International Trade Committee on Feb. 18th, 2016

[The Chair, Liberal, Mark Eyking]

Thank you, Madame Lapointe. Your time is well over, but that is fine; it was a good question.

That's it for the first round. We will move into the second round.

For six minutes, we will go to the Liberals.

Mr. Fonseca, you are up.

[Peter Fonseca, Liberal, Mississauga East—Cooksville, ON]

Thank you, Chair.

Thank you very much, Ms. Hillman, for the broad overview of the TPP and how complex it is.

You spoke to just how diverse our market is here in Canada in all sectors. For many of those the jurisdiction is provincial.

I want to ask a number of questions, but one is with respect to IP.

Drug costs make up about 14% or 15% of the health care costs here in Ontario, and the health care budget is about 50% of the overall budget, so you're looking at about 7% of our budget here in Ontario. How would the increased costs because of the IP extension, the patent extensions, affect a province such as Ontario, or any other province across the country?

[Kirsten Hillman]

Precisely what the drug cost modifications would be is a tricky question. It's an unknown at this time, but maybe I can take a step back for the benefit of the committee.

As in the CETA, the TPP includes provisions that extend the term of protection for patents which can have the effect—not always, but it can have the effect—of delaying the entry into the market of generic drugs. When there is a conversation around whether drug costs will go up, just to bring it back to what the root of it is, there is a commitment, which Canada has made in the CETA and which is also made in the TPP, to allow for an extension of patents for innovative drugs for up to two years, under certain conditions related to the time it takes to get the necessary regulatory permissions for marketing that drug. The comment therefore is that if it takes longer for generic drugs to hit the marketplace and generic drugs tend to be less expensive, that is going to raise the drug costs for Canadian provinces, for consumers, for insurance companies, etc.

When the CETA is implemented, there will, I think, be a study of that, and perhaps before; I'm not sure. The minister and her cabinet colleagues are looking into this. But in that assessment, there are many variables that will come in too.

To get to your question, which is what the increase in costs will be to provincial governments or others, such as consumers and insurance companies, there are many variables that go into it that will have to be assessed: what the drug is; how widely it is prescribed; whether there are other alternatives. There are so many things that go into understanding and being able to assess the impacts that this is not a question that can be answered in the abstract.

[Peter Fonseca, Liberal, Mississauga East—Cooksville, ON]

May I ask if you've met with your provincial counterparts across the country to discuss the various sectors and how they will be impacted by the TPP?

[Kirsten Hillman]

During the negotiations, we worked hand in hand with the provinces. We had representatives from the provinces that we met with before and after every negotiating round and in between negotiating rounds. Many provinces attended negotiating rounds with us. They didn't sit at the negotiating table, because it was federal government to federal government negotiations.

[Peter Fonseca, Liberal, Mississauga East—Cooksville, ON]

This is TPP, not CETA, right?

[Kirsten Hillman]

Right. It's TPP, but the same is true in CETA. They were fully involved. They had full access to everything that was being negotiated. They had full access to me and my team to make sure they understood the implications as the negotiations were progressing. So yes, it was completely in the tent, as they say.

[Peter Fonseca, Liberal, Mississauga East—Cooksville, ON]

Let's focus in on the consumer. The Canadian consumer today is paying whatever they're paying for vehicles, merchandise, food. If the TPP came into force and you took a snapshot, what would be some of the savings? Would you see lower costs for the consumer in Canada?

[Kirsten Hillman]

Hopefully. That's exactly the goal. There are many goals, and that is one of them. It's lower costs for inputs into Canadian manufacturing and supply chains and value chains. It's increased competition in Canada and increased numbers of Canadians selling the services, and investment in goods abroad. Generally speaking, most commentators and those who study these things will tell you that trade improves innovation and ups our game. There's all of these. But yes, lower-priced products and services for consumers is absolutely one of the objectives.

[Peter Fonseca, Liberal, Mississauga East—Cooksville, ON]

Can you single any out? Can you project into the future? If this were to happen, what would be a lower cost for a consumer? Where there's a high tariff, I guess, today.... Is there any one?

[Kirsten Hillman]

That's right. Many of the TPP countries have high tariffs in most manufactured products, electronic products, plastics, chemicals, and agricultural products. Those are a lot of the big examples. It's across all sectors; there's no one sector. Malaysia, Vietnam, and Japan have very high tariffs on many things, but even Australia and New Zealand in some areas have quite high tariffs with respect to some of the products that they export to us in different sectors, manufacturing sectors and others. It's across the board, I think.

[The Chair, Liberal, Mark Eyking]

Thank you.

[Peter Fonseca, Liberal, Mississauga East—Cooksville, ON]

Could I have one more question, Chair?

Just on off-shoring, does this affect off-shoring at all?

[The Chair, Liberal, Mark Eyking]

No, your time is up, and I know you're fairly new at this.

Just so the committee knows, the way I roll things is like this. I think you would all agree that if the witness is on a roll and it's really good information, I really don't like cutting the witness off. But you have to understand that if you're over already by 30 seconds and you want to get another question, it's not on. It's not fair to the other side. That's just the way we do it.

We want the witnesses to be able to finish their thoughts. When it goes over, I can't start another question because it's not fair. The witness might need two minutes. There are other rounds and there might be another opportunity, so it's all good.

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

[Randy Hoback, Conservative, Prince Albert, SK]

Thank you, Chair.

Good try, Peter. I know I tried that the first time I was here too.

I want some background information on the negotiation process, what you went through as you started and worked your way through the process.

When you negotiated the TPP, was it any different from some of the other bilateral agreements you've done in the past? Was it any different from what we did in WTO in the negotiation process? Would you say it's fairly consistent and common?

[Kirsten Hillman]

I think every negotiation is different. I think a plurilateral negotiation—a negotiation with many parties—has a lot of additional complexities. A bilateral negotiation is fairly straightforward. You know what you're looking for from the partner; they know what they're looking for from you, and you have a one-on-one conversation.

In a plurilateral negotiation, there's a matrix of interests at play. For example, there are many things that were very important and interesting to Canada, but we were talking about Japan earlier. Good market access into Japan and reduction of tariffs into Japan were important negotiating objectives for Canada. Other countries had negotiating objectives into Canada, but they weren't necessarily Japan. Some of the most difficult issues for us to negotiate were in the agriculture area, in relation to supply-managed products. I think everybody knows that. But it wasn't Japan that was interested in access to our dairy market; it was other countries.

You have a matrix of interests where you are looking to a partner for something, but someone else is looking to you. You may actually not have very many interests back into that country. So it's a complicated—

[Randy Hoback, Conservative, Prince Albert, SK]

That's the benefit of multilateral negotiations. You use the strength of different areas to offset.

[Kirsten Hillman]

Absolutely, and we were very like-minded with certain countries in a number of areas and had very difficult issues to crunch with those same countries. We are very like-minded with the United States in certain areas around transparency and regulatory coherence, environment, and labour. We're very like-minded with them, but we had some of our toughest discussions with the United States as well.

Also, then, there's every other party around the table. That's what makes it quite complicated.

[Randy Hoback, Conservative, Prince Albert, SK]

You have all these moving balls, and we get that, but then you also have some consistencies. If you look at some of the negotiations, some of the things that you did in previous negotiations would be brought into the existing negotiation, would they not?

Let me use an example: ISDS. ISDS is fairly controversial not only here, but in CETA. There are obviously benefits to Canadian companies having that there. If it weren't there, what would be the impact on our Canadian companies investing abroad if they didn't have that protection? Maybe you could give us some oversight into that, because that would be consistent from trade deal to trade deal. ISDS has been involved in many trade deals.

Can you give us some feedback there?

[Kirsten Hillman]

Right. I think your question also raises an interesting thing. The TPP negotiation is unlike a negotiation with the Europeans, say, or with Korea, in that there are very different levels of economic development in the countries around the table in the TPP. Also, there are very different legal and economic systems in some of the countries around the TPP.

Remember that around the TPP table we have the Latin American countries—Mexico, Chile, Peru—but we also have Vietnam, Brunei, and Singapore, and we have Australia and New Zealand. These are very different countries in terms of level of development. They have very different organizations in terms of their economic organization. They have very different regulatory and legal cultures and systems.

One of the objectives, as I was saying the other day about trade agreements, is setting these standards that are predictable for Canadians who want to have the confidence to trade internationally. Investment rules and the investor-state dispute mechanism to enforce those rules by our investors abroad are designed to assist investors in having the confidence to invest in some markets where they might feel that their ability to pursue their interests in domestic court are not what they'd like them to be. I think that's probably the right way to put that.

So when you think about that for Canadian investors, they may have a different perspective on that, depending on the country they're going to. There may be some countries in which they're comfortable going in and investing without the protection of an investment agreement or an investment chapter in an FTA and investor-state dispute settlement. There are other countries where they may feel less confident in doing that.

[Randy Hoback, Conservative, Prince Albert, SK]

Having said that, you want to see consistency from trade agreement to trade agreement, because what you do in this trade agreement sets a precedent for the possibility of future trade agreements down the road. Is that not correct?

[Kirsten Hillman]

It does. It also sets expectations of our partners.

But we do change; we do change provisions. We do try to build on what we've learned in the past, and we do try to move issues forward. For example, we have a lot of new obligations in the TPP with respect to competition as it relates to state-owned enterprises. We haven't had that before, but based on experience in the trading environment for our companies and based on the feedback we have, we felt that this was something that would be important.

Even though we have precedents from the past in some of these areas, we do try, and I think it's very much our responsibility, to improve on those and move them forward in different ways, based on experience and feedback.

[Randy Hoback, Conservative, Prince Albert, SK]

Why don't we just build off on the state trading enterprises, then? Let's just look at what you've done in this agreement versus what you've done in the past in providing protection for our Canadian companies that compete against the state trading enterprises.

[Kirsten Hillman]

Sure. We have had commitments with respect to state-owned enterprises in our agreements since the WTO, so that's for over 20 years.

Those obligations have done a few things. They have required a certain amount of transparency and openness with respect to how those enterprises are run, and they have put rules around the kind of government support that can be given to state trading enterprises. Also, they have required those enterprises, when they are competing in the commercial environment, to compete on commercial terms. If you're going to compete with commercial companies, you must behave as a commercial company. That's essentially the idea.

In the TPP, we took that further and put rules around the kinds of government support or subsidies that can be given to these entities, not only when they trade in goods but also when they trade in the services environment, because there is a growing recognition that services trade is in fact some of the most important trade, especially in Canada, that our enterprises are in and are heading towards in the future. We expanded the rules around competition law, if you will.

These are all rules we have in Canada, right? All of these rules that we've put in the TPP are rules that our state-owned enterprises have to play by. All of our crown corporations have to play by these rules already. We have put them in the TPP in an effort to have other countries also have a similar standard.

[Randy Hoback, Conservative, Prince Albert, SK]

It just feeds into what you are saying. It brings everyone up to the same standard.