International Trade Committee on Feb. 6th, 2018

[The Chair, Liberal, Mark Eyking]

Good morning, everyone, on this wintry Ottawa morning. Welcome.

Today we're continuing our study dealing with the Canada and Pacific Alliance future agreement. Of course, as everybody knows, there are four countries involved with this: potentially Canada, Mexico, Colombia, Peru, and Chile. That's five.

On that note, this is our second meeting and this is our second panel of witnesses. I welcome you to our committee. For anybody who's not familiar with how we do this, we'd like you to do your briefing in five minutes or less, which would be appreciated. Then we could have lots of time for dialogue.

We have three panellists this morning for our first round, and we'll have three on the second round. Through video, we have Mr. Mark Wessel, vice-president of international business development.

Good morning, sir. If you don't mind, do you want to start us off this morning?

[Mark Wessel, Vice-President, International Business Development, Cypher Environmental Ltd.]

It will be my pleasure.

Mr. Chair and the committee, during the past 35 years, I've taken several companies into the global market, setting up strategic distribution, sales, and investment programs for companies moving into the region. I've had the chance to work with governments in different Latin American countries including heads of state, ministers, and institutions in both public and private sectors.

I'd like to present a few points that I believe have importance in the structure of the Pacific Alliance and in accordance with the proposed objectives. An understanding of the culture and the modus operandi of doing business in the region are paramount in ensuring the development of a successful strategic medium- and long-term trade program with its alliance partners.

A knowledge of current foreign and domestic debt in alliance countries' financial and fiscal policies, investment incentives, and even corruption issues such the recent Odebrecht scandal, which had a paralyzing effect on major development projects in the region, is of paramount importance to both Canadian investors and exporters.

Identification of alliance countries' political history, legislation, and current objectives, and disposition to pass protectionist laws all must be considered when deciding on strategies for expansion into these regions for the export of products and services and investment. The potential benefits are clear.

With a population of 220 million, the Pacific Alliance market represents a major economic opportunity for Canada. Canadian companies that receive payment principally in U.S. currency can capitalize on Forex transactions that generate additional profit. Close market proximity is also an important factor. When entering Pacific Alliance countries, many Canadian export companies may still face lengthy and expensive challenges such as product registration and acceptance processes. This can prevent small and medium-sized Canadian companies from capitalizing exports when trying to penetrate Alliance countries.

Elimination of additional import duties and tariffs is another significant step that will allow Canadian goods and services to be more competitive, as well as the use of free zones in Pacific Alliance countries for manufacturing. A major obstacle to competitiveness in this market is freight costs for goods and services.

For Canadian companies investing in alliance countries, preferential treatment such as tax holidays and the elimination of import duties for capex and opex expenditures is of the utmost importance in allowing them to be competitive and profitable. Canada is a dominant player in the clean tech industry, which is often very cost-competitive, and where the provision of products and services can include global and environmental conditions.

PDF, EDC, and other organizations have been hosting inbound and outbound tech trade missions with very significant results. The Paris agreement is forcing Pacific Alliance countries to make their legislation more environmentally friendly. Cypher Environmental is a clear example. Our company offers cost-competitive and environmentally friendly road construction and waste-water treatment technologies in the alliance market.

Alliance governments' assets are being substantially tied up in collateralizing their long-term loans with the IMF, World Bank, EIB, and others. The long-term political and economic risk needs to be fully understood when structuring the Pacific Alliance agreement. The agreement should also focus on how the alliance will help partners and countries to be more significant international trade partners.

Owners globally have been undertaking major roles in investment and development in the alliance countries during the past few decades—principally investments in mining and oil and gas assets, major infrastructure construction projects, the acquisition and construction of major ports and airports, and the financing of the expanded Panama Canal. All are indicators of potential long-term threats to the stability of the alliance agreement.

Continued major investments by private corporations or government-led finance investments by other major foreign stakeholders in the alliance region will in the long-term create significant trade pressure points for renegotiation, which in fact should be considered and dealt with today.

Expressions of geopolitical unity such as the proposed expansion of alliance members to countries such as Costa Rica, Panama, and perhaps Ecuador are vital in creating a unified and solid economic trade bloc. Consider the failed attempt by the Grupo de ALBA countries of South America. Alliance countries should also be given a preferred status in bidding on major infrastructure projects. The securing of long-term food supply chains for Canada from alliance countries should also be a priority as land worldwide becomes less fertile and water shortages become common.

One of our country's greatest contributions to the development of foreign trade and investment has been the excellent work performed by our trade commissioner services, EDC, and CCC, which have been instrumental in assisting companies to successfully identify and capitalize on potential opportunities in the Pacific Alliance countries.

Finally, I look forward to any questions you might have.

[The Chair, Liberal, Mark Eyking]

Thank you, sir.

We're going to move on now to Mr. Kingston. He's vice-president of policy, international and fiscal issues at the Business Council of Canada.

Good morning, sir. Welcome. You have the floor.

[Brian Kingston, Vice-President, Policy, International and Fiscal Issues, Business Council of Canada]

Good morning. Thank you.

Mr. Chair, committee members, thank you for the invitation to take part in your study on a potential free trade agreement between Canada and the Pacific Alliance.

The Business Council of Canada represents the chief executives and entrepreneurs of 150 leading Canadian companies in all sectors and regions of the country. Our member companies employ 1.7 million Canadians and are responsible for most of Canada's exports, corporate philanthropy, and private sector investments in R and D.

The Business Council supports Canada in negotiating a free trade agreement with the Pacific Alliance. With over 221 million consumers, the Pacific Alliance's combined GDP makes it the world's sixth largest economy. What's more, PA members are experiencing strong growth and exhibit favourable demographic trends. The Pacific Alliance is already an important market for many Canadian companies. Bilateral goods and services trade between Canada and PA members is valued at $54 billion. If treated as a single country, the Pacific Alliance would be Canada's third-largest trade partner, ahead of Japan and the U.K. Investment flows are also impressive, with two-way investment valued at $52 billion. Several Pacific Alliance countries rank among top destinations for Canadian foreign direct investment.

There are really three reasons why we think it's important for Canada to be negotiating with this bloc.

The first is diversification. Canada must be doing everything possible right now to find new customers for our exports and new economic opportunities for our citizens. The best way to do this, we believe, is to position Canada as one of the world's most open and global markets. I think this is increasingly important right now, when we're witnessing protectionism on the rise and inward-looking policies around the world.

The Pacific Alliance is an important component of Canada's overall diversification efforts. As the bloc grows, Canada could gain new market access in member countries. When you combine the Pacific Alliance with the recently concluded CPTPP, CETA and potential trade agreements with China and perhaps India, Canada will be in an enviable position, with market access to some of the world's largest and most dynamic markets.

The second reason is consolidation. Canada has a unique opportunity to both consolidate its existing trade agreements with Pacific Alliance members and set a high standard for subsequent bilateral agreements with the bloc. We believe that an ambitious and comprehensive outcome could enhance Canadian competitiveness in the region for years to come.

While Canada, of course, has separate trade agreements with all four Pacific Alliance members, each agreement varies in age and ambition. Harmonizing these agreements could facilitate a greater cross-border presence for Canadian companies already in the region. For example, agreeing to a common set of simplified rules of origin would allow for cumulation across Pacific Alliance members. This would facilitate the development of Canada-Pacific Alliance supply chains.

The third point is modernization. As global trade and commerce rapidly evolve, there is a constant need to upgrade and modernize trade agreements to reflect the way business is conducted. Negotiating a trade agreement with the Pacific Alliance that improves the digital innovation environment and enhances labour mobility could be particularly beneficial. Financial technology firms are innovating at a rapid pace, often posing challenges to regulators. An agreement that facilitates co-operation among the parties' various regulators could allow for faster commercialization of new technologies across a large customer base.

At the same time, modernizing and harmonizing labour mobility provisions could broaden the regional talent pool and facilitate the movement of business travellers between markets. Other areas for improvement include transparency, e-commerce, and regulatory co-operation.

Before I conclude, I have just one final point. With the Pacific Alliance, really the potential is unknown. That's why we think it's important that Canada is involved at an early stage. As you'll recall with the TPP, Canada was invited to join when it was a very small agreement amongst four countries. No one saw its potential at the time. I can tell you that even the Business Council looked at it, but we didn't understand what it was about to become. Canada was invited to join, declined the invitation, and then of course the U.S. got involved and suddenly it became this major initiative. We ultimately paid a price getting in at a late stage. I think it's important for Canada to join agreements like this at an early stage, when there's interest in having us take part, because it allows us to shape them and build them as they grow into larger trading blocs.

With that, I conclude my remarks. Thank you for the opportunity to address the committee.

[The Chair, Liberal, Mark Eyking]

Thank you, sir.

Now we're going to our third set of panellists. We have Oxfam Canada here, with Kate Higgins and Francesca Rhodes.

Welcome. You have the floor for five minutes.

[Francesca Rhodes, Women's Rights Policy and Advocacy Specialist, Oxfam Canada]

Thank you for inviting Oxfam Canada to present to the committee today.

Oxfam works in 90 countries to support long-term development and provide life-saving humanitarian assistance. We are also an advocacy and campaigning organization committed to addressing the root causes of poverty and inequality. We put women's rights and gender justice at the heart of everything we do.

The potential free trade agreement between Canada and the Pacific Alliance is an opportunity to further develop Canada's gender equality approach within its progressive trade agenda. It is important to take a feminist approach to ensure trade policy works in tandem with the goals of the feminist international assistance policy. Although free trade is recognized as a tool for economic growth and poverty reduction, there is also growing recognition that the current model of free trade has not benefited everyone equally.

Women, who make up the majority of low-paid and insecure workers, are particularly affected and face particular characteristics and constraints. If we want to maximize the gains from trade for both women and men, and also the contribution that women make to a country's economic and trade outcomes, then we must take into account the sectors where women work, the types of businesses they operate, the goods and services they produce and consume, and the barriers they face.

The majority of women are workers, and women are concentrated in the lowest-paid roles with the least job security. For this reason, it is important that the focus of gender equality in trade not be solely on issues related to women entrepreneurs and business owners, although this is an important issue as well.

We have three specific proposals.

First, a gender chapter with strong provisions should be included in any free trade agreement. Including a gender chapter would be a concrete symbol of the importance of gender equality in the trading relationship and a recognition of the gendered impact of trade.

The Canada-Chile Free Trade Agreement contains a gender chapter, and one is proposed for NAFTA. We propose that these talks are an opportunity to strengthen the language already agreed to with Chile and to agree to a gender chapter that is specific in what it will achieve. This would require moving the chapter beyond a voluntary approach to incorporate reporting and accountability.

At a minimum, the gender chapter should require that a poverty and social impact analysis or a gender trade impact assessment be carried out. Evidence gathered, including through the collection of sex-disaggregated data, would improve the knowledge, analysis, and choices of negotiators, policy advisers, and partners with respect to the impacts and benefits of the trade deal on gender equality. This information can also be used to track and report on progress.

The gender chapter in the free trade agreement with Chile commits parties to set up a joint committee to address gender equality in the trading agreement. If such a chapter were to be included in an agreement with the Pacific Alliance, it should ensure that any committee set up has the ability to make recommendations to the wider trading relationship—for example, based on the gender analysis they have carried out. There should also be a commitment to ensure diversity in the membership of such a committee, including organizations that represent workers' rights and marginalized women.

Our second proposal is that gender equality should be addressed throughout the agreement and that negotiators need to look at both gender and economic inequality together.

Our current economic model is failing to ensure that economic growth benefits the majority of workers fairly. Oxfam has calculated that in the last year 82% of wealth created globally went to the top 1%, and the poorest half of the world received none. If free trade agreements are to be called “progressive”, they must be aimed at reversing this trend and focused on the rights and experiences of workers in the lowest-paid and most insecure form of work—often women workers at the bottom of supply chains.

In Mexico women make up the majority of maquila workers, who receive low pay and face barriers to organizing collectively. Researchers for The Nation spoke to Ali Lopez, a maquila worker who said:

The only way a single mother can survive here is with help from family and friends.... When I leave in the morning, I leave food for [my eldest child] to warm up for lunch. Childcare would cost 200 pesos a week or more, so I can't afford it.

This trade agreement should include strong and binding provisions in any labour chapter that considers the particular needs of women workers such as Ali: for example, ensuring pay equity, addressing sexual harassment in the workplace, and taking into consideration women's higher responsibility for unpaid care work.

Finally, civil society needs more information about the negotiations in order to be able to analyze and contribute to debates and recommendations for the agreement and its implementation.

Women's rights organizations and labour movements that represent women workers from the countries involved should be supported, including through funding to be able to engage, and to continue to analyze the impact of the potential free trade agreements.

Thank you.

[The Chair, Liberal, Mark Eyking]

Thank you.

We're going to open the dialogue with the MPs now, and we're going to start off with the Conservatives, for five minutes.

Mr. Allison.

[Dean Allison, Conservative, Niagara West, ON]

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

Mr. Kingston, I'll start with you. We do have agreements with all four of these countries now, and I know we have an environmental working group with Canada and Mexico. We have environmental agreements with Columbia, Peru, and Chile. We have labour agreements and sidebars. These were all negotiated by our government.

Do you see all these things already working together, and making it easier for us to come to some kind of agreement with these countries based on the fact that we have a pretty strong relationship to begin with?

[Brian Kingston]

Absolutely, because we have existing agreements. Some of them are a bit on the older side, but they're not extremely old. The deal with Chile has recently been modernized. There's a good baseline in terms of what we've already negotiated, and now, really, this is about improving it, and bringing it up to speed with our most recent type of trade agreement.

CETA and TPP are the gold standards now for Canadian trade agreements. We have a great base there, and this is really just a matter of kneading them together. Ultimately, I'm hoping that this simplifies the trading rules, so that a company doesn't have to consult four separate agreements when it wants to do business in the Pacific Alliance. There will be one common text with the rules for doing business in those markets.

[Dean Allison, Conservative, Niagara West, ON]

I have another question for you and for Mr. Wessel. Could you talk to us about what's happening in the U.S. in terms of tax reform? Obviously, trade agreements are important. We need to continue to look for places for our goods and services. Could you give us your thoughts in terms of competitiveness in Canada now, which makes it more difficult, particularly with tax rates?

In Ontario, we have some of the highest hydro rates in North America. I would love to hear your comments in terms of competitiveness. Trade agreements are important, but could you talk to us about what's happening down there, and our competitiveness in North America vis-à-vis tax reform?

[Brian Kingston]

Of course, trade is important, and trade agreements are important, but the fact of the matter is that due to the WTO, average tariff rates around the world have fallen now to very, very low levels. Trade agreements are really working on the margins now, and in some areas you see some residual protectionism.

What's extremely important, particularly to globalized companies, is the competitiveness of the market that they're going to invest in. We've been hearing consistently, since both the government's private corporations tax proposals and now U.S. reform, that the Canadian environment for new investment is not nearly as attractive as it was a year ago.

We're extremely concerned that you're going to start seeing more and more investment going to the U.S., particularly when you combine tax reform with NAFTA uncertainty. If you're thinking about putting a new plant, for example, in southwestern Ontario, and you intend to export the majority of your production to the U.S., you're going to think twice about making that investment right now when potentially there could be a tariff fall, and you know the U.S. tax environment is far more competitive. It's not just on the corporate side; it's also on the personal side, where of course, the U.S. is a much more attractive place now.

That is a huge concern for us. It's something we're spending a lot of time on, and I don't think you could separate it from the trade file. It all has to be viewed together.

[Dean Allison, Conservative, Niagara West, ON]

Mr. Wessel, do you have any comments?

[Mark Wessel]

Vis-à-vis the United States, from my experience with business development in Latin America, the perception of Canada, and Canadian companies as a whole, is by far stronger and more readily accepted than American companies going into the market.

One of the things that I would add, having lived in South America for many years of my life, is to have Canadian companies located in free zones, and to contribute with local added labour and purchase local resources. Those have been great factors in helping Canada overcome some of the obstacles vis-à-vis trade with U.S. partners.

[The Chair, Liberal, Mark Eyking]

Thank you, Mr. Allison.

Mr. Dhaliwal, for five minutes.

[Sukh Dhaliwal, Liberal, Surrey—Newton, BC]

Thank you, Mr. Chair, and welcome guests.

Ms. Rhodes, you spoke about gender equality and that perspective. There are also issues with child labour and child exploitation in these countries. Do you pay attention to those issues? Are they progressing, or is there a lot more work to do?

[Francesca Rhodes]

Oxfam focuses on women's rights and gender equality, but one of our proposals is to really strengthen the provisions in a later chapter of any trade agreements to make sure that the provisions within labour chapters are much more specific, and that any kind of labour rights abuses would be subject to binding mechanisms, and there would be much stronger recourse for instances such as child labour or any kinds of labour rights abuses. Child labour would also be covered, for example, by the ILO core conventions, which would be important to reference in any kind of progressive language in a labour chapter.

[Sukh Dhaliwal, Liberal, Surrey—Newton, BC]

Mr. Wessel, how could we promote environmental sustainability through this alliance? We signed with Colombia, and we had a side agreement on environment. Do you think that's enough, or do you have further recommendations that moving forward we should have more stringent requirements?

[Mark Wessel]

Canada as a country has a lot more awareness of environmental impact in the medium and long term. When you look at all of the four Latin American countries, we see their priorities lie in other areas. You'll find that most of the governments.... The Latino will basically move when he has to. Right now the government is making inroads to change legislation, but they're far from being enforced or anything in some of these countries.

Of all of these countries—Colombia, Chile, Peru, Mexico—Mexico possibly has more of a similar stance to North America. The rest of the South American countries, their economic priorities, if they have any development priorities, don't lie so much in the economic sector. They have to be brought up to speed. The hard thing is when you want to compare Canada and our standards with the Latino standards, as I was saying before, it's really important to understand their culture.

The other point driving the environmental aspect, which was one of my points, is Latin America has been invaded by many countries—China, Japan. Major foreign investments are taking place, and other major trade partners of these countries are also basically acquiring the assets. It's a game of Monopoly to pick up oil and gas reserves, to pick up mining assets and so forth.

In the trade agreement with these countries, I think it's really important that the treaty outlines and enforces...not only for Pacific Alliance partners, but that those countries protect their interests from their other major trade investor partners.

[Sukh Dhaliwal, Liberal, Surrey—Newton, BC]

How can we intervene in those agreements? We can only deal with the agreement that we sign. I have difficulty understanding that. Could you elaborate how this is possible?

[Mark Wessel]

I'm not so familiar with the specific terms of each of the agreements. What I see, after living in Latin America for 40 years, is this. What is going to be the medium-term impact when you have, let's say, China, which is basically making substantial investments...? What is the basis for negotiating a trade agreement that could be valued, as Mr. Kingston was saying, in the $40 billion...when you have a country like China that's coming in and bringing $50 billion to $150 billion in foreign aid and trade that we're doing. The alliance will have smaller strength than dealing with larger major trade partners.

When you look at the environmental aspects, you see that each of the alliance countries has to form a united front and basically use that same position when the alliance countries are negotiating with other trade partners to basically impose the environmental legislation restrictions and so forth.

[Sukh Dhaliwal, Liberal, Surrey—Newton, BC]

Thank you.

[The Chair, Liberal, Mark Eyking]

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

[Tracey Ramsey, NDP, Essex, ON]

Thank you to all of our presenters.

Ms. Higgins and Ms. Rhodes, on the NAFTA consultation, Oxfam suggested that gender equality should be supported across the whole trade agreement. I heard you reference that today...not just being relegated to one specific chapter.

In what way should Canada be incorporating gender equality across the entirety of the Pacific Alliance FTA?

[Kate Higgins, Director, Policy and Campaigns, Oxfam Canada]

As my colleague, Francesca mentioned, we do advocate that there be a strong gender chapter in this agreement, but also that gender be integrated throughout the agreement.

That means that in the labour chapter we're calling for strong and binding language that would, for example, prohibit discrimination on the basis of gender, promote measures that reduce the gender pay gap, promote the increased provision of child care and parental leave, recognize the gendered nature of workplace harassment, and assure the right to job-protected parental leave.

On top of that, we're calling for the removal of provisions that restrict Canada's or trading partners' ability to regulate and legislate in the public interest, including for gender equality. That's what we're calling for in terms of integrating strong and binding language into the labour chapter.

Beyond that, as Francesca mentioned, we're calling for a strong gender chapter, informed by strong poverty and social impact analysis, so that we can ensure that we understand the differential impact of free trade agreements on men and women, and act accordingly.

[Tracey Ramsey, NDP, Essex, ON]

You mentioned the committee that exists in the updated Chilean agreement. Really, the lack of voices...I think I heard clearly on this committee.... I will say that my experience around trade has been that it really is targeted at women entrepreneurs and executives versus working-class women and women who really are not even in the workforce because they aren't able to achieve work.

I wonder if you could tell me, if you sit on the committee for the Chilean agreement, what other organizations and groups you think would strengthen that committee and be able to bring forward good public policy.