International Trade Committee on Oct. 27th, 2016

[The Chair, Liberal, Mark Eyking]

I call the meeting to order. Good morning, everyone. We have a very busy agenda here this morning, and we want to make sure we hear from witnesses and get some good interaction back and forth.

We have four witnesses for the first 45 minutes here. Then we will have the Ambassador of Japan and also the High Commissioner of Australia. We have a very busy morning.

I welcome our guests here for the first part. We have two videoconferences: one from Vancouver, with the Forest Products Association of Canada, and one from Yellowknife, with the Northern Territories Federation of Labour.

We also have the Canadian Council for International Co-operation and the Canadian Life and Health Insurance Association.

Welcome, folks, to our study on the TPP. As you well know, our committee has been working very hard on shaking out this agreement: what's in it and how it would affect all Canadians, whether they are consumers or business persons. It's a big agreement. It's a good chunk of the GDP of the world. There's a large population in those countries. We've visited every province and we're still doing videoconferences with the territories. We've had more than 20,000 submissions, and we heard from many stakeholders.

We're going to get right to it.

Maybe we could start with Derek. I always try to get to the video conference first, in case something happens with the communications. Just understand there's always a little delay. Everybody has to understand that, whether you're an MP or a witness. There's a little delay when you're doing video conferences.

We're going to start with the Forest Products Association of Canada. We have Derek Nighbor. Go ahead, sir. You' have the floor for five minutes.

[Derek Nighbor, Chief Executive Officer, Forest Products Association of Canada]

Mr. Chair, thank you for the opportunity to appear on behalf of the FPAC, Canada's voice for the forest products industry.

I’ll start with a quick commercial for the sector. Our industry remains a cornerstone of the Canadian economy, representing 12% of Canada’s manufacturing GDP, employing directly about 230,000 Canadians and indirectly about a million Canadians, and supporting over 200 rural communities where these good jobs are very important.

The industry recently went through a rough patch due to a downturn in the U.S. market, from 2006 until 2014, and we shed some mills and jobs. However, the industry has since become more competitive and productive. It has embraced transformation and innovation. We are seeing that the hard work is paying off.

I want to talk a bit about our environmental credentials because on the trade side of things, Canada's world-leading reputation in how we sustainably manage our forests and our environmental track record is really the envy of the world.

Canada’s forest products industry has the best environmental reputation in the world, according to a Leger survey of international customers completed in 2014. By embracing strong environmental standards and helping to build a green economy, we have come to be known as a trusted source of legal and sustainable forest products. All our harvested trees are regrown. Our air pollutants are down 52% and our water pollutants are down 70% since 2005. We have eliminated toxins such as PCBs and dioxins. We have eliminated the use of coal, and we have cut oil use by more than 90% since 2000.

As I said, we're a global leader in forest management, with more than 166 million hectares or 40% of the globe’s certified forests, by far the most of any country in the world. Earlier this year, on May 2, we were one of the first industry groups to launch a climate change challenge, our commitment to helping the federal government deliver on its climate change commitments. We are pledging to remove 30 megatonnes of carbon dioxide a year by 2030, and that represents more than 13% of the Canadian government’s overall emissions reduction target.

The vast forests we work in are not just a globally important ecosystem, but they are also a critical economic driver that helps support many indigenous peoples while acting as one of the largest sources of employment in the country for Canadians.

Let’s consider the importance of diversified markets. I think that's what the TPP really delivers for us. We learned the hard way with some of the downturns in the U.S. housing market over the years that we could not continue to rely heavily on the U.S. We're seeing a lot of that today with the current softwood lumber discussion. Our dependence on trade south of the border had been more than 80% up until 2002.

However, our efforts to enter new markets have borne fruit. We now sell $33 billion of products to about 180 countries around the world. On the wood side of the business, a lot of credit has to go to our team Canada approach to overseas market development known as the Canada wood program. Our biggest success definitely has been in Asia. Canada’s forest products are now Canada’s number one export to Asia. Wood product exports to China went up ninetyfold since 2000, and we now sell $5 billion of pulp, paper, and lumber to China every year. All of this has reduced our export dependence on the U.S. down to 66% from the 80% in 2002 that I referenced.

The continued expansion of existing markets and diversification into new markets remain critical to our success. For this reason, the industry is supportive of the government’s trade agenda. That includes the negotiation of new trade agreements and focused program spending to help open up new global markets.

That brings me to the TPP. It presents a unique opportunity to expand our trading relationship with some of the world’s fastest growing economies. For example, the TPP would allow the Canadian forest industry to both protect and expand its critical competitive position in the Japanese market, where New Zealand and Australia are currently significant competitors. If we were to capture just 2% more of the Japanese lumber market, it would mean an increase of $37 million in annual exports for Canadian producers.

It is also an opportunity to sell more innovative biochemicals and biomaterials. The fibre from our forest is being used increasingly in carbon-friendly bioproducts that can replace materials made from fossil fuels. This is a key contribution as well to combatting the climate change challenge that Canada and the world are facing.

As the TPP ratification process proceeds, we are calling on the government to do a few things.

Number one, we must ensure that tariffs are removed on Canadian paper and wood products across the TPP countries. There are still tariffs in place that range anywhere from 1% to 40% on the products we export.

Number two, the government needs to make sure that non-tariff trade barriers related to considerations such as standards are not being used to block access to markets for Canadian forest companies. Moreover, the deal should recognize Canada as a low to zero risk when it comes to illegal logging.

Number three, there must be fast regulatory approvals in TPP member states for the use of Canadian products made from forest fibre once they have been approved for safe use in Canada. This should apply to engineered wood products, fuels made from forest fibre, chemicals, and other specialty bioproducts.

We want to see the government hold firm on trade remedies. That's one of the big underscored points for us.

We appreciate the government's continued efforts in the area of freer trade. Expanding international trade relationships that help the industry to grow and diversify markets and products is critical. Our collective efforts do not stop with the ratification of this agreement. In order to ensure success, we must ensure we have in place all the enablers necessary to take advantage of all the opportunities this and other agreements provide.

From the vantage point of a commodity-based industry that is on an aggressive transformational path, these enablers include maintaining the excellent support of a broad network of trade offices that we benefit from globally; ensuring reliable and affordable rail and port systems serving all areas of this vast country; developing sufficient infrastructure to support new markets, particularly as trade flows move beyond north-south to east-west; and supporting and promoting the Canadian brand around the world.

In conclusion, I thank you for your time, and I really want to impress upon you that expanded international trade will help Canada's forest industry diversify markets and promote low-carbon products that we produce. Successfully ratifying the TPP will help Canada's forest communities and support job creation and prosperity across these communities.

Thank you, Mr. Chairman. I look forward to any questions.

[The Chair, Liberal, Mark Eyking]

Thank you, sir.

We are going to skip Yellowknife for now. We didn't connect with Yellowknife.

We are going to go right to the Canadian Council for International Co-operation. Mr. Bruer, you have have the floor.

[David Bruer, Program Manager, Inter Pares, Canadian Council for International Co-operation]

Thank you very much for the invitation to speak here today on the issue of the trans-Pacific partnership.

My name is David Bruer. I am here today representing three regional working groups of the Canadian Council for International Co-operation. CCIC is Canada's national coalition of civil society organizations working globally to achieve sustainable human development and an end to global poverty.

This presentation is based on a report, which we have already provided to the committee, by the three regional working groups representing over 80 international development organizations here in Canada. Today, I'd like to mention some of the major concerns raised in the report, which speak to the negative impacts of the investor-state dispute settlement, ISDS, provisions, which form an integral part of the TPP and other trade and investment agreements.

ISDS is the enforcement mechanism for trade and investment deals. It gives corporations the right to sue countries for unlimited monetary compensation for alleged violations of the terms of the agreement. The number of ISDS cases is on an exponential growth curve as more corporations sue more countries. A record high 70 ISDS cases were filed in 2015.

Canadian mining companies are very active in their use of ISDS, often seeking amounts in the hundreds of millions and sometimes billions of dollars. Such amounts represent huge portions of southern country budgets. Pacific Rim Cayman sued El Salvador for $300 million U.S. By comparison, total aid to El Salvador in 2013 from all sources was $171 million U.S. Even though it was successful in its case, in defending itself, El Salvador came out of that with an award of $8 million, having spent $12 million to defend itself.

This mechanism has created a regulatory chill for southern governments as countries attempt to avoid what are incredibly complex and expensive lawsuits. While a country cannot be forced to repeal a law or regulation, the threat of an ISDS case can make southern governments reluctant to bring in good legislation to protect people's health, the environment, or labour rights. As Canadian organizations working for the improvement of poor people's living conditions in southern countries, we find this incredibly problematic. One single ISDS settlement has the potential to wipe out the benefit of global aid programs for a country.

In the report we note that southern governments have binding obligations under human rights treaties. They have obligations, for example, to comply with their citizens' right to health and education. If they lose an ISDS case and are forced to pay the settlement, they lose the available resources to be able to comply with those rights. U.S.-based company Renco brought an ISDS case against Peru seeking $800 million U.S., despite being responsible for what has been called one of the 10 most polluted sites in the world due to its lead smelter. By comparison, in 2013 Peru, from all aid sources around the world, received $367 million U.S. Fortunately, Renco lost. However, it has just announced it intends to re-file exactly the same claim.

As international development organizations, we strongly believe that human rights must take precedence over investors' rights, and that the ISDS system needs to be removed from Canada's trade and investment agreements, including the TPP. In response to the strong criticism of this system, Canada and the European Union recently negotiated a modification to ISDS—the investor court system, or the ICS. While judges will now consider cases, instead of only corporate lawyers, the core of the ISDS system remains the same under the new system. It is still secretive. It will still result in the same regulatory chill that we have seen under ISDS, and it puts investor rights above human rights. If Canada was committed to balance, we believe it would ensure, at least, that this new ICS could be used to hold foreign investors to account if they flout environmental, labour, consumer, and other standards.

We have to note that we find it quite ironic that while Canadian companies claim the system is needed because courts in southern countries cannot be trusted to render fair judgments, they claim at the same time that people in the global south should not be allowed to make claims against them in Canadian courts and should make use of the same national courts that they claim cannot be trusted.

As international development organizations, we do not see this new ICS system correcting the wrongs we've identified and the serious negative impacts of ISDS on millions of poor people in the global south.

In summary, we feel that the ISDS mechanism in the TPP has serious negative impacts on the very people that we as international development organizations, with the support of the Canadian government, are trying to help.

As stated in the report, we urge the government to remove the ISDS mechanism from the model foreign investment protection agreement, and we urge the government to require that domestic judicial processes take precedence when investor-state disputes occur.

Thank you very much for your attention. I look forward to questions and comments.

[The Chair, Liberal, Mark Eyking]

Thank you, sir.

We're going to move to the Canadian Life and Health Insurance Association.

Susan Murray, welcome. You have the floor.

[Susan Murray, Vice-President, Government and International Relations, Canadian Life and Health Insurance Association]

Thank you, Mr. Chairman.

Good morning. On behalf of the Canadian Life and Health Insurance Association, I'd like to thank you for the opportunity to participate in the committee's consultations on the Trans-Pacific Partnership agreement.

Canada's life and health insurers are very active internationally and are strongly supportive of the TPP.

The Canadian Life and Health Insurance Association, the CLHIA, is a voluntary non-profit association that defends the common interests of member insurers. Member companies account for 99% of Canada's life and health insurance business. Our industry contributes greatly to the country's economy and protects over 28 million Canadians with a broad range of products that provide financial security, including life insurance, extended health coverage and retirement solutions.

In Canada, in 2015, the industry employed more than 148,000 Canadians and paid more than $6.6 billion in taxes, and $8.4 billion was paid in benefits to Canadians, 90% of which went to living policyholders. We hold over $760 billion in assets in Canada, 90% of which are held in long-term investments.

Internationally, Canada's life and health insurers are very competitive. Three of Canada's insurers are among the largest 15 life insurers in the world and have operations in over 20 countries. These international operations are supported by over $800 billion in invested assets and generate more than 40% of total premiums.

Canada's insurers are working hard to expand their business in TPP markets. The TPP will bring greater certainty for our business relationships in these markets and provide important guidelines for increasing trade.

For Canadian insurers with global operations, the agreement represents a valuable opportunity to develop international standards. Given the market size covered by the TPP, the agreement has the potential to be used as a benchmark for future free trade agreements.

There are many areas of the agreement that we expect will be beneficial. In particular, we expect that the TPP will reduce barriers to entry, improve regulatory transparency, and increase market access. The agreement recognizes the important role of financial institutions in maintaining economic stability and maintains the ability of policy-makers and regulators to act for prudential reasons. The industry also welcomes the inclusion of mechanisms to facilitate and improve regulatory co-operation among the TPP countries, protection of the cross-border flow of business data, and commitments on the commercial operations of state-owned enterprises, SOEs.

The TPP formally recognizes the importance of streamlining regulatory procedures and seeks to increase the predictability and transparency of the regulatory process. Aside from the agreement to provide advance notice of proposed regulations, parties have also committed to providing a commentary period for regulations, with a corresponding consultation mechanism. Such measures should discourage TPP members from using regulation, without proper justification, as a means of restricting market access.

The e-commerce commitments are also welcomed by our industry. We rely on the secure and uninterrupted flow of data across borders for any number of business functions, including underwriting, client services, product development, and market research. The transfer of data quickly and securely within and across markets is now standard business practice. The TPP includes rules that will protect the digital economy by limiting restrictions on the cross-border transfers and broadly prohibiting the localization of servers.

The coverage of state-owned enterprises is an area where the TPP breaks new ground and is widely welcomed by our industry. Many key markets in the Asia-Pacific region are home to state-owned enterprises with commercial operations. Once in force, the TPP will ensure that the commercial operations of these SOEs are transparent and fair, thereby ensuring a level playing field for the companies with which they compete.

To conclude, I would like to thank you again for the opportunity to address you this morning and to share the views of the Canadian insurance industry.

Thank you. I'd be happy to answer questions.

[The Chair, Liberal, Mark Eyking]

Thank you, Ms. Murray. Before we open it up to the dialogue with MPs, I'd like to welcome two new MPs.

Mr. Allison from Niagara West, welcome to our committee. Also, Mr. Amos from Pontiac, welcome. You'll find out this is the most exciting committee on the Hill, so I hope you behave in the next couple of hours.

We're going to move on to opening up with the MPs. We'll start with the Conservatives.

Mr. Ritz, go ahead for five minutes.

[Gerry Ritz, Conservative, Battlefords—Lloydminster, SK]

Mr. Chair, I just have a quick point for Mr. Bruer. We all agree global poverty is a target we need to bring down, yet I've seen a lot of studies and presentations that show trade is a major factor in alleviating global poverty. So I think this is a good thing, something that you missed.

I also wondered if you had an example of this regulatory chill that you see is problematic in this. Have you seen that happen already? We are involved in a number of trade agreements. Have you seen an example of regulatory chill that is concerning?

[David Bruer]

Yes, thank you.

First, I would like to clarify that we are not opposed to trade. I'm not saying that. What we are worried about are the implications of the investor-state dispute settlement mechanism within trade and investment agreements. Trade obviously can be a major contributor to alleviating poverty and to increasing the economies in the global south.

Regarding the regulatory chill, I think there are a number of cases of that. If you look at the literature coming out from people looking at ISDS, you see there are examples in El Salvador, in Colombia, and in a number of Latin American and African countries. I'd be happy to provide you with—

[Gerry Ritz, Conservative, Battlefords—Lloydminster, SK]

We're specific to TPP here, sir. I'm saying, what in the TPP can you point to that would create a regulatory chill? We don't have free trade agreements with El Salvador. We do with Colombia, and we're seeing a decrease in the poverty rates there already. I'm just wondering where you see.... It's one thing to have a hypothetical situation but it's another to actually say, “This is a definite result of...”.

[David Bruer]

If you're asking me if there are regulatory chills because of the TPP itself, I think—

[Gerry Ritz, Conservative, Battlefords—Lloydminster, SK]

It's not in play yet.

[David Bruer]

—it's not in play yet, so no, I can't.

[Gerry Ritz, Conservative, Battlefords—Lloydminster, SK]

I understand that. But we have NAFTA, and we have Colombia, and so on. Have you seen regulatory chill coming out of those free trade agreements?

[David Bruer]

I think in the case of Colombia, they are currently facing the prospect of an ISDS case in terms of the protection of the wetlands in the upland areas of Colombia. You would have to look at whether Colombia is actually going to stick to its environmental legislation that, on the face of it, protects that wetland, but with the prospect of that multi-hundred-million-dollar ISDS case coming down—whether that is going to happen or not—I think that'll be a very interesting case to watch.

[Gerry Ritz, Conservative, Battlefords—Lloydminster, SK]

We don't have the same provisions. Anyway, that's fine. Thank you.

Derek, thank you for your presentation. Of course, the softwood lumber dispute with the U.S. has driven us into other markets. You made that point. I couldn't agree with you more. We've done the same thing with agriculture, where there's far less reliance on the American market.

Diversity in trade is the same as diversity in your stock or investment portfolio. It's a good thing, so the more trade routes that we have the better.

One thing that is very predominant in the TPP is the environmental chapter. I've seen a lot of documentation which shows that a cubic metre of wood growth sequesters a tonne of carbon. When you talk about meeting your requirements under Canadian proposals, you're actually already there with the tonnage of growth that we see in our forests and the carbon that's sequestered. How do we get credit for that?

[Derek Nighbor]

We see this opportunity especially in a country like Japan where those kinds of standards are critical and highly valued. The beauty of the Japanese market is the high-value products that Japanese customers want.

I mentioned the trade offices, the trade commissioners...basically, the promotion of the Canada story, the Canada brand, the environmental leadership in Canada. I think it's less of a piece that needs to be in the deal, but it's a complementary effort that government can put forward to support the reputation, if you will, of the industry.

[Gerry Ritz, Conservative, Battlefords—Lloydminster, SK]

Yes, it's a huge part of the Canada brand having that lighter environmental footprint. It does make for a good story.

I also am aware that when we start to get into these other more diverse markets, the secondary uses, as you said, of biofibre is a tremendous success story. We are in a situation right now where we seem to be waiting for the U.S. to make a decision to ratify or not. Should we do that, or should we go ahead?

[The Chair, Liberal, Mark Eyking]

A quick answer please.

[Derek Nighbor]

Yes, I think we need to go forward. The other thing is we have to control what we can control, so our recommendation is to keep pushing forward on this. We think it's absolutely critical.

The other thing, Mr. Ritz, that we need to continue to do—and I mentioned this to the finance committee yesterday—is the support for ongoing innovation in the sector to build more with tall wood, to do more on the biospace. We have innovations in some of our companies whereby they're extracting glue from the tree and turning that into bio-adhesives. That investment that the previous government made in innovation is something we're encouraging the new government, or the current government, to continue to move forward with.

[Gerry Ritz, Conservative, Battlefords—Lloydminster, SK]

Every time I park under a tree, I think about how good the glue is.

Thank you.

[The Chair, Liberal, Mark Eyking]

Thank you, Mr. Ritz.

Mr. Peterson, go ahead.

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

Thank you for your presence here today. I have a few questions. I'm going to stick with Mr. Nighbor for a minute, as we have you queued up here.

You mentioned that one of your recommendations for moving forward with the trade deal is fast regulatory approval. I want you to elaborate on that and let me know what sort of non-tariff barriers might be there now and how they might be removed to get through that fast regulatory approval.

[Derek Nighbor]

Yes, I think for us the deal is only as strong or going to be as successful as Canada's ability to defend it and stand up for it. We see non-tariff trade issues from time to time, not only in our sector but in other sectors, whereby a material is not safe, is not approved for use, or we question whether or not it meets our high standards. We just want the government to be sensitive to some of that gamesmanship on the trade side that we see pop up and ensure that if we're going to implement a deal, let's stand up for the terms of that deal.

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

Okay, thanks for elaborating on that.

Ms. Murray, I have a couple of questions for you.

You're looking at this deal as being a way to reduce barriers to entry in some of these markets for your industry. Are there any markets that you see would be more fruitful for your association and your association's members, than others in the TPP?