, Prince Albert, SK]

You still have the IMF policy; it can actually go in to try to regulate it.

The reality is, countries are not going to give up that sovereignty of their central bank, so it's hard to say we're going to have currency manipulation because of TPP, when it's already happening and we're already complaining about it.

To me it's rather a wash, because unless you decide on the IMF side of it how you are going to deal with China and the way they regulate their currency in other countries, and start putting in really strong regulations at that level, which I don't think the U.S. would ever agree to, you're not going to see it happen. So whether it's in TPP or in NAFTA or any other agreement....

[Matt Marchand]

NAFTA is only three countries, and the FTA was only two countries. What I'm saying is, why would you, as a decision maker, put yourself in a position in which you're going to be dealing with people knowing that they're going to have another set of rules, different from ours?

[Randy Hoback, Conservative, Prince Albert, SK]

I guess what I'm saying is that they're going to do what they're going to do, whether in the trade agreement or not. If you are not within the TPP, you're still going to have to compete with them, while they will have the ability to do that currency manipulation, so—

[Matt Marchand]

Why would you compete with them, knowing that—?

[Randy Hoback, Conservative, Prince Albert, SK]

We already are today.

[Matt Marchand]

But why would you go one step further?

[Randy Hoback, Conservative, Prince Albert, SK]

One thing about going a step further is that you're at least getting a balance in your trade agreement, so you're getting market access that's equal and equivalent, that's equal on a level playing field, so that a company like Linamar doesn't have to overcome a tariff to go into a country that somebody else has preferential access to.

For example, if the U.S. signs on to TPP and Canada doesn't, and they're going to compete out of Canada into Japan—that might not be a good example, but I'll use it for an example—they need to have market access equivalent to what they would have in the U.S.

The U.S. isn't looking at currency manipulation, and I find that really interesting, because Ford, out of the U.S., actually backs this deal. In fact, Ford out of the U.S. are the ones encouraging Korea and the U.S. to do a trade deal, yet they come into Canada and say that Canada should not do a trade deal with Korea—

[Matt Marchand]

Well, I have to disagree with you. Hillary Clinton and Donald Trump have both made currency manipulation a key issue.

[Randy Hoback, Conservative, Prince Albert, SK]

Hillary Clinton started TPP when she was secretary of state.

[Matt Marchand]

I'm just explaining what you're saying right now. She is concerned about currency manipulation, as is Donald Trump. One of those two is going to be the next president.

[Randy Hoback, Conservative, Prince Albert, SK]

Yes, and that's fair, and it's going to be interesting to see, if they rip up NAFTA too, what impact that has.

I'm going to move on. We talked about electricity costs, pension costs, cap and trade. These are things that the Ontario Liberal government has done here provincially. How has that affected the effectiveness or the competitiveness of businesses locating in Ontario versus in other jurisdictions?

I'll go to Mr. Anderson first.

[Matt Marchand]

Okay.

[William Anderson]

Right now energy costs are a big issue. I was at the auto summit yesterday, and I think it was the one issue that just about everybody brought up. On the other hand, I would say you could make the argument that the Ontario government is also doing something that the rest of the world needs to do by attacking this. I think the problem is that....

A very good point was made yesterday by a gentleman from the Canadian motor vehicle association, saying that if we make the electricity prices so high in Ontario that we drive producers to U.S. states that use coal-fired plants, then we would actually have the net impact of increasing carbon emissions. I think there needs to be some rethinking about electricity.

There are disadvantages in not having the same access that, for example, Mexico has, and you're always going to have that cost disadvantage. If you then get into a situation such that a Canadian assembly plant is going to sell cars into the United States under NAFTA rules of origin, while a Mexican plant can sell cars into the United States under TPP rules of origin, which would mean they could have some lower price content from some other places, it's going to be one more competitive disadvantage.