International Trade Committee on Sept. 20th, 2017

[The Chair, Liberal, Mark Eyking]

Thank you.

I think we have one minute left.

Ms. Ramsey, you have a quick question?

[Tracey Ramsey, NDP, Essex, ON]

I do.

It affects small businesses, but I'm not sure, Ms. Pohlmann, if it affects those that you represent. It has to do with the de minimis. There's been a lot of discussion about whether the de minimis should be raised. The U.S. is requesting a raise to $800. We do know that this happened in Australia. There was a raise of $800, and they went right back to zero. We're currently at $20.

Could you comment on which direction the groups you represent are advocating a move with regard to de minimis in NAFTA?

[Corinne Pohlmann]

We're on record as for not increasing it, for keeping it at $20. Part of the reason for that is the competition. It would be unfair to have online competitors able to bring in products and their customers not pay any GST or HST on them. Essentially, the products would be 13% to 15% cheaper than if they were at brick and mortar stores in Canada. We believe that it would create an unfair competitive level in Canada. We want to keep it at the $20 level and not have it raised.

[The Chair, Liberal, Mark Eyking]

Thank you very much.

That wraps up our second panel. We're going really well.

Thank you, panellists, for joining us.

We're just going to suspend for a minute, and then we're going in camera because we have some very important future business. That puts us back on track for the next group of witnesses to come in around 5:30.

[Proceedings continue in camera]

[Public proceedings resume]

[The Chair, Liberal, Mark Eyking]

Welcome back, everyone.

Welcome to the table panellists. I'm sorry, but we had some future business that we had to discuss right away. As you know, our study is on future trade with the U.S. and Mexico, and we have a serious situation in Mexico, as many of you know. We were planning to go there Saturday, but everything has changed. We had to deal with that business. Thank you for your patience.

As many of you who were here before know, we usually try to keep each presentation under five minutes. Then we'll have good dialogue with the MPs.

We have with us today Fertilizer Canada, Smart Prosperity Institute, and Chicken Farmers of Canada.

Maybe we can start off with Fertilizer Canada. We have Mr. Graham, senior vice-president.

Go ahead, sir. You have the floor.

[Clyde Graham, Senior Vice-President, Fertilizer Canada]

Thank you, Mr. Eyking and members of Parliament.

Thank you for the introduction. Thank you also for inviting Fertilizer Canada to speak with you today in relation to the state of trade among Canada, the United States, and Mexico. We are pleased to appear before you and to provide the committee with information about our association's mandate as well as to present our recommendations in the context of the North American Free Trade Agreement's negotiation.

I am Clyde Graham, senior vice-president of Fertilizer Canada.

Fertilizer Canada represents the manufacturers and wholesale and retail distributors of potash, nitrogen, phosphate, and sulphur fertilizer and related products. Collectively, our members employ more than 12,000 Canadians and contribute over $12 billion annually to the Canadian economy through advanced manufacturing, mining, and distribution facilities nationwide. As the foundation of Canada's agri-food sector, Fertilizer Canada continues to make changes that positively impact the environment, the economy, and the social fabric of Canadian life.

NAFTA is of significant interest to our members and their farm customers. Farmers in agribusinesses on both sides of the 49th parallel depend on imports and exports of fertilizer in an integrated North American sector.

Fertilizer Canada has consistently supported regional and bilateral free trade agreements, including the Canada-European Union Comprehensive Economic and Trade Agreement and the proposed trans-Pacific partnership. We're also engaged in the exploration of China and other agreements that are potentially in the works.

We certainly support an expanded and modernized North American Free Trade Agreement to protect and enhance free trade within North America. We would like to bring forward several key recommendations to support the Canadian government's goal to modernize and strengthen NAFTA. In essence, while we support an enhanced NAFTA, I think we would certainly like the Government of Canada to take a “do no harm” approach. What we have is pretty valuable, and we'd like to sustain it and make it better.

Foremost, we need to protect the interests of our farmer customers in Canada, the United States, and Mexico, who depend on access to cost-effective fertilizer products and services. Canada is the world leader in potash fertilizer production and export, accounting for 52% of global potash reserves. Canada is also the ninth-largest producer of nitrogen fertilizer in the world. Almost half of the nitrogen fertilizer produced in Canada is exported to the United States and its farmers.

Additionally, the United States exports between $800 million and $900 million in fertilizer products to Canada each year, mainly phosphate and nitrogen fertilizers, including monoammonium phosphate and urea. Canada maintains a significant trade surplus in fertilizer with the United States—about 4:1. Maintaining or improving integrated supply chains within the United States and Mexican markets is imperative to Canadian manufacturers during the NAFTA renegotiations.

Fertilizer Canada also recommends that we support regulatory harmonization and co-operation. A consistent science-based approach will prevent the creation of protectionist trade barriers under the guise of environmental, health, and sanitary or phytosanitary rules. Strengthening regulatory co-operation will reduce regulatory approvals required for products produced and sold across the region.

To achieve this, we recommend modernizing customs procedures and expanding the range of skilled workers and professionals for free movement within NAFTA. That is certainly an area we would like to recommend strongly, as executives, other professionals, and skilled workers move within companies that are integrated in North America in the fertilizer industry, and that's an important value for the entire North American economy.

Last, we recommend that the following provisions be maintained or adopted during the NAFTA renegotiations.

Maintain the current zero duty rate on fertilizers and chemical commodities listed in the harmonized tariff schedules for chapters 28 and 31. Maintain the exemption of the merchandising processing fee on imports of NAFTA declared goods. Maintain current tariff shift rules of origin for fertilizers and chemicals listed in the harmonized tariff schedule, chapters 28 and 31 to avoid unnecessary administrative burden, and adopt a chemical reaction rule for the qualification of chemicals to align NAFTA with other modern free trade agreements and provide administrative efficiencies.

[The Chair, Liberal, Mark Eyking]

Are you almost wrapping up?

[Clyde Graham]

To conclude, appropriately enough, I want to thank the members of the committee for this opportunity to present our views.

In summary, our recommendations are to protect the interests of our farmer customers across North America who depend on cost-effective fertilizer products and services, to support a science-based regulatory harmonization and co-operation, and to maintain and adopt provisions to protect fertilizers and chemical commodities in NAFTA.

We welcome the opportunity to continue this dialogue, which I think is going to go on for a considerable period of time, and we're pleased to answer any of your questions.

Thank you very much.

[The Chair, Liberal, Mark Eyking]

Thank you, sir.

We're going to move over to the Smart Prosperity Institute, with senior fellow, Mr. Runnalls.

[David Runnalls, Senior Fellow, Smart Prosperity Institute]

Thank you very much, Mr. Chairman. I am with the Smart Prosperity Institute at the University of Ottawa. We're a clean economy think tank with a research network of academic researchers across the country in this area.

You might be asking yourselves why a trade agreement should concern itself with environmental issues. You've had three environmentalists today, more or less. Isn't life complicated enough without making the poor trade negotiator's life even more difficult by adding in something else?

I was involved with the original NAFTA. I'm old enough to have done that. Clyde was actually involved with the creation of the GATT, so we're both ancient in all of this. I was right there at the WTO. We asked ourselves the same question, and the answer is still the same. Under sustainable development, the environment and the economy are joined at the hip. Policies in one sphere that ignore the other are bound to fail. We have all sorts of examples at hand to illustrate this mutual interdependence. Think pipelines. Think the management of natural resources.

Canadian industry has learned a great deal about environmental performance since the beginnings of NAFTA. We're now among the world's leaders in forest management. Our mining industries continue to improve their performance. Our fisheries management practices are vastly improved. The Canadian brand is now a trade advantage in all sorts of commodities markets, potentially.

NAFTA was a pioneering agreement with its environmental side agreement. The environment is now a staple of every major trade agreement and now a common topic at the WTO, so we welcome the stated desire of all parties to bring the environment into the main text of the agreement and to strengthen it. It's a side agreement now. It's now much more modern to put the environment into the main text of the agreement.

I want to talk about two things. One, which you've heard about already, is chapter 11, the investor state dispute resolution mechanism. The second is Canada's obligations under the Paris agreement on the road to a clean economy.

You probably all know about chapter 11, but in brief, it gives investors the right to take governments to an arbitration tribunal, should they feel they've been mistreated by any level of government in the three countries. It was included in the original agreement to reassure investors in Mexico that they would be compensated in the event of expropriation. Canada was indifferent, but the U.S. and Mexico were strongly in favour. It has since become a very blunt instrument. It has in it phrases like “fair and equitable treatment” and “expropriation”, which have been very broadly construed by the panels. We're the victims of this. There have been 39 claims against Canada. We've lost almost all of them. It's cost the federal government $215 million. The majority of the claims have been based on environmental issues, in many cases effectively challenging the rights of government to regulate. These are international arbitrators in a system that's used for commercial arbitration, contract disputes. They are now deciding whether or not the Government of Saskatchewan, or Alberta or Ontario, has the right to regulate on a particular issue.

Gordon Ritchie, who's no softie, who was one of Canada's top negotiators on the original Canada-U.S. deal, described it the other day as an unbelievable intrusion into sovereignty.

What to do about chapter 11? It seems as if the government's preferred position is a regime similar to that constructed under CETA. It is more structured. It has appointed members who serve without the conflict of interest common under the present system. It has an appeals body, and perhaps most importantly, it contains a clear statement on the ability of governments to regulate as they see fit. If this doesn't work with the other two countries, Canada should at least insist on a clarification of the terms “expropriation” and “fair and equitable treatment”, or we'll be beaten over the head with this thing forever.

Turning to Canada's climate strategy, Canada's greatest challenge over the next 30 years or so will be twofold: to move toward an economy that is far less carbon dependent than it is now, and continue to support a robust energy sector. That is not an easy task. This transition to a lower-carbon economy will present unprecedented opportunities for the clean-tech sector in particular, and will require a complex set of government actions to bring it about.

President Trump's decision to withdraw from Paris, and the actions of his EPA director in denying the basic science of climate change, and relaxing many of the main environmental laws and regulations, presents Canada with a set of difficult choices. Here, again, I think there are two potential NAFTA strategies.

[The Chair, Liberal, Mark Eyking]

Sorry to interrupt. You might have to wrap it up there, since we're way over time.

[David Runnalls]

Okay.

One of them would be to basically begin to move toward a North American clean economy strategy— in fact, NAFTA could be used to do that—which would include a discipline on fossil fuel subsidies, harmonizing product energy efficiency, and the institution of a North American clean economy commission. There's already a NAFTA Commission for Environmental Cooperation in Montreal. It works. It functions. This would be a good job for it to do.

If that doesn't work, then Canada, de minimis—to use that phrase again—will have to insist that the new NAFTA includes language that ensures that no provision restricts Canada's WTO rights under article 20 to take environmental measures, and we should seek to have the UN Framework Convention on Climate Change included in the list of multilateral agreements that are under NAFTA. That's fairly common practice, but it's not there. Otherwise, our industry could find themselves in considerable difficulty when it comes to pursuing the pan-Canadian climate change framework.

Thank you, Mr. Chairman. I'm sorry to have gone on a bit.

[The Chair, Liberal, Mark Eyking]

Thank you, sir.

We're going to one of our favourites, the Chicken Farmers of Canada.

[Mike Dungate, Executive Director, Chicken Farmers of Canada]

Thank you.

[The Chair, Liberal, Mark Eyking]

I see, Mike, you have your winger with you, Mr. Ruel.

[Mike Dungate]

Yes, I have my left winger.

[The Chair, Liberal, Mark Eyking]

It's good to see you both. Thank you for coming.

Go ahead, you have the floor, sir.

[Mike Dungate]

Thank you very much, Mr. Chair, members. Thank you for inviting us today to speak on NAFTA.

At the outset, let me say that NAFTA, as currently structured, has been positive for both the Canadian and the U.S. chicken industry. With the stability provided by supply management, the Canadian chicken industry has been able to focus on growing demand for Canadian-grown chicken. Since the implementation of NAFTA, we've grown our industry from 600 million kilograms a year to almost 1.2 billion kilograms a year.

As a result, today, our 240 hatching egg producers, 40 hatcheries, 125 feed mills, 2,800 chicken farmers, and 191 processors sustain more than 88,000 jobs, contribute more than $7 billion to our economy, and pay more than $2.2 billion in taxes. It isn't just 2,800 chicken farmers who are engaged in this industry.

Our supply management system is much more than just stability. We've levered our regulations to implement mandatory third-party audited on-farm food safety and animal care programs. We've reduced the use of the most important antibiotics to human medicine, and we aren't stopping there. We're investing in innovating for the future if our strong growth continues. To expand our capacity, all members have made significant capital investments in the last few years, and are continuing with planned investments in new barns, new hatcheries, and new processing plants right across the country.

In its submission to USTR, the U.S. chicken industry stated:

The benefits of NAFTA to the U.S. poultry industry stand in stark contrast to our experiences in other countries where comparable agreements were never achieved.

Canada is the second-largest market for U.S. chicken exports after Mexico, in both volume and value. When considered on a per capita basis, we import three times as much as Mexico does. We imported 142 million kilograms of chicken from the U.S. in 2016, all of it duty free.

The United States also enjoyed a consistent, positive balance of trade, $300 million a year. Because NAFTA access is tied to our Canadian production, it has increased every year. In fact, since they implemented NAFTA, U.S. access to our market has gone up 406%, while total U.S. exports to Canada are up 166%. There's no issue here from the U.S. Thus, NAFTA as currently structured is positive both for the Canadian and the U.S. industry.

That doesn't mean some modernization and tweaking can't be done. A couple of regulatory misalignments that we would focus on include antibiotic classification.

Of particular importance to us is bacitracin, which is a key antibiotic that we use. It's classified as “not important to human medicine” in the U.S., while Canada and the World Health Organization say that it is. Furthermore, the U.S. definition of “raised without antibiotics” allows them to use ionophores, if approved by USDA and labelled.

While we've done a good job in having the U.S. repeal country-of-origin labelling for pork and beef, it hasn't been done in chicken. It's still on the books, and we're not aware of any national on-farm food safety or animal welfare programs in the U.S.

Another concern that we've had, that we've raised with you in the past, is fraudulent spent fowl imports. These illegal imports represent the loss of about 2,700 jobs in Canada on an annual basis. It's also a food safety issue. Because this is fraudulent product, we've broken the chain of traceability. If there's a food safety recall in the U.S., in Canada, because we've broken that traceability chain, we won't know where it is, and we put Canadian consumers at risk.

The U.S. must commit to finding a means of ensuring that their exports of spent fowl—and we're not trying to stop them—are indeed spent fowl and not fraudulently labelled broiler chicken meat.

We believe NAFTA modernization should create regulatory alignment on the issues. Chicken farmers are proud of the role we play, but we don't think we should be put at a competitive disadvantage because we've been willing to shoulder these additional burdens.

What would we recommend?

Again, in terms of context, the U.S. is 17 times the size of our industry, 18 billion kilograms to 1.2 billion kilograms. Their exports are three times the size of our total production. We sit beside an elephant, in terms of our industry. That magnitude makes it important to keep the system that we have. We need the over-quota tariffs that maintain the level of access to what we've negotiated. Any reduction in the over-quota tariff would jeopardize the stability of our industry and put it at risk.

Second, in terms of the access, we've negotiated 7.5%. That makes us the second-largest importer from the U.S. and the 14th-largest importer of chicken globally, and it will go up every year. There's already a built-in escalator clause in terms of our access, so we don't believe there should be any additional access given from a per cent of our market.

Third, we have to preserve our rights on animal agricultural special safeguards.

Finally, there are the regulatory misalignments around COOL, fraudulently labelled spent fowl, antibiotics....

We appreciate the support that you have provided to us over the years. We think we can come out on a positive basis in these negotiations if we stand firm across Canada on what's important.

I look forward to your questions. Thanks.

[The Chair, Liberal, Mark Eyking]

Thank you.

I just have one quick question for you. You said we were the second-biggest importer from the United States. Who's their biggest export market?

[Mike Dungate]

Mexico is their largest in both volume and value, and we're the second largest in both volume and value.

The U.S. chicken industry understands that NAFTA is of benefit to them. If they got a bit more access, would they say they liked it? Yes, but what's important to them, as Clyde has said, is to do no harm.

[The Chair, Liberal, Mark Eyking]

Thank you.

We're going to go right to a dialogue with the MPs. We have the Conservatives up first for five minutes.

Mr. Dreeshen, you have the floor.

[Earl Dreeshen, Conservative, Red Deer—Mountain View, AB]

Thank you very much. There are just so many different things to talk about right here with the three excellent presentations.

I'll start with “raised without antibiotics”, and you can throw into that “without added hormones”. We understand exactly what has taken place there. It is a marketing ploy. It has nothing to do with safety. All of those kinds of things are significant.

I know that spent fowl is an issue. People like to say, “We're giving 110%” and that's about what we're getting out of the spent fowl that's coming out of the U.S. It doesn't add up, so obviously we know that there are some concerns there.

Do you have any any idea just how we can deal with that one particular issue, spent fowl?

[Mike Dungate]

The key piece on that one, which we've been pushing for, is DNA testing. We've worked with Trent University to have DNA testing. We're at the point where the government needs to test, to get it's own validation of our test. We think it's good. We didn't do it. The people at Trent University did. We think that's the key step. You don't have to use it all the time, but having it in hand will stop the fraudulent part.

[Earl Dreeshen, Conservative, Red Deer—Mountain View, AB]

Thank you.

Mr. Graham, on the Fertilizer Canada side of things, I am a farmer and understand the sorts of things you require as far as fertilizers are concerned. I know the different types of feedstocks that you require, especially when you are looking at nitrogen fertilizer.

We've been told that with the added costs that are coming from the carbon tax, the margins, as far as being able to take our Canadian product into the States, are going to be so small that we may well lose that market. We've also been told that China will take up that market, and they base it on coal, so we are not looking at the unintended consequences, perhaps, with some of these. There are issues that exist there.

When you look at the kinds of things that we should be keeping in mind as we look at the fertilizer industry, that should be one of them as well. I don't know how that ties in to NAFTA, but these are issues that.... The fertilizer industry is going to be there, and your main point was how we are going to maintain security for farmers. If we care about Canadian farmers, this is one of the issues that we should be looking at.

You talked about the chemical reaction rule and having that align with other agreements. Could you just give a quick update as to what you're looking for there?

[Clyde Graham]

It is interesting. As I was preparing for this brief, I looked at that recommendation, and it's the one that I probably know the least about. Essentially, I think it's that there is a system for determining the kinds of chemicals and we need a harmonization of that.

We can send the committee more details. I think it's an example of where Canada and the United States have slightly different systems for analysis. One is not necessarily better than the other, and finding a way to either have Canada adopt the U.S. or vice versa—I think in this case we're asking Canada to adopt the U.S. system—I don't think makes a significant difference. It's simply that we would have one system for the whole industry. I think that's what we're doing, and I think it's an example of the kinds of areas where regulatory harmonization could be important.

I can send you details on that.