International Trade Committee on Feb. 26th, 2020

[Kevin Young]

The quick answer is yes, we do, and we've provided the committee with some suggested language around the amendment.

When we approached the Department of Commerce back in 2017, they had two areas they were concerned about. The first one was identification and the second was circumvention. They suggested that we ask the Government of Canada for assistance. If the Government of Canada would ask the Department of Commerce for this, then we would move ahead with the study.

The study is really just going back to past precedent, to say, okay, let's have a look at.... It goes back to 1988, with plywood. All they did at the time was to have a look. Both sides of the border were manufacturing plywood, and they did a review of it. They presented letters. The amendment basically allowed them to take plywood out of the softwood lumber dispute and move it into the free trade agreement, and then it had a trail off of duties.

The amendment is intended to allay the concerns of the Department of Commerce that Canada can ask for and provide a study of finished wood products. Again, there are a variety of manufacturers across Canada. It's to look at those products and to do so in such a way that describes them so that it allays the concerns of the Department of Commerce.

[The Chair, Liberal, Judy Sgro]

Thank you very much, Mr. Young.

Mr. Arya.

[Chandra Arya, Liberal, Nepean, ON]

Thank you, Madam Chair.

Mr. Fay, I'm so glad you came here to talk about the data-driven economy. We had NAFTA for a long time. Now we have this new NAFTA, CUSMA, but it is not going to dramatically change. This agreement is good. It brings some stability to the Canadian economy.

Look at what has happened with respect to trade in the last, say eight or 10 years. I think in 2011 our exports to the United States were around $315 billion. Last year, it was $320 billion or $324 billion. Our imports about 10 years back were around $280 billion. Now we're just $290 billion.

This agreement is important. It brings stability to a lot of the economy, but it doesn't address the economy of the future. We have steel industries. They were producing 16 million tonnes 20 years ago. They are producing the same 15 million tonnes today. The aluminum industry has not seen an increase in storage capacity for the last 15 years.

Basically this agreement is good. It brings stability. However, it is not addressing the future and where the world economy is going, namely, towards a knowledge-based economy. Nobody has talked here about software for autonomous vehicles. Nobody has talked about robotics. Nobody has talked about artificial intelligence and how it impacts not just the Canadian corporate sector, not just the economy, but Canadian society itself.

I'm glad you talked about the data-driven economy. As you pointed out—and as in this agreement—we have been waiting for six years on our negotiator. We all are policy-makers. We can understand more the impact of these things, so that when the review comes in, we can look at and also focus on these things.

Obviously, the existing industries are quite loud in their lobbying, and that draws attention from the lawmakers, the policy-makers, the negotiators. However, the six-year time frame will hopefully give us some breathing space to look into the other aspects that have not been considered.

You touched on FDI, foreign direct investment. Many people don't know that two-thirds or about 65% of Canadian trade is due to companies that are owned by foreign investors, foreign companies. Their foreign direct investment play a very major role in the Canadian economy and Canadian trade. They control 65% of the trade.

You mentioned that we need to have new international rules for FDI and intellectual property. Let's not go to intellectual property. I know that's a big thing, a very, very important thing. That is our next natural resource. That is the only thing that can replace the natural resources.

Can you quickly highlight, keeping it short, the fundamental change you want to see internationally on the foreign direct investments.

[Bob Fay]

Thank you for the question. I've been listening to the conversation.

Just to maybe reinforce what you were saying, we have heard from the softwood lumber industry. Our natural resources are an important production factor in the Canadian economy, and we need a trade agreement to protect those industries and help them flourish.

Data is a factor of production. Data and data analytics will drive growth going forward.

With respect to FDI, I think one of the questions that's open is whether we allow the multinationals that dominate the data industry to take out Canadian innovator firms or whether there should be a review.

[Chandra Arya, Liberal, Nepean, ON]

Are you suggesting that we control foreign direct investment?

[Bob Fay]

I'm suggesting that we need to take a second look at how multinational investment is taking place in key sectors of the Canadian economy. I'm not suggesting that we should restrict or impose new regulation. I think we need to look at it and to see what exactly is happening on the ground. For example, Google will list on its website the publicly listed companies it buys out, but there is a flourishing SME sector where the takeouts happen.

[Chandra Arya, Liberal, Nepean, ON]

There are a lot of new technology industries in Ottawa. Ottawa has the biggest cluster of high-tech industries, most of them mom-and-pop shops. There are 1,700 knowledge-based companies in the national capital region; nobody realizes that.

But as and when they find something that is exciting or marketable—

[The Chair, Liberal, Judy Sgro]

Make a short comment or ask a question.

[Chandra Arya, Liberal, Nepean, ON]

—they get taken over. Yes, that's a point well made. I think we should look into that.

[The Chair, Liberal, Judy Sgro]

Thank you very much.

Mr. Savard-Tremblay.

[Simon-Pierre Savard-Tremblay, Bloc, Saint-Hyacinthe—Bagot, QC]

I thank all the witnesses for their very diverse comments. Many of you are in the same field, but many are not, so this study has been very interesting from the start.

I'll probably ask you my first question, Mr. Leblond. At one point you said NAFTA is better than CUSMA. I'm curious to know why that is.

Indeed, most of the witnesses we heard from, apart from those in the agricultural sector, told us that, at worst, it's the status quo. Many identified gaps. Few witnesses other than those in the ag sector identified setbacks.

I'd like to know in which areas you think CUSMA is worse than NAFTA.

[Patrick Leblond]

Thank you for your question.

It's not necessarily worse, at least not according to economists who have studied its potential impact on the economy as a whole in terms of GDP, for example. Of course, there is always a significant margin of error.

The most recent study by Mr. Ciuriak of the C.D. Howe Institute shows that, overall, there may be a very small decline. However, other agreements were expected to have a positive effect on GDP. Even the United States International Trade Commission in Washington came to the conclusion that, overall, the new agreement would have little or no effect. It estimated that any positive effect would derive primarily from reduced uncertainty regarding the new agreement.

In terms of quality, the agreements are therefore comparable. The new one is more up-to-date in certain respects, such as the chapter on digital trade. However, as I indicated, that chapter is problematic because of how Canada's commitments could affect digital data regulations our government might want to make. As you know, some stakeholders in the ag sector aren't happy.

My source was the analyses that have been done. It seems clear that there are no significant gains here. Overall, it's pretty much the status quo.

[Simon-Pierre Savard-Tremblay, Bloc, Saint-Hyacinthe—Bagot, QC]

Farmers told us this is a step backward, but that there is a way to compensate. In terms of digital trade, is there a way to compensate?

[Patrick Leblond]

As I explained, the problem is mainly related to regulations. If the government decides to go ahead with protecting Canadians from bad content or material on digital platforms, American platforms can say the government can't do that because, in the agreement that we signed with them, we made a commitment not to hold them responsible, whereas Canadian companies are responsible.

There is also the issue with Netflix and taxes. Netflix doesn't pay GST, and businesses here complain that their services are taxed. This creates an environment where competition isn't necessarily fair. It also raises questions about what we want to do as a society and as a government to protect our businesses, Canadians and national security, among other things.

There's also a grey area, as I said in my remarks. The agreement says that exceptions can be made for legitimate public policy objectives.

What does that really mean in practice? Where's the line? Ideally, we should try to define it, and the agreement doesn't do that, in my opinion.

We could be in for some surprises in a few years if the government wanted more control and more regulations governing the digital realm.

[Simon-Pierre Savard-Tremblay, Bloc, Saint-Hyacinthe—Bagot, QC]

What you're saying is that there's a grey area rather than a rule that is definitely not in our interest, something vague.

There is an institution called the NAFTA Free Trade Commission, which helps clarify and interpret agreements once they're in force. That could be a possible way forward. Feel free to make recommendations to us if you can. We'll be monitoring this with great interest.

[Patrick Leblond]

Thank you.

[Simon-Pierre Savard-Tremblay, Bloc, Saint-Hyacinthe—Bagot, QC]

How much time do I have left?

[The Chair, Liberal, Judy Sgro]

You have 45 seconds.

[Simon-Pierre Savard-Tremblay, Bloc, Saint-Hyacinthe—Bagot, QC]

There's a question I would have liked to ask everyone involved in the softwood lumber industry.

As you probably know, in Quebec, the price is set by the market, or, to be precise, by an auction system. This system is not recognized in the agreements, which means that in the event of a trade dispute with the U.S. government, Canada's system as a whole is taken into account.

Do you think it would be possible and useful to formally recognize that Quebec has a different system for softwood lumber?

[The Chair, Liberal, Judy Sgro]

I'm going to have to ask you to try to find another way to answer our colleague, as his time is up.

I have to go to Mr. Blaikie.

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

Thank you.

Mr. Leblanc, a few years ago, we had a debate about Cambridge Analytica. Some of us thought the government should take a more legislative approach.

If I understand correctly, you think that will not be possible under the new agreement.

[Patrick Leblond]

It's not that it wouldn't be possible, but I have a question, and I'm not the only one. Platforms like Facebook and Google offer content, but at the moment, in the United States and under our agreement, they have immunity. They cannot be prosecuted. They're self-regulating, in a way. The question is, do we need to regulate the content that's on these platforms? That's debatable.

If, because of what happened with Cambridge Analytica or misinformation, Canada made these platforms responsible for their content, they could say that our regulations do not apply to them by virtue of a clause in the agreement that says they're not responsible. It's important to remember that, in the case of Cambridge Analytica, Facebook sold data when perhaps it shouldn't have done so. If that were to happen, Canada would invoke the legitimate public policy objective exception, but would it be recognized in the event of a dispute?

At the moment, we don't have an answer to that, but, ultimately, do we want to let a panel of three arbitrators make decisions about an issue of such importance to the future of the economy and the country?

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

Do the data localization provisions make it harder to regulate the sale of data when the data are located in a place where our laws do not apply?

Is there a chance that Canada would not be able to regulate the use of Canadian data?

[Patrick Leblond]

It's possible. For now, the agreement provides that privacy rules apply to personal data in the private sector. However, if we were to change the rules and further constrain the transfer of data from Canada to the United States, American companies seeking access to the data could invoke the agreement and say that we are engaging in data localisation that's blocking the free flow of data. They might argue that we are free to apply such regulations to Canadian companies, but not to them. That would result in an uneven playing field, which would have a negative impact on the competitiveness of Canadian companies in this sector.

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

Thank you.

I think that brings us back to some of Mr. Fay's opening remarks with regard to....

It just seems to me that sometimes people sign long-term contracts without understanding the future value of what they're signing away. It seems like a good deal now, but in 10, 20, 30 years, you know, if people didn't have the foresight or what they needed in order to be able to understand the value of what they were trading at the time, they can find that they're falling sorely behind. Is that the situation?

It seems to me that there's a lot that we don't know about what is still an emerging industry; I think that's fair to say. It seems to me that this agreement is making some pretty serious and far-reaching policy decisions without evidence that we actually know what we're really trading away at this point. Is that a fair assessment that I'm hearing from the panel today? How do you think we might try to have some domestically produced remedies that mitigate against this?