International Trade Committee on Feb. 8th, 2018

[The Chair, Liberal, Mark Eyking]

Good morning, everybody. Today, we're going to continue on with our study on the potential for an agreement between Canada and Pacific Alliance countries. Those countries are Chile, Peru, Colombia, and Mexico.

This is, I think, our third meeting. It's great to see we have witnesses here, and we also have somebody on video conference, Connors Bros. I'd also like to welcome Mr. Tilson.

Welcome to our committee. It's good to see you here.

[David Tilson, Conservative, Dufferin—Caledon, ON]

I had to get up early in the morning.

[The Chair, Liberal, Mark Eyking]

You'll find this a very exciting, feisty committee, and it will be better than a jolt of coffee for you.

I think we have quorum here and, without further ado, we have three sets of witnesses.

We have this morning from the Canola Council of Canada, Mr. Innes. We have, from Connors Bros. on video conference, Mr. Lomas. We also have Mr. Dade as an individual.

Welcome, everyone. If your opening statements could be under five minutes, it will be appreciated, and then we can have lots of dialogue with the MPs. We're going to try to wrap this up in 45 minutes, which gives us lots of time for questions and answers.

I like to always start off with the videos first in case we get a mix-up.

Mr. Lomas, if you're all right, we can get you to start right off the bat.

[David Lomas, Vice-President, Marketing and Business Development, Connors Bros. Clover Leaf Seafoods Company]

Thank you.

Good morning. My name is David Lomas, vice-president, marketing and business development, with the international division of Connors Bros. Clover Leaf Seafoods Company. I'm going to shorten the company reference to just Connors, going forward, in the interests of time.

Thank you, on behalf of Connors, to all members of the Standing Committee on International Trade for the opportunity to participate in the consultation process on the Pacific Alliance free trade agreement.

Connors is one of Canada's oldest food companies. We have operated a sardine and herring cannery in Blacks Harbour, New Brunswick, since the 1880s. We currently employ about 600 people at our Blacks Harbour facility and are one of the main employers in Charlotte County, New Brunswick.

The majority of our production from Blacks Harbour is exported. In addition, we operate an international sales and marketing office in Saint John, New Brunswick, which sells canned seafood through our own brands in more than 50 markets around the world.

Our Canadian head office is in Markham, Ontario. We are responsible for just under half of all canned seafood sales in Canada through our own brands, Clover Leaf and Brunswick. In addition, we have a sushi-quality frozen seafood service business through our Anova unit.

We are affiliated with Bumble Bee Seafoods in the United States, with its headquarters in San Diego, California; and we are owned by Lion Capital, a U.K.-headquartered private equity firm.

Our company activity, as both an exporter and an importer of seafood products, provides us with insights into both sides of international trade in seafood, particularly in shelf-stable canned seafood.

Connors understands the following regarding a potential FTA between Canada and the Pacific Alliance. The Pacific Alliance was created in 2011 and its members are Chile, Peru, Colombia, and Mexico. In 2017 the Pacific Alliance invited certain observer states, including Canada, to become associate members. While Canada has FTAs with all four members, associate membership would involve a new FTA with the alliance as a bloc.

Connors is not importing any products into Canada from Pacific Alliance members at this time, other than a relatively small amount of canned Atlantic salmon from Chile. We currently export a relatively small amount of canned sardine and herring products to Mexico from Canada under NAFTA. Each of the Pacific Alliance members has a diverse and well-developed seafood industry. Mexico, Chile, and Peru each have robust canned sardine and canned mackerel industries that actively compete against Connors in global markets, in addition to having solid and entrenched branded distribution in their local markets.

Connors has several concerns related to a potential Pacific Alliance FTA with respect to our Canadian operation. Current herring resource constraints in Canada mean that there are no market outlet advantages gained by an FTA with the Pacific Alliance for our company with canned sardines and herring production from our Blacks Harbour facility. We currently have to procure finished goods, mainly from Europe, to meet our overall corporate requirement for our branded sales in Canada and in other international markets.

Our labour cost differentials versus Pacific Alliance members put our continued production at risk in New Brunswick. Also, our labour standards and obligations are disproportionately higher than many competitive sources of supply by Pacific Alliance members, which further affects our competitiveness.

There is also the issue of differences in regulatory requirements versus Pacific Alliance members. Our Blacks Harbour operation is subject to compliance under a number of Canadian regulatory bodies, including CFIA and DFO. Having operations in the Pacific Alliance being subject to the same regulatory conditions and standards as those imposed on Canadian harvesting and manufacturing operations is critical to our continuing long-term competitiveness, and to ensuring a level playing field for our products both domestically and abroad.

We are unclear as to what implications an FTA with the Pacific Alliance bloc would have with respect to NAFTA.

In closing, the pre-existing FTAs between Canada and Pacific Alliance members, along with the concerns cited above mean, at least to Connors' current perspective, that there are no easily identifiable new and significant trade opportunities that would open up under an FTA with the bloc for exports of our shelf-stable and canned seafood products from Canada.

Thank you for this opportunity to appear as a witness.

[The Chair, Liberal, Mark Eyking]

Sir, your business has been around for a long time in Atlantic Canada. Did you say when you started or how many years you've been in business?

[David Lomas]

We have been since the 1880s.

[The Chair, Liberal, Mark Eyking]

I thought you said that. I thought it was 1980s.

[David Lomas]

We're about to celebrate our 125th year with a promotion in the Carribean area and Central America.

[The Chair, Liberal, Mark Eyking]

Good for you guys.

Thank you very much.

We're going to move over to the Canola Council of Canada.

Mr. Innes, you have the floor.

[Brian Innes, Vice-President, Public Affairs, Canola Council of Canada]

Thank you very much, Mr. Chair. We're very pleased to be here to represent the Canola Council of Canada.

I'm pleased to share with you how an agreement with the Pacific Alliance will help eliminate trade barriers facing our sector, will help support value-added processing here in Canada, and can help us grow our canola exports to these countries.

The Canola Council is a value chain organization representing the over 40,000 canola growers in Canada, the seed developers, the canola processors who turn canola seed into canola oil and meal for livestock consumption, as well as the exporters who send canola for processing at its destination.

Canada exports more than 90% of the canola we grow here as either seed, oil, or meal. Our industry supports eliminating trade barriers wherever they exist, including in Pacific Alliance countries. Trade agreements that eliminate tariffs and make trade more predictable are critical to helping grow the $27 billion that our industry contributes to the Canadian economy every year.

Today, I'd like to share how tariffs are hampering our exports to Pacific Alliance countries and how other trade barriers could be addressed through a trade agreement with these countries.

First of all, which tariffs currently challenge our exports to Pacific Alliance countries? As the committee understands, we currently have free trade agreements with some members of the Pacific Alliance. As a consequence, we don't have tariffs for our products going to Mexico, Chile, and Peru. Although we have a free trade agreement with Colombia, we still face punitive and unpredictable tariffs on our canola oil exports.

Despite this Canada-Colombia free trade agreement, we do not have competitive access for our canola oil to this country. This is because of tariffs applied through the Andean price band system. These tariffs make our products uncompetitive since oil from the United States does not face these tariffs going into Colombia.

Every two weeks the price band system sets tariffs that apply to canola. In recent months, this tariff has been as high as 40%. The tariff can change every two weeks. This means that not only does the tariff make our canola uncompetitive compared to American canola or soybeans or other oils but it also makes it difficult to have any predictability for our exporters. The tariff established today at the time of sale or when it leaves the port may not be the same when that shipment arrives in Colombia.

We also believe that these tariffs are inconsistent with Colombia's WTO obligations. For example, the price band systems of Chile and Peru have been successfully challenged under WTO provisions.

An agreement with the Pacific Alliance offers an opportunity to eliminate these tariffs, putting us on a level playing field and helping to make trade more predictable. This will help improve our ability to export canola oil and to add more value to our product here in Canada.

Second, I'd like to highlight how a trade agreement could address other barriers.

There are many similarities between the agriculture sectors that export in Pacific Alliance countries and our Canadian exporters. As large agricultural exporters across these countries, we face common restrictions related to the misapplication of sanitary and phytosanitary measures, non-tariff barriers, and measures around plant breeding innovation. A trade agreement with the Pacific Alliance has the potential to build momentum for a consistent approach to these issues in our economies and beyond.

Last, I'd like to highlight the need to stay focused on critical trade agreements and negotiations while we proceed with the Pacific Alliance.

We believe that trade barriers should be eliminated wherever they exist. This includes pursuing an agreement with the Pacific Alliance. We also believe that priority should be assigned to agreements where the stakes are the highest, such as maintaining current access to the United States and Mexico as well as implementing the comprehensive and progressive trans-Pacific partnership and starting trade negotiations with China.

In closing, canola has grown into a Canadian success story because we are globally competitive and we've had stable access to world markets. We're continuing to deliver growth through the stable and open trade that we have with some countries and through differentiated value and sustainable production.

We're excited to help Canada meet the government's target of $75 billion in agrifood exports by 2025, and eliminating trade barriers through an agreement with the Pacific Alliance is a key opportunity to help us do this. It will allow us to help support value-added processing here in Canada, and it's a key part of enabling our sector to continue supporting a quarter of a million Canadian jobs.

I look forward to answering your questions. Thank you very much for the invitation.

[The Chair, Liberal, Mark Eyking]

Thank you, Mr. Innes. That's an impressive story of that crop. It was designed in Canada, right?

[Brian Innes]

That's right.

[The Chair, Liberal, Mark Eyking]

It has become a world leader, very good.

We're going to go Mr. Dade now. He's a senior fellow at the school of international development and global studies here at the University of Ottawa.

Go ahead, sir. You have the floor.

[Carlo Dade, Senior Fellow, School of International Development and Global Studies, University of Ottawa, As an Individual]

Mr. Chair and members of the committee, thank you for giving me the opportunity to appear before you again.

Let me start by reiterating what Mr. Innes said about the importance

of following agreements like the TPP and, of course, NAFTA.

This morning, I submitted a briefing note to the committee on the Pacific Alliance. I've been following the alliance, lecturing and researching it for about a decade now, ever since former prime minister Harper attended a meeting convened by the leaders of the alliance, minus Colombia, at the 2007 APEC summit, to discuss the idea of launching a new trade integration group in the Americas. I will let the note speak for itself. It serves as background. I'm not going to go through the details on the specifics of trade and the various sectors. You have the witnesses to do that.

I would also suggest that in 10 years the alliance has made remarkable progress on the trade integration agenda. It is considered by observers such as myself and groups like The Economist magazine and the Financial Times as the most exciting development in international trade. I suppose it says a lot about international trade if something like this is considered exciting, but that is indeed the case.

I would suggest that if the committee wants to get details on the technical aspects of how the alliance is progressing on the integration agenda, how they are working to combine beyond the border initiatives, one-stop shops throughout the alliance for businesses coming in, that information is available at the in-house think tank for the alliance. That think tank is at the trade integration division of the Inter-American Development Bank. They have been working with the alliance since its inception, and they would be able to brief you on the minute details of exactly what the integration agreement is, what progress is being made, and other technical details.

The head of the unit, Antoni Estevadeordal, is also a member of the policy council for the Trade & Investment Centre at the Canada West Foundation. He and his team are in Canada at least once a year, and they are quite familiar with issues in Canada. They would be uniquely positioned to brief the committee on issues on the technical side of what the alliance is doing. I've already given the names and contact details for the folks at the IDB to Christine, should you wish to call them.

Finally, of brief note, we're starting in Canada to sign agreements that are actually important for a larger swath of the business community than what I would call the usual suspects—groups that are already trading with countries like those in the Pacific Alliance, larger firms. We're starting to sign agreements that matter for small and medium-sized enterprises. As we run into difficulties with NAFTA, more and more of these firms that have habitually and by default always traded and never looked beyond the U.S. are beginning to think about looking beyond the U.S. Agreements like CETA and the Trans-Pacific Partnership are gaining interest.

We've done work in talking to small businesses in western Canada about how to prepare should NAFTA end—looking at tariffs in the U.S., talking to their U.S. suppliers and customers—but that work of helping businesses to think through the issues has these smaller businesses thinking about trade agreements, yet they are not on the radar screen of our traditional trade export and promotion groups.

A true, progressive trade agenda in Canada would be one that reaches all marginalized groups, groups that have been marginalized from trade and the benefits of signing trade agreements. That includes groups the government has identified, and we fully support their efforts to try to help these groups participate in trade. It also includes the small and medium-sized enterprises that haven't been participating in trade.

I would put on the table for the committee that a study in the future, where this committee could really do good work, would be taking the evidence and laying the foundation for this major shift in Canadian trade policy to focus on bringing in groups that have been for whatever reason marginalized from trade.

The foreign affairs committee did some of the work on laying the basis and the evidence for a shift in Canadian development policy to leverage the private sector. I think this committee could do the same thing.

We need evidence. We need the basis for this major policy shift at a time when we're finally starting to sign agreements again that we see matter, and we hear from small businesses that they haven't been thinking about trade agreements that matter for them.

Thank you.

[The Chair, Liberal, Mark Eyking]

Thank you, sir, for coming and bringing your knowledge and your suggestions for our committee. There is a potential that we might be travelling to Washington and the Inter-American Development Bank is in Washington. It might be a good idea, if we go there, to meet with them. Thanks for that advice.

We're going to start with the Conservatives for five minutes.

Mr. Allison, you've got the floor.

[Dean Allison, Conservative, Niagara West, ON]

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

Mr. Dade, I'll start with you.

We had the Business Council of Canada appear before us on Tuesday and they talked about agreements like CETA and TPP being the gold standard for trade agreements. Do you agree with that? Do you see that serving as part of the model and the baseline as we move forward with the Pacific Alliance deal?

[Carlo Dade]

Certainly. I would also put the Pacific Alliance in that model. The alliance is a bit different. It's a trade integration group. It's countries that have had a closer relation that are looking to build upon that. In some of the other agreements—CETA, the TPP—the countries haven't had the same platform of closeness upon which to build. For different reasons, yes, they are the standard, especially when you compare them to things like the recent comprehensive economic partnership that the ASEAN countries are putting out, or some of the agreements we're seeing come out of Asia.

There are two tracks in trade diplomacy and trade agreements: the track that we're working on, on this side of the Pacific and Europe, and the track we're seeing coming from parts of Asia. In terms of that balance for the global agenda, I think it's critical that we work with groups like the Pacific Alliance and the TPP to strengthen that trend. I'll let the other trend speak for itself.

[Dean Allison, Conservative, Niagara West, ON]

Mr. Innes, one of the questions I was going to ask you is about imports and exports to the four countries. You did answer part, or most, of the question in your briefing.

Talk to us a bit about the potential of the South American markets and the Pacific Alliance. We signed a free trade deal with Colombia before the U.S. did and yet they have preferential treatment. Talk to us about how that happened. Obviously, with a new agreement there's an opportunity to level the playing field again and move forward.

My question was about the kinds of exports we saw on your website. It talked about exports to Mexico and Chile but we didn't see any to Colombia. You answered the question in your briefing. Just talk to us a bit more about that.

[Brian Innes]

Mexico is a key market for us. We export a lot of canola seed and canola oil there because we've had tariff-free, stable access to Mexico with NAFTA, which hasn't been the case with Colombia, for example. With Colombia, we have exported significant amounts and this tariff has had real impacts on our ability to export.

For example, our exports fell by 75% between 2016 and 2017 because of this tariff and how it affected our exports. The Colombia market is not the same size as the United States or Mexico. For our value-added processors that are selling bottled product that takes more effort to do in Canada, any market that they can sell to is very important to keep those facilities and those jobs operating.

Our exports have been approximately $10 million to Colombia around canola oil and we see an opportunity to grow. For example, they import anywhere between $3 million and $500 million of oil every year and we only get a very small portion of that, partially because of the unpredictability of this tariff to us.

The other thing that I would add is that in terms of integration, we actually grow a lot of our Canadian seed in the off-season. Right now, it's growing in Chile, and then we'll come back up here to Canada, and it will be growing in Canadian farmers' fields. We do have a complementary relationship but unfortunately this tariff does prevent us from seizing the opportunity in Colombia.

[Dean Allison, Conservative, Niagara West, ON]

Mr. Dade, back to you and where you see the benefits of the Pacific Alliance. I think it was more than just trade. It's the harmonization. Can you talk a little bit about that in terms of whether it's mobility of labour? Obviously that's part of the part that doesn't exist in CETA and other things. Would that be part of what you see being an important piece of this new deal?

[Carlo Dade]

Absolutely. Take the moving of people, for example: with this we're talking about business professionals, students, and the like. For a Canadian enterprise like Scotiabank, the ability to have staff based in Peru move through any of the countries seamlessly, not needing work permits.... You could have central processing. Your commercial loan division could be in one country and you could move to other countries seamlessly.

The back office, the “behind the border work” on goods, customs pre-clearance, a single form for moving throughout the alliance.... Moving with the alliance to take part in these openings would give us added benefits similar to those we enjoy with the North American Free Trade Agreement. If you think of all the things we've added to NAFTA, it's not NAFTA itself, it's the Regulatory Cooperation Council. It's beyond the border. It's fast. These are things we've added to the trade agreement that give us real advantage in the U.S. We would be adopting the same things with the Pacific Alliance. That would be a major hidden benefit.

[The Chair, Liberal, Mark Eyking]

Thank you.

We're going to move on to the Liberals.

Mr. Fonseca, you have five minutes.

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

Thank you, Chair.

For my first question, I'll follow up on what Mr. Dade had to say, but it will go to Mr. Lomas.

Looking at our recent success in terms of the agreement with the European community with CETA and now with our negotiations around the modernization of NAFTA, what would you take from the long-standing NAFTA, as well as from CETA, those agreements, to address some of the challenges that you've brought forward on the regulatory regime issues as well as labour standards and environmental standards? Can you try to tack on what you would take from those agreements and look at bringing to the Pacific Alliance?

[David Lomas]

I'll first talk to NAFTA with respect to the trade we entered into with Mexico. Mexico has a 20.5% tariff on canned seafood products going into its market, and NAFTA allowed us to enter that market when it came into force, and we were able to built a small business, a small footprint. With respect to our products, and within seafood, we're probably different from many other industry participants in that we focus on value-added, branded sales. As such, we're actively competing against entrenched domestic competitors. We participate with distributors in developing distribution at grocery retail outlets in these markets. It's an extremely competitive environment, and it's one that is very costly to enter into and build a branded presence.

We've had, I would say, very limited success. We have a very small share in Mexico. We've seen the competition get better than where they were when NAFTA started, and so the quality of the products that we've competed against has been elevated. We've probably seen our business decline a bit in some of these markets from a peak level several years ago.

There are other factors that go on beyond just gaining a duty-free advantage. CETA is another case in point. We have in fact actively looked at many of the markets, and as you can surmise, we've been doing this for over 125 years. It's a rather mature category, and we face very capable and competent competitors within the EU that have very entrenched brands in these markets.

We actually have benefited from sales into Europe, which we were servicing from Canada previously, before the EU came into being, with basically selling product into ethnic expat communities in the Caribbean, the U.K., and the Netherlands. We actually had developed business in eastern Europe, but as these markets came into the EU realm, we basically faced a 12.5% duty on canned sardine products, and a 20% duty on canned herring products. A lot of those markets went away on us.

We then had to switch our strategy to sourcing some of our product from Europe to make sure that we were competitive within Europe. In conjunction with all of that, we faced a very challenging resource situation here in Atlantic Canada on the supply of herring that we use in the production of our canned sardines and canned herring products. Those factors really constrained us.

We were looking at CETA specifically as perhaps an opportunity to potentially expand into private label supply. Again, there we face a number of factors that we feel make it quite a challenging go in that regard also.

[The Chair, Liberal, Mark Eyking]

That wraps up your time, Mr. Fonseca, and we're going to move on. Thank you.

I'd also like to welcome the member of Parliament for Calgary Midnapore, Ms. Kusie. Welcome to our committee.

We're going to move on to the NDP now.

Ms. Ramsey, you have the floor for five minutes.