International Trade Committee on Sept. 25th, 2017

[The Chair, Liberal, Mark Eyking]

Good afternoon, everyone, and welcome back to Ottawa. As everybody around this table knows, we had a change of plans. We were hoping to be in Mexico this morning, but due to the major difficulties down there, we switched channels. Out of a disaster, we have a great opportunity, and that is we have with us today the U.S. Chamber of Commerce.

Many of you around the table here, and many MPs have had a chance to travel to the United States the last few months, and we found the chamber always welcoming, Mr. Murphy. We had a great evening with the chamber in Washington. We also had a great experience in California with your chamber. We had a luncheon with them. Thank you very much for coming to our committee.

You have a very distinguished group that has come to Ottawa with you. There are over 37 members from many of the big companies and producers in the United States. This is a very important time, as you know, for our countries, and especially these next few days, so it's great to see everyone here.

There are a few things we probably run a little differently than committees in the United States. First of all, there are no pictures allowed to be taken now that we're in a formal setting.

We're going to split this up. We're going to do something a little different, Mr. Murphy. We're going to have you make a presentation, of course. Presentations are usually around five minutes, but you can take whatever amount of time you need. Then we'll have dialogue with the members of Parliament.

We're going to do that for about an hour, and then we'll have a more informal meeting. Again, there will be no cameras. Anytime during this first hour, if you have some members who want to sit in, they're welcome to sit with you. You can ask them to come up to the table now. If there's a particular question, let's say about milk or something, and you have somebody you want to bring to the table, let them come forward. There's no structure. You can bring anybody to the table to help you answer questions or give us some information.

As you know, our country is bilingual, so anybody who needs translation, there are headphones. There are three channels. English is one, and the second is French.

Without further ado, you have the floor, sir, and then we'll open it up for dialogue with the MPs.

[John Murphy, Senior Vice-President, International Policy, U.S. Chamber of Commerce]

Thank you very much for that warm welcome, Chairman Eyking, and vice-chairs Allison and Ramsey.

It's an honour to appear here today in Canada's Parliament, representing the U.S. Chamber of Commerce.

The U.S. Chamber of Commerce is the largest business organization in the United States. We represent the interests of more than three million companies of every size, sector, and state—big companies, little companies, manufacturers, service providers, agricultural firms. We also represent more than 2,000 state and local chambers of commerce, nearly 1,000 sectoral associations, and a network of American chambers of commerce abroad, including one here in Canada. I should also add that we include in our membership U.S. affiliates of a number of Canadian companies.

On the topic of the day, the North American Free Trade Agreement, as we've affirmed since the beginning of the year, we support the initiative to modernize this agreement, taking into account the technological, economic, and other changes in the North American economy and the global economy in recent years. But in our view, since the agreement went into force in 1994, the NAFTA has been a major success for the three member countries, for the United States, for Canada, and for Mexico. We have seen a substantial increase in continental trade and cross-border investment. It has stimulated economic growth. It has raised living standards and improved the global competitiveness of all three of our economies. You know the statistics very well. It's more than $3 billion of trade every day. In the United States, as my boss Tom Donohue, the president and CEO of the U.S. Chamber, often says, trade with Canada and Mexico supports 14 million American jobs. I believe that breaks down as nine million in trade with Canada and five million in trade with Mexico. So we see every day the benefits of this agreement. Much of this commerce depends on the NAFTA, though, in ways that are not even widely appreciated, and the negotiations that are now under way, we believe, should be conducted in a manner that does not put these current trade relationships at risk. We believe this goal is eminently achievable.

Over recent months we have offered the following general principles for NAFTA modernization.

First, do no harm. Interrupting the $1.3 trillion in annual trade across our borders or reverting to the high tariffs that were in place prior to the agreement could endanger many of the millions of jobs that depend on trade in our three countries.

Second, we need to work to keep the agreement trilateral. Maintaining the NAFTA's three-party framework is critical as transitioning to entirely new bilateral agreements presents real risks of trade disruption. Such a transition might also introduce divergent rules, one set for U.S.-Canada trade, one set for U.S.-Mexico trade, a third for Canada-Mexico trade, and that would mean higher costs for industries in a number of sectors.

Third, we need to ensure a seamless transition. Chairman Kevin Brady, of the House ways and means committee, whom I believe you've met with in the past, has emphasized this point repeatedly: the importance as we move from the agreement we have now to one in the future that there should not be a sharp break of any kind that could interrupt trade.

Finally, throughout this modernization process I should comment that we have heard a number of threats to withdraw from the agreement. We take these threats very seriously. In the view of the U.S. Chamber of Commerce, this move, quitting the NAFTA, would be an economic, political, and national security disaster for the United States. On this issue, my boss Tom Donohue issued a column today in The Wall Street Journal which some of you may have seen, and I'll quote briefly from it.

He wrote:

Undermining Nafta would be a grave and costly mistake that would hurt the very farmers, manufacturers, workers and families this White House purports to protect. Americans should do everything necessary to avert this grievous self-inflicted wound.

How might withdrawal happen? At this stage, we think the risk of it simply happening suddenly through a self-initiated act is somewhat lessened. What we're seeing at this moment, though, is concern among a number of our member companies about the direction of the negotiations in a number of areas, including proposals from the U.S. administration relating to investment protections, strict domestic content rules, or a sunset provision. That causes significant concern. The alarm is that those kinds of heterodox proposals, not seen in past trade agreements, could lead to a breakdown in the negotiations and a withdrawal.

We are pressing the U.S. negotiators, asking them to bear in mind every day the 14 million American jobs that depend on Canada and Mexico, as well as the millions more in Canada and Mexico.

We believe we can move forward and positively modernize this agreement and make it work for the 21st century economy, and we look forward to working with you to make that happen.

Thank you. I look forward to our discussion.

[The Chair, Liberal, Mark Eyking]

Thank you, Mr. Murphy.

Before we go ahead, I'm going to introduce you to my colleagues. We have three of the major parties of our Parliament here: from the NDP, Ms. Ramsey; from the Conservative Party, Mr. Dreeshen, Mr. Carrie, and Mr. Allison; and from the Liberal Party, Mr. Fonseca, Ms. Ludwig, Madame Lapointe, Mr. Peterson, and Mr. Dhaliwal. They represent different parties, from all across the country, from British Columbia right to the Atlantic coast, so we have quite the representation on our committee.

Our committee has also been active in the last few years. Of course, as you're all well aware, we've just finished the European agreement. It has been in effect for the past few days. That agreement is a really big one for us.

We also did a lot of work on the TPP, which fell to the side, but we did a lot of study on it, which, of course, brought a lot of dialogue with our counterparts in the United States.

Our committee is quite active. We're a trading nation, and we're glad you're here.

We're going to go ahead. Usually a member of Parliament has five minutes for dialogue back and forth, and we move it around.

Without further ado, we're going to go right to the Conservatives. Mr. Allison, you're first up.

[Dean Allison, Conservative, Niagara West, ON]

Thank you, and to you, Mr. Murphy, thank you very much for that. I know the chambers on both sides of the border are a valuable asset, so we're glad you're here today speaking on behalf of the U.S. Chamber of Commerce.

We certainly read the papers, as you guys do, in terms of what's happening or what's expected, and I know business gets it. We've heard from countless witnesses, and the first thing they say always is “Do no harm.” That was your first point as well.

When you look into your crystal ball, into someone else's mind, what would a win look like? We all agree that modernization should have some importance here. We need a chapter on digital. There are a number of things that the original agreement didn't do.

Obviously, we would like to see it happen quickly, but it takes a while to make these things happen. In your mind, what do you think the administration wants to see in terms of a win? Is it a total blow-up, a total rework, or trying to tweak around the edges? Could that be considered a win for the U.S. administration?

[John Murphy]

First, let me quickly say what we in the business community see as a win, and then I'll quickly pivot to that question.

We're looking for a modernization that takes a 23-year-old trade agreement and brings it into the 21st century with provisions, for instance, those relating to digital commerce. When NAFTA was negotiated, the worldwide web was invented that same year, I think. So e-commerce, the ability to do business online, not just buying a package and having it shipped to your home, but doing your online banking, selling insurance across borders electronically, downloading software across borders are all evidence that today we don't just trade in goods or services, we trade in digits as well.

We know how to do this. The TPP had language to do that. There are other areas, for instance, in the area of sanitary and phytosanitary standards, where more recent trade agreements do a better job than NAFTA did to ensure that the regulations, potentially the behind the border barriers that can impede international commerce, are based on sound science and therefore are not simply a tricky form of protectionism.

Those are examples of the kinds of modernization we're looking for. In its objectives, the Trump administration has emphasized a number of issues just like those. A few others have raised some questions. For instance, the first objective in their official document relates to the U.S. bilateral trade deficit. We at the U.S. Chamber do not believe that the trade deficit, the trade balance, is an appropriate yardstick for measuring whether or not a trade agreement or a bilateral trade relationship is working. Rather, it reflects macroeconomic realities. It's no more significant than in the case of the Murphy household the fact that I have a trade deficit with my grocery store or my barber or any other retail establishment I go to, but I do have a trade surplus with my employer. There's near universal agreement in the economics profession on that. It raises questions about what exactly are the trade policy implications of that.

To their credit, the U.S. administration has said they want to expand trade, that it's not by limiting imports that they hope to achieve that goal of more trade balance. But we're waiting for details on that.

Another objective that they've laid out is strengthening the rules of origin in NAFTA. We haven't seen specific text on this introduced by the U.S. administration yet. This causes us some concern though, because NAFTA already has some of the strongest rules of origin of any free trade agreement in the world. If you look at the auto sector, which is often at the fore in this, the 62.5% is higher than any other trade agreement. The concern is that if you raise that level substantially, it's a tool that cannot succeed in compelling industry to increase the North American content. After all, the U.S. external MFN tariff that we have on autos is 2.5%.

If complying with the bureaucracy and rules related to rules of origin is too complex, too costly, then companies will simply pay the tariff. There are a number of real world examples like that which we continue to try to impress on a negotiating team and try to push them in a productive manner.

[The Chair, Liberal, Mark Eyking]

Thank you, Mr. Allison.

We're going to move over to the Liberals now. Madam Ludwig, you have the floor.

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

Thank you, Mr. Murphy, for your excellent presentation.

I represent an area called New Brunswick Southwest. I border on the state of Maine, and certainly the gateway to the Atlantic region. In our area, up until recently we've always had duty-free softwood lumber. I'm wondering if you could tell us how increasing tariffs and countervailing duties on softwood lumber might impact American consumer jobs as well as the economy.

[John Murphy]

Thank you for the question.

The softwood lumber dispute is one which of course has gone on for decades, and any number of trade lawyers have sent their kids to college in the various iterations of it. From the perspective of the U.S. business community, the U.S. Chamber of Commerce specifically, it's a dispute that at times has been difficult for us to wrestle with, because it pits the interests of producers against those of consumers.

I've been with the U.S. Chamber for about 18 years, and my hope over the years has been that over time we will see greater integration and less conflicts in this aspect of the relationship. That is something we can say, for instance, in the steel sector. There were more trade remedy actions in the steel sector 20 years ago than there are today. Today, the North American steel industry is really quite integrated, and there's less of that kind of tension.

We're not there yet. We're hopeful that negotiators can find a path forward that can address this matter and do so quickly. I think there's a hope out there that doing so in the near term could provide a boost of goodwill at this point in the NAFTA negotiations.

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

Thank you.

Adding to your comment, Mr. Murphy, about the integrated supply chains, if we look, for example, at softwood lumber, in New Brunswick there's a mill where one part is on the American side and the other half of it, the pulp mill, is on the Canadian side, or vice versa. It's called Twin Rivers. That's a great example of integration.

I'm wondering whether Americans are acutely aware, somewhat aware, or a little bit aware of the possibility that any disruption in trade could mean a loss of jobs on the American side as well as on the Canadian side.

[John Murphy]

I think that the past year has offered a kind of tutorial for policy-makers in the Congress over the benefits of the NAFTA today and the trade relationship we have with Canada and Mexico.

Last week, I went on a four-day tour of seven Midwestern states. One thing they all have in common is that they voted heavily for Donald Trump. Another thing they have in common is that they're all incredibly dependent on trade, and particularly trade with Canada and Mexico. As I travelled in this area, I visited manufacturers—I visited a large trucking firm, a technology company, a manufacturer of balloons—and I spoke at a number of state and local chambers of commerce. I did not find any reservoir of goodwill for the idea of abandoning the NAFTA.

In fact, at the first event I went to, Congressman Kevin Cramer of North Dakota said he was not aware of a single constituency in North Dakota that is in favour of withdrawing from the NAFTA. North Dakota is about the reddest state in the union, as we say. It's one of the states that voted for President Trump by the largest margin.

I finished my tour down in Kansas, and Senator Pat Roberts was at the event there. He's chairman of the agriculture committee. It's agriculture that sees this perhaps most vividly; it's not just manufacturers. Canada and Mexico buy more U.S. manufactured goods than the next 10 largest markets among our export partners.

In the Congress, I can see that that message has gotten through. I see it getting through with governors. I would have to say that I think Canadian diplomacy has played a positive role here as well. There has been a great deal of outreach, not just from the government, but from our good friends at the Canadian Chamber of Commerce, who have hit the road, as you all have, travelling to a lot of places.

NAFTA has been much maligned over the years, but I think there's a somewhat different perspective on it today. Opinion polling backs that up. The view of NAFTA is more favourable than it has been.

[The Chair, Liberal, Mark Eyking]

Thank you. That wraps up your time.

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

[Tracey Ramsey, NDP, Essex, ON]

Thank you for being here.

My mother is a Murphy, so we have a lot of Murphys on both sides of the border.

I want to dig a little further into something you just touched on with my colleague, and that's the general understanding about trade that's happening between the U.S. and Canada, and the misinformation.

We saw what came out from Wilbur Ross this week around the rules of origin relating to auto manufacturing. It was quickly refuted by Canadian auto industry executives, and certainly by representatives from the government. We are very concerned about the rules of origin and that there seems to be a thought that there is a wider unfair practice that Canada and Mexico are engaging in around this.

You alluded to the fact that these haven't been tabled yet. The issue is quite concerning to us. I represent a riding in southern Ontario, right on the border, where there is a lot of auto-related industry. Do you have any idea when we can expect this important discussion to begin? What is the chamber's position?

[John Murphy]

Our submission to the Office of the United States Trade Representative was more or less along the lines that I articulated earlier, that the rules of origin in the NAFTA are already very strong and that measures to elevate those requirements are likely to backfire and you could wind up with less North American content. This is a view that has been articulated by most of the large business organizations in the U.S.

[Tracey Ramsey, NDP, Essex, ON]

Do you have any idea of when that will come forward?

[John Murphy]

We're a month into the negotiations. In this area and several others, it appears to be the case that the administration is making some hard decisions internally and trying to move the draft texts through our interagency process as well as through the congressional committees of jurisdiction. There's an obligation to consult with the House ways and means committee and the Senate finance committee.

[Tracey Ramsey, NDP, Essex, ON]

Unfortunately, we don't have that same process here in Canada. We were admiring it quite a bit when we visited Washington in the spring and met with the subcommittee.

Something else I want to ask you about is you touched on steel. We're awaiting the section 232 decision, which we expected in June, and it still is lingering. Canada is seeking an exemption. I'm wondering if you're supportive of that. We met with the American Iron and Steel Institute when I was in Washington in June with our steel caucus. I'm wondering what the chamber's position is on a Canadian exemption for steel.

[John Murphy]

The state of play with regard to that matter is unclear. I believe Secretary Ross recently told the press that a decision on this is being deferred until after tax reform is done, and it's really unclear how long that's going to be.

It's been a process that has been difficult to follow. Our trade agreement negotiations are governed by our trade promotion authority laws, which set out clear consultations with the Congress and the private sector. The section 232 statute is one that hasn't been used since the 1970s, so it's been a little opaque. I'm afraid I don't have a good read on the state of play or when that is coming out, but it appears to be the case that—

[Tracey Ramsey, NDP, Essex, ON]

I'm sorry to interrupt you, but I know the Canadian Chamber advocates that exemption, and I just wondered if you've had these conversations with Mr. Batey and what that looks like in your relationship.

[John Murphy]

A number of major business organizations have expressed concerns about it broadly. I don't know that an exemption is one that has garnered a lot of attention, in the sense that Mexico is not necessarily in a different boat. It's clear, though, that some of those concerns have gotten through and a number of senior cabinet officials have weighed in on that. For instance, it appears that Secretary Mattis, the Secretary of Defense, was concerned about the application of tariffs against our NATO allies, and in the interest of national security, it leaves you scratching your head.

[Tracey Ramsey, NDP, Essex, ON]

Is there anything you can give us on your position on chapter 19?

[John Murphy]

Yes. As I mentioned, I've been at the U.S. Chamber of Commerce for almost 20 years, and it's striking to me that during that time, none of our member companies ever raised this as a problem. However, as this has come to the fore in recent months, we have heard from some of our member companies. In the agriculture sector, for instance, you may have seen a letter signed by several dozen agricultural groups concerned about getting rid of chapter 19. I think the U.S. business community, which has never paid much attention to these provisions, is now paying more attention. We're digging into it. We may, in the months ahead, have a more formal stance on the matter.

[The Chair, Liberal, Mark Eyking]

Thank you.

We're going to move back over to the Liberals and Madame Lapointe.

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

Thank you very much, Mr. Chair.

Mr. Murphy, thank you for being here. Welcome.

[John Murphy]

Thank you.

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

You said that you have three million member companies. Have people...

Can you hear me?