International Trade Committee on Feb. 16th, 2016

[The Chair, Liberal, Mark Eyking]

Thank you, Mr. Morrison.

Thank you, Mr. Hoback.

We're going to the Liberals now, with Mr. Dhaliwal.

[Sukh Dhaliwal, Liberal, Surrey—Newton, BC]

Thank you, Mr. Chair.

Thanks to all the talented officials who are here giving us the outlook about the trade perspectives.

I was in British Columbia last week. I had the opportunity to listen to many stakeholders. Even though they were very supportive of the TPP, the first priority that came from them was the softwood lumber agreement.

My question is for you, Mr. Morrison. Can you give us a little bit of background? You said that the U.S. is one of the biggest partners from that perspective as well, and that's what they've said. When it comes to softwood lumber, we are also expanding our markets to China and Korea. Can you give an overview of what percentage of trade we have particular to that with the U.S. and the other countries?

[David Morrison]

Again, I get to do the nice bits and Kirsten gets to do the bits where things aren't unrolling as maybe we'd like, so it's over to Kirsten.

[Kirsten Hillman]

Thanks.

With respect to the softwood lumber industry and our relationship with the United States, the U.S. is by far Canada's largest export destination for softwood lumber, and B.C. is the largest supplier of softwood lumber to the United States. Sixty-six per cent of Canada's softwood lumber exports go to the U.S., which in 2014 represented 5.5 billion dollars' worth of trade, of exports.

While I have the floor on this, maybe I can give you a bit of an update on where we're at on the softwood lumber agreement.

[Sukh Dhaliwal, Liberal, Surrey—Newton, BC]

That's what I would like to hear.

[Kirsten Hillman]

The 2006 softwood lumber agreement expired in October of last year, and we are now in a period of what's called “a litigation standstill”. The softwood lumber agreement is essentially an agreement that sets out managed trade between the two countries. With the expiry of the agreement, we are in a period of free trade between the two countries, but free trade with an understanding that there will be no legal challenges with respect to that sector for one year.

During that time, we are working hard to negotiate a new softwood lumber agreement. We have broad support across the country from all provinces and broad support in the industry to undertake these negotiations. We're working hard to do that. We're engaging very closely with the United States on that now.

That being said, we're not going to take any deal; we're only going to negotiate a deal that makes sense for us and for our industry. It's a very important and economically significant task, and we are putting a lot of attention into it at this time.

[Sukh Dhaliwal, Liberal, Surrey—Newton, BC]

Under these circumstances, as you mentioned, we are in a stage where there is a litigation stay. U.S. companies would love to do that. How are we going to avoid that? What exactly can we do to give our Canadian stakeholders the assurance that they will not be fighting litigation and spending all the money that they could divert to some other sources?

[Kirsten Hillman]

The only sure way to avoid litigation is to negotiate a new deal, to be very blunt with you. We have for a very long time gone through these cycles of litigation and negotiation, as you well know, being from B.C. in the softwood lumber area. Ideally, we would like to negotiate a successor agreement before the standstill period runs out, but that being said, it has to be the right agreement. There will have to be an assessment as we move along that we have the right agreement, one that is worthy of our concluding, and we'll of course then avoid the litigation.

That's the point of the agreement. The agreement is there to replace free trade, if you will. It establishes managed trade and therefore avoids litigation.

[Sukh Dhaliwal, Liberal, Surrey—Newton, BC]

When it comes to two provinces, Quebec and B.C., when you are negotiating this, are there any implications that could be hard on one province or the other?

[Kirsten Hillman]

I guess the first thing I should say is that in this process of managing this particular file, we work hand in hand with all provinces. It's true that Quebec and B.C. have the largest economic softwood lumber relationship with the United States, and their views are very important as we move this forward.

If your question is whether it is possible to find a deal that satisfies everybody, in my experience as a negotiator that's almost never possible in life. It can be quite challenging to do that, but we work to find the very best deal for the whole country. That's our mandate, and that's what we do. We've succeeded in doing that in past iterations of this agreement. It's never perfect. It's never as good as people would want, but it's never as good as the U.S. would want either. That's the nature of a negotiation. We try to find something that both can live with and is a fair deal within Canada and with the United States.

[Sukh Dhaliwal, Liberal, Surrey—Newton, BC]

Is there anything to do with pricing and quota that will affect any of the provinces across Canada?

[Kirsten Hillman]

It's too early to say.

[Sukh Dhaliwal, Liberal, Surrey—Newton, BC]

Good. Thank you.

[The Chair, Liberal, Mark Eyking]

Thank you for your questions.

We're going to move to the NDP. Ms. Ramsey, you're up next for six minutes.

[Tracey Ramsey, NDP, Essex, ON]

Thank you so much for your report today. I really appreciate the information.

We heard, from reports on CETA's scrubbing phase, our European partners are pushing to replace the ISDS with ICS, the court system. This was in part due to growing public concern among Europeans over empowering corporations to sue governments for creating regulations that interfere with profits. In your opinion, will the revised ICS provisions better serve the Canadian public interest than the previous ISDS provisions?

[Steve Verheul]

It's true we are working with the Europeans at this point to revise some of the investment provisions. There are really two parts to this.

The first part is that we're clarifying some of the provisions in the agreement with respect to the obligations to ensure that the government's right to regulate is not interfered with by investor claims that could affect that ability to regulate. Most of those provisions are going to be described as “provisions for greater certainty”, in other words, to make it very clear to any kind of arbitration process what we intended when we negotiated the agreement.

A second part of this relates to the process itself. You mentioned the investment court system. The EU has proposed that to the U.S. in the U.S.–EU negotiations. They've not proposed that system to us.

We are working on a system that would be somewhat different from what is in the CETA now, particularly with respect to the selection of arbitrators or members of a panel. We're also looking at whether we can advance the process toward having an appellate mechanism, which is currently mentioned in CETA as a future work program. We're looking at whether we could have that implemented when CETA comes into effect. Those are the issues we're working on with the Europeans right now.

[Tracey Ramsey, NDP, Essex, ON]

I have a few more questions along the same line.

Are there specific exemptions in CETA for regulations on the sensitive areas of public interest, such as climate change action or water?

[Steve Verheul]

There are some existing exemptions now when it comes to areas like expropriation in particular, where we've exempted issues related to the environment and social services and various other issues of that nature. I don't think we have mentioned water specifically, but we have various protections for water throughout the agreement, which would also have a bearing on that.

[Tracey Ramsey, NDP, Essex, ON]

Since the election, have you received any instructions from the current government to take CETA in a new direction, be it on ISDS or any other areas of CETA?

[Steve Verheul]

I wouldn't call them instructions at this point. We've certainly had a dialogue about potential improvements that could be made with respect to the approach to investment in CETA, and that's what we're exploring with the Europeans now. Clearly the EU first came to us with some of these concerns because of the political situation regarding those issues in the EU. We have had an interest on our side in seeing whether we can make some improvements in light of that. That's been supported by the government.

[Tracey Ramsey, NDP, Essex, ON]

Was there ever any discussion about eliminating ISDS and ICS provisions altogether, given that investors can already seek recourse in domestic courts?

[Steve Verheul]

No. There hasn't been a discussion of eliminating any kind of avenue for investors to pursue potential claims because you can't pursue those kinds of avenues through domestic courts. Domestic courts have no authority to adjudicate obligations in international treaties. If we're going to have any kind of form of redress for breach of an obligation in the investment treaty, we'd have to go to some other mechanism like an investment dispute resolution process.

[Tracey Ramsey, NDP, Essex, ON]

My other question is about CETA as well. Regarding the protection of patents for pharmaceutical products, the technical summary of the Canada–EU CETA stipulates that Canada's federal government is prepared to address incremental cost impacts if concessions to the EU in this area have a financial impact on provinces or territories.

How would incremental cost impacts be assessed, and by whom?

[Steve Verheul]

That's an issue we're continuing to work on, and this is in conjunction with other departments that are more directly involved in the pharmaceutical area. We have been doing an evaluation of the potential costs and doing some modelling of what the expectations would be for those costs. There will also have to be a discussion with the provinces and territories to get their perception of what kinds of cost increases they could expect. We'll have to come to an understanding following that.

[Tracey Ramsey, NDP, Essex, ON]

What mechanisms could be used by Canada's federal government to address the incremental cost impacts?