International Trade Committee on Nov. 24th, 2016

[The Chair, Liberal, Mark Eyking]

Good morning, everyone. It's good to see such a good turnout on this snowy, snowy morning in Ottawa. It's hot on the Hill but it's cold outside.

Welcome, witnesses. Thank you for making it here this morning.

It's good to see you from Brussels, Mr. Sinclair. I doubt it's snowing in Brussels.

From the Canadian Federation of Independent Business, we have Ms. Pohlmann; from the Dairy Farmers of Canada, we have Mr. Leduc; from Manitobah Mukluks, we have Mr. Fine; and from the Retail Council of Canada, we have Mr. Littler.

Welcome to everyone. As you know, we're here dealing with CETA. A lot of work has been done so far on CETA. We are going through the final stages with it here on the Hill , and we really appreciate your input today.

Since we have five presenters, I'd appreciate it if you could keep it to around five minutes. That would be very helpful. Then we could have a good follow-up and good dialogue with the MPs.

Without further ado, we'll go right to Brussels, if that's all right with you, Mr. Sinclair. Please start us off with your presentation. You have the floor.

[Scott Sinclair, Senior Research Fellow, Canadian Centre for Policy Alternatives]

Thank you, Mr. Eyking.

Thank you for the opportunity to be part of your deliberations on whether or not Canada should ratify CETA. Today I wish to emphasize three areas where the costs of ratification for Canada outweigh the modest trade benefits. These problematic features are among the main reasons the deal has become controversial, especially here in Europe, and why it is extremely worrying that CETA is being pushed through both the Canadian and EU parliaments with limited debate.

The current conduct and openness of the Canadian government in ratifying CETA could well be a factor when European member states and their citizens consider whether or not to ratify CETA over the next several years. I believe recent events in the U.S. have borne out the risks of a backlash when controversial trade deals are pushed ahead without full and open public debate.

Potentially the costliest single chapter in CETA is on intellectual property rights. A considerable portion of the legislation before you deals with changes to Canada's patent regime in response to European demands for stronger protections. By extending patent terms on brand-name drugs and providing for a new right of appeal for patent holders in patent linkage cases, CETA would delay the introduction of cheaper generic medicines. This unilateral change to Canada's drug regime will add an estimated $850 million annually to the overall cost of medicines in Canada, where we already pay the third-highest costs per capita in the OECD.

These increased costs will put more pressure on provincial health care systems, private drug plans, and individual consumers. In fact, the costs of CETA's stricter intellectual property rules cancel out the potential benefits to Canadian consumers of tariff elimination on EU imports to Canada. It is imperative that the federal government release its own estimates of these increased drug costs.

In both Canada and the EU, the most controversial aspect of CETA is the inclusion of an investor-state dispute settlement mechanism. Canada's NAFTA experience with ISDS speaks for itself: we have been sued more times than any other party, with corporations successfully challenging non-discriminatory public interest regulations. Far from addressing the problem, CETA entrenches and expands the ISDS regime through an investment court system. While it improves some procedural aspects of ISDS, the substantive protections afforded to investors in this new court system are largely unchanged.

Foreign investors still receive extraordinary legal rights to sue governments for measures that may negatively affect their investments. These protections, which are not available to domestic investors or ordinary citizens, would expose taxpayers to large financial liabilities and threaten to chill public policy. In contrast to these strong protections for investors and corporations, CETA's labour, environment, and sustainable development chapters merely trigger non-binding consultations.

The third and final issue pertains to CETA's impacts on public services and regulation affecting essential services. CETA would restrict governments' capacity to regulate the entry and activity of foreign service suppliers in our domestic market, even when such regulations do not discriminate based on the nationality of firms. By locking in market access for foreign service suppliers, CETA threatens the viability of public services. A standstill and ratchet mechanism forces governments to make any future regulatory decisions in the direction of even greater liberalization, including for many services that are on the list of exceptions. I'm referring to those in annex 1.

While a number of important public services are excluded from certain of CETA's liberalizing provisions, there is no way to take reservations against CETA's core investment protections, such as fair and equitable treatment in section D of chapter 8, and this would restrict the capacity of governments to reverse privatizations and expand public services by making such decisions unpredictably costly.

With more time, I could raise other concerns. Instead, I'll simply note that some of these are explored in the CCPA's accompanying brief, which you will have shortly, and our two “Making Sense of the CETA” reports.

To conclude, if the Canadian government and European Union are serious about getting CETA right, they should take the time to make necessary changes. Full European ratification will require the approval of all EU member states, including some that still have grave concerns about its investment court system. Permanently removing that system would help make CETA less objectionable and increase the likelihood of the deal being fully ratified. But even if the ICS never becomes a reality, CETA still contains provisions that make it far from progressive and that need to be studied in detail. Consequently, it would be a mistake to ratify CETA in its current form, especially after such a hurried parliamentary review and inadequate public consultation.

Thank you.

[The Chair, Liberal, Mark Eyking]

Thank you, Mr. Sinclair.

We're going to move over to the Canadian Federation of Independent Business. We have Ms. Corinne Pohlmann, senior vice-president, national affairs and partnerships.

Go ahead, Ms. Pohlmann. You have the floor.

[Corinne Pohlmann, Senior Vice-President, National Affairs and Partnerships, Canadian Federation of Independent Business]

Thank you.

Thank you for the opportunity to be here today to share CFIB's perspective on Bill C-30, an act to implement the CETA agreement.

You should have a presentation in front of you that I'd like to walk you through over the next few minutes.

First, CFIB is a not-for-profit, non-partisan organization that represents more than 109,000 small and medium-sized businesses across Canada. Our members represent all sectors of the economy, and they're found in every region of the country.

It's also important to remember that Canada's small and medium-sized enterprises employ about 70% of Canadians working in the private sector, they're responsible for the bulk of new job creation, and they represent about half of Canada's GDP. Addressing issues that will benefit them can have a widespread impact on job creation and the economy.

CFIB takes it direction solely from our members through a variety of surveys throughout the year, and we have found that a strong majority of members support free and fair trade. This is because most of them understand that trade is good for Canadian small business, for our economy, and for jobs. We also know that many of our members appear to be in a position to benefit from trade deals such as CETA.

For example, as you can see on slide 3, almost two-thirds of our members in a very recent survey are supportive of international trade agreements. However, nearly one in five small business owners felt they didn't have enough information to answer this question, suggesting that perhaps more needs to be done to inform them about the opportunities trade agreements can bring to their business.

A few others, including supply-managed producers, for example, may have strong concerns. We continue to carefully listen to our members who have those concerns and communicate them to the government. One concern we have expressed is the importance of ensuring that any economic harm to dairy producers, for example, as a result of the CETA trade deal be compensated.

Though there are some small but important exceptions, there is broad support for trade agreements even among those not involved in trade. But how many are actually involved in trade? As you can see on slide 4, about one in five have sold goods or services to other countries, while about half have purchased from other countries, with another 6% planning to get more involved in trade in the future.

What countries do they trade with? As you can see on slide 5, the U.S.A.—not a surprise—remains by far the most likely place that Canadian small businesses will trade, but second to that is the EU, and 9% of our members say they have purchased from the EU and about 6.5% have sold into the EU.

On slide 6 you can get a sense of which countries within the EU smaller firms tend to trade with. Germany and the U.K. lead the pack, with Netherlands, Italy, and France also being important for more than one third of small businesses that do trade into Europe.

We also explored what small business owners would like to see in a CETA agreement that would most benefit their business. Ultimately, as you can see on slide 7, what smaller businesses want to see is more consistency, fewer regulations, standards that are simple to comply with, simpler border processes, less paperwork, and lower costs. The good news is that CETA tries to address each of these areas, as it not only lowers tariffs, which are important, but it also starts to look at ways to reduce non-tariff barriers, which are very important, by finding ways to better align European-Canadian regulations and standards as well as look at ways to simplify border processes.

We also know it's important to communicate the benefits of CETA to more small business owners, and encourage them to consider the EU if they're looking to expand to new markets. Understanding how small businesses learn of trade opportunities in Europe might be helpful in how governments, organizations, and others might be able to support them with those opportunities. As you can see on slide 8, most learn of opportunities through business contacts, one in five conducted their own research and found their own contacts, about 15% were contacted by an EU buyer or seller, and another 15% participated in trade shows.

It's important to note that none, in this survey at least, went on a trade mission. I think there may be some lessons here for policy-makers to consider when they look at how to potentially promote the EU agreement in the future.

The good news, as you can see on slide 9, is that more than half of those already trading with Europe plan to increase their activities. This was before the CETA agreement was signed, so hopefully even more will follow as opportunities increase after the agreement is ratified.

You can see on slide 10 the reasons they wanted to increase their trade into Europe—to expand their business, which is what we ultimately want them to do, and to pursue more opportunities as the economy recovers—because they do see it as an alternative to the U.S. market. This latter issue may become even more important as a motivator for small firms in the next few years, depending on how the new U.S. administration will deal with NAFTA.

Thinking about how to encourage more small firms to consider trading with Europe, it might help to provide advice on how to overcome some of the challenges others have faced when they have tried to trade into Europe. As you can see on slide 11, providing them with guidance on how to deal with things like a fluctuating Canadian dollar, costs associated with shipping, and that type of advice would be useful. Many of the rest of the challenges they face, like high tariffs, different rules or standards, and the complexity will be somewhat addressed by CETA, so communicating how CETA addresses those issues will also be very important.

In summary, a strong majority of our members in CFIB are supportive of free and fair trade. Many of our members appear to be in a position to benefit from CETA, but a few may have some strong concerns. We have communicated these concerns, as I mentioned, to government, and have stressed the importance of finding ways to mitigate any economic harm to sectors that may be adversely affected as a result of the trade deal.

Finally, it's important that the benefits and advantages of CETA be well communicated to smaller firms so that more of them will feel confident about expanding their trade opportunities into the EU.

Thank you for the opportunity to present, and I'm happy to try to answer any questions.

[The Chair, Liberal, Mark Eyking]

Thank you.

We're going to move over to the Dairy Farmers of Canada. We have Mr. Leduc, the director of policy and trade.

Welcome. You have the floor.

[Yves Leduc, Director, Policy and Trade, Dairy Farmers of Canada]

Thank you, Mr. Chair and members of the committee.

[The Chair, Liberal, Mark Eyking]

Sorry, Mr. Leduc, do you have somebody with you?

[Yves Leduc]

Yes. I'm going to introduce her.

[The Chair, Liberal, Mark Eyking]

Go ahead, sir.

[Yves Leduc]

I'll start by highlighting the fact that I am accompanied by Thérèse Beaulieu. She is the assistant director for policy communications at Dairy Farmers of Canada.

I'd like to thank you for the invitation to appear before the committee today in view of its study of the subject matter of Bill C-30. Before I begin, I would like to stress that DFC's preoccupations are not necessarily related to Bill C-30, per se, but rather to the impacts of the CETA agreement itself on the dairy sector. Our presentation, therefore, will focus primarily on mitigating those negative impacts.

I want to point out that the Canadian dairy sector is a huge contributor to the Canadian economy. According to the latest economic impact study that has been performed by ÉcoRessources, in 2015 the dairy sector, both at the producer and processing level, contributed $19.9 billion to the Canadian GDP, provided $3.8 billion in tax revenues, and sustained 221,000 jobs in this country. Compared to 2013, that represents a 5% increase in the contribution to the GDP, a 5% increase in tax revenues, and a 3% increase in the number of jobs that are being sustained in Canada. In addition, dairy is either the top or the second largest agricultural sector in seven out of ten provinces across the country.

It's important also to point out that unlike other jurisdictions where farmers' incomes are heavily subsidized, Canadian dairy farmers receive no direct subsidies and derive their income from the marketplace. In comparison, for example, in the European Union the common agricultural policy budget amounts to 58 billion euros, and on top of that the dairy sector alone received an extra billion in the last year to compensate farmers for the very low prices that confronted them.

In regard to the government's announcement of a transition assistance package for CETA on November 10, DFC was pleased to see that the government decided to invest $250 million in dairy farms as well as $100 million in funding to help spur investment into updating Canada's dairy processing infrastructure. This represents a recognition on behalf of the government that the dairy sector is being negatively impacted by the CETA agreement. While we would, of course, prefer that any future trade deal has no negative impact on the dairy sector, this package does set a precedent for future trade negotiations in the event that they do negatively impact the dairy sector in Canada.

The announced package is a step that will foster the continued growth of the sector for the benefit of all Canadians. However, it only partially addresses the damage that will be caused by the CETA agreement. For dairy farmers, CETA will result in an expropriation of up to 2% of Canadian milk production, representing 17,700 tonnes of cheese that will no longer be produced in Canada. This is equivalent to the production of the province of Nova Scotia alone. It will cost Canadian dairy farmers up to $116 million in perpetual lost revenues.

I will now continue my presentation in French.

While Canadian dairy farmers appreciate seeing the government deliver in these two key areas, we remain concerned that several of our other issues remain outstanding. In particular, Canada's domestic regulations and border measures were not addressed in the transition assistance package, as we were led to believe they would be.

It should be noted that on November 18, our government announced that they are launching a consultation regarding potential changes to the duties relief program and the import for re-export program. This is a step in the right direction, and we remain hopeful that the government will take concrete actions to stop further damage to Canadian dairy farmers, and show they fully support the supply management system.

As Minister MacAulay noted himself during question period on November 14, the government is just starting what they are going to do to address the issues impacting dairy; Canadian dairy farmers are eager to see how the government delivers on that promise.

As mentioned by our friend Jacques Lefebvre from the Dairy Processors Association of Canada, Dairy Farmers of Canada was also disappointed that the government did not utilize the opportunity given on November 10 to announce how the new CETA TRQs will be delegated.

When it comes to the delegation of new TRQs, DFC urges the government to ensure that only those who are negatively affected by the opening of the Canadian market—namely, cheese makers, first, and indirectly the dairy producers that supply milk to the cheese makers—should be eligible to receive a share of the new quota. Therefore, DFC strongly recommends that the new cheese TRQ only be allocated to cheese makers.

From that perspective, cheese makers who are being affected by it, big or small, whether individually or collectively—and I would like to mention here that some small and medium cheese makers are trying to band together to position themselves as acceptable importers—need to be treated fairly and should be eligible to apply for a share of the new quota. Allocating the TRQ to cheese makers will not only help to maintain the stability of the Canadian market; it will allow imported cheeses to have access to established distribution networks, therefore maximizing fill rates and avoiding speculation and disruptive marketing practices. Canadian cheese makers are best positioned to import cheeses into Canada in a way that minimizes speculation because they have no interest in negatively affecting or disrupting their own business.

Furthermore, while we believe it is important to allocate the TRQ in a manner that will assist cheese makers in developing long-term relationships with their customers and ensuring that their share of the TRQ is sufficient to develop a sustainable business, DFC is opposed to allocating the new TRQ to retailers or distributors. Notwithstanding the economic contribution of retailers to the Canadian economy, allocating any share of the CETA TRQ to them will only result in a substitution between domestically and imported cheeses, and will not generate added benefits.

In conclusion, Dairy Farmers of Canada want to continue to be strong contributors to Canada's economy, and DFC wants to continue to work in partnership with the government to ensure the sustainability of the supply managed dairy sector. We have been on record many times as not opposing the CETA deal, or any other trade agreements, provided that Canada's dairy sector is not negatively impacted. Canada's dairy sector will be negatively impacted by CETA, and as much as DFC appreciates the package that was announced, there is still work to be done; the government recognizes as much.

Thank you.

[The Chair, Liberal, Mark Eyking]

Thank you very much, Mr. Leduc.

We're going to move over to Manitobah Mukluks. We have the chief brand officer, Mr. Josh Fine.

You have the floor, sir.

[Josh Fine, Chief Brand Officer, Manitobah Mukluks]

Thank you.

Thanks for the opportunity to participate in this process. I am a partner and the chief brand officer of Manitobah Mukluks. We're an indigenous-owned company based in Winnipeg, and Canada's fastest-growing footwear brand. We produce over 150,000 pairs of footwear annually, and share our uniquely Canadian story in 48 countries worldwide. Our products are sold in 800 retailers throughout Canada and the United States, and globally through our robust e-commerce channel, which now represents half our overall business.

We are excited about CETA for two reasons. One, it allows us to further our mission of developing a truly global indigenous brand, and two, this increased success globally allows us to make a bigger impact in our communities locally. I also want to reinforce the importance of the changing consumer habits, particularly with regard to e-commerce, that make these overseas markets increasingly relevant for more small businesses like ours.

Traditionally for small and medium business, and in particular for indigenous businesses, the quote-unquote global economy has been far away. Many businesses our size do not have the capacity and resources to navigate the complexities and costs associated with developing foreign markets. Government assistance programs such as the trade commissioner service certainly help break down some of those barriers, but still, it really is unrealistic and too costly for many businesses. Ten years ago, Manitobah would not have been able to take advantage of CETA.

In today's economy, e-commerce plays a critical role in democratizing commerce. It allows us and other small businesses to effectively take advantage of the global economy and the benefits of CETA. We can now reach consumers in Paris and London through a 10¢ ad and a follow-up click. In the past, London and Paris consumers were many trade shows, distributors, and travel expenses away. Now they are much closer. Many of the practical market entry issues have now been solved through this change in consumer online purchasing habits. We can now compete globally against our multi-billion dollar competitors in telling our story not only to a local audience but also to the many European consumers with whom our story and mission resonates.

Given this new accessibility, trade agreements like CETA become increasing beneficial in allowing us to succeed on a global scale. Currently consumers who are buying our Canadian products online are being hit with a surprise 17% duty after the purchase is made. Removing this tariff, as CETA promises, will help us drive this important piece of our business. Consumers are price sensitive, and this added 17% is a barrier that can mean the difference between success or failure in our target markets.

The social impact this can have is also very exciting. Some of our artist-crafted Storyboots sell for upwards of $1,500 and $2,000. This is a fair trade program where indigenous artists receive 100% of the proceeds of their works. We leverage our distribution, both online and in stores, to share these works of art and culture with a global audience. The further we go from home, the more this culture and art is appreciated and admired. While 100% of the sale goes back to the artist, consumers in Europe have been surprised by a $200-plus duty that they pay on each and every one. Eliminating this will allow us to have more success for the Storyboot program in Europe, and will in turn help us build businesses amongst crafters and keep this important piece of culture alive and vibrant.

In conclusion, by eliminating the remaining trade barriers and allowing the free flow of goods, especially goods purchased online, CETA can allow small businesses like ours to truly participate in the global economy in an even bigger way.

Thanks.

[The Chair, Liberal, Mark Eyking]

Thank you, Mr. Fine. Our committee over the last year or so has heard a lot of businesses come forward, and yours is definitely unique and very Canadian. It's good to hear from you, and it's good of you to be here.

We're going to move over to the Retail Council of Canada. We have Karl Littler, vice-president of public affairs.

You have the floor, sir.

[Karl Littler, Vice-President, Public Affairs, Retail Council of Canada]

Thank you.

Mr. Chairman, thank you for today's opportunity to provide the retail sector's perspective on the comprehensive economic and trade agreement. We are delighted to even be at this stage of consideration, given some of the uncertainties that first Brexit and then Wallonia have created for CETA along the way. Retailers are deeply concerned about the emergence of anti-free trade sentiment worldwide and about recent pronouncements regarding the trans-Pacific partnership south of the border.

In that increasingly challenging context, the attainment of an agreement between 28 member states is a remarkable achievement. Successive Canadian governments deserve a great deal of credit for envisioning, negotiating, and delivering on the CETA deal.

Retail Council of Canada is a strong supporter of freer trade, whether through bilateral agreements or multilateral agreements like this one. The reason is straightforward. Free trade agreements remove the customs duties charged on the goods we import. That allows us, in turn, to offer lower prices for consumers and also, ideally, to increase sales volumes and the associated level of economic activity and employment.

These customs duties are not at all minor. Shoes are one of the major retail items sourced from Europe, and most of them face duties of between 18% and 20%. Similarly, most apparel is dutiable at a rate of 18%. Of course, these duties are themselves subject to sales tax. Once all of that is totted up, exclusive of the later sales tax, duty has typically increased the price paid by Canadian consumers by more than one-fifth.

Tariff elimination not only reduces prices, but it increases consumer choice, as goods that would otherwise remain uncompetitive become marketable.

Beyond retailers' support for reduction in tariffs, our grocery members are also very supportive of the CETA provisions for increased importation of 16,000 metric tonnes of European cheeses. I should note that the distinction from what my friend from Dairy Farmers of Canada said is that we're excluding the industrial portion from that number.

RCC is recommending that 100% of this new cheese quota be directly allocated to retailers. This would provide significant benefits, we believe, both to Canadian farmers and to Canadian consumers.

First, with regard to farmers, there's an allocation process that needs to be completed, but RCC is proposing that each retailer's share of the cheese allocation be based on its previous year's combined sales level of imported and domestic cheese. Linking future retailer allocations to sales within the entire cheese category provides a strong motivation to grow sales of both domestic and imported cheeses. This would prove a direct benefit to Canadian farmers.

Second, Canadian consumers' appetite for cheese has grown substantially. Allocation of cheese quota directly to grocers will allow retailers to ensure that the right product is provided to consumers, at the right price.

Retailers will be able not only to ensure that quota is used to bring in cheeses that are being sought after by consumers but, importantly, to eliminate inflationary components inherent in the current third-party quota system and take out, based on our members' estimates, some 20% to 40% in extra costs that are currently built into the system.

Mr. Chair, the CETA agreement will bring tangible benefits on some of the core necessities purchased by consumers; namely, food and clothing. The deal will diversify choice, and it will see a lowering of prices paid by Canadians.

We strongly encourage support and ratification for this agreement and, indeed, for further bilateral and multilateral trade deals, whether with a post-Brexit U.K. or with willing Asia-Pacific countries now that the TPP deal appears to have unravelled.

Thank you, Mr. Chair.

[The Chair, Liberal, Mark Eyking]

Thank you, sir.

We'll start off the dialogue with the MPs, beginning with the Conservatives.

You have five minutes, Mr. Hoback. You have the floor.

[Randy Hoback, Conservative, Prince Albert, SK]

Thank you, Mr. Eyking.

To the witnesses, I'd like to thank you for being here this nice snowy Thursday morning, talking about one of the topics I love to talk about; that is, of course, trade and CETA.

I'll start off with you, Karl. I'm just kind of curious. You're talking about the allocation of cheese quota. You say 100% should go to retailers. How are you going to differentiate between the size of those retailers? For example, you might have a mom-and-pop store that just sells cheese that will want some of that quota, and then you're going to have retailers like a Costco or a Walmart that would sell large volumes of cheese because of their sheer size.

[Karl Littler]

We believe it should be pro rata, based on prior years' sales. It should be recalibrated either—

[Randy Hoback, Conservative, Prince Albert, SK]

I'll use Walmart as an example, just because it's top of mind. If Walmart has, let's say, 100 stores across Canada, do you take the 100 stores, divide it by...? Do you take the total volume, divide it by 100, and say, okay, that would be the basis for allocation for Walmart, and then that would be the basis for allocation to other small retailers?

[Karl Littler]

I don't believe we would say that there has to be a down-to-the-store distribution for—

[Randy Hoback, Conservative, Prince Albert, SK]

How do you split up the quota, then, to allow the small players actual access into the marketplace?

[Karl Littler]

Well, the small players would have access, because if they're specialized in cheese, then they would already have, relative to their size, a substantially greater portion of the overall market sales.

[Randy Hoback, Conservative, Prince Albert, SK]

So it would be a percentage.

[Karl Littler]

Yes, it would be a percentage. What we are proposing is that it be on both domestic and imported, because that then pushes people to push domestic product as well.

[Randy Hoback, Conservative, Prince Albert, SK]

So you can create a formula that would actually still protect the small guy—

[Karl Littler]

We believe so.