International Trade Committee on July 9th, 2020

[Lindsay Mathyssen, NDP, London—Fanshawe, ON]

Thank you for attending virtually today, Mr. Verheul.

With regard to the negotiations on steel and aluminum, and now on aluminum tariffs, you said that we have allies. We have proof that Canada isn't a national security threat, and we are working to negotiate. However, we did this before and it didn't seem to matter then, given the outcome with the Trump administration. The U.S. moved ahead as they wished, much to the detriment of Canadian industries.

Despite that reaction, you seem to be saying that we'll be doing the same thing. Shouldn't we expect the same outcome? What specifically are you doing differently to ensure that doesn't happen?

[Steve Verheul]

We do have the benefit of the experience we had the last we confronted this, but I think there are some differences with respect to what we're facing now.

The bottom line in all of this is that the U.S. cannot meet its domestic demand with its own domestic production. The U.S. produces less than two million tonnes on an annual basis but consumes more than five million tonnes, so it simply does not produce enough domestically to satisfy its domestic market. That means they have to import. We have been, we would argue, the most reliable, the most long-term and the most consistent supplier of aluminum to the U.S. for dozens and dozens of years.

If the U.S. were to consider imposing this additional tariff on exports of Canadian aluminum to the U.S., that would obviously put a further penalty on our exports to the U.S. At the same time, it would mean that in the context of what they say is a national security investigation, with a national security rationale for imposing these tariffs, the impact would be that our exports to the U.S. of aluminum would face competition, primarily from Russia and China. Russia and China would gain a greater market share in the U.S. of aluminum at the expense of Canadian exports.

We have a hard time understanding how that relates to national security considerations, given the kinds of exports we have been providing on a consistent basis. Since, as I mentioned, the U.S. does need to import aluminum because of their insufficient domestic production, we feel that the kind of action they're contemplating is entirely unjustified.

[Lindsay Mathyssen, NDP, London—Fanshawe, ON]

I think there's no doubt that we all find it difficult to believe we would follow the same path, but here we are along the same path. It brings me back to the reality that, while we were negotiating with the United States on the new NAFTA, we had particular leverage. Although trade negotiators were consistently saying these are two separate issues, at the time when these tariffs were going forward we had leverage. Now we don't have that leverage.

Perhaps you could explain why we gave up that leverage, why during those negotiations Canada agreed to allowing those two side letters in the first place. How do we move out of that? How do we continue to look for that leverage outside of an administration in the U.S. that doesn't seem to understand that what they're doing is actually harming them?

[Steve Verheul]

With respect to the side letters we agreed to with the U.S. on the removal of the aluminum and steel tariffs, they were actually statements; they weren't even side letters, so they are not part of the formal legal agreement we have reached with the U.S. on the new NAFTA. That means they do not have the same kind of legal standing that any measures that are inside the agreement will have.

We will have to look at what action, if any, the U.S. takes against us with respect to aluminum, and we will have to determine whether that is consistent with the statements we made on the lifting of the aluminum and steel tariffs, but we'll also have to look at whether it goes beyond that. There will be an assessment of that as we move forward.

Our conclusion is that, at the end of the day, as you mentioned, if the U.S. were to impose these tariffs on aluminum coming from Canada, the impact on users, manufacturers and business prospects generally would be felt more on the U.S. side than on the Canadian side. We don't think it's a wise policy decision to move in this direction, if they're to do that, but obviously we have a lot of concern that, particularly in the context of trying to recover our economies, in the context of COVID-19, this is entirely the wrong direction to be considering.

[The Chair, Liberal, Judy Sgro]

We'll go on to Mr. Carrie for four minutes.

[Colin Carrie, Conservative, Oshawa, ON]

It's not a lot of time.

Thank you very much to the witnesses for being here.

It's great to see colleagues.

I wanted to talk a little bit about the economic impact. I know that with the original CUSMA we begged and pleaded to get these economic impact studies. The Prime Minister didn't make them available until after the deal was done. One of the disturbing things I saw in them was on page 61. It basically said that automotive would be taking a $1.5-billion hit compared to the old NAFTA.

Mr. Verheul, you said in your opening statement that it's so important that Canada maintain its ability to be “an attractive investment environment”. Two-thirds of our income comes from trade, and 3.5 million jobs come from trade. I'm really concerned about the uncertainty we have on the implementation of CUSMA and the effects of COVID on the supply chains.

I'm not an MP from Quebec, but I think everybody knows that the federal government sole-sourced and ordered two jets from Bombardier Aerospace recently. Immediately after CUSMA came into effect, Bombardier Recreational Products announced they'll be opening a brand new plant. But, Steve, it's not in Canada; it's in Mexico. They're investing $185 million and creating up to 1,000 jobs, but not in Canada, not in Quebec. It's in Mexico.

I was wondering what the Liberal government has done and what kinds of resources it has given you, as we move through this implementation, to make sure that the message gets out that Canada is an attractive place to do business. What have they done to decrease the uncertainty with these supply chains? With any new investment, manufacturers are going to be looking at how they're going to get these products back and forth across the border. What has the government asked you to do immediately, as CUSMA is coming into effect, to allow that to happen?

[Steve Verheul]

With respect to implementation, I think we have been doing a lot of work, a lot of consultation, with industry moving forward to ensure that the change from the existing NAFTA to the new NAFTA, or CUSMA, can happen as smoothly as possible. However, I think probably even more importantly, we have been looking at a number of steps to take to ensure that companies in Canada understand how they can take advantage of the changes under the new agreement, and how we can ensure that we can strengthen our position with respect to the economic relationship between Canada and the U.S., and Mexico as well. A lot of our work through the trade commissioner service has been dedicated to trying to help those companies reach those kinds of achievements.

I want to turn briefly to my colleague Eric Walsh, who is responsible for U.S. trade relations; he might want to add a few comments.

[Colin Carrie, Conservative, Oshawa, ON]

Just before that, Mr. Walsh, I know many companies wanted CUSMA to come into force after January 1, 2021, because of COVID and other factors. What does that delay...? How is having CUSMA implemented now affecting the automotive companies? What's it doing to their certainty levels? Again, I don't want to see this bleed continue in the automotive and manufacturing sector where they think it's better to build in the United States or Mexico because they don't have these issues about supply chains, etc.

[The Chair, Liberal, Judy Sgro]

Give a brief answer, please. You have about 12 seconds.

[Steve Verheul]

That was clearly a strong concern of ours, when the U.S. was pressing to have the agreement come into effect sooner rather than later. We know that companies across Canada are facing enough challenges dealing with COVID-19. We were, at least initially, reluctant to have them have to adapt to new rules under the new agreement, so we've been working closely with them to try to make sure this process is as smooth as possible.

In particular with respect to the auto sector, there are a number of provisions that allow for gradual implementation, with a number of flexibilities in recognition of the challenges we're facing now. We have various flexibilities that would delay the coming into force of some of these elements.

[The Chair, Liberal, Judy Sgro]

Thank you very much.

Mr. Sarai.

[Randeep Sarai, Liberal, Surrey Centre, BC]

Thank you, Madam Chair.

Thank you, Mr. Verheul.

As the member of Parliament for Surrey Centre, along with my colleague, the member of Parliament for Surrey-Newton, I know that Surrey is a big trading hub, whether it's ports or borders. Logistics companies have headquarters here and have a huge impact on our local economy.

I first want to thank you for having concluded CUSMA prior to the pandemic and having it ratified. I think it would be a much more difficult task with protectionist views heightened during a pandemic, so we are fortunate to have it in place. However, due to the pandemic, we've still had over one-third drop in trade between the two countries. I think it's roughly 35% respectively either way, along with toughening the borders in terms of crossing times and limited border crossings.

How difficult do you think it will be to restart supply chains and restart that trade generator that we were before? Would CUSMA be beneficial in that, considering the problems the U.S. is having, particularly with some of its Asian partners?

[Steve Verheul]

I think we are certainly doing a lot of work to determine how quickly we can move back to as close to normal as we can get in terms of the trading relationships. I think the impact that you cited with respect to the trade going back and forth.... Those numbers are higher than the ones I have seen. I think we have been managing to maintain supply chains, by and large, particularly with the U.S. and with Mexico going forward.

I think there will probably be further pressure on us to narrow the supply chains to some degree—in other words, putting more pressure on North America as a supply chain in itself—and the relationship with the rest of the world will depend on us making efforts to maintain those supply chains as well.

I'd like to see if Eric Walsh has something further to add on this supply chain issue. He's been working on these issues more closely than I have.

[Eric Walsh, Director General, North America Bureau, Department of Foreign Affairs, Trade and Development]

Yes, I'm happy to jump in. Thank you for inviting me here today.

I think we can say that both Canada and the U.S. are very close partners and part of these complex, integrated, reciprocal supply chains that go both ways across the border, and it's in both of our interests to allow these supplies and people to continue crossing the border.

We've seen this with the situation with PPE, personal protective equipment, and all the related COVID materials. We had difficulty accessing inputs and raw materials, and that's really slowed down production. Logistics has been another factor in the supply chain disruptions, so reinforcing our strong relationships with the U.S., as well as Mexico, is really important to Canada's ongoing prosperity. The integration of the North American production platform, especially in the context of the COVID-19 pandemic, is equally important.

[Randeep Sarai, Liberal, Surrey Centre, BC]

The first thing businesses in our neck of the woods will ask is how a Canada-U.K. trade deal would benefit them. If we are past the exit for Great Britain by the end of the year, what would a new trade deal look like for Canadian businesses?

[Steve Verheul]

When we are talking about the U.K.... Well, I will start and Robert Fry might want to weigh in as well.

[The Chair, Liberal, Judy Sgro]

It has to be a very brief answer.

[Steve Verheul]

Okay. I think that with the U.K. we've had the benefit of CETA, the agreement that we've had with the European Union and the U.K. now for a number of years. We would look to translate that into a bilateral agreement, and a large proportion of that work has already been done. We would have some elements that we would want to tailor specifically to the Canada-U.K. relationship, but, by and large, in that negotiation we have a considerable head start over other countries, because we have an existing trade agreement that applies currently between Canada and the U.K.

[The Chair, Liberal, Judy Sgro]

Thank you very much.

We'll go to Mr. Kram for four minutes.

[Michael Kram, Conservative, Regina—Wascana, SK]

Thank you very much to all members of the panel for joining us today. It's good to see that we're keeping well during these challenging times.

As I'm sure you're aware, pipelines are a major issue for southern Saskatchewan, for two reasons. First of all, because Saskatchewan has a lot of oil and natural gas, we want to extract and export to the rest of the world, and second, because many of the pipelines themselves are manufactured by Evraz steel just outside of Regina. As we come out of this pandemic, I would love nothing more than to see good, high-paying jobs created in both the resource sector and the steel manufacturing sector, both in Saskatchewan and across the country.

The website of Global Affairs Canada states that one of its priorities is to “deepen engagement with the U.S...on key areas such as...energy”. My question to the panel is this: How is the Government of Canada meeting this goal with regard to the Keystone XL pipeline and making sure that construction of that pipeline continues on both the Canadian and the American sides of the border?

[Steve Verheul]

I would like to turn to Eric Walsh to respond to that question.

[Eric Walsh]

Sure, I'm happy to do that.

As you know, Canada is the leading, most secure, reliable, sustainable and competitive supplier of energy to the United States, and that includes crude oil and refined petroleum products, natural gas, electricity, hydro power and uranium. In our fight against climate change, we are taking action to move to a more carbon-free economy, but every projection indicates that economies will need significant quantities of fossil fuels up to 2040.

Canada strongly supports the completion of new and expanded cross-border energy infrastructure, and that includes Keystone XL, which the member mentioned, as well as Line 3 replacement and Line 5 projects. We believe this will benefit both Canada and the U.S., and we are working closely with provinces and other Canadian stakeholders on these projects.

[Michael Kram, Conservative, Regina—Wascana, SK]

In a similar vein, what is the Government of Canada doing to make sure that Enbridge's Line 5 pipeline continues to remain in operation?

[Eric Walsh]

Yes, it's one of the lines I mentioned. It's very important to us. We are engaging with partners in the U.S., both at the state and federal levels, as well as regulators to try to ensure that it continues to be the case.

[Michael Kram, Conservative, Regina—Wascana, SK]

That's very good.

I would like to change gears and bring up the Canada-U.K. free trade agreement.

Last February, Minister Freeland wrote a letter to the NDP member of this committee, Daniel Blaikie, stating that she intends to inform the House of Canada's intent to enter into free trade negotiations 90 days before they begin. When can we expect the House to be given the 90-day notification with respect to a Canada-U.K. free trade agreement?