International Trade Committee on Feb. 8th, 2018

[Carlo Dade]

There is a similarity between NAFTA and the Pacific Alliance.

A lot of what you're seeing in the Pacific Alliance was taken from what they learned and what they saw in NAFTA, how successful we were in North America in creating an integration agenda that went beyond the agreement.

For influencing China and agreements around Asia, absolutely. Again, there is another agenda for trade integration on the other side of the Pacific, in Asia, that's coming out of the regional comprehensive economic partnership, RCEP, and other agreements. Creating facts on the ground, creating rules and agreements between countries establishes precedence, while other countries in Asia are establishing precedence for more illiberal trade. So there are two competing agendas going on here, and everything we can do to strengthen one that is progressive, that does have more liberal values, is important in the strategic sense.

[The Chair, Liberal, Mark Eyking]

Thank you.

We're getting tight for time, but we have room for one question from Mr. Tilson.

Go ahead, sir.

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

We've been talking about CETA, which was a pretty successful agreement; it appears to have been a very successful agreement. There were substantial negotiations that went on with CETA, with the provinces, the municipalities, and the business people. Starting with Mr. Innes, do you think adequate consultations have gone on with the government with respect to these proposals?

[Brian Innes]

What we've seen, over the last number of years and certainly in recent times, is that there have been ample and comprehensive consultations with both this committee and the government, and an opportunity for all Canadians to be able to express their views on trade and anything related to our relations with those countries that may be affected by an agreement with those countries.

From our perspective in the agriculture sector, we speak regularly to the provinces, who are regularly engaged with the federal government on matters of trade. We have seen the federal government, including this committee, have multiple public consultations on trade agreements. So we're very pleased with the level of engagement on trade. We see that as very important not just for the 40,000 farmers who are small and medium-sized enterprises, who see their real future in trade, but for other folks who may not see trade in the same way as people who export 90% of their product see trade. The consultation, we feel, has been quite effective and I think it's important because it helps us communicate how past deals aren't as good as, say, the Americans' agreement with Colombia. That opportunity is very much appreciated.

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

Have there been lessons learned with respect to CETA, perhaps provisions in CETA that should not be there?

[Brian Innes]

From our perspective, CETA was a step forward from where we had come from before that. What we see is the need to make sure we implement CETA and follow through on those provisions and those commitments. In the agriculture sector, even in canola, for example, we have provisions around regulatory co-operation and we feel the spirit is not being respected currently, when it comes to things like crop protection products. There are things, not necessarily things we don't like about CETA, but we're not very happy about how those measures are being followed through on.

[The Chair, Liberal, Mark Eyking]

Just give a short answer, Mr. Dade.

[Carlo Dade]

On the consultations, yes and no. You do reach groups to get input that are important and are involved in trade, but what's missing is the ability to use the consultations to meet with groups that haven't been participating in trade and have been marginalized—first nations, female-led firms. It's going to take you close to a decade to negotiate trade agreements. You can use the consultations to identify issues that prevent these groups from participating in the agreement when it's signed 10 years later. We're losing valuable time to be able to reach out to groups and work with them on trade capacity building to be able to take advantage of the agreements.

That's one of the recommendations I've been working on, working with the member for Winnipeg Centre and talking about first nations and how to get them involved. You've got to use the consultations more, not just to get input, but to identify people in advance and use the time during the negotiations to be able to work with them. You also need to better understand what exemptions are needed in trade agreements to protect domestic policy to be able to work with these groups.

[The Chair, Liberal, Mark Eyking]

Thank you, sir, and as you probably know, previously we had a study on the TPP and we did broad consultation; but your point is well taken.

It was a good panel this morning and good dialogue with MPs. We're going to break just for one minute and then we're going to go in camera.

[Proceedings continue in camera]

[Public proceedings continue]

[The Chair, Liberal, Mark Eyking]

Welcome to our study on a potential agreement between Canada and the Pacific Alliance. Sorry for the delay. We had some important business we had to catch up on but we're going to try to catch up with all the presentations we have here right now.

We have with us here for the second half, the Canadian Agri-Food Trade Alliance, the Canadian Manufacturers & Exporters, and the Mining Suppliers Trade Association of Canada.

Some of you mentioned you've been here before in front of committees. If you haven't been, we try to keep it under five minutes for each presentation so we can have good dialogue with the MPs.

We're going to start with the Canadian Agri-Food Alliance, and we've got Claire. Good to see you back. You have the floor.

[Claire Citeau, Executive Director, Canadian Agri-Food Trade Alliance]

Thank you for having me.

I'm pleased to be here today on behalf of the Canadian Agri-Food Trade Alliance, CAFTA, to speak on the subject of a potential agreement between Canada and the Pacific Alliance.

CAFTA, as you know, is the voice of Canadian agrifood exporters, representing the 90% of farmers who depend on trade, and ranchers, producers, processors, and agrifood exporters who want to grow the economy through better and competitive access to international markets. This includes the beef, pork, meat, grains, cereals, pulses, soybeans, canola, as well as the sugar, malt, and processed food industries. Together our members account for 90% of Canada's agrifood exports, which in 2016 exceeded $55 billion and supported over a million jobs across rural and urban communities in Canada.

A significant portion of these jobs and sales would not exist without competitive access to world markets. Canada is an enthusiastic supporter of negotiating new trade agreements that create job opportunities and growth opportunities for our exporters. Trade is one of our main drivers as 60% of the value of the sector is generated through exports. Over half of everything we produce is exported. That's half of our beef, 65% of our soybeans, 70% of our pork, 75% of our wheat, 90% of our canola, and 95% of our pulses, as well as 40% of our processed food products. Over the last 10 years in Canada, Canadian agrifood exports have grown by more than 100% from $27 billion to $61 billion.

This is why Canada's agrifood sector has been highlighted for its significant contributions to the Canadian economy in the advisory council on economic growth as a key sector for growth due in part to the sector's focus on exports. This was further represented by the ambitious goal to grow Canada's agrifood exports to $75 billion annually by 2025. Our agrifood exporters generate a GDP of $95 billion for agriculture and food manufacturing, and food and beverage manufacturing alone is the largest manufacturing employer in Canada, 60% of which is concentrated in Ontario and Quebec, with close to a quarter of a million jobs, more than the automotive and aerospace sectors combined.

Today our priorities are twofold. First, it's paramount that Canada ratifies this CPTPP quickly, and we urge the government to implement it without delay. We've been a strong supporter of the deal and applauded the fantastic news that Canada concluded the talks about 10 days ago in Tokyo.

The CPTPP will not only provide the sector with unprecedented access to the high-value Japanese market and rapidly growing Asian markets like Vietnam and Malaysia, but it will also provide Canada with a competitive advantage over the U.S., since that country is not part of the agreement. We understand that the CPTPP will enter into force after at least six members ratify it and we understand also that it's very likely that seven members will ratify and implement the agreement before the end of the summer, if not sooner.

Canada may lose the first mover advantage if it's not in the first tranche of countries ratifying the deal, so the best chance to implement the agreement quickly is to ratify it quickly.

Second, due to the importance of NAFTA to Canadian agricultural trade, CAFTA urges the government to continue working to reach a modernized agreement that will strengthen the access and competitiveness of the nation's farm and food products. In short, it's important to maintain what's currently working very well, and modernize the deal where possible. Specifically, the renegotiations should not allow the introduction of new tariffs or non-tariff barriers, or any new provisions that could be used to limit trade. In our submission, CAFTA has identified several areas for improvements, where NAFTA could enable further growth for specific products such as canola, grains, meats, sugar, sugar-containing products among others, and in areas such as greater regulatory co-operation and dispute settlement mechanisms.

Specifically, on the Pacific Alliance, in 2016 Canada exported $2.7 billion in agriculture and agrifood products to the four Pacific Alliance members: Chile, Colombia, Mexico, and Peru. About two-thirds of that total was accounted for by Mexico, also a NAFTA partner. In addition, as you know, Canada has free trade agreements with some of the Pacific Alliance members: Chile, Colombia, and Peru. Despite bilateral FTAs existing between Canada and some of the Pacific Alliance members, there are opportunities to improve upon the existing agreements and boost agriculture and agrifood exports.

While CAFTA supports an agreement with Canada and the Pacific Alliance in principle, it is essential that negotiations with this alliance do not compromise Canada's ability to complete other agreements such as NAFTA and our ability to ratify other agreements such as the TPP with our members since we view these as significantly higher priorities.

If this condition can be met, CAFTA sees multiple potential benefits with the Pacific Alliance, the first being to eliminate remaining tariffs. You've just heard from the Canola Council, canola being an example for getting better access into Colombia. I believe you heard, over the last few days, about pork as well. Deepening the commitments in the existing free trade agreements with Pacific Alliance members to achieve science-based outcomes in regulatory measures to protect human, plant, and animal health and safety would be another area. We also see an opportunity to pursue common frameworks for approval of animal and plant health inputs and new breeding techniques. A free trade agreement with the Pacific Alliance should also include common low-level presence and maximum residue limit standards and policies.

Overall, an agreement with the Pacific Alliance region would also continue Canada's historically beneficial participation in plurilateral negotiations from which results can exceed those available from attempting to complete bilateral agreements as well as establishing a platform for expansion to other nations.

This is one of the reasons for CAFTA's staunch support for Canada's participation in the CPTPP.

[The Chair, Liberal, Mark Eyking]

Thank you.

We're going to move over to the Canadian Manufacturers & Exporters. We have Mr. Mathew Wilson, senior vice-president.

[Mathew Wilson, Senior Vice-President, Policy and Government Relations, Canadian Manufacturers & Exporters]

Good morning and thank you, everyone, for inviting us here to speak on behalf of Canada's 90,000 manufacturers and exporters and our association's 2,500 direct members, to express our support for Canada joining the Pacific Alliance.

Manufacturing is the single largest business sector in Canada. The manufacturing industry's contribution is critical for the wealth generation that sustains the standard of living of every Canadian. Industry sales surpassed $600 billion in 2017 for the fourth consecutive year and directly accounted for 11% of Canada's total economic output, while employing over 1.7 million Canadians directly in highly productive, value-added, high-paying jobs.

Manufacturing is an export-intensive business. More than half of Canada's industrial production is exported directly, accounting for roughly 75% of Canada's total exports. In 2017, manufacturing exports to Pacific Alliance countries alone totalled more than $7 billion. While these numbers are impressive, we believe more is possible.

That's why in 2016 CME embarked on an ambitious task to consult with domestic industry on an action plan to double manufacturing output and value-added exports by the year 2030. This initiative, called Industrie 2030, connected with roughly 1,250 business executives from coast to coast. A major pillar of that and the feedback from those executives focused directly on growing exports and helping companies find new customers in domestic and foreign markets. Simply put, in order to grow domestic industry, we must open new markets around the world because Canada's markets are too small. However, simply signing an FTA is not the solution. We must sign FTAs that actually grow exports, not just increase imports.

That being the case, CME has always been clear that no trade agreement is worth signing unless the deal meets three objectives. First, it creates a fair and level playing field for Canadian manufacturers and exporters, and ensures that their opportunity to export into foreign markets is equal to that of our competitors to import into Canada. Second, it increases the amount of value-added exports from Canada, not just the export of natural resources. Finally, it does not undermine the existing integrated manufacturing supply chains developed through previous FTAs, especially the NAFTA.

Free trade agreements are only as beneficial as the amount of new value-added trade they create. Value-added exports create the wealth and prosperity that governments and all Canadians want and expect, but too often in the past, FTAs have not led to these outcomes. Outside of NAFTA, Canada's export record with other countries has been mixed, including those in the Pacific Alliance with which we have existing bilateral FTAs. That does not stop CME from supporting the new proposed agreement, but it should provide us with a point of inflection for how to make this new agreement more successful for Canadian exporters. First, we do fully support the entry into the Pacific Alliance because it does allow us to update and modernize existing frameworks that companies are working within with the countries. Second, and most importantly, while we support the agreement, we believe that Canada can and must do more to ensure successful outcomes for Canadian industry. We believe that in addition to signing the new FTA, we must put in place new supports to help Canadian companies find new markets and customers in the region, especially SMEs.

Canada has many small businesses but not enough medium- and large-sized companies. In fact, over 95% of manufacturers have under 10 employees, and many do not have the internal expertise or financial ability to expand globally. Governments have excellent export support programs, but they should be consolidated to ease access for small companies into new markets.

These actions should include additional funding and support for the trade commissioners service to better connect Canadian exporters to business opportunities in the region; enhanced corporate funding for trade missions, research, and export promotion into the region; an improved export accelerator program, which is currently under way at Global Affairs, to get more companies into the program to take advantage of the coordinated services and opportunities in the region; and an export mentorship program to help companies understand the opportunities in the region from business executives who have done work in the region. Finally, we should look at introducing a new export tax credit for companies that are actively growing exports into that region and beyond.

In addition, if Canada's economy is to grow and create new middle-class jobs through expanded trade, we need to set up the domestic business environment that will enable this growth. This includes having competitive corporate taxes, encouraging small businesses to scale up, and ensuring that trade deals create level playing fields for manufactured goods.

In summary, CME supports Canada's entry into the FTA with the Pacific Alliance, and other trade agreements that expand market access on a reciprocal basis, and that will lead to a prosperous manufacturing sector and Canadian economy. However, we must ensure effective domestic supports to help companies take advantage of these new market opportunities.

Thank you again for inviting me. I look forward to the conversation.

[The Chair, Liberal, Mark Eyking]

Thank you, sir.

We're going to go over to the Mining Suppliers Trade Association of Canada. We have the president, Mr. Cancilla.

[Phil Cancilla, President of the Board of Directors, Mining Suppliers Trade Association Canada]

Good morning, Mr. Chair and members of the committee.

I want to thank you for the opportunity to speak to the committee on behalf of the Mining Suppliers Trade Association of Canada.

My opening statement today will provide a brief outline of our association and its members. Then it will highlight some key findings from a study we participated in that shows how mining suppliers are an important part of generating employment in the mining ecosystem. Finally, it will show how Canada's engagement on free trade with the Pacific Alliance trade bloc is a natural fit for the Canadian mining supply and services sector, or MSS.

MSTA Canada is a national voice for Canada's mining supply and services sector. Over the past 35 years, the association has supported its members by connecting them with opportunities to grow their businesses in the mining industry across Canada and around the world.

In terms of government activity and decision-making, we look to serve our members' interests under two guiding principles. The first principle is a reduction in the complexity and uncertainty of doing business. This can be through more efficient processes with clear, understandable, and timely outcomes. The second principle is to have an increase in the access to opportunities to do business. This can be in the form of the opening of markets or a reduction in barriers to trade. It's our second principle that aligns with Canada's participation in the Pacific Alliance free trade agreement.

Our approximately 280 corporate members are located across the country, and they supply the entire mining industry spectrum, from mineral exploration, resource development, mine design and construction, mine operations, and refining, to reclamation and closure. Most of these companies are small to medium-sized enterprises, or SMEs. I will elaborate more on the demographics of the mining suppliers in the second portion of my remarks, but overall, it has been estimated there are approximately 3,700 companies across Canada that consider themselves mining suppliers.

I would like to highlight one very important aspect of our focus as an association: export. With Canada representing 0.05% of the global population and 1.4% of the world's GDP, we are, by all accounts, a trading nation to ensure economic prosperity. With that perspective, there is a great opportunity for the Canadian mining supplier network in just following Canadian exploration and mining activities abroad, let alone the international mining customers.

In the mining industry, the “Made in Canada” brand is recognized around the world for its safe, reliable, environmentally sound, and productive solutions.

I will now turn to our study. The Conference Board of Canada categorizes the mining supply and services sector as “a multi-billion dollar, widely varied industry in Canada and around the world, yet it is a 'hidden' sector that is not directly measured or tracked.”

To help provide a better understanding and clarity of our “hidden” sector, MSTA Canada participated in the pan-Ontario mining supply and services sector economic impact study. There are three key findings from the report that I would like to highlight here today.

The first finding is that the mining supply and services sector is a widely varied group of companies that were grouped into three major categories. Fifty-eight per cent were categorized as mining equipment, supplies, and services. Thirteen per cent were categorized as mining contract services. These two categories are what most people think of as a typical mining supplier. However, it is the remaining 31% that typically get overlooked. These are, for example, the financial services, accounting companies, law firms, environmental services, and information technology firms.

The second key finding is that almost 88% of the companies surveyed are categorized as SMEs and 70% report exporting outside of Canada, so free trade agreements are very meaningful to the mining supply and services sector.

The final finding I would like to highlight from the study is in terms of direct employment. The mining supply and services sector represents two and a half times as many jobs as the mining companies employ themselves. This is an important point because, as mining is a great economic developer, the mining supply and services sector across Canada will be an important generator of jobs.

Our final point is directed towards the Pacific Alliance trade bloc, which contains Chile, Colombia, Mexico, and Peru. These are considered the top four countries to which the Canadian mining supply and services sector targets their export marketing efforts in Latin America. To help understand why, our research has shown that the Pacific Alliance trade bloc hosts over 500 active exploration and mining projects. In addition, there are more than 220 Canadian-based exploration and mining companies active within the Pacific Alliance, which operate or have ownership in 43% of these projects. This data shows why Canada is a natural fit as a member of the Pacific Alliance for the Canadian mining supply and services sector.

Thank you very much for your time.

[The Chair, Liberal, Mark Eyking]

Thank you, panellists. We're going to go right into a dialogue with the MPs.

We have the Conservatives up for the first five minutes.

Mr. Allison, you have the floor.

[Dean Allison, Conservative, Niagara West, ON]

Thank you, Mr. Chair, and thank you to our witnesses.

Mr. Wilson, I'll start with you. You alluded to this in your opening comments, and I think we can't highlight this enough, but I just want you to mention it again. Trade deals are great and the Pacific Alliance and all these things are amazing, but we have to deal with our own competitive issues at home. Would you talk about those things? Taxation is one of the things. What are some of the other things that we need to work on here at home to make these trade deals valuable as we move forward?

[Mathew Wilson]

It's a good question. I'd start by saying that companies can only export what they can produce. It's hard to export things that they're not able to produce.

One of the problems we have in Canada is that we're actually pretty much at capacity in all sectors across manufacturing. When we're talking about 75% of exports actually being manufactured and produced goods and we're at capacity in manufacturing, signing new trade agreements doesn't actually lead to increased exports, because the companies themselves can't produce more to get out. They might be able to invest and do other things, but they're unable, really, to grow their production to export it much more than they already are. In order to get them to export in the first place, you need them to increase their investment.

There are a number of things that we've certainly been talking about with all governments for a while, but we certainly need to see things such as looking at corporate tax rates. The U.S. just passed a massive corporate tax reform bill and has had major investments in a wide variety of sectors in the U.S., which will boost their production capacities. There are things such as the accelerated cost of capital allowances, which this government has extended, and we'd like to see it brought on speed with the U.S. government, which would be a one-year writeoff.

That capital investment is critical to boost the output but also the productivity. If these companies can't compete against the foreign companies that are competing with them because they're less productive, say, than a foreign multinational or a foreign exporter, they're not going to have the same opportunities, both at home or abroad. That competitiveness piece plays on their ability to grow investment here to boost their capacities to be able to export abroad, but also on how they're dealing with imports from offshore. If they're not producing at competitive world prices—and this is the same with the TPP or CETA or any other deal—they are going to be beat by someone else when they're under a free trade agreement. That's why that domestic competitiveness is so easy....

Investment is critical. The regulatory environment is really critical. Helping companies train and skill their workers for new technologies and to be more innovative is really critical. All these things play a role. It's not just one thing. It's a wide variety of policies that need to take place to help companies grow, be able to export, and be globally competitive.

[Dean Allison, Conservative, Niagara West, ON]

Thank you. I know that we could do a whole study just on productivity, but that's a different question for a different day.

After the previous presentation, the first one this morning, it's almost like you and Mr. Dade are running off the same notes. You've talked about trying to get access for SMEs to all these other services. As I said, I think our government has a lot of great services, such as export development and trade commissioners, but the challenge is still that a lot of these small companies and SMEs either don't have the capacity to access or don't have the knowledge or the expertise or whatever it is.

You talked about it in your remarks, and Mr. Dade did as well in the first round. Talk to us about that.

[Mathew Wilson]

I think it was former minister Fast who said at one time that 98% of Canadian companies don't export. They don't export because they're really small and don't have any capability to export.

Capacity is one thing, and capability is something else entirely. If we're going to be successful in global markets, we need to scale companies up. It's certainly something that we're working on with Minister Bains and ISED through their innovation agenda, but they have to be of a certain scale in order to be able to get them to grow. A small company of five or seven employees in a machine shop or something like that isn't really going to be looking at global opportunities. They're probably barely exporting outside their own province.

I think we really do need to focus the resources on companies with high growth potential, and companies that have a better alignment towards global opportunities in key sectors. Mining would be a good one. Food would be another really good one, especially when you're talking about the Pacific Alliance. Instead of Canada trying to be all things to all people when we're trying to do export promotion, we should target specific sectors in the specific regions that actually have a chance of success rather than just hoping that other sectors will catch on and go there.

[Dean Allison, Conservative, Niagara West, ON]

Thanks.

Ms. Citeau, in the first half of the meeting we had the Canola Council of Canada, which I know is a member of your organization, and they talked about the huge potential in agrifood. Obviously, you represent a ton of organizations. I'm seeing here that we have exports of almost $1 billion to Pacific Alliance countries and nations. How much more room do you see for growth? The Canola Council talked about tariffs in Colombia, for example. Talk to us about how much more opportunity you see for things happening in agrifood.

[Claire Citeau]

For the Pacific Alliance, our exports are just under $3 billion. There are opportunities to reduce tariffs and grow our exports through this. Moreover, regional free trade agreements can help create supply chains, and through our regional agreements we can ensure that all partners abide by science-based rules. These mechanisms are easier to implement in regional trade agreements than in bilateral agreements.

I'd like to add that our industry has the capacity to supply new markets. It's actually market signals that will provide the incentive for the exporters to export, and ensuring that free trade agreements provide viable commercial access is what will get our exporters to export.

[The Chair, Liberal, Mark Eyking]

Thank you.

I'm going to the Liberals now.

Mr. Peterson.

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

Thank you, Chair, and my thanks to everyone for being with us this morning.

Ms. Citeau, I'm going to ask you a question about something you might not be aware of. Forgive me if you already know this, but the Canadian Chamber of Commerce recently came out with some interesting recommendations. There were 10 recommendations on how to make sure Canada's economy remains competitive, and one of them was to make sure Canada continues to grow as an agrifood centre. I'm going to assume you see this as an important goal. Do you see these trade deals as a good way of achieving that goal and a step toward maintaining the agrifood industry in Canada?

[Claire Citeau]

Very much so. Because we are an export-oriented sector, our growth comes from international markets, so agreements like NAFTA, the CETA, CPTPP, and other agreements with China are key to helping us reach the $75-billion target set in budget 2017. We see opportunities for the commodities, but even more so for the food-manufacturing sector, with employers in both urban and rural communities in our country.