International Trade Committee on Dec. 11th, 2017

[The Chair, Liberal, Mark Eyking]

I call the meeting to order.

Good afternoon, everyone. It's good to see everybody again.

As you know, I missed you all last week. I heard the vice-chair, Mr. Allison, did an excellent job. Thank you.

Without further ado, today's meeting is following up on the motion from Ms. Ramsey that we get an update on three trade agreements: the Canada-Pacific Alliance agreement, Mercosur, and the TISA, the trade in services agreement.

We have with us today Ana Renart and Darren Smith. Welcome, folks, and thank you for coming in.

We usually give five minutes or so to present a short submission, and then we'll open up a dialogue with MPs.

Ms. Renart, the floor is yours.

[Ana Renart, Director General, Market Access, Department of Foreign Affairs, Trade and Development]

Good afternoon, Mr. Chair. I am pleased to be here today to provide the members of the committee with an update on three trade initiatives: the Pacific Alliance, Mercosur, and the trade in services agreement.

I'm joined by my colleague, Darren Smith, Canada's chief negotiator for the TISA. I'm Ana Renart. I'm the director general for market access at Global Affairs Canada.

Following my remarks, I would be happy to provide further details and answer any questions you may have.

I will start with the Pacific Alliance, a regional initiative created in 2011 by Chile, Colombia, Mexico and Peru that seeks the free movement of goods, services, capital and people. With a combined GDP of $2.3 billion and a total population of more than 220 million, the Pacific Alliance represents a considerable market for Canada.

Canada welcomed the invitation in June 2017 to become an associated state in the Pacific Alliance, a process that involves the negotiation of a comprehensive free trade agreement with the Pacific Alliance as a bloc. Canada, Australia, New Zealand and Singapore are the first to be invited by the Pacific Alliance to become associated states.

Canada already enjoys the benefits of FTAs with all four Pacific Alliance countries. A free trade agreement with the Pacific Alliance as a bloc offers the prospect for some improved market access, as well as streamlining our existing agreements, improving disciplines in areas such as services and investment, as well as potentially including new progressive trade elements, such as chapters on trade and gender and small and medium-sized enterprises.

This is also a strategic opportunity for Canada to advance our progressive trade agenda with important and like-minded emerging markets in South America. The first round of negotiations took place in Cali, Colombia the week of October 23, 2017, and a second round is planned for the end of January 2018, hosted by Australia.

Staying in South America, Mercosur is a trading bloc and customs union consisting of Argentina, Brazil, Paraguay, and Uruguay.

Initial exploratory discussions were originally launched with Mercosur in 2011. Several meetings were held, but a decision was ultimately made not to proceed at that time as the climate in some of the Mercosur countries was not conducive to further opening trade. Recent political changes in the region, however, particularly in Brazil and Argentina, have spurred increased interest in trade for Mercosur with Canada.

Since early 2017, Canadian officials and their counterparts from the various Mercosur countries have sought to reassess the potential for an FTA. On October 9, 2017, international trade minister François-Philippe Champagne and Mercosur's pro tempore president, Brazil's foreign affairs minister Aloysio Nunes, issued a joint statement on the margins of the WTO mini-ministerial conference in Marrakesh in which they committed to advancing the exploratory discussions.

If launched, FTA negotiations could enhance market access for Canadian exporters in a number of industrial sectors, including pharmaceuticals, aluminum, machinery and equipment, information and telecommunications technology, and automobiles. On average, from 2014 to 2016 Canada exported $2.6 billion in merchandise to Mercosur annually.

FTA negotiations with Mercosur would also allow Canada to further advance its progressive trade agenda in the region.

Finally, the trade in services agreement, or TISA, is a services-trade-only agreement currently being negotiated by 23 members of the World Trade Organization, including Canada.

TISA parties represent an enormous services market of almost two-thirds of the world's economy, with more than 1.6 billion people and a combined GDP of nearly $50 trillion in 2015. TISA shows a great diversity of participants, with countries such as Australia, Chile, Chinese Taipei, the EU, Hong Kong, China, Israel, Japan, Mauritius, Pakistan, and the U.S.

Canada is one of the world's largest services exporters, and services make a significant contribution to our economic prosperity. This is why an agreement like TISA is of great importance to Canada.

Canada's priorities in the TISA are to create new opportunities for Canadian services suppliers, particularly in emerging markets, and to improve overall transparency and predictability in international regulations related to trade and services. While good progress has been made, the TISA is currently on hold as members await a decision from the current U.S. administration regarding its position on engaging or not in this negotiation.

Mr. Chair, that was a quick overview of the Pacific Alliance, Mercosur and the trade in services agreement.

Should you have any questions, my colleague and I will be happy to answer them.

Thank you.

[The Chair, Liberal, Mark Eyking]

Thank you very much for cramming so much into five minutes. I'm sure there's a lot more, and we're going to have a dialogue with the MPs to find out more information.

Our first round of questioning will begin with the Conservatives.

Go ahead, Mr. Allison.

[Dean Allison, Conservative, Niagara West, ON]

Thank you very much, Mr. Chair, and thank you to our guests for being here today.

You mentioned a few of the things we'd like to incorporate with the Pacific Alliance, such as our progressive agenda. One of the things that I hear when I talk to a number of auto companies is the issue of currency manipulation. We've heard the U.S. talk about this quite a bit, and some of our guests, when we were talking about NAFTA, raised it as a concern.

Would that be something we would be concerned about if we were looking at trying to enter into this agreement, in terms of updating? Do you see a chapter there? Do you see something there to deal with the issue as it relates to the Asian countries and currency manipulation?

[Ana Renart]

I'll go back to the countries that it covers. It covers Colombia, Mexico, Peru, and Chile. We're talking with some of the other associated countries, but we're not actually negotiating with them. I suppose we're participating in a negotiation with other associated state countries, but we're not negotiating, so the ultimate agreement will be with those four aforementioned countries.

When it comes to trade with those countries, I haven't heard at all in our consultations that currency manipulation is an issue. It's not something substantive that we've been anticipating in the negotiations. If you've heard anything, I'd be very pleased to hear about more details.

[Dean Allison, Conservative, Niagara West, ON]

I haven't heard anything with those four countries. That hasn't been the issue. I thought if the other countries were looking to join as well, it would create an opportunity. I guess you're saying we'll handle the four countries the way it is and we'll move from there.

Let's talk about Mercosur a bit. It's my understanding that Brazil has been a fairly closed economy and one that's great with non-tariff barriers and some of these things.

Talk to me. My thinking is that this would be a bit of a challenge. It's certainly a great market opportunity in terms of population, people, a growing middle class, but talk to me about the likelihood or the challenges, if you will, of trying to deal with some of the countries in Mercosur and giving them similar non-tariff barriers, etc.

[Ana Renart]

Absolutely. Mercosur is an opportunity for a number of reasons. We talked about its GDP, the size of the population alone. We already do a significant amount of trade.

Beyond that, they are closed countries to the rest of the world. There are no G7 countries that have any FTAs with them yet, for example. Mercosur has been talking as a bloc to the European Union. We've been hearing for a while now in the press every couple of days that they're almost there. They are pretty close, according to the articles and reports coming out on that.

They have also been talking with a number of other countries about potentially launching trade. The atmosphere has changed quite a bit in recent years in those countries, in particular in Brazil and Argentina, where the recent governments have been more open to trade and diversification.

Mercosur has a number of FTAs and other preferential trade agreements within the Latin America region, but not much outside. I think that's one reason that negotiating with them, or the possibility of negotiating with them, is so enticing as well. It's the early mover advantage, and it is establishing rules that would address any existing barriers.

On tariff barriers alone, right now they have some of the highest applied MFN tariffs, and just bringing some of those down would be a huge advantage to Canada.

[Dean Allison, Conservative, Niagara West, ON]

I only have about 30 seconds left, so I have a quick question on TISA.

I'm assuming when we start talking about a goods and services agreement, we would be looking at our financial institutions and insurance companies. Where would the winners be for Canada?

[Darren Smith, Director, Services Trade, Department of Foreign Affairs, Trade and Development]

In terms of TISA, certainly the financial services sector is one of the areas where Canada is looking to see some gains made, but more broadly speaking, it's professional services. You're looking at things like engineering and architectural services, for example, and other areas of focus for Canada.

Another area that I think has a lot of opportunity for us is environmental services. In fact, that's an area where we have advanced a proposal to see if we can find some gains through the TISA umbrella.

There are some individual sectors that could see some advantage through TISA, but broadly speaking we're also looking at it as an initiative that can help strengthen multilateral roles and increase transparency, and that will benefit all Canadian services sectors at the end.

[Dean Allison, Conservative, Niagara West, ON]

Thank you.

[The Chair, Liberal, Mark Eyking]

Thank you, Mr. Allison. Those were good questions.

We're going to move over to the Liberals now. Mr. Fonseca, you have five minutes. Go ahead, sir.

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

Thank you, Ms. Renart and Mr. Smith, for your presentations and for being here.

In the city of Mississauga and my riding of Mississauga East—Cooksville, they have been investing a great deal of time through the economic development and trade department in Brazil. I know trade missions have gone there for I think the last five years, and finally they have borne a great deal of fruit.

A large operation, one of the biggest pharmaceutical companies in Brazil, Biolab, is investing $57.4 million in Mississauga. They are opening up a plant. These are high-skilled, high-paying jobs that are coming to Mississauga. It does take time to work that market.

I would like to know what other opportunities there are in terms of manufacturing. This one is in pharmaceutical, again, and it's high-paying. Mississauga is an area where we do have a cluster when it comes to the life sciences, but I would like to know about other areas in the country and where you see opportunities for Canada with the Mercosur, and in particular Brazil.

[Ana Renart]

Thanks for that question. Yes, there's a lot of potential not only in investment, but we talk about goods trade and services as well.

When it comes to goods, as I mentioned briefly in response to Mr. Allison's question about very high applied tariffs, we've been consulting with stakeholders, and some of the responses we've received relate to high tariffs.

Just by way of comparison, because I think numbers always help tell the story, some of the applied tariffs in those four countries average between 9.8% and 13.7%. If you compare that to Canada, which has a 4% tariff, you see there's a big difference in the applied tariffs, so when you're looking at just the goods trade, there are huge opportunities. Some areas of particular export interest for Canada where the tariff rates are high—from 10% to 35%, for example—include fish and seafood, which a number of stakeholders talked about, as well as chemicals, plastics, autos, and auto parts. They have very high tariffs in those countries.

There is also machinery and equipment, and forest products. Those are some of the sectors in particular where we would see some gains to be made.

It's beyond goods, as well. Some of the areas in services, for example, where we've heard stakeholders say they have a particular interest include distribution, logistics, transportation, and infrastructure. These are just some that have come back.

The other thing they have to look at is that Mercosur has no FTA. In all of its FTAs to date, they're for goods only. They haven't actually done any services-related commitments in their FTAs outside of the WTO GATS, so it's fresh. There's a lot there to get in on, and it's a huge market. We have strengths in Canada in a lot of service areas, so that would be another place.

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

Can you speak to the Mercosur countries and the importance that they've put on gender, on labour, as well as environmental concerns? As you know, these are important to Canada. We're looking for progressive trade deals. With your knowledge and your experience, can you speak to the importance that these countries have put on these areas?

[Ana Renart]

Of course. If you look at the first trade and gender chapter that was ever negotiated, it was negotiated between Uruguay, one of the four Mercosur countries, and Chile, which is a Pacific Alliance country. You have the beginning of the trade and gender chapter in an FTA starting there. They are very much open to it.

We've been talking with Mercosur. As I mentioned, we started exploratory discussions in 2011 to 2012, and for the last year or so we've been talking to them. One of the things that we've been exploring with them is their appetite or interest in some of these progressive trade areas, and they have indeed confirmed that they would be interested and also have ambitions in some of these areas. These are with respect to SMEs, small and medium-sized enterprises, and actually we're now talking about micro-small and medium-sized enterprises. That includes trade and gender provisions on electronic commerce, which are also very helpful for some of these other groups, as well as labour and environment.

[The Chair, Liberal, Mark Eyking]

You only have 10 seconds left, so we're going to have to move on, sir. I know you have lots more questions, but we're going to have to move on.

We have the NDP up for five minutes.

Go ahead, Ms. Ramsey.

[Tracey Ramsey, NDP, Essex, ON]

Thank you so much to both of you for being here today. It's very difficult to try to frame questions with such large agreements, but I'll start with TISA.

TISA's had 20 full rounds, and we're really talking about things like data privacy, digital trade, financial sector regulation, education, and health care. Everything is encompassed.

One of the features of TISA is that all future services will be automatically covered. Has that been determined?

[Darren Smith]

You're correct. One of the debates that we're having in the context of TISA is how new services will be treated. In this discussion, there's no resolution at this point in time. There's still debate amongst the members.

It falls down to basically whether one has an understanding that our current way of classifying services is universal enough to capture any service and that there's no such thing as a new service being invented because it's captured under the universal classification codes that we have at our disposal, versus those who think that perhaps there is a different perspective on that matter. All I can say at this point in time is it's an issue under discussion.

[Tracey Ramsey, NDP, Essex, ON]

Also, in TISA we have negative listing, which is the assumption that everything is covered unless it's explicitly mentioned. Governments have to specifically list sectors or measures that they do not want TISA to apply to. Can you give us some examples of the sectors or measures that are on Canada's list?

[Darren Smith]

Well, it's a little more complicated than that, actually. We have in TISA what's called a hybrid model. Basically issues such as national treatment or obligations related to national treatment and some senior management and board directors are local presence obligations. That will be done on a negative list basis, so you're right. Basically, everything is open unless you specifically put it down as a non-conforming measure.

With respect to market access, that is being done on a positive list basis, so you only make your commitments on the basis of market access.

In terms of what Canada is doing in this regard, I can assure you that basically Canada is following our past FTA practice. We're ensuring that we are not making any commitments related to our social programs or our public education or health or culture. Those types of elements are not part of our interests in terms of TISA. Those would be examples of where we're not going to be taking any commitments.

[Tracey Ramsey, NDP, Essex, ON]

Just to clarify, TISA goes down to the subnational and regional levels. Is that correct?

[Darren Smith]

That's correct, so we work with the provinces and territories with respect to commitments that we make in this regard. Part of our process in tabling any type of offer is to do it in close conjunction with the provinces and territories.

[Tracey Ramsey, NDP, Essex, ON]

To go back to that previous point, in this market access column, then, is there anything that we have explicitly exempted to ensure that our public policies and regulations going forward will not be impacted? You mentioned education and health. Is that a wide umbrella? Is it everything under health and everything under education, or are there specific things that we've carved out there?

[Darren Smith]

No, it's everything under health, everything under public education, everything under social programs. These are the types of reservations that you will find typically in our bilateral FTAs, and it's also consistent with our approach in the WTO GATS to begin with.

[Tracey Ramsey, NDP, Essex, ON]

What do you think is a realistic timeline for completion of TISA? We've been through these 20 rounds and we've been at it since 2013.