Evidence of meeting #68 for International Trade in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was nafta.
A video is available from Parliament.
3:50 p.m.
Conservative
The Vice-Chair Conservative Randy Hoback
We'll begin this meeting, and we'll start off with the Canadian Association of Petroleum Producers.
Nick Schultz, you have the floor for five minutes.
3:50 p.m.
Nick Schultz Vice-President, Pipeline Regulation and General Counsel, Canadian Association of Petroleum Producers
Thank you, Mr. Chair and honourable members of the committee, for the opportunity to appear before you today. My name is Nick Schultz and I am vice-president of pipeline regulation for the Canadian Association of Petroleum Producers.
My association represents the upstream oil and gas industry in Canada, the folks who explore for and produce Canada’s oil and natural gas. Our members produce about 80% of Canada’s oil and natural gas in an industry that invests multiple billions of dollars every year into the Canadian economy.
Access to export markets for our products is vital to our industry and also vital to the Canadian economy, which benefits from the activity that our industry creates. Operation of free markets is a cornerstone principle for our association, and free market principles are the foundation for free trade. Fundamentally we are very much aligned with the operation of free markets and free trade agreements.
When it comes to energy, the energy chapter in NAFTA dates back to the original 1987 Canada-U.S. Free Trade Agreement. The foundation for that free trade agreement is a fact that is sometimes overlooked but is nonetheless important, and that is that both countries—Canada and the U.S.—had already moved to free market policies for energy markets in the mid-eighties, and the free trade agreement then built on that in respect of energy.
Today both countries still operate on the basis of market-oriented energy policies, and Mexico, which joined the free trade area in 1994, has recently significantly liberalized its energy markets responding to the incentive that NAFTA provided it. From our perspective, NAFTA has been beneficial to all three countries—Canada, the U.S., and Mexico. The expectation of mutual benefit that drives nations to enter into free trade agreements is the reality of free trade in respect of energy, and we would say, in general.
Since 1987, and since 1994, the economies of all three countries have become even more interconnected and even more integrated, so the logic of a North American free trade zone is even more compelling now than it was 30 or 35 years ago. Free trade has done exactly what one would expect with regard to energy. The energy pie has grown and all three partners to NAFTA have shared in that growth. We did provide to the clerk copies of my remarks, which have some data. I'm just skipping over that in the interest of time.
I would point out that U.S. oil production has grown dramatically in recent years and is back to 1970 levels, and U.S. natural gas production has also grown enormously in the last 10 years. Markets that Canadian oil and natural gas producers had served in the U.S. have been displaced by domestic production. In fact in Ontario and Quebec significant amounts of natural gas are being imported to supply Canadian consumers, so U.S. natural gas producers have benefited from the market access that has been created by free trade. As well, U.S. oil producers now are the dominant supplier to the eastern Canadian refineries that rely on imported crude oil. Again there has been a benefit there.
If we were to speak about the room for improvement, we would begin with what other witnesses have said to you, which is “do no harm”. The free trade agreement has been beneficial, and while there is always room for improvement, the starting point should be “do no harm” and we should be sure to preserve basic building blocks of free trade agreements, such as national treatment and redress for individual investors.
I would note that in regard to the energy chapter, it is not the business community in any of the three countries that is seeking change.
From a Canadian perspective, any improvement would be around rules of origin. A very liquid natural gas market has evolved in North America in the last 30 years. One of the challenges of that liquidity is that it does not marry up easily with the complex rules of origin, so if we are to renegotiate, we need to address that issue.
3:55 p.m.
Conservative
The Vice-Chair Conservative Randy Hoback
Thank you, Mr. Schultz.
Again, to the witnesses, as you see, people are wandering into the room. They're just coming out of the House of Commons. I just want to welcome you here. I didn't take the appropriate chance to do that.
We'll go on to our next witness from the Canadian Labour Congress, Angella MacEwen.
You have the floor for five minutes, Angella.
May 16th, 2017 / 3:55 p.m.
Angella MacEwen Senior Economist, Canadian Labour Congress
Thank you very much.
Thank you for inviting me to be here on behalf of the Canadian Labour Congress. We represent 3.3 million members across Canada. We bring together Canada's national and international unions, along with provincial and territorial federations of labour, and 130 district labour councils whose members work in virtually all sectors of the Canadian economy, in all occupations, and in all parts of Canada.
As I always do, I have to say up front that the labour movement is keenly aware that trade is and always has been an important feature of the Canadian economy. Our jobs depend on trade. We understand that all governments will have an interest in fostering open trade.
We feel that the distributional impacts of trade and investment agreements have long been ignored. We're told, “Trade deals will have winners and losers, but don't worry; we'll compensate the losers.”
In my opinion, the failure to compensate those who have been negatively impacted by trade shocks has led to growing inequality, especially between regions, and a nationalist sentiment among those people who have been poorly affected. This has happened in many developed nations. It's not unique to Canada. In fact, Canada has been somewhat protected because of our strong social safety net.
More than 20 years after signing the North American trade agreement, the ways in which it has failed working Canadians are very clear. Canadians were told it would create good jobs, shared prosperity, and a better future for working people. Instead, it has undermined secure well-paid employment, and it has devastated manufacturing and processing industries and the communities that depend on them.
While there has been increased trade and economic growth, the benefit has gone to large corporations and investors, leaving workers behind. NAFTA doesn't just govern trade but empowers foreign investors to sue Canadian governments, threatening public services and limiting the ability of governments to regulate in the public interest. This so-called free trade agreement has not fostered fair or balanced trade, in our opinion, and one of the reasons for that is that trade agreements have left a gap. The governance gap in national legislation has become inadequate.
The lack of transparency and asymmetrical relationships in global supply chains, combined with a competition among low-income nations for foreign investment in jobs, actually undercuts the ability of free trade to be fair.
For example, only 1% of Mexican workers belong to a democratic union. Most workers in Mexico are covered by so-called protection contracts, which are agreements between the company and a company-approved union. Workers don't even have the right to see the collective agreement. If they try to vote out that union and vote in another union, at best they're ignored, and at worst their lives are in danger.
The solution to this, we feel, is to have a parallel approach and, along with trade agreements, focus on strengthening ILO conventions. Canada has just announced that we're going to ratify the core convention 98, which is the right to organize and bargain collectively. Neither Mexico nor the United States has ratified this agreement.
We've also pushed the Canadian government to ratify governance convention 81, which is the labour inspection convention. Neither Canada, the United States, nor Mexico has ratified it. This convention would help to ensure that the labour standards that we've agreed to in the core conventions have labour inspectors who can enforce and make sure that workers in all countries have access to their rights under those core conventions.
We would also encourage the government to look at due diligence for Canadian companies and funding agencies similar to legislation that was recently passed in France, to look at a framework for transnational bargaining to allow unions to represent workers in multiple countries, and to work within the ILO and OECD guidelines for multinational enterprises. We also encourage the government to work to strengthen Canada's national contact points.
We're glad to hear that the Canadian government has stated publicly that it's willing to walk away from a deal that's not in Canada's best interest. We think it's time to take a new approach to trade that puts the interests of working people and the environment first.
4 p.m.
Conservative
The Vice-Chair Conservative Randy Hoback
Thank you, Angella, and you're well within your five minutes.
We'll move on to our next witness, Joseph Galimberti. The floor is yours for five minutes.
4 p.m.
Joseph Galimberti President, Canadian Steel Producers Association
Thank you very much.
Thank you to the committee for the opportunity to appear today on this important study. It is much appreciated.
The Canadian Steel Producers Association is the national voice of Canada's $14 billion primary steel production industry. Canadian steel producers are integral to the automotive, energy, construction, and other demanding supply chains in Canada. In that context, we seek to work with governments and industry partners to advance public policies that enable a globally competitive business environment.
Before I directly address the committee's fundamental question with regard to industry priorities, I'd like to first provide a little context to the mutually beneficial nature of our NAFTA relationship in steel, focusing principally on the relationship between Canada and the U.S.
Canada and the U.S. enjoy a balanced and complementary trade relationship in steel founded on fair market principles. In 2016, over 10 million tonnes of steel with a market value of over $8.8 billion U.S., was traded between our two countries. Canada shipped $4.4 billion U.S. to the United States, and the U.S. shipped $4.45 billion U.S. to Canada.
Steel continues to be a major export commodity from the U.S. into Canada. In 2016, 50% of U.S. steel exports came here, accounting for about 30% of our domestic market. Additionally, Canadian steel producers buy significant raw materials from the United States. To be specific, $1.5 billion U.S. worth of iron ore, bituminous coal, steel scrap, zinc, and other metals were purchased by companies for processing last year. Beyond the value of those commodities, significant economic activity is generated through the mining, recovery, and transportation of those raw materials. Several of our producers maintain facilities and employment in multiple NAFTA jurisdictions, and the shared profitability of those facilities supports investment across the various companies.
Since NAFTA entered into force, steel trade in products between NAFTA countries has increased by 117.2%. The vast majority of North American steel exports are made within the region: 97% of Canadian steel exports are to the United States and Mexico, 90% of U.S. steel exports to Canada and Mexico, and 76% of Mexican steel exports are to Canada and the U.S.
Recognizing the strategic value of steel production to the NAFTA region, in 2003 the NAFTA governments created the North American steel trade committee, which coordinates government and industry actions on joint enforcement and continued growth and prosperity in steel in the region. This brings both government and industry representatives together from the three countries to discuss policy priorities and competitiveness.
As this committee recently heard as part of its study on the Canadian steel industry's ability to compete, growth and excess capacity from jurisdictions where state control and ownership are prevalent is both unsustainable and irresponsible. NAFTA governments and industries share a fundamental belief that urgent and substantive multilateral action is required to address causes and consequences of global overcapacity, and that is why we continue to support the efforts of NAFTA governments through the G20 OECD global forum on steel overcapacity, sharing an expectation that there will eventually be a permanent reduction in overcapacity.
In defending against unfairly traded imports for the time being, we share the challenges of our counterparts in the U.S. and Mexico. These detrimental impacts are artificially suppressing our prices and harming North American workers. We work co-operatively to ensure polices and actions in all three NAFTA countries are closely aligned, and that we are responsibly defending the regions from unfair trade.
We generally view NAFTA as having been a successful agreement, though after 23 years we believe it could be modernized. To that end, we would point to the strengthening of rules of origin, promotion of trade enforcement co-operation and coordination, establishment of enforceable currency disciplines in the conduct of state-owned enterprises, the elimination of burdensome customs procedures, and upgrades to border infrastructure.
In closing, I note that before a formal NAFTA renegotiation takes place, it is critical that Canada secure national consideration in the Department of Commerce's ongoing section 232 national security investigation on the imports of steel, its process on the construction of pipelines using domestic steel and iron, and its ongoing process with regard to the enforcement of current “buy American” policies.
In each instance, the government should continue to rigorously defend the interests of Canadian steel producers and steelworkers to ensure no adverse or unintended consequences occur as a result of direct action taken by the U.S.
Without positive outcomes on these—
4:05 p.m.
President, Canadian Steel Producers Association
—three significant initiatives, any gains possibly associated with a NAFTA renegotiation quickly become moot.
In closing I would like to say that NAFTA has been a positive agreement for the North American steel industry and our customers. We collectively welcome the opportunity to work—
4:05 p.m.
Conservative
The Vice-Chair Conservative Randy Hoback
I'm going to have to cut you off there. Sorry, we're 30 seconds over.
4:05 p.m.
Conservative
The Vice-Chair Conservative Randy Hoback
Thank you, Joseph.
We'll move on to our next witnesses from the Chemistry Industry Association of Canada, Bob Masterson and David Podruzny.
The floor is yours, gentlemen, for five minutes.
4:05 p.m.
Bob Masterson President and Chief Executive Officer, Chemistry Industry Association of Canada
Thank you, Mr. Vice-Chair. It is an honour to meet with this committee.
As you know, international trade has certainly moved to the forefront of both policy-makers' and the business community's minds.
Just for some background, the chemistry industry is a vital component of the Canadian economy. We're the fourth-largest manufacturing sector, with about $53 billion of annual shipments. Many of us don't give much thought to the role of chemicals in the economy, but more than 96% of all manufactured goods are touched by the business of chemistry, and that of course includes the key sectors of the Canadian economy: energy, transportation, agri-food, minerals, and mining, just to name a few.
In my brief time with you today, we have just three messages we want to share with you.
First, the global chemistry industry is a large, fast-growing industry that has deeply interconnected patterns of trade. Annually, global chemical trade is at about $5 trillion with growth rates far in excess of global GDP. We're looking for that number to reach $6 trillion by 2020. To put that number into context, Canada currently occupies about 2% of global production.
Three major trends that are driving that increase in chemistry demand are, of course, global population growth; the pursuit of quality of life, middle-class lifestyles by the growing populations in Asia; and the aggressive pursuit of more sustainable outcomes in terms of clean air, clean water, and clean energy by all citizens of the planet. This is the key. Those trends all together mean that you're looking at a chemistry industry that will nearly triple by 2050, which is not that far away.
Already today chemicals are amongst the highest traded commodities worldwide. About 40% of global chemical production is shipped internationally. It's clear that free and fair trade in chemicals will remain of vital importance for this industry to realize the contributions that are being demanded from it in the coming decades.
My second point—and I guess this perhaps echoes a bit of what was said by CAPP— is that the Canadian position within this highly integrated global sector is currently at an inflection point. Our sector is highly integrated with the global industry. We export about 40 billion dollars' worth of our products each year. That's second only to transportation of equipment in the manufacturing space.
On the other hand, we import about $50 billion. When we look at the United States, our trade is almost completely balanced, with about $30 billion of exports and $33 billion of imports. We can't take that balance for granted, however. In particular, the abundant availability of low-cost natural gas in recent years has meant that we have seen over 300 global-scale investments in the chemistry industry in the United States totalling about $250 billion of new plants and equipment. That certainly is going to put pressure on Canada's historical export share in that jurisdiction.
At the same time, we know the new administration in Washington has embarked on a very aggressive round of reforms in not only trade policy but also taxation policy and regulatory policy. We don't know—any of us here—the outcomes of any those specific initiatives, but what we do know is that the United States is determined to make a more competitive business climate for its manufacturing and private sector businesses in the coming years.
Taken together, and absent a coordinated, appropriate response from Canadian policy-makers, Canada will continue to struggle to attract its historical share of investment into the chemistry sector.
My third point is a bit more hopeful. There are opportunities to change the current pathway and to allow the chemistry sector to flourish and make important contributions to both the domestic economy and the global environment. We in Canada have an embarrassing richness of the lowest carbon chemical feedstocks on the planet. For Canada to seize the opportunity and to attract a fair share of the significant investments that are taking place in that sector, we need to focus on three priorities.
First, we have to prepare to negotiate a modernized NAFTA. You've received a copy of a tripartite statement that our association, along with our U.S. and Mexican counterparts, published in early March. To our knowledge, we're the only sector that has reached a consensus opinion across all three jurisdictions on our positions for NAFTA negotiations. We continue to delve into the details of what we're looking for.
In brief, NAFTA has allowed for duty-free trade of all chemical products, which has incentivized the growth of complex supply chains, helped lower the cost of chemical production, and strengthened the sector overall in the global marketplace.
We support the whole-of-government approach to NAFTA negotiations that the federal government has embarked upon and continue to offer our support through established channels. We do see an opportunity. NAFTA was developed in the early 1990s. There are aspects that can be negotiated and strengthened.
Certainly the first of those would be to maintain current tariff-free trade for qualified products, improve rules of origin requirements, facilitate customs, and enhance regulatory co-operation and harmonization among the jurisdictions.
I think I'm being told that's about it.
4:10 p.m.
Conservative
The Vice-Chair Conservative Randy Hoback
Thank you, Mr. Masterson. I appreciate that.
We'll move on to the Council of the Great Lakes.
Mark Fisher, you have the floor for five minutes.
4:10 p.m.
Mark Fisher President and Chief Executive Officer, Council of the Great Lakes Region
Thanks, Vice-Chairs Hoback and Ramsey and honourable members. Thank you for the opportunity to appear before you today.
As Vice-Chair Hoback mentioned, I'm CEO of the Council of the Great Lakes Region. We were established in 2013 as a binational non-profit working with government, business, the private sector, and non-profit associations to deepen the U.S.-Canada relationship, and also to find new ways of harnessing the region's economic strengths. My remarks today will focus on three elements: the importance of a strong North American economy, the significance of the Canada-U.S. economic partnership, and the critical role that cross-border economies like that of the Great Lakes region have in strengthening their competitiveness and long-term prosperity. I hope they are helpful as you deliberate on Canada's trade and investment relationships with the United States and Mexico.
Let me say first that North American trade and investment, cemented in NAFTA, are a work in progress politically and economically. From a macroeconomic perspective, NAFTA has been very beneficial to all three countries. In fact, as you've probably heard over the last couple of weeks, overall merchandise trade among Canada, the U.S., and Mexico has more than tripled since 1993.
Taking a deeper look, during this time U.S.-Mexico trade grew substantially according to the U.S. congressional research service. U.S. goods exports, for example, increased from $40.6 billion in 1993 to over $230 billion in 2016, an increase of 455%, whereas U.S. goods imports from Mexico increased from $40 billion in 1993 to $290 billion in 2016, an increase of 637%. As a result, there is a modest trade deficit that exists between the U.S. and Mexico, roughly $63 billion. Conversely, the U.S. congressional research service, in a recent NAFTA study, showed that in 2016 the U.S. had a services trade surplus of roughly $10 billion with Mexico.
The growth in merchandise trade between Canada and the United States, however, has been more subdued. U.S. exports to Canada are up 165% from 1993 levels, growing from $100 billion in 1993 to $270 billion in 2016, while U.S. imports from Canada are up 150% from 1993 levels, growing from $110 billion in 1993 to $278 billion in 2016. As you will notice, a modest trade deficit between the U.S. and Canada exists, which is principally due to fluctuating energy prices and again, like Mexico, based on USTR figures, the U.S. has a services trade surplus with Canada, which, in 2016, was approximately $25 billion.
Finally, with respect to Canada and Mexico, even though bilateral trade is growing, the flow of trade is seriously imbalanced. In 2016, Canada imported roughly 33 billion dollars' worth of goods from Mexico, while Mexico imported only roughly $8 billion in goods from Canada. Taken together, this snapshot of continental and bilateral trade shows why NAFTA is such a complicated story. On the one hand, NAFTA accelerated market liberalization, private sector modernization, and public sector reform in Mexico. On the other hand, NAFTA stretched commerce and supply chains from the north to the south, redirecting factory jobs and investment.
In many respects, ever since NAFTA was enacted, the continent has been operating at two speeds, largely in Mexico's favour. The latter shouldn't come as a surprise to anyone, and seeing Mexico succeed has short- and long-term economic benefits: better workplaces and wages, better education, better government, and better security.
However, ask a factory worker in Ontario, Quebec, Wisconsin, or Ohio, and they will tell you that adjusting to NAFTA and Mexico's rise has been tough. A lot people feel left out in today's climate of borderless trade, investment, and mobility, and a growing number of people are feeling left behind as the digital or knowledge economy takes hold. That's what I'm hearing and seeing across the binational Great Lakes region, which spans two provinces and eight states, and which is home to 107 million Canadians and Americans. With economic output estimated at $6 trillion in 2016, the region accounts for 30% of combined Canadian and U.S. economic activity. If it were a country, this region would equate to the third-largest economy in the world, behind the U.S. and China.
When you look at NAFTA modernization, you can probably gather that it's a frightening prospect but also a significant opportunity for the Great Lakes region. If we can't find a way in these negotiations to optimize our cross-border supply chains and transportation networks, we will lose an important opportunity to enhance our shared competitiveness. If we can't find ways within these negotiations to share traditional and low-carbon energy resources, we will lose an opportunity to provide affordable energy choices to fuel our homes, businesses, and industries.
President Trump won largely because of unexpected support in these three Great Lakes states—Wisconsin, Pennsylvania, and Michigan—where many voters turned to him because they were disillusioned by job losses in manufacturing. But these states, and the other five that make up our shared economic region, also rely on Canada to support roughly 2.2 million good-paying jobs.
President Trump is a deal maker. He and those around him understand the political and economic importance of the Great Lakes and other cross-border regions like it. Let's use this knowledge and these relationships to rebuild NAFTA from the ground up.
Thank you.
4:15 p.m.
Conservative
The Vice-Chair Conservative Randy Hoback
Thank you, Mr. Fisher.
Thank you, witnesses, for your testimony.
We'll go to our questioning, and we'll start off with Mr. Ritz from the Conservative Party.
You have five minutes, Mr. Ritz.
4:15 p.m.
Conservative
Gerry Ritz Conservative Battlefords—Lloydminster, SK
Thank you, Mr. Chair.
Thank you, ladies and gentlemen, for your presentations today. It's one of those daunting tasks that we can't shirk or shy away from.
Bob, I'll start with you. You mentioned that you and your counterparts in the U.S. and Mexico put together a statement basically saying how good this is moving forward. Did you reach out to them? How did you make that happen?
4:15 p.m.
President and Chief Executive Officer, Chemistry Industry Association of Canada
Our industry is highly interconnected. It's a global industry—similar companies in all jurisdictions—so it was relatively easy. We're in regular contact, I would say daily contact, with our counterparts in those jurisdictions.
We facilitated the availability of Canada's trade councillors to meet privately with our counterparts in the U.S. to get their perspectives: why would they have the same position we do? It's been relatively easy. What's good for them has been good for us and vice versa.
4:15 p.m.
President and Chief Executive Officer, Chemistry Industry Association of Canada
Again, it's a message of a completely—
4:15 p.m.
Conservative
Gerry Ritz Conservative Battlefords—Lloydminster, SK
It's a great message to take to the political leadership.
4:15 p.m.
President and Chief Executive Officer, Chemistry Industry Association of Canada
—integrated, complex supply chain. If you try to take that apart now, it will disadvantage all of North America.
4:15 p.m.
Conservative
Gerry Ritz Conservative Battlefords—Lloydminster, SK
Yes, and that's typical.
The reason I wanted to start with you is that it's foundational. It's typical of a lot of the industries we're talking about across the spectrum, from agriculture right through to CAPP, actually.
When you see a success story like that, are you then driven to do the same thing? Or maybe you've already started. There's strength in that, of course.
4:15 p.m.
President, Canadian Steel Producers Association
Yes.
From a steel industry perspective, I think we're actually quite close to a joint statement on shared negotiation priorities.
Very similar to Bob, we're—
4:15 p.m.
Conservative
Gerry Ritz Conservative Battlefords—Lloydminster, SK
One of the issues that Trump has highlighted, too, is steel.
4:15 p.m.
President, Canadian Steel Producers Association
There is a significant focus in the U.S. administration on dumped and subsidized steel products from Asia. Our challenge as Canadians going forward is to acknowledge that. We work with them very closely on these issues. We do not want to be caught up in the unintended or collateral damage of the Trump administration taking the action he's promised to address those dumped steel products.