International Trade Committee on Nov. 17th, 2016

[The Chair, Liberal, Mark Eyking]

Good morning, everyone.

Thanks to the witnesses for being with us here this morning. Also, through video conference, we welcome Brian Kingston, from the Business Council of Canada.

As you may know, you're going to hear some bells this morning. We're into that season when there are a lot of votes. Sometimes that disrupts our committee but, number one, we're going to try to get all the witnesses to do their briefings before we split to go and vote. Then we'll come back and get in some rounds of questions. Without further ado, I want to get this meeting going right off the bat.

I'll think we'll start with you, Brian. If you want to go for five minutes or less, we're good to go.

[Brian Kingston, Vice-President, Policy, International and Fiscal Issues, Business Council of Canada]

Thank you.

Mr. Chairman and committee members, thank you for the invitation to take part in your consultations on Bill C-30.

The Business Council of Canada represents the chief executives and entrepreneurs of 150 leading Canadian companies in all sectors and regions of the country. Our member companies employ 1.4 million citizens, account for more than half the value of the TSX, contribute the largest share of federal corporate taxes, and are responsible for most of Canada's exports, corporate philanthropy, and private sector investments in R and D.

The Business Council strongly supports the ratification and implementation of CETA. On behalf of the council, I would like to congratulate Minister Freeland, Steve Verheul, the team at Global Affairs, and the previous government for their tireless efforts in achieving signature of this world-class agreement.

There are four key reasons why we believe CETA will benefit Canada and support its swift implementation.

First, CETA will boost economic growth. While this may seem like a very obvious point, it deserves to be emphasized, given that we're living in a time of slow growth in Canada and around the world. The agreement will benefit Canadian businesses of all sizes by giving them preferential access to the world's largest and wealthiest economic bloc, with a population of over 509 million people and a combined GDP of $17 trillion.

The EU is the world's second-largest importer of goods and also a major services importer. According to a recent analysis by the Conference Board of Canada, tariff elimination on goods alone will result in over $1.4 billion being added to Canada's merchandise exports to the EU by 2022. At a time of lackluster Canadian trade performance, this will serve as a significant boost.

Across Canada, in industries from food processing to chemicals, health sciences, and professional services, the removal of tariffs and other barriers that currently impede Canadian exports will create jobs, improve productivity, and promote growth. At the same time, the agreement will benefit Canadian consumers by eliminating tariffs. This will enhance competition and will lower prices for Canadians, while businesses will have access to cheaper inputs.

Second, CETA is Europe's first comprehensive economic partnership agreement with a western developed country. This gives Canadian companies a significant first-mover advantage over their competitors.

With the U.S.-EU transatlantic trade and investment partnership—TTIP—negotiations stalled, Canadian companies will be positioned to take advantage of preferential access over the U.S. competitors in the large European market. For many small, medium-sized, and large Canadian employers, this will mean new opportunities and, potentially, increased sales. The first-mover advantage will also help to attract investment to Canada. Companies looking to increase sales to Europe through CETA can use Canada as an export platform, and we believe this will attract investment and jobs to communities across Canada.

Third, CETA sends a positive and hopeful signal to the rest of the world about the benefits of international economic co-operation and open markets. Since the end of the Second World War, trade has been the principal means by which countries around the world have grown and prospered. As trade has flourished, incomes have increased and workers have benefited from new opportunities.

Despite the clear benefits of trade, we are unfortunately witnessing a rise in protectionism around the world. Since 2008, according to the WTO, G20 economies have introduced nearly 1,600 new trade-restricting measures, while removing just 387. This has contributed to slowing global trade growth, with the WTO forecasting that global trade will expand by just 1.7% in 2016. This is well below a previous forecast of 2.8%. Most notably, if this forecast holds, 2016 will be the first time in 15 years that the ratio between trade growth and world GDP falls below 1:1. In short, I believe that CETA builds on Canada's reputation for openness to the world at a time when others are turning inward.

My last point is that CETA will help to diversify Canada's trade. With last week's U.S. election outcome and the uncertainty created by potential NAFTA renegotiation, Canada's trade diversification efforts are more critical then ever to sustaining our collective prosperity. Canada must do everything possible to find new customers for our exports and new economic opportunities for our citizens. The best way to do this is to position Canada as one of the world's most open and global markets through a renewed trade strategy. The swift implementation of CETA must be the first component of this strategy.

With that, I'll conclude my remarks and look forward to questions.

Thank you.

[The Chair, Liberal, Mark Eyking]

Thank you, Mr. Kingston.

We're going to the Canadian Cattlemen's Association, with Mr. Darling, the president, and Mr. Masswohl, the director of government and international relationships.

Go ahead, folks. You have five minutes.

[Dan Darling, President, Canadian Cattlemen's Association]

Thank you for the invitation to appear before the committee and for your continued attention to international market access for Canadian agriculture.

The committee will be aware that Canadian beef producers have faced their fair share of trade barriers. I am pleased to say that through industry and government co-operation we have collectively achieved many successes in removing barriers.

The establishment of new market access through trade agreements is now our top priority. Europe and Japan are at the top of our priorities list. I imagine we'll talk more about Japan in the future, but I am pleased to be with you here today to discuss the implementation of the Canada-European Union Comprehensive Economic and Trade Agreement.

The CCA has long been a champion of increased trade with Europe. We produce a high-quality, high-value product, and access to European consumers' high disposable income for a quality product is what the Canadian beef sector needs.

Before the negotiations were launched, we supported the CETA concept. During the negotiations, we were a near-constant presence to support the negotiators. Toward the end of the negotiations, when access for beef was a key sticking point, we were pleased that the former prime minister made it a personal objective to achieve meaningful access for Canadian beef.

In all, it is fair to say that the access for beef was a core expected benefit for Canada in CETA and is certainly what we expected.

We have always said that in order to achieve meaningful access for beef, we needed to address both tariff and non-tariff barriers. I'm going to ask John to outline how the tariff issues for beef were addressed in CETA, and I'll wrap up with some thoughts afterwards.

[John Masswohl, Director, Government and International Relations, Canadian Cattlemen's Association]

Thanks, Dan.

As it stands today without CETA, the European Union's most favoured nation tariff on beef imports varies, depending on the form of the beef, but it's in the neighbourhood of 3,000 euros per tonne, plus 12.5%. It is a prohibitively high tariff now without the agreement.

There are two existing quotas that give us access today below that really high MFN rate. The first is the so-called Hilton quota, which Canada and the U.S. share access to for just under 15,000 tonnes of carcass weight. That's at a 20% duty, so 20% is the current preferential rate. The second is a quota that was created in 2009 as compensation for the WTO dispute over the EU hormone ban. Currently, that allows 48,200 tonnes from all countries at a 0% duty. Both of those two existing quotas require the beef to meet a certain high-quality standard.

Our performance under these quotas really has been very minimal. Because they're open to competition from other countries, it's very difficult for Canadian producers to invest in EU production when the quota might just be used up by other countries and we don't get the chance to ship that beef. That's why we were so pleased that CETA will provide 50,000 tonnes of duty-free access exclusively for Canadian beef. That's split into a 35,000-tonne quota for fresh beef and a 15,000-tonne portion for frozen. Under the new CETA quotas, the beef may be of any quality standard, so there's more flexibility, and there's no competition from other countries.

Furthermore, on day one of CETA, that 15,000 tonnes of the Hilton quota that we share between Canada and the United States will become duty free for Canadian beef, while United States beef continues to pay the 20% rate, at least until the U.S. also gets its own free trade agreement with Europe.

With the new CETA quotas and the tariff elimination for Canada on the Hilton quota, that's nearly 65,000 tonnes of new duty-free access that we don't currently have. If we could actually ship these quantities, we feel CETA would be worth approximately $600 million per year for the Canadian beef sector. To put those quantities in perspective, over the last few years we've shipped in the neighbourhood of 600 to 1,000 tonnes of beef per year to the EU, for a value of about $7 million to $10 million per year. Really, what we're talking about is a sixtyfold to hundredfold increase if the access is real.

Dan.

[Dan Darling]

That's the good news. The concern we have now is to convert this immense potential into real trade.

There are critical food hygiene procedures used in Canadian meat production to ensure that consumers are not exposed to potentially harmful bacteria such as E. coli. Unfortunately, the EU does not allow the use of these procedures. Naturally, Canadian packing plants are unwilling to risk the health of Canadians to comply with European procedures. This likely means that we will see only a very modest increase until the EU approves the procedures.

Our concern becomes even more acute in the knowledge that Canada has removed all barriers to EU beef and they will have unlimited duty-free access to the Canadian market on day one of CETA. In short, we are worried about the trade imbalance, where we will see enlarged levels of EU beef in our market but will remain unable to realize the export potential.

Clearly, there is more work to be done, but due to the large potential and the history of our positive collaborative industry/government effort to achieve market access, we are supporting the passage of Bill C-30 and implementing the CETA, with three conditions from the beef sector.

First, we will expect a commitment from the Government of Canada to develop and fully fund a comprehensive strategy utilizing technical, advocacy, and political skills to achieve the elimination of the remaining non-tariff barriers to Canadian beef.

Second, we expect that any EU beef or veal imported into Canada is in full compliance with Canadian food safety requirements.

Third, we expect that the beef sector will be afforded Government of Canada investment into both beef processing and beef producer operations to help us comply with the complexities of the EU market.

I believe that it will likely take some years yet to achieve the resolution of these technical issues, but I also believe that by working together, and with the commitment of resources from the government, we can get the job done.

I will leave it at that. I'm happy to answer any questions.

[The Chair, Liberal, Mark Eyking]

Thank you, gentlemen.

We're going to move to the Canadian Labour Congress and Ms. MacEwen, its senior economist.

Go ahead. You have the floor.

[Angella MacEwen, Senior Economist, Canadian Labour Congress]

Thank you very much.

I apologize to the translators because this isn't in my speech, but at the top I want to say that I'm very concerned that some people are drawing the wrong lessons from Brexit and from Trump.

Economists like Dani Rodrik at Harvard University and Thomas Piketty in the EU point out the flaws in a purely pro-free trade agenda. There are market failures, distributional impacts, and very real concerns that workers have, because trade deals can increase inequality if you don't take proper action to make sure they don't. The answer isn't in rushing more trade deals through. The answer is in taking a minute to examine those very real concerns that people have and those very real negative impacts to see how you can mitigate them. I'll leave that there.

The labour movement is keenly aware that trade is and has always been an important feature of the Canadian economy. We understand that all governments have an interest in fostering open trade. Distributional impacts from trade and investment agreements have long been ignored. We are told that trade deals have winners and losers, but “don't worry, we can compensate the losers”. Historically, Canada has done an inadequate job on this front, especially for workers.

The gains of these trade deals are never as big as they are projected to be, and the gains for CETA are small. They are among the error bars for what our economic growth is projected to be anyway.

The main gains from open trade come from reducing tariffs, as the beef producers commented, but much of this, outside of agriculture, was already accomplished by the 1990s. So-called modern trade deals are often more about advancing investor rights. As such, they do not necessarily increase trade, improve economies, or benefit Canadians.

CETA also goes farther than existing trade deals by putting restrictions on local governments. This is despite the fact that more than 50 communities, including Toronto, Victoria, Baie-Comeau, Sackville, Hamilton, and Red Deer—even communities in Alberta—are saying that they sent a clear message to federal and provincial governments that buying local and other public spending policies, as well as municipally delivered public services, should be excluded from CETA.

While we're sold free trade deals on the opportunities for Canadian business and the savings for Canadian consumers, as you've already heard today and we hear ad nauseam, the majority of this 140-page bill features changes to Canada's intellectual property rules, requiring changes that largely serve European interests. I note that you have had no witnesses who are intellectual property experts yet.

One of the biggest concerns regarding CETA is the impact on Canada's health care system. On a per capita basis, Canadian drug costs are already among the highest in the world, exceeded only by the United States, and they are among the fastest-rising among comparable nations. Bill C-30 devotes 30 pages of amendments to the Patent Act. These amendments will further exacerbate the rise in costs by committing Canada to creating a new system of patent term restoration, thereby delaying the entry of generic medicines by up to two years, locking in Canada's current term of data protection by creating barriers for future governments wanting to reverse it, and implementing a new right of appeal under the patent linkage system that will create further delays for the entry of generics.

Analysis conducted by Professor Marc-André Gagnon and Dr. Joel Lexchin estimates that CETA's provisions will increase Canadian drug costs by between 6.2% and 12.9%, starting in 2023. This is in line with internal government estimates that expect the patent changes to cost between $1 billion and $2 billion per year, and the generic industry's own research that put the price at $3 billion.

The previous federal government committed to compensating provinces for this increase in cost, but that simply means that the federal government will ask Canadians to pay pharmaceutical companies through higher taxes or cuts to services elsewhere. It also doesn't take into account that some of this increased cost will fall directly on low-income workers who don't have drug plans. As Lexchin and Gagnon point out in their paper: “cost-related nonadherence is 35% among people with low income and no insurance”. What this means in real life is that people won't go to the doctor because they know they can't afford the cost of the prescription.

The new legislation on pharmaceuticals is a very good example of the outdated approach being pursued through CETA. In 1987, we made a bargain with pharmaceutical companies. We strengthened patent protection and asked them to increase their R and D to 10% of sales. Since 2003, they have failed to meet this target.

[The Chair, Liberal, Mark Eyking]

Excuse me. Could you wrap up? Your time is pretty well up. Go ahead, but try to wrap it up a bit.

[Angella MacEwen]

I want to get to the Coasting Trade Act. Wages and working conditions vary greatly in the global shipping industry. In recognition of that, Canada and the U.S. have placed significant restrictions on shipping within Canada. Bill C-30 undermines cabotage in three ways: government dredging; EU companies of any flag will be able to move empty containers; and EU-registered vessels will be permitted to move cargo between Montreal and Halifax.

The standard work week on a vessel is 44 hours, plus 85 hours of overtime. The standard wage for that internationally is $670 U.S. per month, which works out to $2.50 an hour. The standard wage on Canadian steamship lines within Canada is $23 an hour at the lowest level, and for overtime, $34 an hour. You can see that they are simply not comparable.

[The Chair, Liberal, Mark Eyking]

Thank you.

If it is the will of the committee, we have enough time to hear our last witness before we break for votes. Is that okay? I think the bells are ringing. What I would like to do is hear Mr. Everson for five minutes. Then we'll go and vote, come back, and start questions. Is that okay with the committee?

[Some hon. members]

Agreed.

[The Chair, Liberal, Mark Eyking]

Okay. Go ahead, sir.

[Warren Everson, Senior Vice-President, Policy, Canadian Chamber of Commerce]

I'll beat my time. I'll be shorter than five minutes, I hope.

I want to thank the committee very much for the invitation. I must tell you that over the last few years there have been plenty of times when we wondered if we would ever have a chance to be here on this legislation, so we're very delighted about it. The chamber has been a long-standing and strong supporter of this initiative.

I don't want to repeat all the things that my friend Brian Kingston very effectively summarized about the economic impact of the agreement, but I do want to add to his comment about the politicians involved.

History is not often very friendly to politicians, but I think we need to salute the visionaries who originally initiated this. I would include Mr. Charest, when he was premier, and then Ed Fast and his prime minister, through their term, who fashioned the agreement, and, of course, a big salute goes to Minister Freeland and Prime Minister Trudeau, who played that game of high-intensity chess in the last few weeks to try to close this agreement.

We've been very well served by our public servants as well. Brian mentioned Steve Verheul and his team at Global Affairs. That's an exceptionally talented group of people. All through the piece, we were well briefed, well informed, and consulted constantly on it, so at every level, I think, Canada has been well served here.

We'll have an interesting question period, I hope, if we can come back. I did want to say that not only is CETA an important economic agreement, but in the political world in which we currently live, it's an extremely significant gesture, taking us away from a rising tide of protectionism, hostility, and suspicion. Modern trade agreements—Angella made this point—are less agreements about trade than about national relationships. We're getting more and more complex and moving into things that were never countenanced as part of the trade dialogue in the past, but that we recognize as very significant issues, such as intellectual property and all the regulatory agreements. These make the agreements more complex, but they also lay the groundwork for better relationships between the states when they are signed and ratified.

The way to confront this rising tide of suspicion and conflict is to prove it wrong. We can make as many speeches as we want to about the virtues of free trade, but what really works, I think—and we'll see this in our dialogue with some of our major trading partners in the next couple of years—is to demonstrate that parties on both sides, citizens of every nation, have benefited, that they've seen real prosperity and, we hope, no significant diminution in any of the things they hold dear, such as health and safety standards.

We consider trade agreements to be starters' pistols. They lay the groundwork for success in trade, but as we've been saying and publishing reports on, Canada needs a vigorous trade strategy, especially to get smaller businesses to take advantage of this. The chamber is very much looking forward to that part of the dialogue, and we'll be partners to anybody who will be partners with us in terms of trying to capitalize on the opportunities.

The final thing I would say is that the Chamber of Commerce certainly agrees that adjustment support is an appropriate tool when you are trying to move trade agreements into the economy. It's no shame to acknowledge that some people are challenged by the developments in a trade agreement, just as it's not necessarily a proof of manhood that some people are going to win significant benefits under an agreement.

The way to maintain public support for these things, as well as to ensure that the economic impact is as controlled as possible, is to be there at every level to respond to those changing circumstances. Some of the things I'm proud of, in my own experiences with this, are adjustment investments that Canada made after the signing of the Canada free trade agreement, which allowed industries to recover and become extremely competitive. That's a logical part of our dialogue, and we need to keep it in the window as we go forward.

Why don't I stop now? If we get a chance to come back for questions, I'm looking forward to it.

[The Chair, Liberal, Mark Eyking]

Thank you, sir. We'll have some good dialogue.

Again, I'm sorry for the inconvenience. We should be away for about half an hour. We'll be back around noon, I hope.

[The Chair, Liberal, Mark Eyking]

We're back.

Thanks to our witnesses for patiently waiting for us.

We're not going to waste too much time here. We had your presentations well done and in good time. We're going to go right to the list and start the dialogue with the MPs. We're going to start with the Conservatives.

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

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

Thank you, Mr. Chair.

Thanks to all of you for being here again. We've seen each other a number of times. Every time we see you, we're always appreciative of what you share with us.

Historically, of course, when we think about what happened last week, there's probably a lot of angst, I would say, within the business community at this point as to how our relationship will continue to flow with the United States. I hope and I trust that our officials will do the work that's necessary to continue with the good relationships we've had with the United States, but the question begs to be answered: what will CETA mean for us should that agreement start to go south?

Mr. Everson, could I get you to comment on that? Maybe we'll ask for a few other opinions at that time.

[Warren Everson]

I think you're referring to the provisional process of—

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

If NAFTA starts to disintegrate, how important is it that we have CETA in place?

[Warren Everson]

I think we all recognize that Canada enjoys a privileged position, and that gets more privileged if we have both free trade into Europe and free trade into the United States. No one else has that, so we're enthusiastic about the possibilities.

The NAFTA dialogue that's starting in the United States obviously is a source of concern. I guess it's our advice is that people should keep their powder dry until the new government is sworn in there. There's a lot of rhetoric, and there's a lot of rhetoric from people who may or may not be quite authorized to be making the comments they're making.

We don't want to jump at every shadow, but oddly, the chamber a few years ago was urging that it was time to reopen NAFTA and fix it up, because it's an old agreement and there are a lot of places where it's a little creaky. E-commerce didn't exist when we signed the Canada-U.S. Free Trade Agreement and NAFTA, and it does now, and it's a big issue. I don't think it's a bad idea to open it. The spirit with which it's now being talked about is not very encouraging, so I think the Canadians will probably do their best to kick this down the road a little.

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

I was going to go the other side. I want you to continue, because you alluded to the fact that trade agreements are a living organism. They continue to grow, and as society starts to change, it's always important that we continue to re-evaluate.

Ultimately, a lot of good has come out of trade agreements. How important is it to recognize that? Maybe you can elaborate a little more on why agreements like NAFTA have to be revisited periodically?

[Warren Everson]

I think Canada punches way above its weight in trade negotiation because we are such a trade-dependent nation. At least two-thirds of our economy is dependent on trade, so threats to trade are significant threats to us.

Trade agreements have tended to be milestones on a path by which Canada has become one of the more effective trading nations in the world, and you can see that agreements.... I really liked your comment about how this is a sort of an organic process. The most important provision in any trade agreement is the one that says “and we can keep talking about this stuff”, because you're never going to get it exactly right. There's no moment at which you graduate and say that you have your diploma and you're finished. All of those things, such as my colleagues here have been raising, still need to be worked on. At a certain point, the nations have to sign on, but the concept that it's an unmoving contract is false.

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

You're on a roll, but I want to get some others who may want to jump in on this.

Mr. Kingston, would you agree that CETA is a better agreement than NAFTA in view of what Mr. Everson has said with regard to some changes that might have to be made?

[Brian Kingston]

Thanks for the question.

Similar to what Mr. Everson was saying, CETA is a continuation of Canada's trade policy strategy. It's the most comprehensive agreement we've ever negotiated. In terms of tariff elimination and the sectors it covers, it truly is a world-class agreement that goes beyond anything we've done in the past. Yes, it's more comprehensive than NAFTA, but that's just based on the fact that it was negotiated later on and we've become more skilled at doing these things.

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

Thank you.

We'll let the beef guys weigh in on this, just quickly. In terms of the trade agreements we've managed throughout the past 10 years, have they been helpful to the beef industry? I think about the Korean one and some of the other smaller ones. For this one in particular, is it going to be a good thing for the beef industry?