International Trade Committee on May 16th, 2017

[Angella MacEwen]

First of all, I think we need to improve the labour chapter. NAFTA was one of the first times that we had that kind of labour agreement alongside an agreement, and the labour unions in the United States pushed for this. Since then, they've kept pushing to improve agreements, and the best labour chapter so far, I think, would be a combination of CETA's and TPP's, where you're referring directly to the ILO agenda for decent work, where you're referring to the core conventions, and where you have an enforcement mechanism.

That would involve strengthening Canada's national contact point. Right now the contact point can offer good offices if there's a complaint against a specific company, but they can't make them come and have talks. They can't mediate a situation, so you don't get problems resolved right away. You have to go through this eight-year process. The only time a labour chapter has had any effectiveness—well it doesn't, basically. There was a case in Guatemala where it took eight years, and there wasn't a really strong outcome there. The labour chapter itself is not enough, but it would be great to bring it into the agreement to give it some teeth and to refer to the ILO mechanisms that are available.

Then I think we need to have legislation around due diligence for corporations for multinational enterprises. That goes beyond just a corporate social responsibility statement. Global supply chains are difficult to follow, and we get crises like Rana Plaza in Bangladesh where people don't even know who they're outsourcing to necessarily. The people at this end don't know what the exploitation is at that end. They need to be able to follow global supply chains, have it become normal that they have responsibility for that whole supply chain, and they can't ignore the negative consequences of global supply chains.

[Tracey Ramsey, NDP, Essex, ON]

Thank you.

My next question is to Mr. Fisher. It was wonderful to attend the Great Lakes economic forum a few weeks ago in Detroit. It really highlighted, I think, what you shared with us. The economic impact of that region is $6 trillion. We have the west coast and the east coast, but the heart of the country really is an economic powerhouse.

I want to talk to you a bit about something that was focused on at that conference. This is the health of the Great Lakes. We talk about this shared space that we have, air and water between the U.S. and Canada more specifically, and we talk about the concerns of businesses on those lakes and the responsibility that they have. I think of Sterling Fuels in Windsor right now where there are numerous worker safety violations and a threat of fuel being spilled into the Great Lakes, and I think of the DGR. This is something that we're facing in both of our countries.

My question to you is about what can be done to improve NAFTA for the Great Lakes region both environmentally and economically.

[Mark Fisher]

It's a good question. I think when you look at the Great Lakes region, obviously it has a long-standing history of co-operation when it comes to the environment, dating back to 1909 with the Boundary Waters Treaty, the creation of the International Joint Commission, and more recently on the time scale, the creation of the Great Lakes Water Quality Agreement in the 1970s.

We have, I think, a good benchmark of co-operation, and we have come a long way in terms of how we look at the Great Lakes from an economic standpoint and from an environmental protection sustainability standpoint. There are some good lessons that we can take from that collaboration in this region for how we might want to look at reforming the commission for environmental co-operation, and really trying to look at how we come together as three countries to determine the state of the environment across all three countries and do that in a meaningful way.

I've been in and around this space for a long time—

[The Vice-Chair, Conservative, Randy Hoback]

I'll have to stop it there.

[Mark Fisher]

Thank you.

[The Vice-Chair, Conservative, Randy Hoback]

We'll move to Ms. Lapointe.

Sorry, Tracey.

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

Thank you, Mr. Chair.

My thanks to the witnesses for joining us today.

I have a question for you, Mr. Schultz. I listened carefully to what you were saying earlier.

You say that petroleum products are very integrated. According to one of your reports, 99% of Canada's petroleum products go to the United States.

A little earlier, you also said that oil goes to the United States for all refineries in the east. The United States sends their oil eastward.

Is that to the eastern United States or to eastern Canada?

[Nick Schultz]

I was referring to the eastern Canadian refineries that are not connected to the pipeline system.

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

So you were referring to the ones in Quebec, Ontario, and New Brunswick.

[Nick Schultz]

That's correct.

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

Okay.

Does Quebec import oil from the United States or elsewhere for its refineries?

[Nick Schultz]

The majority of crude oil imports into eastern Canada are now coming from the United States. They used to be from offshore, from a variety of countries including Saudi Arabia, Nigeria, and so on. There are still imports from all of those offshore countries, but the proportion has changed, and now the United States is the major supplier.

A few years ago the United States exported no crude oil to Canada, so that's a new market for American producers. I mentioned it as an example of how access to markets benefits all three countries in NAFTA. For people in Quebec and New Brunswick, that means that much of the gasoline they're putting in their cars comes from the United States but some of it is also coming from Saudi Arabia, Nigeria, and other places.

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

Thank you.

You all talked about rules of origin and they seem quite difficult. How can things be improved?

[Nick Schultz]

We've been looking at this issue for our industry for some time. We did make some proposals to U.S. customs, but they have to work within the framework of the rules that are there and they weren't able to accommodate our changes. We do have some ideas for a more generic approach to dealing with our particular industry but also some specific ideas for rules that relate to transformation of products, so that when you mix two products together, you move them into a different tariff category. That would apply to movement of heavy oil from the oil sands, if you add light oil to it to make it lighter so it moves in the pipelines.

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

Thank you.

My next question goes to Mr. Fisher.

Earlier, you said that we have a significant trade deficit with Mexico. We import many more products from them than we export to them. In you opinion, how could we change NAFTA in order to reduce that trade deficit?

[Mark Fisher]

That's a good question.

I think the first thing we need to do as Canadian policy-makers is to accept that Mexico is an important and growing economy. In the years to come, it's going to be even better positioned to be a world leader in terms of global trade. I think we need to be very much present in Mexico from a trade and investment standpoint, perhaps more than we have been during the time of NAFTA. I don't think we're there as much as we should be.

Certainly the reform agenda you've seen under President Peña Nieto has offered Canada an opportunity to be involved in the reform of not only the energy sector but also the financial services sector. There are incredible opportunities to—I don't want to say—“Canadianize” the reforms we're seeing in Mexico, but there's a great opportunity to do just that and to be more present in Mexico.

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

Thank you.

You also said that there are some cross-border issues and that the borders have to be modernized

You do not have a lot of time for your answer.

[Mark Fisher]

I think when we look at border management generally in the Great Lakes region, we still see areas, whether regulatory co-operation or customs co-operation, in which we're not doing as much as we could be. On the regulatory side, the more we align and eliminate duplicative regulations, the more we create clarity for businesses on both sides of the border and the more we speed up business across the border.

Again, on more of the customs facilitation side, it's a matter of recognizing that there's a security element to customs facilitation as well as a trade facilitation component, and of making sure that we have the systems in place that can do both.

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

Thank you very much.

[The Vice-Chair, Conservative, Randy Hoback]

I'll have to stop you there.

We're going into our second round. Ms. Ludwig has the floor.

[Karen Ludwig, Liberal, New Brunswick Southwest, NB]

Thank you, Chair.

Thanks to all of you for your presentations.

I'm going to start my questions with you, Mr. Fisher. Just this past weekend, I held my 17th town hall. At my town halls, I'm now attracting Americans who want to learn more about the goings-on in regard to trade in particular. Some of those who attended were quite surprised to hear about how integrated our supply chains are and to hear that any disruption could mean job losses on both sides of the border.

I want to start with this quote:

Some of its harshest critics concede that NAFTA should not be held entirely responsible for the recent loss of U.S. industrial jobs. According to Scott of the Economic Policy Institute, “Over the past two decades, currency manipulation by about 20 countries, led by China, has inflated U.S. trade deficits, which [in combination with the lingering effects of the Great Recession] is largely responsible for the loss of more than five million U.S....jobs.”

How is the overall impact of NAFTA measured, since trade and investment trends are influenced by numerous other economic variables, such as economic growth, inflation, and currency fluctuations and manipulation?

[Mark Fisher]

Yes, and in a very simple response, I think the U.S. congressional service would agree with you wholeheartedly. In its report from February 2017, it said right up front that it's very hard to determine exactly what effect NAFTA has had on job creation, because of all those other variables.

I think it's a very good point. We just don't know how many jobs have been created as a result of NAFTA. I think it is fair to say, though, that there is a positive net effect, but is it 1.5 million jobs or is it nine million jobs? If you speak to the U.S. Department of Commerce, they'll say that trade with Canada supports directly roughly 1.5 million jobs. If you speak to officials at International Trade, they'll say that Canadian exports to the United States support nine million jobs.

There's a fundamental difference between how we view trade and job creation, not only with NAFTA but more broadly with trade agreements around the world.

[Karen Ludwig, Liberal, New Brunswick Southwest, NB]

Thank you.

I definitely gather from this panel, for the most part, and from other panels before you, that any disruption to our integrated supply chain could put at risk jobs on both sides, and, in fact, at all three borders of our countries.

What are the opportunities for greater integration of our supply chain among all three nations—not greater isolation and protectionist policies—so that we are a stronger trading region, not a weaker trading region? Also, if there were the destruction of NAFTA as it sits right now, what would the impact be on trade and opportunities in regard to the influence from other countries coming in, such as China?

Would anyone care to start?

[Joseph Galimberti]

I'll take the first shot at it.

From a steel perspective, I'll start with your second question first. One of the greatest defences that we have against unfair trade from China or other developing nations is the ability to serve customers appropriately and quickly with just-in-time product that goes across the border numerous times and has value added to it. Our supply chain is very tight. You don't need to maintain stock. We can customize. This is one of the great defences that we have.

I spoke very briefly in my remarks about strengthening the rules of origin. Specifically, from a steel perspective, that would apply to manufactured goods containing steel. There would be opportunity there if you were to adjust the rules of origin to move to a “melted and poured” standard, where the steel was actually produced in Canada, in the United States, or in Mexico. You would grow employment that way.

Right now, you can bring in steel from Korea, for instance, and apply a tariff shift to it, and it becomes sort of NAFTA-compliant. When you move away from that, you strengthen the rules of origin, and you have an opportunity to create jobs and economic activity.

[Karen Ludwig, Liberal, New Brunswick Southwest, NB]

Thank you.