International Trade Committee on Dec. 4th, 2017

[The Vice-Chair, Conservative, Dean Allison]

Thank you very much.

We're going to turn it over to Mr. Peterson for five minutes.

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

Thank you, Mr. Chair. You're doing a great job of chairing this meeting. It's your first time since we've been here, so that's great. I heard great things about you. It's nice to see them come to fruition here.

Thank you for being with us again, Mr. Verheul. It's very much appreciated, as always. It's always great when we can tap into your expertise and your experience, and it does help us to do our job as a committee. I think it helps us as parliamentarians. It's great that Canadians get some insight into what's going on, because there are very few Canadians, in my assessment, who aren't impacted by NAFTA in one regard or another. This is important work that we're doing. Not to put more pressure on you than you already have, but it's great that we get to discuss this situation in an open forum such as this.

I want to hit on a couple of issues that have already been touched upon, but maybe we can dig a little bit deeper. I'm going to start with the ISDS, the dispute mechanism.

My friend Ms. Ramsey, from the NDP, mentioned a little bit about chapter 11. I want to focus on chapter 19, because it's almost the mirror image. In my understanding, or at least it's the impression or the perception of it, is that in the U.S., they want chapter 19 to be gone. My understanding is also that we've rejected that proposal. Is there a counter-proposal? Is there a dispute mechanism that will satisfy all three parties that is somewhere in between what might exist now and perhaps what we see in CETA and other, more progressive, trade deals?

[Steve Verheul]

There are different types of dispute settlement in NAFTA. You mentioned chapter 19, which relates to trade remedies, anti-dumping, and countervailing duties. There's also the state-to-state dispute settlement process under chapter 20, and there's an investor state dispute settlement process under chapter 11.

With respect to chapter 19, the proposal we have put on the table is not simply to preserve chapter 19 as it is; it's to modify chapter 19 to improve it, to make it more efficient, to make it more effective, to provide some comfort with respect to some of the U.S. concerns and ensure that it remains an effective instrument going forward.

We have outlined in our proposal specific elements to improve chapter 19. We think it is fundamental, given the record of the past. We have taken chapter 19 cases on 20 occasions. The U.S. has been required to go back and change its practices on 13 of those occasions. It has been an effective instrument for us, and I think it's a basic kind of element that we need in the agreement to ensure fairness.

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

Thank you for that.

Just because my time is limited, I want to switch gears from ISDS and speak a little about automotive again—not surprisingly, because I'm from the riding of Newmarket—Aurora and we have a large auto parts manufacturer headquartered in my riding, Magna International. On this concept of traceability, I think you rightly characterized the industry seeing it as unworkable, but that's industry on both sides of the border, is it not?

In my mind, there's a bit of a dilemma or a conundrum with your American counterparts in that if they're pushing for a component of the deal that their own industry doesn't necessarily support, without telling too many tales out of school, how is this impacting your ability to negotiate for the interests of Canadians when perhaps it's in the interest of all parties at the same time?

[Steve Verheul]

It is a challenge—and, frankly, not one we're really used to—when industry in the other party's backyard is criticizing the proposal. As well, auto manufacturers, auto parts manufacturers, and the labour unions in the U.S. have all been opposing the U.S. proposal.

We have been working closely with all of those groups in the U.S. to try to get the message across. At the last negotiating round, we spent a considerable amount of time on a presentation explaining why this proposal would be bad for the U.S. and cause a significant negative impact on U.S. interests. We do have the view that this proposal has not been subject to a lot of analysis or evaluation on the U.S. side. We think it was put on the table without a lot of that kind of analysis, and we have been trying to initiate a more in-depth discussion with our U.S. counterparts to talk about each of the individual items of their proposal in more depth, to explain why they won't work, and to offer alternatives that would help to improve the current situation in the auto sector rather than make it worse.

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

Thank you for that.

[The Vice-Chair, Conservative, Dean Allison]

We're out of time.

I think we have time for another round. We're going to start with Mr. Carrie and Mr. Dreeshen.

[Colin Carrie, Conservative, Oshawa, ON]

I think I'm going to split the time with Earl.

I want to talk about jobs again, particularly in the auto sector, since I come from Oshawa.

We've heard a lot of rhetoric, with some people saying that NAFTA is the worst trade agreement ever and we have to get rid of it, but according to our own Minister of Foreign Affairs, thanks to NAFTA, Canada's economy has grown 2.5% larger. I've heard in my own community that it's because of NAFTA that we lost all those automotive jobs. Then on the other side of it I hear people say, “No, it wasn't; those jobs were already leaving.” They say that production and innovation are the major reasons some of these jobs were lost, and they didn't necessarily go to Mexico because of that and would have gone to low-labour jurisdictions anyway.

It is an opinion question, and I was wondering if you could comment on it.

Also, if the U.S. does withdraw from NAFTA, what sectors of Canada's economy would have the largest production losses, in your opinion?

[Steve Verheul]

With respect to the auto sector under NAFTA, over the years I don't think there's any denying that we have seen an increase in jobs in Mexico and that we haven't seen those kinds of increases in Canada. The U.S. hasn't seen those kinds of increases, although they too have seen increases, and U.S. employment in the auto sector has been up 6% a year on average over the past decade, so it's not as if they're not making gains. Investments in Canada have continued to increase over time as well.

I think there are two issues here. First is the issue of competitiveness within the North American market. Most auto markets around the world do have a low-cost supplier. In North America, that tends to be Mexico; in Europe, it tends to be the eastern European countries to some degree. Similarly, in Asia they have lower-cost suppliers.

Second, certainly we don't share the view that NAFTA has caused all the job losses that have occurred in the auto sector. We think technology advances, in particular automation, have been the reason for many of those job losses, and economies continue to evolve. In the auto sector that occurs as well.

I think that when we're looking at this aspect, we need to look at it from a very practical point of view: how can we improve the creation of jobs, how do we get into more high-tech elements of the auto sector, how do we advance our interests when it comes to future technology that's going to be used in the auto sector? That will create more high-value jobs, and that's where we're looking to make improvements.

[Colin Carrie, Conservative, Oshawa, ON]

Which sectors would lose, though?

[Steve Verheul]

I think that if the U.S. were to withdraw from NAFTA, then you can easily look at the areas of high tariffs, which could be reimposed—not necessarily, but could be reimposed—against Canada. We do have high tariffs into the U.S. in areas such as footwear, textiles, and apparel. The auto tariff is not very large, which is of some comfort. In most of our natural resource areas, the tariffs are quite low.

That is a very quick generalization of the outcomes.

[Colin Carrie, Conservative, Oshawa, ON]

Thank you.

[The Vice-Chair, Conservative, Dean Allison]

You have a minute and a half left, Earl.

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

Thank you very much, Mr. Chair.

I wanted to talk about the e-commerce chapter and the digitized world that we're going to be seeing. I think that was one of the questions Mr. Fonseca mentioned. It looks as if the USTR wants to secure commitments not to impose customs duties on digital products and to ensure NAFTA countries don't impose measures that restrict cross-border data flows or require the use or installation of local computing facilities.

When I was with the industry committee earlier in the spring, we were in Washington and we listened in on Senate hearings for rural broadband. There were discussions about coverage and all these other types of things associated with it. Of course, the question was about autonomous vehicles. The problem, of course, is where is this data going as you cross the border, like the roaming you have right now on the cellphone. How do you manage to keep all that going and still keep trade going?

I'm wondering if any of that has been included in the discussions that you've had. Also, could you update us on where you see the e-commerce file going?

[Steve Verheul]

We have been making some fairly quick advances in the digital trade chapter. It's called “electronic commerce” in previous agreements, but it's being called “digital trade” in the NAFTA renegotiation.

We covered many of the issues that you've mentioned, such as agreement not to impose customs duties on issues related to digital trade. We are including provisions such as online consumer protection to ensure that is provided for, and we also have provisions to provide personal information protection, which we feel is essential in this kind of trade. As well, our position is that we want to protect net neutrality when it comes to digital trade.

One of the outstanding issues remains a proposal put forward by the U.S. to provide a safe harbour for Internet computer service providers. In Canada we do not have that kind of protection from civil liability for those providers, and we think that's a domestic policy issue, that it's an issue for the courts rather than an issue for trade agreements. That's one of the differences we have with the U.S. at this point.

[The Vice-Chair, Conservative, Dean Allison]

We're going to turn it over to General Leslie for five minutes.

Go ahead, please.

[Andrew Leslie, Liberal, Orléans, ON]

On behalf of Canada, I would like to congratulate you on your work, Mr. Verheul. I think I can speak for everyone here, in a non-partisan way. You are doing excellent work. We are really proud of your efforts, yours and those of the teams who work for you. Thank you again.

Still, I would like to suggest a small change. On several occasions, we have heard about the relationship between Canada and the United States. But while we share the longest and safest border in the world with our American friends and allies, we also engaged in these negotiations with a third NAFTA partner, Mexico, of course. We had the opportunity to have witnesses appear before this committee representing Mexican companies and interests.

Based on your experience, could you tell us how Canada-Mexico relations are and your relationship with your Mexican counterpart at the bargaining table?

Could you also elaborate on the rallying points between Canada and Mexico?

[Steve Verheul]

Thank you. The relationship between the Mexican and Canadian negotiating teams and between me and my Mexican counterpart is very strong. I think our strongest point in common is that we are both looking at this negotiation from the same perspective: we want to improve NAFTA. We are looking for outcomes that will benefit all three parties, and we are concerned about proposals that would go in the other direction, particularly some of the U.S. extreme proposals that are intended to focus benefits in the U.S. and not in the other parties.

We have been working closely with Mexico on virtually all issues. We're not on the same page necessarily on all aspects of all issues, but they have been working very closely with us on issues such as energy. We've been working together on an energy chapter that we could put forward. They have been working closely with us on many of the practical areas, such as customs and trade facilitation, regulatory co-operation, and good regulatory practices. These are the basic issues that make a real difference to stakeholders on both sides.

They've agreed with us and are supporting us where they can on labour, but have difficulties in some other areas. We have discussions bilaterally with them quite frequently about the state of the negotiations and we work jointly where we can on common proposals or common approaches to the negotiations.

[Andrew Leslie, Liberal, Orléans, ON]

Thank you.

I would also like to know what opportunities are available to Canada for the NAFTA negotiations with respect to the development of trade and investment relations with Mexico.

Based on the information you have obtained over the last four or five months, could you tell us what major issues and what opportunities that represents?

[Steve Verheul]

Well, I think we do have real opportunities to further advance our relationship under NAFTA with Mexico, and we do have a commitment that if the U.S. were to withdraw from NAFTA, we would maintain the NAFTA between Canada and Mexico.

We see significant opportunities in the agriculture and agrifood sector with Mexico. Mexico has significantly increased as an important partner in agriculture for us since before NAFTA came into effect. I think we export something like $4 billion worth of products to Mexico now in that area. We have interests in other natural resource-related sectors as well. We have interests that we can expand in many other areas, and we're working to do that. I think this whole experience has also strengthened the relationship between Canada and Mexico, which can also lead to further interest in each other's markets and the development of each other's markets. That's been a positive development as well.

[Andrew Leslie, Liberal, Orléans, ON]

Thank you.

Thank you, Mr. Chair.

[The Vice-Chair, Conservative, Dean Allison]

Mr. Masse, welcome to the committee. You are going to take the next five minutes. It's all yours.

[Brian Masse, NDP, Windsor West, ON]

Great. Thank you, Mr. Chair. Thank you for having me and thanks for your work.

I'm going to return to auto, and I'm sorry to have missed some of that. We've slipped considerably in auto manufacturing and assembly. I come from a place where we no longer have General Motors, for example. Ford is not what it used to be, and Fiat now has Chrysler after Chrysler went through several different purchases over the years, so, our status in terms of assembly and manufacturing has certainly diminished.

Has there been any discussion with the United States and their representatives? I've been in Washington several times. They weren't even aware that Canada in the past had the Auto Pact. Is there any discussion going on regarding the repercussions of the United States in their position on auto, given that we did have a favoured trading status at one point? NAFTA killed that, because it was challenged under WTO. Given the change being suggested by the President, what is Canada's position with regard to restrengthening auto if the current footprint that President Trump is arguing for is successful or the negotiations don't take place? What is Canada's backup for that?

[Steve Verheul]

Well, certainly at the negotiating table we have been spending a fair amount of time on reacting to the U.S. proposals, which, as I've mentioned, would cause significant negative effects. We're looking for impacts that would provide benefits to all three parties, including, obviously, our strongest interest, which is with respect to Canada. If we can pursue outcomes that can improve that situation, I think we can improve the situation in Canada, so we're working in that direction.

We think that if the U.S. withdraws from NAFTA, then obviously we will need to have significant bilateral discussions on the auto sector in any kind of scenario, but our main concern at the moment is that the U.S. is seeking to draw more production of both autos and auto parts back to the U.S. Our focus is on preventing that kind of proposal from getting through.

[Brian Masse, NDP, Windsor West, ON]

Has there been at least any acknowledgement? This has been an amazing age of industrial development in the automotive industry, not only in terms of the materials but in the ways they're produced and, on top of that, technology, yet Canada has been left in the shadows. The vast majority of new plants—in fact, almost all the new plants in North America—have gone to Mexico or to U.S. states that have intervened with massive subsidization to gain a foothold in that industry.

Has there been at least an acknowledgement that the trading practices and basically the deal itself under NAFTA have diminished Canada's signature auto industry? We actually were second in the world in automotive assembly at one point, and now we're eighth and sometimes ninth, depending upon the month of production.

Is there at least any type of recognition that obviously we've paid a high price? Every relationship in terms of trade is give and take in a series of things, but I would argue that one of the highest prices we paid was in the value-added automotive industry, for all those different reasons I've mentioned.