International Trade Committee on July 9th, 2020

[The Chair, Liberal, Judy Sgro]

Thank you very much.

We go on to Mr. Lewis for four minutes.

[Chris Lewis, Conservative, Essex, ON]

Thank you, Madam Chair.

To all my colleagues, it sure is good to be sitting back here in Ottawa with you. It's great to see you all.

Thank you to all the witnesses today as well.

I listened with a very keen ear today. My riding of Essex is very close to the busiest international land border crossing in North America, so it's certainly good to be here.

I have a few questions. I guess we'll open this one up to any of our witnesses who may have an answer for this.

Due to COVID-19, notwithstanding the fact that we do have to be very, very careful with our borders with regard to personal travel, but specific to economic impact, do you have any idea of the economic impact, what it looks like as the land borders remain closed perhaps month to month or perhaps quarterly? What kind of economic impact does it have on industry and trade?

[Mark Agnew]

Maybe I'll just start it off. We haven't done a quantitative analysis of the impacts. It's being said that we have quantitative numbers. It's what the Canada Border Services Agency is already producing domestically. However, in terms of the actual impact, it's quite varied in terms of everything from a Canadian company that needs to, for example, have a buyer come here in order to, say, inspect a product and meet critical attainment milestones that are linked to payments, to bringing in, say, pilots who need training on flight simulators. That can't be done virtually on a laptop at home. They need to actually go to the physical flight simulator. Again that is another issue that we've had raised by our members. It does manifest itself in different ways.

I would also say that it's somewhat hard to quantify a chilling effect as well. Certainly, just speaking personally, despite international travel being in the job title, it's a fairly difficult proposition to know that when I come home I have to self-quarantine in my basement for 14 days.

[Chris Lewis, Conservative, Essex, ON]

With regard to the U.K., notwithstanding the fact that, yes, we did get CUSMA done, it seemed, however, as though it was a last-minute, rushed deal. How important is it for us, for Canada, to get to the table early and be number one in line to get a deal done, to make sure we have enough time to get a very strong agreement so we're not rushed, and to make sure we have an economic assessment before we actually sit down at the table? How will that impact Canada?

[Derek Burney]

Perhaps I can take a stab at that one, Madam Chair.

I think the first priority has to be Britain achieving an agreement with the European Union. There's very little that we can negotiate with Britain until we know what the terms of their agreement with the EU are going to be. We also know, secondly, that their top priority is the United States. We might like to think we're up there, but actually their top priority is a bilateral agreement with the United States. It gives them the biggest bang for the buck.

I think time is on our side. We're going to know by the end of the year, by October maybe, but by the end of the year for sure, what sorts of terms Britain extracts or the EU extracts from Britain, and then we have a fundamental choice to make, in my view. We decide to roll over the terms of CETA into a bilateral agreement with Britain, or we start from scratch with a fresh bilateral one.

However, they will give priority to the United States because that's their most important market. We should stand back, watch what the Americans get and make sure we get no less.

[The Chair, Liberal, Judy Sgro]

Thank you very much.

Mr. Arya, please, you have four minutes.

[Chandra Arya, Liberal, Nepean, ON]

Thank you, Madam Chair.

My question is for Mark and Mathew.

Because of this pandemic, for the first time in the history of the world every country has been hit economically. I would like to know whether this will fundamentally change global trade. Can we expect global trade to grow, to decrease or to remain neutral in the next three to five years? Do you see any push-back in global trade?

[Mark Agnew]

I'll maybe kick it off before handing it over to Matt. Certainly the World Trade Organization has done quite a lot of interesting work through its leading indicators on what they're seeing around the world in transportation and logistics, so absolutely there will be a decrease.

What does the growth path look like in terms of global trade? Is it a U-shape, a W-shape or a V-shape? Is it something else? Only time will tell. Given the gravity of what's happened, I think every company is looking at their supply chains in a very serious way, in a way that frankly they haven't had to in the past. It's probably good, actually, that this has forced them to at least know more than taking just a superficial, one-level-down look at what is happening in their supply chain.

The other, I think, quite concerning impact for businesses is what's happening with the U.S.-China dynamic. Any time you pick up a newspaper or go to the website of a given news outlet, it's not looking good at the moment. We're talking tit-for-tat trade wars. We're talking the U.S. even putting national security tariffs on Canada. It's a very bad environment for Canadian businesses.

[Mathew Wilson]

I'll maybe add a couple of things.

We certainly see a long haul out of this. It will recover eventually—everything always does—but it will take a while, and there will be some shifts in those supply chains. For Canada, we can't forget that three-quarters of our trade is with the United States. The vast majority of that is in manufactured goods. A lot of it is in automotive and aerospace and food. A lot of Canada-specific trade volumes come down to a handful of sectors that are interlaced with the U.S. or in commodities that are traded with China and markets around world that still have strong demands for them.

We think it will be a long slog to come out of this from a trade perspective, but a lot of our Canada-specific trade volume will be tied up in U.S. consumer demand. If people don't buy cars, for instance, there won't be a lot of—

[Chandra Arya, Liberal, Nepean, ON]

I'm sorry, but my time is limited and I have one more question for both of you.

We have free trade agreements with almost 50 countries across the world. That phase is done. What do we need to do here in Canada to make use of these free trade agreements? What is one fundamental thing that we have to focus on in the post-COVID-19 world?

[Mathew Wilson]

We have to help small companies access those foreign markets. We do a terrible job in Canada overall, in that very few companies actually export. If we don't get more small companies exporting, we will never change the dynamic.

This is not a new thing. It predates COVID-19. It's just been highlighted by COVID-19. Small companies need to export more.

[Chandra Arya, Liberal, Nepean, ON]

Mark, what about you?

[Mark Agnew]

I agree with what Mathew said on the SMEs. To build on that, I would say use the regulatory co-operation mechanisms. It's great if tariffs come down, but if the regulatory measures aren't aligned or they keep out a company, then tariff liberalization is a moot point. We saw that in the case of CETA, for example, and some of the agriculture issues that Canadian companies have run into.

[Chandra Arya, Liberal, Nepean, ON]

In our GDP, 60% comes from trade, but 75% of our trade is with the U.S. Why have we not been able to increase trade with other regions in the world?

[Derek Burney]

It's because we're complacent.

[The Chair, Liberal, Judy Sgro]

Okay. Thank you very much for that answer—

[Derek Burney]

That's the simple answer. We have a huge customer right at our door, and we're reluctant to go much further beyond to find new customers. We're not taking adequate advantage of the other preferential free trade agreements that we already have. That's the point I tried to make in my opening remarks. There's the Canada-Korea FTA, CETA and the mini-TPP. We have an edge over the Americans on the mini-TPP. Are we taking advantage of it? I don't think so.

[The Chair, Liberal, Judy Sgro]

Thank you very much.

Go ahead, Mr. Carrie.

[Colin Carrie, Conservative, Oshawa, ON]

Thank you, Madam Chair.

I'd like to start off with you, Mr. Agnew. You sent us some recommendations on strengthening supply chain resiliency. I'm wondering if you could elaborate a little. Under domestic policy, you mentioned free trade zones. Perhaps you could expand on that. In Durham region we have the Pickering airport project—we have a lot of land there—a potentially great economic driver.

I'm wondering if you have any examples from around the world of where they do this well. How could we benefit from these free trade zones? Could you expand on that, please?

[Mark Agnew]

We're just starting our work to dig into this now in more detail. I mean, the headline message is that the current rules are best described as FTZ-like policies. I think when a company comes in and they talk about FTZs, they're having an expectation of much more flexibility with what they can do in terms of value-added processing in that area. That really would be the headline ask: Loosen up the rules to enable there to be a greater level of value-added production that could happen in a Canadian free trade zone.

[Colin Carrie, Conservative, Oshawa, ON]

Okay. Thank you very much.

Mr. Burney, you mentioned in your opening statement that the world is turning inward, particularly post-COVID. You mentioned some of the challenges with our southern neighbour and the comments from Mr. Schumer. I know that Mr. Biden has now said that he doesn't agree with the Keystone XL. You mentioned the importance of expanding our trade agreements and diversification.

I'm wondering if you could comment on our relationship with Britain. I believe Britain is now in talks with the United States, Japan, New Zealand and Australia. It seems we're not even at the table for some of these agreements. If the British would like to work with us, we could do a bilateral...or if they're interested in getting involved with the TPP. Could you explain the advantages or disadvantages of Canada doing a bilateral or having the U.K. join the TPP?

[Derek Burney]

My sense is that their own preference is a bilateral with Canada. It's not as important a relationship for them as it is for us. I think we have more than a two to one advantage in our trade balance with Britain, but as I said earlier, I think it's very difficult for anybody to be negotiating with Britain right now because they're totally preoccupied with getting out of the European Union. Keep in mind, they don't have a deep roster of trade negotiators, because all the British negotiators were part of the EU. They're starting from the ground up, trying to train a whole new team of trade negotiators, and I think they're focused right now on the EU.

The Americans are number one for them, but nothing is going to happen in the United States on a trade agreement with Britain or anybody else for the rest of this year, because we're into the silly season, as they call it, of their election, and Washington has been pretty silly for three years now.

The first thing that has to happen is that Britain has got to settle its hash with the European Union. Only then can countries like Canada, Australia and the United States decide which way we want to go. Is it to roll over CETA into a bilateral or strike a whole new bilateral? That's a decision we'll have to make once we know better what Britain's situation is coming out of the EU.

[The Chair, Liberal, Judy Sgro]

Your time is up. Sorry about that.

We'll move on to Mr. Sarai.

[Randeep Sarai, Liberal, Surrey Centre, BC]

Thank you.

Mr. Burney, you've had close relations with the U.S. and worked quite extensively there. What are your thoughts on the American response to the recovery, whether it's the health aspect, their election or their economy, and how important is that to Canada's economic recovery post-pandemic or even once it restarts the economy?

[Derek Burney]

As I said in my opening remarks, I think the best antidote to the protectionism taking root in the United States aggressively right now would be a robust recovery of the U.S. economy. There's no better tonic for protectionism than economic growth.

Do I see that happening? There are some signs that the American economy is coming back a little more smartly than their effort to control the pandemic. It's a very mixed message from the United States today, but I have to assume that the Americans are very versatile in responding to crises. The chances of a strong economic recovery—and maybe I'm not as pessimistic as some colleagues on the panel here—will come in 2021. I don't think we'll have to wait until 2022. I think even our finance minister is predicting a 6% growth in our economy next year, so that will be good. The best tonic for protectionism is economic growth.