International Trade Committee on Oct. 20th, 2016

[The Vice-Chair, Conservative, Randy Hoback]

Good morning, everybody.

Mr. Eyking can't be here today. He asked if I would sit in as vice-chair for the meeting. It's a little different—you see the difference in the makeup of the committee and the questions—so I may take a few questions in light of the fact that it is the privilege of the chair. That said, I want to make sure everybody else gets a chance to ask questions too. You're all so good at asking questions, I'm sure I won't need to, so we'll go from there.

I'd like to welcome the witnesses this morning. You have five minutes each, and after your presentations we'll go to questions and answers. We follow a format here that is based on the makeup of the House itself.

Again, welcome. Take your tie off, if you want, and relax. You'll notice that I don't have one.

We'll start off with Ruth Salmon of the Canadian Aquaculture Industry Alliance.

[Ruth Salmon, Executive Director, Canadian Aquaculture Industry Alliance]

Thank you, Mr. Chair.

Good morning, everyone. On behalf of Canada's aquaculture farmers, thank you for inviting me to speak with you today.

These are indeed exciting times to be in the aquaculture industry in Canada. Demand is booming and we are excited by the new trade opportunities the trans-Pacific partnership presents. Few jurisdictions can match Canada's natural advantages when it comes to aquaculture—an enormous coastal geography, an abundance of cold, clean water, a favourable climate, a rich marine and fishery tradition, established trade partners, and a commitment to sustainable and responsible best practices.

The Canadian Aquaculture Industry Alliance represents over 95% of the aquaculture industry in Canada. We are farmers operating in all 10 provinces and Yukon. Our industry generates $3.1 billion in economic activity and over $1.2 billion in GDP. It employs more than 15,000 Canadians in rural, coastal, and first nation communities from coast to coast to coast. The Canadian farmed seafood industry is very much export-oriented, with approximately 65% of our production exported to over 22 countries around the world. Approximately 95% of our exports are destined for the United States, with most of our remaining exports going to Asia.

The global demand for seafood has doubled in the past five decades. To meet this demand, aquaculture has become the world's fastest growing food production sector. It currently contributes more than 50% of the total global fish and seafood production, with the per capita supply from aquaculture increasing at an average annual rate of 6.6%. However, despite growing worldwide demand and Canada's many natural competitive advantages, Canada's annual farmed seafood production has trended downwards for over a decade. In fact, Canada's share of the world's farmed fish market has fallen by 47% since 2002. Canada now accounts for only 0.2% of global aquaculture production. This stagnation has taken place while other producers in Norway, Scotland, and Chile have raced ahead. The principal challenge confronting Canada's aquaculture sector lies in the complicated overlapping laws and regulations that restrict growth and limit investment.

We thank the current government for its commitment to sustainable and responsible growth, and welcome the opportunity to work with all parliamentarians as well as the federal and provincial governments on a modern legislative and regulatory framework for our sector, including a new national aquaculture act. We believe an act with the right legal governance and policy framework will allow our industry to grow in a responsible and sustainable manner, adding an additional 17,000 jobs and over $3 billion in additional economic activity in Canada by 2024, but access to new markets will be critical. A successfully implemented TPP agreement would give Canadian aquaculture businesses greater access to some of the most dynamic markets in the world.

To illustrate the growing importance of Asian markets to our industry, our members are experiencing export gains even without full implementation of the TPP. In 2015 farmed seafood exports to China were over 600% higher than all of 2014. Indonesia was up 105%. Hong Kong and Taiwan were up 50% and 79% respectively. Yet in markets like Japan, Malaysia, and Vietnam, Canadian farmed seafood exports face high tariffs that put our farmers at a severe disadvantage. The TPP presents a good opportunity to reduce those trade barriers and open up a vast 11-nation market of over 800 million consumers. In addition, the TPP will also address many non-tariff barriers to trade. This is welcome news for our farmed seafood suppliers.

In summary, the Canadian Aquaculture Industry Alliance supports and applauds the federal government for its work to implement the TPP. However, our industry requires increased growth and competitiveness to take significant advantage of any new free trade agreement. Aquaculture in Canada offers tremendous opportunities. Working together, we can renew a vibrant aquaculture industry in Canada and unlock the full range of economic, environmental, and public health benefits that flow from a competitive, sustainable, and growing farmed seafood sector

The combination of responsible growth for aquaculture in Canada together with improved market access through the implementation of the TPP will improve industry competitiveness for our sector, ultimately leading to the building of stronger local economies in Canada.

Thank you.

[The Vice-Chair, Conservative, Randy Hoback]

Thank you, Ms. Salmon. You're right on time.

Now we'll go to the Canadian Sugar Institute and Sandra Marsden, who has probably one of the sweetest jobs in Canada.

[Sandra Marsden, President, Canadian Sugar Institute]

I've heard that before.

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

I thought you were going to say something about Ms. Salmon and aquaculture.

[The Vice-Chair, Conservative, Randy Hoback]

Ms. Marsden, you have the floor.

[Sandra Marsden]

Thank you for the opportunity to appear before the committee on the TPP consultations. I would like to speak to the opportunity which the TPP provides for our industry sector, as well as food processing more generally, and I'll explain that.

The Canadian Sugar Institute represents refined sugar producers on nutrition and international trade affairs. The industry has three cane sugar refineries, and they are in British Columbia, Ontario, and Quebec. There is also a sugar beet processing facility in Taber, Alberta, and two further processing operations in Ontario for sugar-containing products, such as iced tea, drink mixes, gelatin mixes, and so on, for both the domestic and export markets.

Our industry has been an integral part of Canada's food processing value chain since its inception. We depend on food processors for 80% of our sales, and food processors in turn depend on a reliable nearby supply of competitively priced sugar.

Our refined sugar produced in Canada is an input to about 30% of food processing. Major sugar users in Canada account for about $18 billion in sales, $5 billion in exports, and 63,000 jobs.

Unfortunately, globally, sugar is one of the most distorted trade commodities, and it is characterized by widespread government support and high tariff walls and quotas. In contrast, Canadian refined sugar producers and processors don't have any of these benefits. The only protection we have from world market distortions is a $31-per-tonne tariff, which is about a 5% to 8% tariff, depending on world sugar prices. This is in sharp contrast to both the prices and the tariffs in most developed markets, including the United States, Europe, and Japan, which would be the leading protectionist countries. Their tariffs would be in the order of 100% or more.

Given this uneven playing field, we have no choice but to advocate for improvements in export access, because our market is open, and the markets of most of our trading partners are quite closed. Our priority is the United States. Unlike most commodities, NAFTA did not open the sugar trade for Canadian sugar and those high sugar content products that our members produce.

The TPP will provide meaningful improvements. It won't open the border, but it will certainly provide very meaningful and important improvements in access to the United States for those products, with a doubling of beet sugar exports out of Alberta and a 16% increase in those sugar-containing products from Ontario.

Much work remains to be done to analyze the benefits in the other trading partners. We see opportunities in Japan for sugar-containing products with a number of quotas that will increase over time, as well as in Vietnam and Malaysia, but much work needs to be done to analyze the specific benefits of trade with those countries.

Given North American and global restrictions on sugar, the vast majority of exports of Canadian sugar are in food products, and that goes beyond the products that we produce, but instead they further the processing industry.

NAFTA was a good news story in that trade improved to the extent that we had a trade deficit of about $40 million in the NAFTA region when NAFTA was implemented, and that grew to a surplus of $1.2 billion by 2005. That surplus has declined since then, which is a major factor contributing to a decline in the surplus, but faster than that has been the decline in the trade balance with other countries. This is why it's very important to our industry to diversify our markets beyond the U.S. We want to build on the NAFTA platform, and we see the potential to grow those exports and improve that trade balance, but we must advocate for market opportunity for food products in other markets.

We're a mature market in Canada. Canadians are not consuming more sugar, contrary to popular perception, so we have to look to exports. The WTO would be the best avenue to improve the sugar trade. In the absence of that, we see opportunities like the TPP, as well as regional agreements that have regional rules where manufacturers can access inputs from different countries based on their efficiencies and where we can take advantage of supplying sugar to food processors in Canada who can then diversify as well beyond the United States.

We see it as absolutely critical that Canada be part of this historic trade agreement, as the costs of exclusion would put Canada further behind in that food processing trade balance and investment in jobs.

The TPP will not resolve all sugar trade inequities for both ourselves and our customers, but it certainly does move the pendulum in the right direction.

We feel it's absolutely essential that Canada be part of this and that there be further work on analyzing and promoting the specific benefits.

[The Vice-Chair, Conservative, Randy Hoback]

Thank you, Ms. Marsden.

For everybody's information, Mr. Lambrecht had some issues come up today, so he will not be presenting.

I'll go to the Canadian Union of Postal Workers, and then I'll go to the Retail Council of Canada, and then Soy Canada.

I have Mr. Peter Denley and Mr. Louis Century. The floor is yours.

[Peter Denley, National Grievance Officer, Canadian Union of Postal Workers]

Thank you. Good morning, everyone.

On behalf of the Canadian Union of Postal Workers, I want to thank you all for the opportunity to appear and to raise the union's concern about the trans-Pacific partnership agreement.

CUPW represents about 50,000 public and private sector workers in large and small communities from coast to coast to coast. I think it's no surprise to you that a majority of our members work for Canada Post. We believe the TPP could negatively impact Canada Post and, by extension, our members.

I'm accompanied here today by Louis Century from the legal firm Goldblatt Partners. Louis helped draft the legal opinion on the TPP and postal services that we submitted to you earlier this year. My comments will be based on this opinion.

I'd like to begin by pointing out that Canada did not take any reservations for postal services. It did not take an annex I reservation or a stronger annex II reservation. Other countries did. For example, Japan and Singapore both took annex II reservations. Notably, Canada's approach to the TPP contrasts with its approach to CETA for which it at least took an annex I reservation.

Unfortunately, Canada's failure to take reservations exposes our public post office to the restrictive rules of the TPP and may give rise to state-to-state and investor-state challenges.

In terms of broad strokes, as you may know, NAFTA and the GATS already impose broad constraints on the authority of Canadian governments at all levels to exercise their legislative and regulatory prerogatives. Unfortunately, the TPP expands the scopes of these constraints in several areas.

There are consequences to the new TPP rules. For example, the TPP includes an annex on express delivery services, which could impose far more explicit constraints on government authority concerning postal services and the activities of Canada Post. I would like to point out that the express delivery annex is a unique feature for a trade agreement, and that it was inserted in response to lobbying from the U.S. private courier industry.

This industry put substantial effort into influencing TPP negotiations, and it was very successful.

The TPP's express delivery annex reflects industry's objective, which is to reduce or eliminate competition from public sector service providers such as Canada Post, particularly in the express delivery market.

First of all, new TPP rules would not only limit the ability of Canada Post to expand current services such as Xpresspost and those provided by its subsidiary Purolator but would also threaten Canada Post's ability to maintain its current business model of integrated express delivery and letter mail services.

Second, the annex prohibits parties to the agreement from, one, requiring an express delivery service of another party to supply universal postal service as a condition of authorization or licensing, and two, setting fees or other charges on an express delivery service for the purpose of funding the supply of another delivery service.

The first prohibition is pretty clear. We believe the second prohibition means that Canada could not require private courier companies to contribute to a compensation fund in order to help fund universal delivery.

Third, the TPP rules concerning state-owned enterprises, or SOEs, and monopolies expand on similar constraints in NAFTA and the GATS and make these constraints more direct. In addition, the TPP expands the scope for investor-state disputes and raises the spectre of another UPS versus Canada case, which is strengthened by the TPP provisions on state-owned enterprise monopolies and the express delivery annex.

That said, chapter 10, “Cross-Border Trade in Services”, which includes the express delivery annex, is expressly exempt from investor state but is still subject to state-to-state challenges.

There's no direct threat, but in the minutes I have remaining, I would like to summarize by quoting from the legal opinion we submitted to you: “While TPP rules present no direct threat to the letter mail mandate of Canada Post, they impose significant constraints on its ability to maintain a business model that depends upon the integration of express package, courier and letter mail services.” The opinion also concludes that there are “no benefits to be gained by Canada in respect to commitments pertaining to postal and courier services.” It raises concerns that TPP rules could limit Canada Post options for responding to new marketplace opportunities. We don't think it would make sense to adopt provisions that could limit opportunities at the same time as this government is conducting a review of Canada Post in which it is looking at new opportunities.

The recommendations from CUPW are simple. CUPW believes the TPP needs to be either radically reformed in many areas or rejected. On postal matters, the union recommends that, first, the federal government eliminate investor-state dispute settlement provisions, and second, it take an annex II reservation for postal services and a reservation from chapter 17 under annex IV.

That concludes our presentation. I'll remain open to questions.

Thank you.

[The Vice-Chair, Conservative, Randy Hoback]

That's amazing. You were five minutes right on the nose.

[Peter Denley]

I have a little bit of experience.

[The Vice-Chair, Conservative, Randy Hoback]

Yes.

From the Retail Council of Canada, Jason McLinton, please.

[Jason McLinton, Senior Director, Retail Council of Canada]

Thank you, Mr. Chairman.

I would like to thank the committee members for inviting me to testify today.

First, I will tell you a little about the Retail Council of Canada, the RCC.

The Retail Council of Canada has been the voice of retail in Canada since 1963. Retail employs over two million Canadians, making retail the largest private sector employer in the country.

RCC is a not-for-profit industry association representing over 45,000 storefronts of all retail formats, including department, specialty, discount, independent stores, grocers, and online merchants.

In general, RCC and its retail members are very supportive of the trans-Pacific partnership agreement. Retailers over the past few decades have built strong relationships with manufacturers and suppliers around the world, and are increasingly becoming importers of products into Canada. This agreement facilitates this, allowing retailers in Canada to provide a great assortment of goods at competitive prices for Canadian consumers.

RCC has been an active participant in consultations on the agreement for the past many years. We have publicly stated our support for the TPP as it was signed in principle by negotiators last October, as well as when International Trade Minister Chrystia Freeland affixed Canada's signature on the agreement in February of this year as a first step towards formal ratification. In relation to the retail sector, there are just a few points that I would like to raise as to why this agreement is important to retailers in Canada.

First, the agreement will eliminate tariffs on a wide variety of products. It provides duty-free access to approximately $5 billion in retail consumer goods from the seven TPP countries with which Canada does not currently have free trade agreements. Most of these tariffs will be eliminated immediately upon formal ratification. The more tariff elimination there is, the more products are available to Canadian consumers at competitive prices.

Second, RCC and its retail members are supportive of the text on regulatory coherence, transparency, and harmonization. Regulatory barriers unnecessarily impact trade, impede product availability and consumer choice, and have negative impacts on competitive pricing. That said, in an ideal world, the text would contain some teeth, requiring TPP countries to have specific mechanisms in place to ensure that systems and processes are there to ensure transparency and predictability. The agreement encourages regulatory coherence and transparency, but does not require it.

I also want to go on record with regard to the agreement's yarn forward, or country-of-origin provisions. Yarn forward means that fabric used in clothing produced in a TPP nation must also come from a TPP nation in order to qualify for tariff relief under the agreement. The vast majority of textiles come from non-TPP nations, such as China and India, so a pair of jeans made in Vietnam under the agreement, for example, would now have to be made from cotton from the United States in order to qualify for tariff relief. This would actually have the effect of lengthening supply chains and go against the spirit of the agreement.

I would also like to raise a point specific to online sales. As you know, Canadian consumers can buy products from anywhere in the world. Currently, imported online shipments above Canada's de minimis threshold of $20 are treated in the same way as goods sold in Canada. All merchants, foreign and domestic, have to pay duties on sales taxes above that $20 threshold so the playing field is level. While you may have been told that the U.S. de minimis level is $800 and that Canada is far behind, this in fact is not the case. We are much more comparable to the EU and the U.K. that have limits similar to ours. Changes to the de minimis level would create an incentive for Canadians to shop anywhere but in Canada, and could be devastating to retail merchants in Canada and to our two million-plus employees. The TPP agreement recognizes this, and treats online imported shipments into Canada the same way as goods that are sold here.

To conclude, RCC and its members support the agreement and urge the government to ratify it. It's good for retailers in Canada. It's good for consumers in Canada, and it's good for Canada.

Thank you.

[The Vice-Chair, Conservative, Randy Hoback]

Thank you, Mr. McLinton.

We'll go to Mr. Everson of Soy Canada.

[Jim Everson, Executive Director, Soy Canada]

We thank the committee for inviting Soy Canada to appear today.

I'll comment on Soy Canada for just a moment. We are a national association representing the full soybean value chain in Canada. Our members include producer associations representing all the farmers of soybeans across Canada, the seed development companies, soybean exporters, and soybean processors. Soy Canada facilitates industry co-operation and represents the industry on domestic and international issues affecting growth and development of the soybean industry.

The soybean sector in Canada is growing significantly. We are in our eighth straight consecutive year of soybean production growth. Between 2006 and 2016, soybean production increased by 82%, or 5.4 million acres. Since 2005, production levels have nearly doubled, to 6.2 million metric tonnes, and farm cash receipts in Canada are $2.3 billion. Finally, and significantly for the international trade area, since 2005, soybean exports have increased by roughly 250%. Canada has a small domestic market, and our growing production of soybeans is destined primarily for international markets.

Domestic use, processing, and export of Canadian soybeans contribute $5.6 billion to Canada's annual GDP and are linked to over 54,000 direct and indirect jobs. We are a growing segment of the agriculture industry, and further expansion is forecast in the coming years. This is why international trade is critical to our industry.

The TPP represents a huge opportunity for Canada. We know that TPP countries represent nearly 800 million potential customers and account for 40% of the world's GDP and 65% of Canada's $56 billion in agriculture and food trade.

In terms of soybeans, the total value of soybean exports to TPP countries reached close to $1 billion in 2015. The Asia-Pacific region encompasses a large segment of key soybean export markets, with roughly 40% of total Canadian exports shipped to TPP nations. Soybean trade with this region of the world is significant. The TPP provides a platform for our industry to access these growing markets and build on existing trade relationships with our importers.

All members of the soybean value chain—producers, processors, exporters, seed companies, and related companies—directly or indirectly stand to benefit from the TPP. The agreement provides a more secure and equal trade environment free from tariffs and free from administrative quotas on all soybeans and soybean products, which is a very significant development. Canada's participation in the agreement ensures that other oilseed-exporting nations do not have preferential access to TPP markets. Our industry will be better positioned to compete against other major soybean-producing nations, a major advantage for Canada when combined with the increase in demand throughout the Pacific Rim for high-quality Canadian soybeans.

The TPP also includes important provisions relating to biotechnology. As you know, innovation through the application of biotechnology to seed development has provided tremendous benefits to crop production. It is also a frequent contributor to trade disruption, in that the application of zero-tolerance regulatory frameworks and increasingly acute testing technologies in a world of increasing deployment of biotechnology is a recipe for trade challenges.

Recognizing this, policy-makers are looking for ways to better coordinate regulation internationally. The TPP establishes a working group to facilitate co-operation and information exchange on biotechnology issues, including low-level presence of genetically modified materials and the sharing of information related to plant breeding innovation.

To talk a bit about low-level presence, the TPP will establish a process collectively for managing cases of low-level presence should they occur. Low-level presence refers to the trace levels of GM materials that have been deemed safe through safety assessments in commodity grain shipments internationally. It's a very topical issue in the international grain trade as a result of the growing acreage and number of agriculture products being assisted by biotechnology methods. Canada has taken a leadership position in developing new regulatory approaches to managing LLP, and the inclusion of commitments to co-operation in the TPP is very welcome.

The TPP is a modern and comprehensive agreement and an important milestone in reforming international trade. Canada is a trading nation, and our grains and oilseeds sector is heavily reliant on international markets. In many commodities, while access to export markets is very important, we do not have the size and export might of competitive nations.

Soybeans are a good illustration of this. Despite the rapid growth of our sector, Canada represents only about 2% to 3% of production internationally. Our industry competes with the U.S. which produces about 39% of world soybeans, and Brazil is at about 37%. They are responsible for the vast majority of trade. It's critically important that we have fair trade rules that are even and equal, so that we can compete with larger participants.

Thank you very much for your time. I look forward to questions.

[The Vice-Chair, Conservative, Randy Hoback]

Thank you, too, Mr. Everson.

We'll start our rounds of questions.

Mr. Van Kesteren, you have the floor for five minutes.

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

I'm happy to see my colleague here, but by the same token I wish he would stay away, because I have so many questions. I could have them all morning. It's good to see the former agriculture minister.

So much of this is pertinent to my riding that every time somebody came to present, I thought that's the first one I'm going to ask. With the soy, I think Kent County is the leading county in Canada for soy production, so it's quite important to us.

Did I hear that right, that since 2005 our imports have increased by 250%?

[Jim Everson]

Our exports.

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

Our exports, pardon me. Our exports, wow, and 40%. That's an interesting statistic, Much of what we hear through presentations is that the United States is our biggest trading partner, but if we can grab a little bit...so this is really important for you, this 40%.

You mentioned something about the GMO and the non-GMO, which I remember back in the 1970s when we were the talk of the town up in the Clinton area just north of London, and we were starting to grow soybeans. Of course, today, you're growing it out west, aren't you?

[Jim Everson]

Yes.

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

Much of that is a result of GMOs, I would assume.

[Jim Everson]

Yes.

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

Which countries in the Asia-Pacific region will not accept GMOs? I think Japan wants non-GMOs, but what about the rest?

[Jim Everson]

There are really two large divisions in soybean production. There's non-GMO and GMO, and non-GMO tends to be used for food. Canada has an excellent reputation. Growers in your region are mostly responsible for that. Ontario and Quebec grow the majority of our non-GMO soybeans. It goes to food use. We are successful in Canada in growing both non-GM and GM soybeans. I think all Asian countries...I don't know of any Asian country that will not accept GM. The issue with GM is the segregation and ensuring that you have the purity of the standards. That's why I just mentioned low-level presence. The low-level presence policy initiative is critically important for making sure that we can continue to ship, even though there's a possibility of some trace levels of GM in our non-GM product.

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

Finally, you mentioned that we're about 2% and 3% of the world production. I've seen Brazil and the United States.

We have some huge potential. We did a tour a few months ago to Quebec. I saw the expansion in the agricultural sector in Quebec. It's just enormous in Quebec and out west.

What do you see as the potential for Canada growing the soy industry?