International Trade Committee on July 9th, 2020

[Steve Verheul]

In this case, I think we have been discussing trade relations with the U.K. for some period of time. In fact, this probably goes back to when they initially indicated they were intending to withdraw from the European Union. We've been having ongoing discussions. We came very close to reaching an agreement with them early last year, when they put forward their plans with respect to the MFN tariff.

I can tell you that Canada will clearly abide by the commitments made under that understanding, and we'll move forward on that basis.

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

And along—

[The Chair, Liberal, Judy Sgro]

Make it very short, Mr. Kram.

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

Okay.

That same letter also indicated that the objectives of the negotiations would be tabled 30 days in advance. Have you or your department begun to write this document outlining Canada's objectives for a Canada-U.K. free trade agreement?

[Steve Verheul]

Our objectives for a Canada-U.K. agreement are very clear. We have not set them out in a formal document as of yet, but that is something that could clearly be done very quickly.

[The Chair, Liberal, Judy Sgro]

Thank you very much.

Mr. Dhaliwal.

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

Thank you, Madam Chair.

Thank you to all of my friends. Welcome back to Ottawa.

Mr. Verheul, both Randeep and I come from British Columbia, so we are fully aware of the impact of the ongoing softwood lumber dispute with the United States. Right now, Canadian parties still have pending WTO and NAFTA challenges to the Department of Commerce's underlying countervailing and anti-dumping duties. Could you tell us how the ratification of CUSMA will impact these challenges? Overall, can you give us some context with regard to how the new agreement might work to de-escalate the ongoing dispute between the U.S. and Canada?

[Steve Verheul]

As you well know, we've had a long-standing irritant with the U.S. with respect to softwood lumber. Given the most recent actions they've taken to reimpose tariffs, both anti-dumping and countervailing duty tariffs, against our softwood lumber producers, we have been challenging those measures under NAFTA and at the WTO. We have met with a number of successes in those efforts. We had been hoping that those kinds of successes would bring the U.S. back to the negotiating table so that we could resolve this for the longer term, but we have not seen a willingness on the U.S. side to advance that.

With respect to the new CUSMA, I think it's important to remember that any kind of softwood agreement is outside of that agreement. It was not envisioned by that agreement, nor was it envisioned by NAFTA. When we have the U.S. pursuing anti-dumping and countervailing duty actions against our softwood lumber producers, they have a legitimate right to do that under the trade remedy provisions of both NAFTA and CUSMA. We have the right to challenge those. In most cases, we've successfully challenged those measures, but the decision to try to negotiate something out requires agreement on the side of both parties.

We are ready to go to the negotiating table at any point in time to resolve this issue. We think it causes damages on both sides of the border. It increases costs, particularly in housing in the U.S., and is totally illegitimate in terms of the application. We're ready to go back to the negotiating table at any point in time. However, we have not yet seen any willingness on the U.S. side to do that.

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

The COVID-19 pandemic has shown us how fragile the global supply chain can be and how that can impact Canada. With regard to manufacturing, can you explain how the new CUSMA might help bring in some of the manufacturing jobs that left Canada over the past few decades?

[Steve Verheul]

Aside from the kinds of modernization gains we made in the new NAFTA, particularly with respect to goods moving more easily back and forth across the border, the emphasis is on regulatory reform and on making all of these processes more modern and more simplistic.

Going forward, we think there will be a greater emphasis on supply chains operating within North America, and that is the direction we're looking at. When we take a sector like auto, for example, there are stronger rules of origin requirements, so that the parts, the products and the assembly of the automobiles have to be done on the basis of predominantly North American parts and North American inputs.

We have this situation with respect to other products as well, so I think we will see more of an emphasis on production within the North American region than we've seen in the past. We certainly expect that, as a result, more jobs in these areas will come back to North America and back to Canada. That was a major objective in the negotiations.

[The Chair, Liberal, Judy Sgro]

Thank you to our witnesses for the very valuable information today.

We will suspend for five minutes while we set up our next set of witnesses appearing by video conference. As a reminder, if you get up from your chair, you have to put your mask on.

Stay safe and stay well, Mr. Verheul. It was nice seeing you again.

[Steve Verheul]

Thank you. It was nice to see you.

[The Chair, Liberal, Judy Sgro]

I call the meeting back to order.

Again, we're doing hearings on the impact of COVID-19 on international trade relationships, especially with the United States and the United Kingdom.

I want to welcome our witnesses and thank them very much for coming back to appear before the committee. You're a very familiar group when it comes to international trade.

Here we have, from the Burney Investment Group, Derek Burney, chairman; from the Canadian Chamber of Commerce, Mark Agnew, senior director of international policy; from the Canadian Manufacturers & Exporters, Mathew Wilson, senior vice-president of policy and government relations; and from the United Steelworkers, Ken Neumann, national director for Canada at the national office, and Mark Rowlinson, assistant to the national director.

Thank you all for participating today.

We'll start with Mr. Burney.

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

Madam Chair, I have a point of order.

At the beginning of the meeting, you said that, if we wanted the documents in print, we had to email a request to the clerk. My assistant did that. The process doesn't seem to work, however, because we can't get them. I'd like to know what to do in that case. Do the instructions still stand?

[The Chair, Liberal, Judy Sgro]

Would you like to respond, Christine?

[The Clerk of the Committee, Ms. Christine Lafrance]

No hard copies of documents will be distributed at the meeting. Documents are sent to members in advance of the meeting so that they can print them and bring them to the meeting. That was included in the instructions sent to all parliamentarians.

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

We were told we could request a hard copy during the meeting.

That is what you said, Madam Chair.

[The Chair, Liberal, Judy Sgro]

Yes, that's what I understood, but the clerk has corrected that. I printed mine myself. They were not supplied to me. They were sent to us electronically, and I understand it's now up to us to print them or have our staff print them.

Hopefully I've clarified that. It's another inconvenience.

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

Thank you for the clarification.

[The Chair, Liberal, Judy Sgro]

Thank you.

Mr. Burney, you have five minutes, please.

[Derek Burney]

Thank you, Madam Chair and honourable committee members.

Good afternoon and thank you for the invitation. If I may, in my remarks I will go a bit beyond the specific topics and offer a little more of a global perspective.

First of all, I believe that the most serious problem on trade for Canada in the wake of the COVID-19 pandemic is that the world is turning inwards and becoming a hotbed for protectionism. The U.S., unfortunately, is as reluctant to lead globally on trade as it has been on the pandemic. The major powers are competing for power, leaving middle powers like Canada dependent on multilateral institutions like the WTO, which have been weakened by a lack of clear leadership and any real will to work together. By refusing to name panellists to the WTO’s dispute settlement mechanism, the United States has severely restricted the institution’s ability to safeguard the rule of law on trade.

Due to the pandemic, self-reliance and self-interest are in the ascendency. Global trade has already seen employment, production, prices and supply chains sharply disrupted, and there is now a new public health rationale for constraints on trade, under the guise of national security. A “might is right” trend is taking hold as countries are compelled to fend more for themselves.

What should Canada do in this environment? First of all, now that the USMCA is operational, we need to defend vigorously and, where possible, advance access to the U.S., our most vital market, invoking the dispute settlement mechanism retained from NAFTA without hesitation and using selective retaliation when necessary. For Canada, the USMCA is a respectful salvage more than a platform for economic growth, but it should help check lunges into protectionism. Because bilateral trade is roughly in balance, there is no reason for Canada to become a passive punching bag for U.S. protectionists and mercantilists.

Arbitrary tariffs once again on Canadian aluminum exports will hurt American producers and American consumers more than anybody. This is a message that should be delivered fervently to Congress and at various state levels in the United States. We should not hesitate to retaliate.

Similarly, chronic complaints from Senator Schumer, the majority Democrat leader in the Senate, about Canadian dairy policy should be rebuffed. Canada made modest concessions on dairy in the NAFTA renegotiation and should abide by them, but nothing more. Nonetheless, these attacks are a harbinger of what to expect should the administration change in November. We should stand firm. The best antidote to American protectionism, in my view, would be a robust, V-shaped economic recovery—the sooner, the better.

Second, because 75% of our trade is with the United States, diversification has always been desirable. Now it's essential. For it to become real, however, we first need complete free trade within Canada, a quest over many decades that has delivered more solemn communiques than substantive results. Most popular in western Canada, this effort will only succeed with firm leadership from Ottawa and if economic common sense prevails over narrow provincialism, notably in Quebec and Ontario. According to the IMF, liberating Canadian internal markets would yield a 4% increase in GDP. That's much more than is expected from the USMCA.

Third, free trade across Canada would also give us greater leverage and better access from other preferential trade agreements, which are the best immediate prospects for diversification: CETA with the EU, the Canada–Korea Free Trade Agreement, and the mini-TPP, which affords significant new potential in Japan, Malaysia, Indonesia and Vietnam, among others.

Fourth, we should move deliberately to conclude a bilateral trade deal with a post-Brexit Britain, complementing, where possible, the terms negotiated in CETA, but mindful as well of the terms being negotiated by Britain with the United States. Canada enjoys more than a 2:1 trade balance with Britain. I suspect that their negotiators will seek to make up what they may lose from the European Union by gaining enhanced access specifically from the U.S., Canada and Australia. Our negotiators should be determined to get at least as much in terms of increased access as we are prepared to give. That is the goal for any trade negotiation.

Fifth, Canada should actively explore the prospects for broader trade with India, despite the difficulties posed by the high degree of regulations and protectionism in the Indian economy. This initiative can best be conducted on the basis of careful preparation and consultations, not by high-level junkets.

Sixth, even more daunting are the prospects with China, where relations are completely hamstrung today by the deadlock over Madame Meng and the two Michaels. There is much not to like about China's behaviour these days on trade and many other issues. The way supplies needed for the pandemic were hoarded before China released initial data on the virus and were then sold for huge profits should elicit worldwide scorn, if not harsh penalties.

Today, we are unwilling to counter discriminatory trade actions against Canadian agricultural exports, even though China has a 3:1 trade advantage over us, lest it harm those in detention. We should not be reluctant to retaliate. We must also be more deliberate in joining sanctions against China for its repressive moves against Hong Kong. Canada should, like Britain, extend a welcome hand to Hong Kong refugees. We should also nimbly expand relations with Taiwan.

Most importantly, we need to find a way out of the corner we have painted ourselves in, if not by an exchange of detainees, then by other means. We have become a hapless pawn caught in a dispute between two giants. Asserting self-righteous points of principle may make us feel better, but they will not break the current stalemate. We must deal with the world as it is and not as we would naively like it to be.

We cannot isolate or immunize ourselves from what will soon be the world's largest economy. Mutual self-interest obliges us to gauge prudently and cautiously the prospects for pragmatic, albeit limited, relationship, proceeding, as the adage about how porcupines mate stipulates, very carefully.

Finally, if the U.S. is reluctant to take up the mantle of leadership on trade, Canada should strive creatively to fill the void, working with countries like Britain, Japan, Australia, South Korea, Singapore and others to reinvigorate the WTO's capacity to uphold the rule of law on global trade.

Thank you.

[The Chair, Liberal, Judy Sgro]

Thank you very much, Mr. Burney. We appreciate your comments.

We'll go on to Mr. Agnew, director of international policy for the Canadian Chamber of Commerce.

[Mark Agnew, Senior Director, International Policy, Canadian Chamber of Commerce]

Thank you very much, Madam Chair and members, for the invitation to speak here at committee today.

Although it's quite common for stakeholders to reference the critical or timely nature of a given study, I think this one really is. International trade is critical to Canada, and our relationships with both the U.S. and U.K. are critical as well.

I want to touch on three issues in my opening remarks this afternoon. The first point is that COVID-19’s impact on international trade has been substantial, and it certainly has brought into focus the need to strengthen supply chain resiliency. I think we all know and accept this. I think most commentary has missed the point that supply chain resiliency is not monolithic—each sector of the economy, and maybe each company, has different needs in regard to what that looks like for their supply chain circumstances.

Also quite importantly, we are a market-oriented economy. Governments generally don't own supply chains; instead, they incentivize private sector behaviour and create the conditions within which businesses operate. Our approach to supply chains needs to ensure that we have the interests of consumers and businesses in mind, in terms not only of their being able to supply inputs and products that we need both in the country and into the country, but also supporting exporters. It goes both ways.

It's also much more than just the production of physical goods. Services across different modes of supply play a critical role in supply chains, whether you're talking about the upstream parts, such as research and development, and engineering and design, or about after-sales servicing of equipment, or transportation and logistics.

This week the chamber released our position statement on supply chain resiliency, which I have shared with committee staff. Hopefully, members have had a chance to look at it in advance. In short, we think governments need to take a holistic approach in how domestic and international policy is used to support supply chain resiliency.

The document is quite long, so I'll just draw your attention to a few of the international tools we think need to be a critical part of the effort.

The first we're calling “security of supply agreements”. We've seen that export controls on medical equipment have proven to be a major problem during the early days of the pandemic. We're asking the government to take a positive approach with our most trusted allies and look at a way to circumscribe and tighten up how countries are allowed to use export restrictions.

We're not naive and certainly realize that there would only be a very small subset of countries that we'd be able to do this with. We commend the work that the government has done through the Ottawa Group and think that this might be a way to take that work, talking about transparency and time-limited and being proportionate, and take that to the next level in a tangible way.

Second, there also needs to be a much greater focus on the issue of industrial subsidies. This has been a long-standing problem since before the pandemic, but it's going to get worse as governments around the world throw huge sums of cash at their domestic industries. This is going to tilt the field against Canadian companies even more so than is already the case, and we certainly need to reign in the excesses of other countries by using multilateral or bilateral tools to do that.

The third aspect of supply chain resiliency is digital trade and e-commerce. As more activities head online, we need to make sure that our trade rules are relevant to the economy of 2020, whether that's cross-border data flows or trade facilitation measures that will support e-commerce.

The second point I want to talk about briefly is the United States. We very much welcome the entry into force of CUSMA and thank negotiators like Steve and his team who have done phenomenal work to get that deal over the finish line. However, our main message here is that it's too early to get out the proverbial mission accomplished banner, given that we have a number of other outstanding trade issues with the United States. The spectre of so-called national security tariffs on both metals and electrical coils looms large once again. We are steadfastly opposed to the United States using them and are working closely with our U.S. official counterparts and are calling on the government to be active on that issue. Additionally, we are without a softwood lumber agreement at the moment. We hope that the resolution of CUSMA will create bandwidth to be able to pick up this issue again and bring it to a resolution.

The last piece I want to touch on in my opening remarks is our relationship with the United Kingdom. In the absence of further developments, Canadian companies are generally now operating on the assumption that the U.K. will leave its current transition status with the EU as of the end of 2020, and that it will enact its so-called global tariff regime in January 2021, which was announced earlier this year.

This means fundamentally that the clock is ticking. Given that discussions have been happening for some time between the U.K. and Canada, our view is that we need to conclude the efforts to transpose the CETA into a bilateral agreement at the earliest possible opportunity and begin the necessary implementation processes, especially here in Canada.

Being fully self-aware, I know this view puts the Canadian Chamber of Commerce in a slightly different spot from some others, but our position is informed by several factors.

One, companies have already faced more than enough supply chain disruptions in the last number of months. Let's give companies the certainty they need and ensure that they won't face tariffs on their exports to the U.K., potentially as of January next year.

The second piece is that, based on the media reporting we're seeing on what the European Commission has said about the status of the U.K.-EU discussions, they might not be finalized until October. That certainly cuts very close to the end of the year, and given our own parliamentary timings, if we decide to wait until we have complete certainty about the outcome of the U.K.-EU discussions, that doesn't leave much time for businesses to plan, especially in the COVID-19 context.

The third factor is that landing a bilateral agreement with the U.K. based on the CETA positions us quite well to take the trade relationship to the next level. Out of the 28 countries in the EU, the U.K. is the one where we can probably have the most advanced trade relationship possible. This includes, for example, deepening services, regulatory work and digital trade rules. It also sends an important signal for Canada to maintain that we are the only G7 country to have comprehensive FTAs with all other G7 countries.

The Canadian Chamber of Commerce represents Canada at a number of global business forums, and that's a point we're always very proud to make when we are speaking to our global counterparts when representing Canada abroad.

I'll stop there, but I'm certainly happy to take any questions from committee members in the Q and A rounds.

[The Chair, Liberal, Judy Sgro]

Great. Thank you very much, Mr. Agnew.

We'll now go to Mr. Wilson.

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

Good afternoon. Thank you, Madam Chair and members of the committee, for inviting me to participate in today's discussion.

It is my pleasure to be here on behalf of Canada's 90,000 manufacturers and exporters, and our association's 2,500 direct members, to discuss COVID-19 and Canada's manufacturing and exporting sector. Our members cover all sizes of companies from all regions of the country and all industrial sectors. We represent the majority of Canada's manufacturing output as well as value-added exports.

I'll keep my commentary short so there can be more discussion at the end. However, it is important to make a few critical comments to provide context and background.

First, manufacturers have been critical in the country's response to COVID-19. Not only have domestic manufacturers made many of the goods necessary for the response; they have also continued to operate and employ millions of Canadians. Despite this, the sector has been very hard hit from the crisis. Output declined roughly 30% over March and April. We are not expecting a full recovery until well into 2022. While the impacts have been bad, it could have been much worse without strong actions by government. The wage subsidy and other liquidity measures were literally lifesavers for our members. With the crisis far from over, it is critical that these measures continue to exist and be adjusted based on economic conditions for the foreseeable future.

Second, while manufacturing continued to operate and global supply chains were maintained with only minor disruptions, the lower output meant a corresponding decline in Canada's trade activity. The 30% decline in output led to a decline in merchandise export activity of roughly 33%, and imports of 27%. The most impacted sectors, however, were among the largest in the country—automotive and aerospace in particular. The decline in imports and exports was widespread amongst our trading partners, but obviously of higher value with the U.S., given our volume of trade with that country. Notably, however, Canada did witness a massive spike of 35% of imports from China as consumers increased spending on electronics in particular.

Third, it is critically important to create a plan to move the country from recovery to growth and prosperity by harnessing the strength of Canada's manufacturing sector through a comprehensive strategy. The focus of the strategy must be on driving investment to improve global competitiveness for long-term economic growth. Canada faced structural economic problems of underinvestment, soaring trade deficits and poor productivity before COVID-19 hit that must be addressed now.

For the purpose of this committee, there are several concrete actions that we believe the government should take on to help Canada's exporters. One, work to implement all aspects of the new CUSMA, especially the chapter on competitiveness, which aims to increase co-operation between the countries to deal with global trade cheats and unfair trading practices of third countries. Two, launch a made-in-Canada branding exercise at home and in international markets to boost awareness of Canadian capabilities and technologies with the goal of boosting sales and exports of Canadian-made products. Three, support SME export potential by expanding investment in government export concierge programs and private peer mentoring networks, which are critical to getting companies going internationally.

Finally, before making a few remarks about Canada-U.K. trade, I would like to note that we believe there will be some shifting in global supply chains moving forward and increased opportunity for Canada. This shift will be to protect supply chains and to meet increasing demands for consumers to buy local. However, these opportunities will flow to the locations that provide the greatest returns. Canada has a huge advantage in access to many foreign markets through FTAs, as well as a skilled labour pool that is world class. However, as a small and trade-exposed country, if our domestic business environment is not world class, investment will continue to flow to other markets and Canada will miss out on these current opportunities. Manufacturing investment in particular has been drifting downward since the early 2000s, which has stalled overall exports in the country and seen ballooning trade deficits. This trend must be reversed.

The possibility of a Canada-U.K. FTA is fully supported by CME. At nearly $20 billion a year in exports, the U.K. was Canada's third-largest export market in 2019, behind only the U.S. and China. While gold accounted for 71% of this total, other exported products totalled over $5.5 billion, including more than $4 billion in manufactured goods. As such, even without gold, the U.K. is Canada's sixth-largest export market.

Given this, extending the terms of the existing CETA agreement to the U.K. would be logical. However, we must ensure through negotiations that Canadian exporters are gaining an actual advantage over other countries who do not sign new FTAs with the U.K. We understand that the U.K. is aggressively pursuing new FTAs with many markets and offering up broad-based tariff concessions to many countries. In some cases, these tariff concessions are being made even before there's a trade deal in place. Trade agreements should be about mutual gain and benefit. If there is no unique benefit to Canada in exchange for opening our market, it undermines the value of the FTA.

Thank you again for inviting me to participate today. I look forward to the discussion.