International Trade Committee on March 8th, 2016

[The Chair, Liberal, Mark Eyking]

Good morning, everybody, and welcome back. I hope everybody had a productive week in their riding.

This morning we're going to continue with our study on the TPP, the effects it will have for Canadians and businesses, and the opportunities.

We seem to be moving along pretty well with our committee. I find that when we're dealing with clusters, it seems to work well. We've done many so far, and today we're going to be talking about the auto industry. We're going to have two parts to this. Starting off this morning, we have Unifor and Ford. We usually give the witnesses five minutes, but if it's a little under or a little over, we're open to that and whatever information we can get. Then we'll start our rounds of questioning.

Who wants to go first, Unifor or Ford?

[Jerry Dias, National President, Unifor]

My illustrious friend can start.

[The Chair, Liberal, Mark Eyking]

Okay. Go ahead, then, Madam Craig.

[Dianne Craig, President and Chief Executive Officer, Ford Motor Company of Canada Limited]

Thank you for the opportunity to provide Ford of Canada's views on the automotive terms in the Trans-Pacific Partnership agreement. Ford Motor Company is a global automotive industry leader founded in 1903 that today employs 199,000 people in 67 plants worldwide to manufacture and sell vehicles in more than 200 international markets. Today, on a global basis, Ford exports over 40% of the vehicles it produces worldwide.

In Canada, Ford has been part of the economic fabric for 112 years, providing high-quality jobs that build and sustain Canada's middle class. Today, Ford of Canada employs over 8,200 men and women in three vehicle assembly and engine manufacturing plants, two R and D centres, and two parts distribution centres. Ford purchases over $5 billion annually from parts suppliers across Canada, and Ford's network of 425 dealers employs 19,000 employees in communities across Canada.

Since 2000, Ford has invested over $12 billion in our Canadian operations, including $700 million in Oakville, to produce the Ford Edge for global markets, including the right-hand drive and diesel vehicles that today we are exporting to Europe. Trade and trade policy is hugely consequential to the success of Ford's Canadian operations since 100% of our engines and 90% of our vehicles are exported around the world, including to markets like China, South America, and now Europe.

Ford was one of the first companies to publicly support CETA. At Ford, we are not just philosophers of trade, we are practitioners of trade. That is why we have supported every free trade agreement ratified by the Canadian government, with the exception of the Canada-Korea Free Trade Agreement. In fact, it was the auto sector, in the 1965 Canada-U.S. Auto Pact that became the foundation for the Canada-U.S. Free Trade Agreement, and then the North American Free Trade Agreement. Today, as a result of these historic agreements, Canada's auto industry is fully integrated in the North American auto industry, allowing Canada to achieve economies of scale that drive global competitiveness.

Canada's auto industry is at a very important inflection point in the highly competitive global industry, and trade policy matters to Canada's future success. Trade agreements open new markets for Canadian-produced goods and level the playing field for Canadian manufacturers and workers. Unfortunately, the auto terms that Canada agreed to in the TPP do not meet that test.

In Ford's perspective, the TPP falls short on two very important points. First, Canada accepted an accelerated tariff phase-out period of five years, or five times faster than the U.S. tariff phase-out period of 25 years for cars and 30 years for trucks. Both of the U.S. tariffs are back-end loaded. Second, the TPP fails to include strong and enforceable currency disciplines to address currency manipulation as defined by the International Monetary Fund.

Currency manipulation is perhaps the most significant trade barrier and risk that Canadian exports from any sector face around the world. When governments intervene to depress the value of their currency in order to increase export competitiveness for domestic manufacturers and decrease imports, they are widely understood to be manipulating their currency. In the context of a free trade agreement, currency manipulation can completely offset the benefits of tariff reductions by simultaneously creating an unfair export subsidy and an import surcharge. World trade rules have long obliged countries to refrain from currency manipulation because of the potential to distort trade. Yet, despite these rules in place at the IMF and the WTO, no multilateral enforcement actions have been taken in the seven years this global economic system has been in place—not one single multilateral enforcement action.

Canada's vehicle sales market is one of the most open vehicle markets in the world, with 83% of the vehicles sold in Canada being imported from another country. Yet markets like Japan and South Korea remain closed to vehicles produced in Canada. In 2015, Canada imported 134,000 vehicles from Japan, but only 500 Canadian-produced vehicles were exported to Japan. Closed markets can only be opened by achieving the right terms in trade agreements that eliminate all trade barriers, including currency manipulation.

The TPP auto terms will not increase Canadian auto exports in any meaningful manner, but instead will put Canada's automotive manufacturing footprint at further risk. It is for these reasons we are recommending that Canada not ratify the TPP in its current form.

Instead, Canada should play a constructive role in working with other TPP members to make this deal better for Canada's auto sector by matching the U.S. auto tariff phase-out periods. Canada should also seek to make the TPP better for all Canadian sectors by including strong and enforceable currency disciplines. From the start, Ford of Canada has played an active and constructive role in articulating the trade policy issues that the TPP agreement needed to address in order to support Canada's auto sector. We will continue to play this role, not only because 90% of our vehicles and 100% of the engines that Ford builds in Canada are destined to be governed by the policy and rules of international trade, but also because we know there are other Canadian companies and other workers that will not have a fair chance to compete if the TPP is ratified in its current form.

In summary, free trade must truly be free, with companies and industries succeeding on their own, not with a government thumb on a scale. If a trade agreement with accelerated auto tariff phase-out and without strong and enforceable currency disciplines were approved, it would send a message that the status quo is acceptable, that countries can continue to subsidize their exports and undercut Canadian manufacturers and workers while keeping their domestic markets closed to Canadian exports.

We can do better. We should do better.

Thank you very much.

[The Chair, Liberal, Mark Eyking]

Thank you very much, Ms. Craig, for that in-depth report.

I would also like to welcome Elizabeth May from the Green Party. As everybody knows, all members of Parliament are allowed to sit around this table.

We're now going to move over to Mr. Dias from Unifor.

[Jerry Dias]

I shall do my best to stick within the five minutes.

Good morning, Mr. Chairperson and members of the committee. My name is Jerry Dias, and I am the national president of Unifor, which is Canada's largest trade union in the private sector. With me is Angelo DiCaro. He's in our union's research department.

Unifor represents over 315,000 workers across the country, in each province and in nearly every industry. Our union has paid close attention to the proposed TPP agreement and the negotiations that have taken place since 2012. Our union, like most Canadians, viewed these negotiations from the sidelines. I'm glad the current government has promised public consultation on the deal. We hope these consultations are meaningful and go beyond the back rooms and boardrooms and into local community centres and town halls.

We're also glad the government has proposed to release an economic impact assessment of the TPP. I would urge the government to ensure that this study is done independently and is using a credible assessment model. We don't need another government study that is simply aimed to convince Canadians that all free trade deals are good deals.

As with the Canada-EU CETA, we don't need an economic assessment built on fantasyland assumptions that no one can ever be unemployed, that businesses won't shift capital investments overseas, and that trade flows aren't impacted by exchange rate fluctuations. Canadians need to know the facts about this trade deal. Canadians need to be empowered to decide if the TPP is in fact in our best interest.

One of our biggest concerns about the TPP is that it will undermine investment in our most strategic value-added industries. I hope this committee understands that Canada's manufacturing trade deficit sits at $122 billion. That's a record, and not one we should be proud of. That deficit has been widening each year since 2004.

At a time when developed countries such as the U.S., Germany, Japan, and others are actively investing in and managing their productive industries, Canada has not followed suit. Cutting tariffs doesn't make an industrial strategy. In fact, it will likely make a bad trade deal even worse.

The auto sector is a case in point. Our auto trade deficit in Canada is $19 billion. This is a pretty significant drop from the $14-billion surplus we once enjoyed not that long ago. While we appreciate the need to diversify auto exports away from the United States, the reality is that Canada's current auto exports aren't desired in countries like Japan, Malaysia, Vietnam, Brunei, and even Korea for that matter. Auto exports to these countries are currently non-existent.

So what has free trade done? Well, we're one year into the Canada-Korea agreement. Korea has an economy structured not unlike Japan's. In that first year, as we predicted, Canada's manufacturing exports declined by 3.9% and imports grew by 9%. Our manufacturing trade deficit with Korea grew to $4 billion—not exactly what Canadians were told would happen.

Much of what the government is banking on in the TPP is that Canada will be granted new access to the Japanese market, particularly for autos. Japan has no import tariffs on autos. The problem with Japan isn't about tariffs. There are deeper structural issues at play, and unfortunately these weren't addressed in the deal.

Despite this, Canada still agreed to accelerate the phase-out of its 6.1% auto tariff with Japan, five times faster than what the U.S. committed to. We accepted the weakest rules-of-origin thresholds we've ever negotiated, rules struck in a side deal between the U.S. and Canada, where we had no input at all.

I hope the committee understands our concerns that thousands of auto jobs will be at risk from the TPP. Without a federal auto strategy, future investments will be hard to come by.

Now, I want to stress that Unifor's members' concerns on the TPP extend beyond auto. For instance, telecom workers worry that the TPP will broker new rules on foreign ownership. Forestry workers want clarification on whether raw log export regulations will be protected. Health care workers are furious that drug costs will likely skyrocket. Media workers wonder if we've given up our right to regulate online TV services. Food processors are concerned that facilities may close on account of more dairy imports. The list goes on. There appears to be far more questions over this trade deal than answers.

Minister Freeland has indicated that Parliament will either accept the TPP as is or reject it. There's no going back. Telling Canadians to take it or leave it is a tough proposition. The truth is that Canadians have been poorly informed of this deal. That's partly because it has been kept secret for so long.

Meaningful public consultation informed by credible, independent research is a must, but if meaningful changes cannot be made to the TPP at this point, then it is not a deal our union can support.

Thank you for your invitation and the opportunity to speak with you today. We're happy to take any questions you may have.

[The Chair, Liberal, Mark Eyking]

Thank you very much, Mr. Dias. You're right on time. That's very good.

[Jerry Dias]

That's a first.

[Some hon. members]

Oh, oh!

[Jerry Dias]

I was under strict instructions to read the speech, not wing it, or we'd be in deep trouble.

[Some hon. members]

Oh, oh!

[An hon. member]

There will be time for winging it, too.

[The Chair, Liberal, Mark Eyking]

I'll just remind witnesses who are here that you're welcome to stay for the second half, because we have more auto industry coming for the second half.

We're going for 15 minutes for this whole round, and it will start off with six minutes for each witness. We're going to start off with Mr. Van Kesteren from the Conservative Party.

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

Thank you, Chair, and thank you all for being here this morning and discussing this important topic. It's certainly going to have some benefits.

Any time we embark on something, there's always a risk. We do that every day when we go outside and walk on the street, I suppose, but we know that doesn't stop us.

I want to start my questions by talking about the things we did as a government in the past to help the industry. I'll direct this to the Ford Motor Company. When we were first elected, we were told it was important that we start to hone in and get things like harmonization in place. We needed a bridge. We needed investments in the industry for the technology.

The other thing we were quick to do, too, is to make sure that we are competitive here in the Canadian marketplace, and that companies like Ford could take advantage of a lower tax burden. But part of that process as well was to expand our markets. Would you not agree that this strategy is the right strategy in place to make for a healthy market in an automotive company like Ford?

[Dianne Craig]

Thank you, sir, for the question.

Yes, I agree, that's the right strategy. I mentioned Oakville. We're really excited about the $700-million investment in Oakville. CETA was a big reason that we landed that investment in Oakville, because we knew CETA was in the works and the plan was to start to export to Europe out of that plan. If CETA did not happen, that investment would have been at risk. When you think about all the things that matter when we make investment decisions, and certainly for me in advocating for Canadian manufacturing I'm competing with my global colleagues all around the world, it means making sure you have the investments right, you have the labour costs right, you have the harmonization right, the infrastructure right, and that includes trade policy. That's how importantly trade policy matters.

Certainly, when we engage with other trading partners, we want to make sure the markets are open, and we know Japan is closed so we see no opportunity for Canadian exports, which therefore will not lead to any future investment based on the present trade agreement. But, again, I point to CETA because it was a tremendous success story for Oakville. We started shipping to export in December, and right now, as we speak, we plan to ship about 25,000 vehicles over to Europe, and it could be as high as 50,000.

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

One of the things we hear about regularly is currency manipulation. Again, I can recall in the past when our Canadian dollar was high.

Mr. Dias, I think you would recall those times, too. One of the things the union encouraged the government to do at that time was to try to force that dollar down. I'm not one to agree that we have much control over those things. I think it's the circumstances probably. But today we're at a point where our dollar is very competitive. I'm curious if you don't see that as something that fluctuates and something that's going to change. Although there will be times that our high dollar will hinder us, as we can see the ball rolls and one day we suddenly have this low dollar. Wouldn't that give you an opportunity to compete in the markets like Japan, too, especially now that I think we're at about 74¢ to the American dollar?

[Dianne Craig]

The yen right now is 5% lower than the Canadian dollar, so that hasn't helped us. But the one thing about currency.... We believe that the marketplace, not governments, should dictate currency. Certainly, Canada and the U.S., have never manipulated their currency. We know that other countries that are part of this trade agreement have in fact manipulated their currency. That's a real issue we face, and that's why we've been so strong on making sure that we have currency disciplines in place.

The lower dollar definitely helps, but when we're making investment decisions, as Jerry knows, it's on a 10-year horizon, and we know it's going to fluctuate. So it helps, but it's something we look at again over a 10-year cycle.

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

Some would argue that the Japanese are getting into a tight corner. I think their debt-to-GDP ratio at this point is 237%. Their currency is being affected by that. Wouldn't you agree that a policy that doesn't manipulate the dollar, that doesn't lead to those interest rates—we're talking about negative interest rates in Japan today—is a better policy? Won't that in the long run benefit us and make us more competitive with countries like Japan?

[The Chair, Liberal, Mark Eyking]

A very short answer. You have half a minute.

[Dianne Craig]

I'm sorry. I should have introduced Caroline Hughes, vice-president, governmental affairs for Ford Canada.

[The Chair, Liberal, Mark Eyking]

That's fine.

Go ahead.

[Caroline Hughes, Vice-President, Government Relations, Ford Motor Company of Canada Limited]

I'm happy to answer that question.

What we're asking for in the TPP is for the IMF principles of currency manipulation to be codified. It does not deal with monetary policy at all; it allows countries to use monetary policy to manage their economy. However, all of the signatories to the TPP, all of the countries that are members of the TPP, have in the past endorsed the IMF's very strict definition of currency manipulation. It is that egregious form of currency manipulation that provides the export subsidy and makes imports more expensive. It closes the market and makes it difficult for Canadian vehicles to compete.

The important thing is that it's not just going into Japan and it's not just vehicles coming into Canada. It's all of the vehicles that we export around the world. Every single market that our Canadian-produced vehicles go to will face these vehicles that are produced in countries with a manipulated currency.

Again, all we're asking for is that the IMF principles be included in the trade agreement and to have a remedy of the tariff coming back on, being replaced, if currency manipulation, according to IMF, does occur.

[The Chair, Liberal, Mark Eyking]

Ms. Hughes, that was very good information, and good questions.

We're going to move on to the Liberal Party.

Mr. Fonseca.

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

Thank you, Mr. Chair.

I'd like to first thank our presenters. Mr. Dias and Ms. Craig, thank you so much. Thank you for the quality work that your members of Unifor do, as well as for the investments that you've made here in Canada. It's great to hear the success that you're having with the exports and what you're doing with the Ford plant in Oakville.

My questions stem around the consultation process and what happened prior to some of the agreements that have been made.

Ms. Craig, in The Globe and Mail article that was published last fall, you were quoted as stating that Ford sees the TPP as a setback and that it should have mirrored the United States.

I'd like to know from your perspective and from meetings you may have had with the previous government, what negotiations took place, what meetings, what inputs you had into that process, before coming to that agreement. Could you also let us know what you meant by “setback” as you explained in your presentation?

[Dianne Craig]

Let me start with the setback, and then I'll defer to Caroline, because she worked directly with the negotiators.

As I mentioned in my opening remarks, Canadian manufacturing is at an inflection point. In 2014, there was $17 billion, almost $18 billion, in auto investments in North America. There was $10 billion that went to the U.S., $7 billion to Mexico, and $750 million to Canada, of which Ford was a part. Now $750 million is a big number, almost a billion dollars of investments in Canada. But in the scheme of things, $18 billion, we did not get our fair share. We know that the manufacturing footprint has been shrinking over the last decade, so trade policy matters because it attracts investment.

When we've had some challenges, especially with what's happening south of the border with the aggressive incentives being offered by other jurisdictions, by labour costs in Mexico and other challenges, everything matters. However, trade policy really matters, and that was the last thing we needed in an already very competitive landscape. It certainly didn't help the conversation, and it really hurt the conversation, especially because we felt, as a sector, to not even have the same tariff phase-out that was negotiated with the U.S. sent a message that autos weren't important.

With regard to the consultation process, there was absolutely plenty of consultation that went on. We felt that our voice was at least being heard. It unfortunately in the final analysis wasn't listened to.

I'll defer to Caroline who can speak a bit more about that.