International Trade Committee on Sept. 25th, 2017

[John Murphy]

I can hear you now, yes.

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

Okay.

Have people asked you to... You want this to be negotiated before the end of 2017, is that correct?

[John Murphy]

Typically, the U.S. business community has not had a powerful message about the timeline. We're more concerned about the substance of the negotiation. This is something we've often said. We're mindful of the Mexican political calendar, and that poses a real challenge for our Mexican counterparts.

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

Thank you.

Earlier, my colleague asked a question about rules of origin, which are already very strict under NAFTA. You said that strengthening them could backfire on you.

What are you referring to?

[John Murphy]

With regard to rules of origin and raising the North American content requirements.

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

What do you think might happen if someone asked to raise them?

[John Murphy]

In a number of sectors, I believe it is already the case that companies choose not to trade under NAFTA rules, and simply trade under the WTO rules, and pay the so-called most favoured nation tariff.

It's simply because the bureaucracy involved in providing evidence of origin and tracking content is costly in itself. After all, the most favoured nation tariff might be very low. One company representative told me there's often a Goldilocks content requirement. If you go above that, then you're not maximizing North American content, and you'll actually wind up with less North American content. For instance, if we're talking about electronics, machinery, or autos, you may see more content from Asia or Europe.

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

Right. Thank you.

As I said earlier, my riding is north of Montreal, in the suburbs. A lot of aeronautical components in the supply chain are manufactured there.

How should labour mobility be addressed under the upgraded NAFTA?

Should we draw on the Trans-Pacific Partnership or the Canada-European Union Comprehensive Economic and Trade Agreement?

In terms of labour mobility, are there any provisions that you would like included in the agreement?

[John Murphy]

With regard to labour mobility, the U.S. business community is generally very supportive of measures to allow easier travel of professionals.

However, the political complications in the United States Congress are substantial in this area. I remember that the last time a U.S. trade agreement was negotiated was in 2003, with Chile and Singapore, and it included some visa provisions. It's not the ways and means committee but the judiciary committees that have jurisdiction over those issues. The U.S. trade representative at the time was raked over the coals and compelled to promise not to address those matters in trade agreements since then. I think that continues to be the case.

The case remains that Canada and Mexico, through NAFTA, have access to unlimited free professional visas—

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

You mentioned professionals, but there are also technicians, in particular, who can go from one country to another. The automobile industry is very integrated in the three countries.

How do you think the people who know their production chain very well could go and work in each of the three countries?

[John Murphy]

There's no conceptual reason why, under the existing NAFTA provisions, there shouldn't be a category that would allow that to happen. There's a widespread view that the categorizations need to be modernized. In fact, that's something that has been done in the past already, I think about 10 or 15 years ago. It doesn't require a full-blown negotiation of the NAFTA to alter that.

That's something where there's support in the business community. In the current political moment, in the United States, it's regarded as somewhat sensitive, but it's certainly technically feasible.

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

Thank you very much.

[The Chair, Liberal, Mark Eyking]

Thank you, Madame Lapointe.

That ends our first round. We're going to go into our second round. We'll start off with the Liberal Party. Mr. Fonseca, you have the floor.

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

Thank you, Mr. Murphy. It's great listening to you and your perspective.

We've had the opportunity, as a committee, to travel from coast to coast in the United States, in many of the cities. Actually, we were in Colorado, near your alma mater in Boulder, as well as in Denver. We heard how interwoven the beef industry is, the breeding, the growing, the processing, etc., and how it crosses the border a number of times before it hits somebody's plate.

We've heard from many chambers, and they all seem to be on board that we want to modernize NAFTA, that we want to make NAFTA that much stronger and better, but when we look at the public and we think back to the U.S. presidential election or now, or even during our elections in 2015, and now the upcoming election in Mexico.... We were going to have the opportunity this week....Unfortunately, due to the catastrophic earthquake that took place in Mexico City, we had to change our plans. It would be good to hear from our Mexican counterparts, as well as their chamber.

I know you've done a lot of work in Latin America, so I want to get your take on how this will play out in the Mexican elections. I'm sure they're talking about it already, NAFTA and this trade agreement. How is that playing out today?

[John Murphy]

Well, it's a good question and I have my view, but I'm sure, along with the process here, you'll hear from representatives of Mexican industry and other Mexican stakeholders.

The recent political developments in the United States have complicated U.S. relations with Mexico in a number of ways. I don't have to point out to this committee some of the rhetoric we heard during the electoral campaign, or even substantive debates now under way relating to deportations and the deferred action for child arrivals, DACA, or for that matter, the proposal for a border wall. All of these proposals, according to public opinion polling in Mexico, have had an undeniable impact on attitudes and it remains to be seen how it will shape the electoral contest taking place in July of next year.

It is my view that within the Trump administration there's an awareness of these political realities. I think that over time there's more and more of a sense that these are negotiations not just with a potential real estate partner, but with nation-states that have their own domestic politics. Going forward, it's going to be increasingly important to understand those and not engage in actions that could have an unintended consequence in terms of impacting the bilateral relationship between the U.S. and Mexico in an enduring fashion.

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

When we look at trade deficits or surpluses, I know between Canada and the United States we're about $680 billion a year. It was actually a surplus last year for the United States of about $1.5 billion to Canada's deficit.

When it comes to Mexico and the United States, it's about a $60-some billion deficit. When you're looking at levelling the playing field when it comes to labour, environmental standards, etc., do you feel that at the table is the place to address and close that gap between the United States and Mexico?

[John Murphy]

With regard to the U.S. and Mexico trade balance, I would first quickly reiterate our view that one shouldn't focus on it. It's the wrong yardstick for trying to measure success or failure in a bilateral trade relationship. Beyond that, it's interesting if you dig into the numbers. You're right that there's an approximately $60-billion merchandise trade deficit, but if you include services, it goes down to something like $45 billion. If you actually measure trade and value-added, using an OECD database that measures this, which takes into account where things are actually made and how much U.S. or Mexican or Canadian content may be in individual articles, that U.S. trade deficit shrinks even further.

I mention that to simply point out that the devil is in the details and these headline statistics can mislead a great deal.

I'm sorry, I lost my train of thought.

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

I was wondering with labour as well as environment, whether you would be able to address that gap at the table.

[John Murphy]

I believe that's the hope, but this is a real conundrum. The goal of reducing specific U.S. bilateral trade deficits is articulated often by the administration in Washington. How you do that is less clear. As I've argued, rules of origin is a weak read. It's not a tool that can really deliver on that score. Having rules like those that we negotiated in the TPP, which is generally, I think, the direction that the U.S. administration is trying to go when it comes to labour, could help. But in none of these proposals is there any kind of mechanistic guarantee that it's going to alter the trade balance.

I stick by my original point that if you're worried about the trade balance, you shouldn't. It's the wrong yardstick.

[The Chair, Liberal, Mark Eyking]

Thank you, Mr. Fonseca.

Ms. Ramsey has an obligation she has to go to, and she asked me if she could be moved ahead on the speaking list to get her three minutes in. I have no problem with it. If there are no objections from the committee, we can.... Are there no objections? Okay.

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

It needs to be unanimous.

[Some hon. members]

Oh, oh!

[The Chair, Liberal, Mark Eyking]

Go ahead, Ms. Ramsey, and then we'll go to Mr. Dreeshen after.

[Tracey Ramsey, NDP, Essex, ON]

Thank you, and I apologize that I have to leave.

I would be remiss if I didn't talk about something really serious to us here, and that's our supply-managed sector. Certainly, our dairy sector is quite concerned over what could potentially come across the table. I wonder if you could give us some insight. I see listed here several dairy groups with you in your contingent. Could you provide us some insight into what it is your dairy partners are seeking in NAFTA?

[John Murphy]

It's unfortunate, but I don't believe they're here in the room at the moment, because some of us are doing multiple meetings at the same time. I'd be very happy to have them circle back with you with a more accurate response than I can give.