International Trade Committee on Sept. 20th, 2017

[Corinne Pohlmann]

Yes, absolutely. A lot of trade agreements look at things from the federal level, but in Canada, obviously, provincial level rules and regulations have almost a bigger impact on many smaller companies, and you could say the same in the United States at the state level. What we were often hearing in some of the work that we did is that it's confusing to know, because different states have different taxes, and understanding what their obligations are and paying those taxes is very confusing. Again, they're not suggesting they don't want to pay them. They just want to understand better what it is that they need to do in order to be able to sell their products in those states. Conversely, for American companies wanting to come into Canada, it would be the same confusing matter.

Bringing those subnational governments in is important. We know that in CETA, the Canada-European trade agreement, that happened, so why not use that as a model and potentially do that at the NAFTA table as well?

[Dean Allison, Conservative, Niagara West, ON]

Good.

I'm not going to let you get away without trying to make a comment on the proposed small business tax changes here in Canada. One of the things that Mulroney did in the original free trade agreement was to get rid of the manufacturers' sales tax to make us more competitive. Do you have any thoughts on the proposed small business sales tax? We're competing with the U.S., as well as Mexico, so I'd like your thoughts on what that could do to our competitiveness.

[Corinne Pohlmann]

Overall, it's tough to compete these days, and I think any new measures that increase the costs of doing business can be difficult for smaller companies to absorb. I would say it's not just the tax changes that have been recently proposed. Those certainly have an impact, but they are compounded with the increases we know are coming on payroll taxes, and the increases in some of the provincially mandated minimum wages.

There are a number of factors that are currently coming at small business owners across Canada that are scaring many of them in terms of understanding what they need to do in order to continue to operate their businesses. Many of them operate on very thin profit margins and this compounding of issues that are coming at them is what's scaring them. The most recent tax changes are something like a straw that breaks the camel's back kind of issue. It's almost like there have been so many in the last six to eight months. Again, it's not only federal. It's provincial as well as federal. Even municipal property taxes are being compounded and are adding to the ongoing or continuing anxiety that we're hearing about from small business owners

[Dean Allison, Conservative, Niagara West, ON]

I have less than a minute left. You gave us a whole list of great things that we need to work on, but what would you suggest is one of things we simply must get right as we look at what we're going to do with NAFTA as we move forward?

[Corinne Pohlmann]

It's hard to say, because it really depends on so many things, but I think it's really about border processes and making sure that the agreement that stands today is going to be just as good, if not better, going forward. So many businesses are worried about what will happen if suddenly they no longer have access to the markets they once did, or if they're not able to get the products they once were able to get without duty that will make them less competitive globally. These are factors that I think are the most important right now. They would like to see at least the status quo continue, if not an improved agreement for Canadian businesses.

[Dean Allison, Conservative, Niagara West, ON]

Thank you very much.

[The Chair, Liberal, Mark Eyking]

Thank you, sir. That wraps up your time pretty well.

We're going to move over to the Liberal Party now.

Mr. Fonseca, you have the floor for five minutes.

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

Thank you, Mr. Chair.

Thank you to our witnesses. It's so excellent to see just how engaged Canadians are, as well as our witnesses who represent their members, and the amount of work they've done. I think that speaks to the maturity of NAFTA, 23 years, and what it's meant to Canada, to the United States, and to Mexico.

But over those 23 years many things have changed. We've entered this digital era, and we're looking at more progressive trade agreements. The types of questions that come about with NAFTA are somewhat different from what we experienced as we were going through our consultations with TPP.

It was good to see, Ms. Dey as well as Ms. Pohlmann, that you had done a number of surveys with your members, and many are asking for the same things. Some of the surveys we've heard say that what Canadians want is not just a trade deal. They want a fair trade deal, and they are looking for a progressive trade deal. That's what we want. We heard from the minister. The minister says we will not sign just any deal, but we will sign a deal that is good for Canadians. That's why a number of our priorities are progressive, such as the chapters on environment, labour, or indigenous matters.

I'd like to hear from Ms. Dey. Speaking of those three areas and those who are negotiating at the table, can you put in priority what you would want to see on the environment, on labour, on indigenous issues, what we would lead with?

[Sujata Dey]

One of the things that's really important is that a lot of what happens in trade agreements can often be more symbolic. The most important thing I would put on the top of my list is “binding and enforceable”. For example, having the Paris climate agreement within the environment chapter of NAFTA would be a very important thing, but it would also be something that's binding. For example, when we look at CETA there are many promises and there are many different claims about CETA, but nothing within the environment or sustainable development chapter in CETA is binding at all. In fact what it says is that we recognize the Paris climate agreement. Recognizing it is very different from saying there will be a penalty if you do not subscribe to it.

The other thing we noticed in these chapters, in the TPP as well, is that they will often say things like we recognize that we will not change our standards, but we don't actually set what those standards are. Obviously the reason is that we don't want to say to other countries that this is what they should do, but on the other hand there has to be some kind of mechanism, for example, to say to the country that is not meeting a certain minimum standard that we're going to add tariffs to it. We'd say, “Go ahead, keep your standard, but there are definitely going to be prices to pay for that”.

It's the same thing with indigenous issues. The UNDRIP has to be part of this and part of an enforceable mechanism.

Another thing we should also talk about is governance, because within these trade agreements we're now shifting governance from sovereign parliaments toward a trade agreement. There has to be some kind of mechanism in it that our parliamentary standards as Canadians are actually part of those agreements.

I just want to take something apart that I hear a lot. I hear many people say CETA is the most progressive agreement ever. Certainly there are some interesting points in CETA, but I think what you have to remember is that a lot of what is in CETA that people refer to as progressive is in the interpretative declaration that was made after the agreement was signed. That is an agreement that sounds very nice, but the problem is that it's not part of the agreement. It's only when there is something that's not clear in the agreement that it interprets that. So it is something that is actually quite fluid, right?

A lot of those principles are wonderful—for example, recognizing the precautionary principle in trade agreements—but none of that is actually enforceable. I think the key for progressiveness is enforceability.

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

Thank you.

My next question is for Ms. Pohlmann. I'm going to take from my colleague, Ms. Ludwig. She often talks about a smart, secure, strong border, as well as an efficient and smart border. When it comes to that efficiency, can you share with us, from your members maybe over the last number of years, some of the things that have been done that have really improved the border? What would be your priority in terms of the border that would help us to move forward with more improvements?

[The Chair, Liberal, Mark Eyking]

Mr. Fonseca, you know better than to ask a question when your five minutes are almost up. We're going to have to punt that question to the next Liberal, because you're over five minutes and I can't let that slip in there.

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

He stole it from her anyway.

[The Chair, Liberal, Mark Eyking]

Just hang onto that.

We're going to have to move over to the NDP now. Madam Ramsey, you have the floor.

[Tracey Ramsey, NDP, Essex, ON]

Thank you so much.

Thank you everyone for being here today.

I want to start with the discussion around bulk water exports and the potential of that going forward. This isn't currently an issue we are facing, but with climate change and what we're seeing around the globe with fires—we have B.C. wildfires—and then we have the horrible earthquake that just happened in Mexico City, with drought being a potential result of climate change. Also, I have to reference, obviously, I'm on a Great Lake, Lake Erie, in my riding. The Great Lakes represent one-fifth of the freshwater supply in the world. It's incredibly important that we have this shared body of water protected.

How does NAFTA make it difficult to stop bulk water exports, and why is this dangerous?

[Sujata Dey]

It's very much so. That's an interesting question, because you have to remember that water is becoming a multi-billion dollar industry. There is even trade right now on futures of water. It has become an investment vehicle. Those are very important.

In NAFTA's annex, water is a tradeable good. Right now, there is relatively no danger, because all the provincial laws are pretty harmonized. They don't allow exports of bottled water, but if any one jurisdiction did, then we are obligated. It's a good, so we're obligated to do that, and not only obligated, because we have energy proportionality in the agreement. That is also very dangerous, because we are then obligated to give a certain percentage of exports, according to a formula.

The other problem is that water is now becoming an investment vehicle. That means if we have an ISDS with chapter 11 in it, we could have a chapter 11 suit based on our control of our water resources.

[Tracey Ramsey, NDP, Essex, ON]

Thank you for that.

I had a question today about chapter 11 and the removal of chapter 11. There's been a strong call for it. I think you said in your poll of Canadians that 63% indicated they'd like to see this chapter removed. Of course, there have been discussions about the ICS in CETA, so I wonder if you can speak both to the importance of the removal of chapter 11 and the impact it has had on Canadians, and also whether or not you see ICS as a solution to that.

[Sujata Dey]

We're the most sued developed country in the world, with 39 suits, and a lot of them over our environmental policies. We have to remember that we are a resource economy. We have a lot of resources, so as we try to protect our resources, we will get more and more suits as we change laws and policies, especially when it comes to indigenous people who are going to try to take control of their resources. This is a very important Trojan horse that could destroy a lot of our attempts to do good in the world, and that's what we feel Canada wants to do.

However, when you get to the CETA chapter of the investment court system, you have to remember that it's a very controversial mechanism because it's still making the primacy of law over the investor rights. The investor rights are still given there, and are higher than our other rights. Inequality is a major problem as we go into environmental issues because the problem in this world right now is not that investors don't have enough power. The problem is that people and the environment don't necessarily have enough power. When we look at CETA, there are a few changes. There are judges, but there are the conflicts of interest of the judges serving as judges and then serving as lawyers. There's still an incentive, because this is a very lucrative industry. It's $4 million a case to offend, to put those cases in. It's still a very potent tool for corporations against the public interest. That's very important.

There's a very interesting proposal on the table from the U.S. trade representative to have an opt-in to chapter 11. That would effectively disable chapter 11. It would mean that any country that didn't want it didn't have to do it. We could totally do that. That would set a wonderful precedent. You have to remember, this is not some crazy Council of Canadians radical statement. Australia has trade agreements with the United States without ISDS in them. That's a developed country. Brazil does not have any agreement with ISDS. A number of countries are pulling out of their ISDS agreements.

We're talking about being ambitious as Canadians. Maybe that's an ambitious point where we can do something.

[The Chair, Liberal, Mark Eyking]

That pretty well sums it up for your time.

We're going to move to the last questioner. Madam Ludwig, you have the floor.

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

Thank you.

It's probably no surprise what my question might focus on. Thank you very much, all of you, for your presentations today.

Certainly, yes, the border is an issue, as we've heard from a number of witnesses. Similar to Ms. Ramsey, I represent an area that is on the border. I am also fortunate, and sometimes unfortunate, in being very involved with small businesses. We have two in the riding, and one of them is directly impacted by exports.

When we look at a smarter, more efficient border, my colleague talked about the use of technology. Certainly the current NAFTA agreement is nowhere near keeping pace with current technology. I wonder, Mr. Vaughan and Ms. Pohlmann, if you could speak to the potential impact and opportunity for e-manifest and pre-clearance of goods and services, but also people, so that we can reduce the delays at the border. The theme I want to push here is a stronger, not weaker, North American market.

[Corinne Pohlmann]

Absolutely, technology is definitely a tool that could be used much more effectively at the border than it currently is. The issue we sometimes run into, however, is that often these tools are built with the big businesses in mind and the large amounts of goods that cross the border, and not so much the little independent that is only going to be sending a small amount across the border. In terms of the paperwork, even if it's going to be electronic, you still have to figure out how to fill out all the forms. That's where we need to rethink a bit how border processes affect smaller companies versus larger ones.

If you're trading the same product but you're only doing it once a month, why do you have to fill out the same forms every single time, multiple times? That's what we're trying to get at, trying to think differently about how smaller firms use the border processes versus large-volume companies that are using it. Too often it's all built for the big companies and not thinking about the impacts on the small ones. They still have to fill out the same forms and it just takes a lot more time and a lot more effort, even if they are electronic.

I agree that technology could be used much more effectively than it is today, and labour mobility is a key area. There it's a lack of understanding of what the rules are and inconsistency in how the rules are applied. Using technology might be one way to bring more consistency to that, because the way it is today, anecdotally, we hear that you get one answer from one border guard and a different answer from another and it's really confusing. They try to find other ways to work around it, which is not ideal either. Technology could potentially help alleviate some of that and just make it a lot clearer. That's what we're hoping the NAFTA negotiations can do.

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

Thank you.

Mr. Vaughan.

[Scott Vaughan]

Very briefly, I was at a meeting yesterday in New York talking about exactly this with the OECD, the International Trade Centre, and the World Trade Organization.

There's a report I'd recommend that ITC came out with in July 2017. Right now, e-commerce represents about 12% of global trade, so it's trillions of dollars, but in terms of the connectivity gap, as Ms. Pohlmann said, large-scale companies are better suited. For small and medium-sized enterprises, this connectivity gap remains a real issue, but the potential, then, and what ITC has shown, is that deploying greater e-commerce, especially business-to-business opportunities, has also closed gender gaps within trade. Young entrepreneurial women, when they're using e-commerce, have more success in crossing borders than if they're doing it in person, particularly in developing countries.

Again I'd just agree with you that NAFTA could actually lead the world in connectivity.

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

Great.

Just adding to that as well, in terms of a stronger North American region, there is an opportunity here certainly to modernize. Some of the themes we've heard today we also heard in the U.S., when we were in Washington, Chicago, and Detroit in early June, encouraging the interest and focusing on the environment. One of the suggestions before the House ways and means committee was to potentially look at NAFTA as a bit more of a nimble opportunity in terms of being able to make changes in the case of the use of technology, perhaps not an entire chapter on technology but looking at the agreement with a technological lens.

Ms. Pohlmann, the other area I want to speak with you about is labour mobility. That was also raised as something to look at in the United States. When we look at small businesses, access to labour is an issue. What I hear even in my region is that on any given day there are about 300 vacancies in businesses just in one of my counties. In terms of trying to take greater advantage of NAFTA, CETA, or the Ukraine agreement, could you speak to the challenges you hear about from your small businesses on the need for enhanced labour access?

[The Chair, Liberal, Mark Eyking]

It'll have to be a very quick answer, please.

[Corinne Pohlmann]

It's certainly an issue. Again, it goes back to clarity of what the rules are and what you need to do in order to either access labour or get labour across the border, and that's still not clear. Even among professionals all the way down to the technicians, there are a lot of different categories and a lot of different ways you can define them. Right now, it's so complicated that often when you think you've filled out the forms correctly, you still run into complications. That would definitely be an area that we'd love to see streamlined in a much better way.