International Trade Committee on July 9th, 2020

[The Chair (Hon. Judy A. Sgro (Humber River—Black Creek, Lib.)), Liberal, Judy Sgro]

I call to order meeting number 16 of the Standing Committee on International Trade.

The committee is meeting today pursuant to Standing Order 108(2) to discuss the impact of COVID-19 on Canadian international trade relationships, especially with the United States and the United Kingdom.

Today's meeting is taking place in person, and the proceedings will be made available via the House of Commons website. This meeting is being televised.

To ensure an orderly meeting, I have to outline a few rules to follow.

Occupational health and safety have requested that we limit our movement in the room and wear a mask unless seated. Floor markings indicate the path of travel for all people in the room. Individuals should respect physical distancing and remain two metres from one another, particularly when unmasked. Seats and microphones have been placed in a manner that respects physical distancing, and therefore we ask that they remain in the same location.

To minimize health risks, you will note that limited personnel has been permitted to attend today. Staff have received a phone number where they can also listen in to the proceedings in real time.

Please note that we will suspend in between panels in order to allow the first group of witnesses to disconnect and the next panel to join the meeting. You will also note that we have no paper documents to be distributed. All documents have been distributed electronically to all members. Should you require a copy of a document, please advise the clerk of the committee by emailing the committee, and that will be provided.

Our first group of witnesses today is from Global Affairs Canada. With us we have Steve Verheul, somebody who's been seen with our committee many times. He is the assistant deputy minister of trade policy and negotiations, and chief trade negotiator of the Canada-United States-Mexico Agreement. As well, we have Eric Walsh, director general, North America bureau; and Robert Fry, director general, bureau of European affairs.

Welcome to all of the committee members, and welcome especially to our witnesses. Thank you for making time to appear before the committee today.

Mr. Verheul, I'll turn it over to you.

[Steve Verheul, Assistant Deputy Minister, Trade Policy and Negotiations and Chief Trade Negotiator of the Canada-United States-Mexico Agreement, Department of Foreign Affairs, Trade and Development]

Thank you very much, Madam Chair and members of the committee.

We are certainly pleased to be here today to discuss the impact of COVID-19 on Canada’s trade relationships, particularly with regard to the United States and United Kingdom. I will open with some brief remarks. Then we will look forward to taking your questions.

Canada is a trading nation. With the world’s tenth-largest economy, trade is the backbone of our economy. In fact, about two-thirds of our GDP comes from trade. Nearly 3.5 million Canadian jobs are trade related. The COVID-19 pandemic has placed global supply chains under significant pressure. It has shown us that overreliance on a single country or supplier is a critical risk for businesses and governments. A number of countries have taken measures to restrict exports and to encourage more domestic production, in particular for essential goods.

From our perspective, Canada cannot meet its needs simply by producing more at home. Our best risk mitigation strategy involves securing and reinforcing Canada’s integration into global supply chains and working to better leverage our preferential trade agreements—for example, CUSMA in North America, CETA in Europe and CPTPP in Asia-Pacific. We must continue to enhance Canada’s reputation as a source for high-quality and dependable exports and also maintain an attractive investment environment, with appropriate screening mechanisms.

COVID-19 presents significant challenges but also opportunities for export promotion. Canada’s trade commissioner service will continue to assist Canadian businesses in navigating these unprecedented circumstances. This includes troubleshooting with Canadian companies experiencing supply chain disruptions, supporting priority sectors for pandemic response and building out contact-free service models.

Using existing mechanisms, including international organizations, Canada has moved quickly to work with like-minded countries to take actions that seek to stabilize trade and lessen uncertainty. Throughout this pandemic, we have continued to advocate against protectionism and ensure that transit of cargo and essential goods is not unnecessarily impeded. However, in response to the pandemic, as mentioned, many countries have put in place export restrictions designed to ensure adequate domestic supply of goods. We will continue to advocate for dismantling such measures to minimize disruptions to global supply chains. In light of our new global reality, Canada will need to respond to changing dynamics while continuing to diversify our trade relationships, seek predictable markets for our exporters, and strengthen the rules-based system. We will continue to work with our international partners to support resilient supply chains and strong trade relationships now and into the future.

With respect to the World Trade Organization, as a medium-sized economy Canada benefits from an open, transparent and rules-based multilateral trading system. Stable and predictable global trade rules help open up new markets for Canadians and create new opportunities at home and abroad. At the core of the multilateral trading system is the World Trade Organization. The WTO has played an indispensable role in facilitating and safeguarding rules-based international trade and delivering economic gains for Canadians.

Canada is at the forefront of WTO reform through its leadership of the Ottawa Group, a group of 13 like-minded WTO member countries initially convened by Canada in October 2018, committed to strengthening and modernizing the WTO. The Ottawa Group is continuing to work toward meaningful reforms, with efforts that complement other reform initiatives undertaken by the broader WTO membership. Canada has also worked closely with partners in the Ottawa Group on WTO reform and COVID-19, engaging in discussion on the role the WTO can play in keeping supply chains open and ensuring sustainable and inclusive recovery. In fact, on June 15 Minister Ng chaired a virtual meeting of Ottawa Group ministers, which resulted in the endorsement of a joint statement identifying concrete action items in the areas of transparency at the WTO, agriculture, e-commerce, trade in medical supplies and business engagement in response to COVID-19.

With respect to the United States, Canada and the United States are each other's most important trading partners. Canada is working very closely with the U.S. on this crisis, including by putting in place co-operative border measures. The United States and Canada also share supply chains for essential medical equipment such as gloves, ventilators, testing kits and masks. Canada continues to work with U.S. partners to ensure that needed supplies are available to us, and to reassure Americans that what they need from Canada will also be available to them. The U.S.-Canada trade relationship is balanced, fair and supports growth and innovation in both of our countries.

On July 1, as you are aware, the Canada-United States-Mexico Agreement, or the new NAFTA, entered into force. The new agreement modernizes the North American economic partnership for 21st century trade, reduces red tape at the border and provides enhanced predictability and stability for workers and businesses. Most importantly, the new NAFTA preserves Canada's tariff-free access to the United States and to Mexico.

Reinforcing our strong economic relationships with the U.S. and Mexico is important for the continued integration of the North American production platform and for Canada's economic prosperity, particularly in the context of post-pandemic economic recovery.

The commercial relationship is large and complex, and we will continue to work with our North American partners while always advocating for Canadian interests. That includes with respect to recent reports suggesting that the United States may be considering reimposing section 232 tariffs on Canadian aluminum. Ensuring continued free and open trade between Canada and the U.S. is essential to both countries' economic prosperity and the continued integration of the North American production platform. The reimposition of section 232 tariffs would undermine the implementation of the new agreement. The government has been consistent in its commitment to protect Canadian workers and companies from such unfair and unjust tariffs.

With respect to the United Kingdom, Canada and the U.K. enjoy a unique historical relationship founded on deep people-to-people ties, common values and vibrant economic relations. This relationship is bolstered by collaboration on key global issues, including at multilateral forums. Canada and the U.K. enjoy a long-standing, strong trade and investment relationship. The U.K. is Canada's most important commercial partner in Europe and our fifth largest globally.

At this time, the Canada-European Union Comprehensive Economic and Trade Agreement, CETA, continues to apply to the U.K. while the latter remains in a post-Brexit transition period with the EU. The U.K. and EU are currently engaged in the negotiation of their future trade relationship. Any future trade arrangement between Canada and the U.K. would be influenced by the terms of the agreement between the U.K. and the EU, as well as any unilateral U.K. approaches for the period after the transition period. This includes the recently announced U.K. global tariff. Whatever the outcome of Brexit, the U.K. will remain a significant market for Canadian companies. Canada and the U.K. were staunch allies long before the U.K. joined the EU. Our strong relationship will continue long after it has left the EU.

Canadian and U.K. trade officials are in contact to prepare for our post-transition trade relationship. Beyond the transition, Canada would be interested in discussing a new agreement that is more tailored to our bilateral trade relationship and that would be of mutual benefit to stakeholders on both sides.

I would also like to note the U.K.'s recently expressed interest in joining the CPTPP. We look forward to welcoming new members that are able to meet the CPTPP's ambitious and high-standard commitments.

In conclusion, Madam Chair, we recognize that stable and dependable access to international markets is key for Canadian firms, and we are well aware of the pressures this pandemic has put on global supply chains. We are committed to continuing to work with our international partners to support the free flow of goods and services, and predictable and stable markets for Canadian businesses.

Thank you. We would be happy to take your questions from here.

[The Chair, Liberal, Judy Sgro]

Thank you very much, Mr. Verheul.

On to questioning by the committee, it's Mr. Hoback for five minutes.

[Randy Hoback, Conservative, Prince Albert, SK]

Thank you, Chair. Five minutes just doesn't seem long enough.

Mr. Verheul, again, thank you for your service and the time you put into developing some of the agreements that Canada has in place right now. There is a little confusion around one of the concerns that I have, so maybe you can clarify it.

When we settled our dispute with the U.S. on aluminum steel tariff, in the letter of settlement, in paragraph 5 of the statement, it stated:

...aluminum or steel products surge meaningfully beyond historic volumes of trade over a period of time, with consideration of market share, the importing country may request consultations with the exporting country. After such consultations, the importing party may impose duties of 25 percent for steel and 10 percent for aluminum in respect to the individual product(s) where the surge took place.... If the importing party takes such action, the exporting country agrees to retaliate only in the affected sector (i.e., aluminum and aluminum-containing products or steel).

Does this now cross over into the CUSMA agreement or not? What options would you have to retaliate if we did see a tariff on aluminum? I don't want you to give the details, but what toolbox would you would have to retaliate with?

[Steve Verheul]

First of all, the understanding or statement that was issued back in May 2019 clearly indicated that the tariffs the U.S. was imposing would be removed. Also, as you mentioned, it talked about the kinds of options we would have in terms of a response.

The response clearly says that we would be able to retaliate in the case of aluminum and aluminum-containing products. “Aluminum-containing products” is a fairly broad category, but I think that at this point we really have to see what exactly the U.S. may do if it takes any action. Then we would evaluate the options and provide analysis to the political level to determine which course of action they may wish to follow.

[Randy Hoback, Conservative, Prince Albert, SK]

I'm just trying to read through that. So it does carry through into CUSMA. Basically, if you wanted to put a tariff on, say, Kentucky Bourbon, or something like that, it would not be an option in your toolbox at this point in time?

[Steve Verheul]

Just to be clear, this is not a part of the CUSMA agreement. It's not part of the obligations contained in the formal international treaty that we've agreed to with the U.S. and Mexico. This does mean there is a certain amount of flexibility with respect to the particular statement that was issued back in May of 2019.

From our perspective, I think it really depends on what kind of action the U.S. takes. If the U.S. were to take some kind of action that was viewed as being consistent with that statement, I think we would have to think about what kind of reaction we would have. We would likely want to stay within the context of that understanding, recognizing that “aluminum-containing products”, for example, is a broad category.

If the U.S. acts outside of the constraints of that agreement or statement that was made back in May of 2019, I think we would certainly have more flexibility in how we might want to respond.

[Randy Hoback, Conservative, Prince Albert, SK]

Again, the last time this happened, we took it to the WTO. We put in a claim and reported it there. How would we do that this time when the WTO is in such disarray?

[Steve Verheul]

I think that would remain an option for us. We have consistently objected to the notion that the U.S. was taking these kinds of actions for national security reasons, which we have very significant concerns about given that we don't consider ourselves as posing a national security threat to the U.S.

There have been many challenges at the WTO and various others already with respect to the U.S. application of these tariffs, both on aluminum and on steel. Although the WTO appellate body is facing some challenges, we have worked with other members of the WTO to develop an alternative mechanism that allows the possibility of pursuing appeals, so I don't think I would rule out any potential WTO action that may be—

[Randy Hoback, Conservative, Prince Albert, SK]

Again, though, it's the same problem. If you go to the WTO and the U.S. is not part of that process, which, going forward, seems to be the way they're leaning more and more, how do you enforce it? Yes, you've won at the WTO and other countries agree with you that this is outrageous—and I think it's wrong what they're trying to do here—but what are our options? If you look back to our CUSMA agreement, if we are restricted only to sector-to-sector retaliation, boy, we're really handcuffed here. How do we move forward?

Under country-of-origin labelling in the beef sector, for example, we were able to go to grape growers in California and apple growers in Washington state and put pressure on those districts to get the political pressure in Washington and get the result we needed for our beef producers. It looks to me like we can't do that anymore. Is that fair to say?

[Steve Verheul]

No. I think we have options on both paths. We have options in terms of how we might respond on a bilateral basis, because, as I mentioned, the statement itself says “aluminum-containing products”. That's a very broad category. Many products are packaged in aluminum-containing packaging material, for example. There are a number of areas we could explore on that front, and we do still have the WTO as an avenue to pursue.

We have seen decisions at the WTO that have been favourable to some countries that have challenged the U.S. national security tariffs on steel and aluminum—Turkey, most recently—so we would also have options of pursuing initiatives at the WTO and options to pursue initiatives in U.S. courts. We are looking at all of the different avenues that we might be able to pursue.

[Randy Hoback, Conservative, Prince Albert, SK]

I'm out of time, right?

[The Chair, Liberal, Judy Sgro]

Your time is up.

[Randy Hoback, Conservative, Prince Albert, SK]

Thank you, Mr. Verheul.

[The Chair, Liberal, Judy Sgro]

Ms. Bendayan, please, for five minutes.

[Rachel Bendayan, Liberal, Outremont, QC]

Thank you very much, Madam Chair.

Thank you for joining us today, Mr. Verheul.

As a member from Quebec, I am very concerned about the situation. We are hearing that tariffs on aluminum and steel are a possibility. As far as the aluminum industry is concerned, in Quebec, the producers and the manufacturing industry would be affected, as well as consumers, of course. What about the United States? It seems to me that such duties would have negative effects on their economy.

[Steve Verheul]

Well, on what we're seeing in the U.S., I think, our focus at the moment is really on advocacy in the U.S. at this point in time; in other words, to try to prevent the U.S. reimposing tariffs on aluminum. We have some fairly strong allies in the U.S. who oppose the imposition of these tariffs, so we have been working with those interests. There has been extensive work done with U.S. members of Congress, particularly out of our embassy in Washington.

I think it's important to note when we look at the U.S. situation that there are two companies that are pressing for these tariffs to be reimposed. The Aluminum Association of the U.S., which represents by far the majority of U.S. aluminum interests, is opposed to tariffs being applied to Canada. Many users of aluminum in the U.S.—beer companies, auto manufacturers, various others—are opposed to having tariffs applied against Canada. General business organizations, including the U.S. Chamber of Commerce, are opposed to tariffs being applied against imports from Canada.

This is a question of a couple of companies that are putting pressure on the U.S. to take action, but the vast majority, I think, of the aluminum industry in the U.S. recognizes that this will likely hurt the U.S. interests more than it will hurt Canadian interests. We're doing as much as we can on the advocacy side to try to explain this, and to try to explain that there has been no surge in aluminum exports to the U.S. That's the approach we've been taking up until now.

[Rachel Bendayan, Liberal, Outremont, QC]

If I could switch for a moment to the situation involving our negotiations with the United Kingdom, you mentioned that we are of course looking very carefully at the negotiations between the U.K. and the EU and also that this would have an impact on our own negotiations. I wonder if you could you expand on that and on how we can position ourselves to be in the best possible negotiating position by monitoring those negotiations.

[Steve Verheul]

Certainly, we are working closely now with U.K. officials to start to talk about how we can come up with a trading relationship that would govern our bilateral trade going forward. We already have the CETA in place, and it will remain in place until such time as the U.K. leaves the European Union. We're trying to position ourselves to make sure that we have an agreement, an understanding, in place that will deal with that possible event.

Our challenge in moving forward to complete this is that we don't know some of the parameters of what the U.K. is intending to do. We don't know whether they will have an agreement with the EU, although the signs are not positive at the moment. That's one issue I think will have a bearing on what we can do. We know they're negotiating with various other partners, most prominently the U.S. We don't know what will happen on that front. In particular, we don't know how the U.K. will react if they do not have these agreements in place after the transition period expires. If they are to return to the kind of approach to tariffs that would be applied against the rest of the world, as they did last March, I think, then there would be little advantage to our having an agreement with the U.K. if access is going to be largely open.

We're having to monitor various uncertainties here, but we're keeping a very close dialogue with the U.K. We want to replicate the agreement that we have with the EU broadly, the CETA, as much as possible, but we would also like to have something more tailored to the Canada-U.K. relationship. That's the direction we're trying to work right now.

[The Chair, Liberal, Judy Sgro]

Mr. Savard-Tremblay.

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

Thank you, Madam Chair.

Hello to all my colleagues. I'm happy to see you in person after all these months of distancing and virtual House sittings, not to mention all the technical difficulties we've had as a result.

Mr. Verheul, thank you for joining us. First, I would like you to tell me whether my perception of the situation is correct. Primary aluminum producers in the United States have been waving the red flag for a long time. They have been saying loud and clear, rightly or wrongly, that there is a serious problem and that unfair practices are occurring. In this case, however, I really do not understand where it's coming from.

We're being criticized for increasing our exports, but if you look at the situation, you see that, since this Parliament began, there have been two crises where the railways were blocked and delays piled up. I think our aluminum producers merely decided to deliver the aluminum that was late. It seems to me it's as simple as that. I don't think there is any basis for the U.S.'s claim, as proven by the fact that primary aluminum producers in the U.S. could have taken the normal route and sought a bailout, but they didn't.

Doesn't that show this is a tempest in a teapot?

Have we lost Mr. Verheul?

[Steve Verheul]

I'm here. Sorry, I missed part of the last portion of the question.

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

U.S. primary aluminum producers could have taken the normal route if they had been truly wronged, but they didn't.

Isn't that a sign that there's nothing to this?

[Steve Verheul]

Well, yes. Over the past number of months, in particular since all of us have been dealing with the COVID-19 crisis, we have seen some developments in our trade in aluminum with the U.S. We've seen patterns that we expected to see and that we have seen during previous economic pressures, particularly the 2008-09 financial crisis.

We agreed with the U.S. to look at unwrought aluminum, which is a product category. That's what we indicated we should look at, consistent with that agreement. What the U.S. has done is looked at unwrought non-alloyed aluminum, not unwrought alloyed aluminum.

In any kind of economic downturn or crisis where demand starts to dry up, the traditional approach is that aluminum producers, not just in Canada but also in the U.S., will shift much of their production from alloyed aluminum to non-alloyed aluminum. If you look at the stats in more detail, you can see that there has been somewhat of an increase in non-alloyed aluminum and a decrease in exports of alloyed aluminum. If you consider those two and look at unwrought aluminum, which includes both of those categories overall, there is no increase and no surge. We see no justification for the U.S. to be contemplating this kind of action, because we have had no surge. In this situation, the aluminum sector has simply made some adjustments, as aluminum industries in the U.S. have done, to accommodate the market demands during this particular period.

We do anticipate that things will return to normal as markets start to reopen, but we feel that the U.S. allegation that aluminum exports from Canada have surged is fundamentally wrong. It does not reflect the stats and does not reflect the commitment we made to look at this on a product basis.

[The Chair, Liberal, Judy Sgro]

We'll now go to Ms. Mathyssen.