International Trade Committee on May 9th, 2017

[Scott Sinclair]

Yes. I think it's a critical part of a modern trade agreement. I would like to see it much more strongly enforceable than it is in any of the existing agreements undertaken by Canada and the United States. There are many options. As you know, the NAFTA labour accord is basically a joke—it's almost atrophied. Unions and workers have to be able to bring disputes directly, and there has to be some sort of remedy. There are many options. There could be fines that could go into redressing the problem. It doesn't have to become a labour version of investor-state dispute settlement where lawyers are chasing fees. The money could go into actually redressing the problem.

I talked about procurement. I don't think that—

[Linda Lapointe, Liberal, Rivière-des-Mille-Îles, QC]

Sorry for interrupting you, but I could easily ask another three questions. I'll move on to Mr. Wilson.

Mr. Wilson, you said earlier that we should make major improvements to the agreement, which dates back to 1994. The world has changed since 1994. We have cellphones, electronic commerce, and the Internet. Of course, there's also China.

In what area should we make improvements?

[Mathew Wilson]

That's a great question. There are a couple of specific areas. On procurement, and I'll pick up on Mr. Sinclair's point, this has been one of the biggest struggles for a lot of integrated industries, to be able to sell into government procurement markets in Canada and the U.S., and now even trying to get the extension of those into the private sector. We saw with the Keystone XL, for example, where they tried to extend it into that and may succeed, but I doubt they will.

Certainly, CME has been a long time advocate for some type of buy North America model that recognizes the integration in procurement. If the focus is China, let's make the focus China, because that's what we keep being told it is. I don't know if that's true or not, but that's what we keep hearing. Let's not make Canada the focus in these things.

There are other areas we mentioned. Border simplification has to be looked at. This is the number one issue, whether it's infrastructure or whether it's just the red tape and regulation. We need to do something. We need to look at what Europe did, frankly. European countries went to the common market in part to combat the strength of the U.S., in order to create their own economic sphere that could compete economically with the U.S. NAFTA was in part a response to that, yet we've never moved the rules beyond what it originally was set up for 25 or even 30 years ago, and in some places with the auto sector, even longer.

We need to be looking at the rules that govern trade to eliminate as much of that red tape as possible. These are serious asks that we need to be going to the U.S. with, that will benefit Canadians and their industries at the same time, but we shouldn't be afraid to make those demands, to make it better, to make it stronger for our economies.

[Linda Lapointe, Liberal, Rivière-des-Mille-Îles, QC]

When you say “regulation”, do you mean the harmonization of rules?

Is there much of a difference?

I want to talk about red tape with Mr. Paterson. My constituency is Rivière-des-Mille-Îles. The Boisbriand General Motors was in my constituency. People have often said that the Boisbriand plant closed mainly as a result of NAFTA.

How could eliminating red tape help keep jobs here, in Canada?

[David Paterson]

To help keep jobs in Canada, in the auto sector, we have to recognize that the auto sector hasn't stood still in terms of technology either. Every year we get about 5% more productive, just in the automation of our systems, and we are intensely competitive with my colleague next to me. I'll remind her that we outsold her in Canada for the last couple of months, but technology is a very important thing that we need to focus on.

I spent a full day at the Université de Montréal and McGill University, and we are investing in all kinds of high technology software. In Canada, we have unique strengths in this area, with artificial intelligence at the Université de Montréal, and we shouldn't forget this. The automotive sector is going to be one of the largest platforms in the world for new technology. We need to grow the jobs in that area as well as the traditional jobs that we've had.

If we focus only on the traditional jobs, we will not grow. If we look at where the future is going, and we think about things like intellectual property, the movement of people, liberating the technology and the intelligence in our university systems to better commercialize products in Canada, and grow Canadian start-up companies, then we're going to actually grow, and Quebec is going to be a hot spot for that.

[Linda Lapointe, Liberal, Rivière-des-Mille-Îles, QC]

Thank you.

[The Chair, Liberal, Mark Eyking]

Thank you.

I caution the witnesses. It's hard enough to keep political parties from taking shots at each other, so don't go down that road. Sometimes we lose, but anyway, we'll move on.

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

I feel right at home, myself.

[The Chair, Liberal, Mark Eyking]

We're going to move over to the Conservatives, Mr. Van Kesteren.

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

Thank you all for being here. It's always great to hear from you.

I don't really know where to go, but I think I want to follow on what you're saying, David. As you know, we took a trip to the west coast, where it became painfully obvious just how important technology was. If you think back to the 20th century, to the Carnegies, the Chryslers, the Fords, these were people who produced goods. Today's billionaires produce that. There really is no good....And Mr. Morrison, you mentioned that we have to get the Chinese.... Listen, we set them up. If we really want to be honest, we took our manufacturers over there and introduced them to the Chinese. They had a fifty-fifty deal—I think it was 49-51—and that's where our manufacturing went. We just sold our manufacturing, quite frankly. I want to touch on this.

Take Tesla, for instance. I forget what they get subsidized, but it's thousands of dollars, $15,000 for an electric car. This is what you're competing with as Ford Motor, as General Motors, as Chrysler, and as manufacturers, too. We're competing in a world that's changing rapidly. The only thing I see that we can do is to offer manufacturers...because there's no reason for Ford or Chrysler or General Motors to stay in Canada, other than if it makes economic sense. It's not because they think we're wonderful, and this is a Canadian.... It's not a Canadian company.

How do you see that challenge in your day-to-day operations where you're competing with investment that goes to stuff that really produces nothing, and trying to maintain your growth in the new world we're living in? Can you comment on that?

[David Paterson]

I can start off on that, because it's a great question, and if I put on my hat.... I'm the past chair of the Canadian Chamber of Commerce, and one of the areas we've looked at quite intently is intellectual property.

As you say, right now the world's economy is based on intangible goods. Most of the world's wealth today is generated by intangible goods. They cross borders electronically, and the value of those goods comes from the inventiveness and creativity that we have. We have no shortage of that inventiveness and creativity here in Canada.

I had the great honour to work at BlackBerry for a number of years, where we took a new technology and changed the world for a period of time. You get disrupted, and things change. We have to understand that we can't look strictly backwards, in the rear-view mirror, in terms of the type of industry we have. We need to be competitive in new areas. We have incredible strengths coast to coast in Canada in these areas, and I think we're starting to harness them. That is a valid area to think about in NAFTA and it's a valid area to think about as a point of public policy in Canada, to make sure we're properly leveraging it so that not only could little Canadian companies get bought by multinationals, but they would also grow up and become strong domestic champions.

I'll just finish by saying that in setting up all the technology we have here in Canada, we really believe.... One of the reasons we're here is to share intellectual property and co-develop intellectual property with Canadian companies, because they're that good. That's an opportunity too, because frankly we're a massive customer, and if you sell 10 million widgets to us, that's pretty good.

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

Those centres of excellence are so critical in maintaining our position.

[David Paterson]

We have some natural ones, and we're augmenting those, too—whether we call them clusters or what have you. They are important. But we should understand what we have and make sure we compete at a global level of competitiveness and not just prop up things that are also-rans.

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

Caroline, did you want to jump in on that?

[Caroline Hughes]

Absolutely, centres of excellence are incredibly important. I think, though, that one of the pieces of good news is that while in the electronic and information era things move over the Internet, people have to physically move through means such as cars. Vehicles for mobility purposes will be around for a long time. They will become more advanced and include more technology.

Our plants are also advanced manufacturing plants where despite the huge investments, we're getting productivity gains so that you're seeing fewer people needed per unit of production. That all keeps us on the leading edge of technology. The R and D goes hand in hand with the production. All I can say is that we have to encourage the R and D where it makes sense, but we also have to look at things like the automotive innovation fund and the change from a loan to a cash grant was incredibly important to help keep Canada competitive.

[The Chair, Liberal, Mark Eyking]

Thank you.

Mr. Morrison, if you have a quick comment, go ahead.

[Matt Morrison]

We need to have the ability to collaboratively link these centres of excellence. The future is all going to be collaborative design innovation. That again is a North American platform, I believe.

[The Chair, Liberal, Mark Eyking]

Thank you.

I'd like to welcome Mr. Oliver, who is from Oakville, another big car-producing area.

I hear you're going to share some time with Mr. Peterson.

Go ahead, Mr. Peterson.

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

I'd like to make a brief comment.

Mr. Morrison, you alluded to members of Congress and senators as being 535 people with their own fiefdoms. It's not that different from what it is for us as members of Parliament here. At the end of the day, we have to represent the interests of our constituents.

I can tell you that in my riding thousands of jobs rely on NAFTA. In fact, thousands of jobs rely on the auto sector. Magna International is in my riding, and I know that there are about 7,000 direct jobs just from that employer, so we as well are all quite aware of who the job producers are in our ridings. It's important for all elected officials.

Because of that, I have the pleasure of being on our party's auto caucus. With that segue, I'll introduce John Oliver, the chair of our auto caucus. He's sitting in on this committee today. He's also the member of Parliament for Oakville, so he's obviously quite familiar with the automotive world. I'll give the rest of my time to Mr. Oliver.

[John Oliver, Liberal, Oakville, ON]

Thanks very much, Kyle.

Thank you, Chair, for letting me attend the meeting.

Thank you very much for the excellent presentations. There were really good thoughts around modernizing and NAFTA.

We're focusing right now on NAFTA, and Canadians are seized with this negotiation that is coming up, but before NAFTA, there's another big change coming. It's about the competitiveness of Canadian firms.

With the corporate tax changes planned in the U.S., particularly for U.S. subsidiaries that are based in Canada, Caroline and David, do you see any risk to your competitiveness here coming out of those corporate tax changes? I think it's important for the committee to understand that.

[Caroline Hughes]

We need to see what the proposed changes are before we can answer that in detail. Today, however, Canada's tax rate is 25% and the U.S. tax rate is 35%. Canada's rate is clearly lower and provides an advantage. Depending on what the U.S. does, especially if they no longer tax worldwide profits and they lower their rate, it could have a significant competitive impact. We need to be nimble to be able to evaluate this and react to it.

[David Paterson]

I can add to that, just to put a finer point on it. Effectively, some of the proposals—there's more than one in the United States—would fund a tax cut in the United States through a border adjustment tax, which could place a tax of anywhere up to 20% on everything that we send into the United States and back seven times. That would be a very severe constraint to the ability to win new investment for anything in Canada that depends on the United States market. If you put on a 20% cost, you don't have a margin left.

It would be something that one hopes is not contemplated. I think it would be something that is also problematic in the United States in various ways, let alone trying to understand how it would ever be calculated in the kind of integrated business that we're in.

It's challenging, but one hopes that this moves forward without that aspect.

[John Oliver, Liberal, Oakville, ON]

I've also heard that there's a potential for higher corporate taxes on earnings of Canadian-based firms or firms outside the U.S.—this is potentially—than what would be taxed for those firms based in the U.S. Given that this is about tax policy in the U.S. and how it affects businesses, is there a place for Canada to intervene in that, other than just...? For NAFTA, there's a clear moment of intervention. Is there a point where Canada could influence the U.S. corporate tax?

[David Paterson]

Very quickly—and it's to Matt's point—I know, for example, that Perrin Beatty from the Chamber of Commerce has been visiting in various states with Congress people across the United States to explain this point.

One of the things about that sort of scary scenario I have is that it's a direct addition to anything that an American consumer buys. At your Walmart store or anywhere you're purchasing, you're talking about potentially increasing those costs as they flow through to U.S. consumers.

I think the answer is that we need to talk about it. We need to have facts, and we need to share them in a credible kind of way and I think a confident way. I'm pleased to see that it's what Canada has been doing.

[John Oliver, Liberal, Oakville, ON]

Good.

I have another question. Both of you had five or six good pieces of advice on how to modernize NAFTA and what needs to change. In terms of the actual process of negotiating NAFTA, do you have any advice to the committee that they could pass through to government on how to structure that negotiation? I guess I'm leading you as to whether you see a need for an auto table in behind the scenes?