International Trade Committee on Feb. 5th, 2020

[Steve Verheul]

Yes, and I think that's essentially the way it should be. Each country should have the right to regulate according to what its own population is looking for and demanding in terms of the kind of regulatory framework they want within their country. The regulatory considerations reflect, to some extent, the culture and the way of thinking in each of these countries.

One of the issues we've encountered in recent years in negotiating free trade agreements is that there's a bit of a backlash against any kind of regulatory harmonization. Where it's possible and where it makes sense—and we have this in our agreements—then certainly we would advocate that we should harmonize where we can to reduce any kinds of barriers to our getting into one of the other markets that we're involved in. At the same time, you don't want to have your regulatory regime completely tied to that of another country. You may have different interests and different values and different pursuits, and you want to have the freedom to have your own ability to establish a regulation.

It's a bit of a challenge to ensure that where we have common views, we can eliminate barriers to trade because of regulatory matters, but where we have different views, that we still have the freedom to impose regulatory requirements where those are necessary.

[Chandra Arya, Liberal, Nepean, ON]

I have a question on intellectual property rights. We have made certain commitments, but these provisions go beyond the current multilateral agreements. I'm wondering how much time we have to make sure that our multilateral agreements come into line with what has been agreed to.

[Steve Verheul]

I think what we've discovered in recent years is that we've seen the difficulty of the multilateral effort to try to move forward on these types of issues. There has not been a sufficient amount of agreement to converge on elements on a multilateral basis that we could include in the agreement. Bilateral efforts have moved more quickly and are now more advanced than the multilateral efforts in trying to achieve those kinds of regulatory understandings.

Now, we're working in both directions. We're trying to advance what we can on regulatory issues at the WTO, but also in various other multilateral fora. It's really a matter of the regulatory issues advancing more quickly in bilateral agreements. We see this not only in the agreement we have with the U.S. and Mexico, but also in the agreement we have with the Europeans on regulatory issues. It's a matter of making the right kinds of judgments about where we can move toward some kind of harmonization and where we need to ensure that we have sufficient freedom to develop our own regulatory requirements.

[The Chair, Liberal, Judy Sgro]

Thank you very much.

Mr. Savard-Tremblay, you have six minutes.

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

Thank you, Madam Chair.

Good afternoon. We already met in my office. Thank you for being available to explain the various ins and outs of the agreement.

As you know, the Bloc Québécois has talked a great deal about the aluminum issue. I believe that it's your issue, Mr. Thornell.

Is it true that, after seven years, steel will need to be cast and melted in North America, whereas aluminum won't have the same protection? As we know, Mexico doesn't have anti-dumping legislation, but it's not the same protection. We're talking about aluminum parts, not cast and melted aluminum.

[Steve Verheul]

Well yes, there is a difference in the most recent obligations taken on, as of December 10. There will be a requirement on steel that, after seven years, auto manufacturers that are purchasing steel will have to ensure that it's smelted and poured within North America.

With respect to aluminum, that condition at this point does not yet exist, although we do have an obligation that after 10 years we will revisit that. That 10 years is not a hard line. In fact, we will be looking very closely at what kinds of volumes of aluminum are coming into the North American market, particularly into Mexico, and if we start to see there are significantly increased amounts of aluminum coming into Mexico, then we will have an increasingly strong case to say that aluminum needs to be treated the same way as steel is treated.

Part of this has been misunderstood. The requirement that exists in the agreement when it comes into effect is that 70% of any purchases of steel and aluminum by manufacturers have to be of North American origin. But couple that with the 75% requirement for any vehicle to have regional value content; and on top of that, 75% of the core parts—including engines, transmissions, bodies, various other elements—have to be of North American market; and 40% of the value of the vehicle has to be produced in jurisdictions that have wage rates greater than $16 U.S. an hour. When you take the combination of all those elements, you don't have that much scope to bring in a lot of foreign product.

This is something that has been a bit misunderstood because there are certain elements—and Martin can add to this—or products that aren't produced within North America. For the most part, the screens that we have in cars are not produced in North America, so when auto manufacturers—even auto parts manufacturers—are considering how much North American content they can make, they're pretty constrained. If they're looking at 75% having to be North American, they're obligated automatically for some products that aren't produced in North America to use up a good portion of that 25%. Out view is that they will have little choice but to buy aluminum from North American sources for the most part.

There's a large amount of pressure to do that, plus again, if we find that Mexico is importing aluminum slabs from China or other places and putting it into further processing and putting it into cars, that's all just building a case for us to say aluminum needs to be treated in the same way as steel.

Martin, do you want to add something?

[Martin Thornell, Senior Advisor, Tariff and Goods Market Access, Department of Foreign Affairs, Trade and Development]

I have a couple of things.

I've said this on a few occasions. NAFTA had the most stringent rules of origin for automobiles of any FTA in the world. In this agreement we have made them significantly more stringent. I think it's important to remember that on aluminum, for example, Canadian automakers are using North American aluminum. American automakers, by and large, are using North American aluminum. Admittedly, some Mexican automakers are using some non-originating aluminum, but their ability to do that is now going to be constrained. I think that's important. We've now got these very restrictive rules of origin.

I want to dig in a little to explain why the point about the higher regional value content thresholds is relevant here. For example, if it's a cast aluminum part or a stamped part, a significant portion of these parts is the metal content. If you're casting a part from non-originating aluminum, you will not wind up with an originating part. You won't be able to satisfy these 75% regional value content thresholds in the case of, say, an engine part, or 70% in the case of, say, a significant portion of the value of a radiator, which is an aluminum pour; you just won't meet that rule. As Steve mentioned, a 75% threshold is tough when certain electronics in a vehicle are, certainly in the near term, going to continue to be sourced offshore. Display screens are the best example of that.

I think this strengthening of the requirements across the board is pretty important. It means that for our aluminum sector, our steelmakers, our auto parts companies that have been very successful selling to Canadian and North American producers, there is an opportunity for them to do even more.

[The Chair, Liberal, Judy Sgro]

You are over your six minutes.

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

Oh, really? My goodness, that went by fast.

[The Chair, Liberal, Judy Sgro]

It's 6:57.

Mr. Blaikie.

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

Regarding those same steel and aluminum content requirements, for cars produced in North America right now, what percentage of the steel and aluminum used in those cars is North American?

[Martin Thornell]

I can't tell you that.

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

So we can't say whether the 70% requirement is less than, equal to, or more than what is currently the case?

[Martin Thornell]

I'll tell you what I do know—

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

Because I have a number of questions to ask, would you mind tabling or sending to the committee in writing what you do know about that and what numbers the department has?

[Martin Thornell]

We consulted with the companies throughout the process. We asked them, if faced with this sort of requirement, what it would mean for them. Would it mean that their vehicles would no longer qualify? They told us, no, they could satisfy that requirement. They're using North American steel and aluminum today. It's the nature of using—

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

In fact, they might be using more than the guarantee.

[Martin Thornell]

Indeed.

It's the nature of the industry.

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

I want to jump to dairy. One of the things that we've heard concern about is the fact that there's an extreme limit on the export of milk protein concentrate and skim milk powder, infant formula. The penalties for exceeding that are harsh and meant to keep Canadian producers out of the international market in a preventive way. It's not that they're necessarily a big force on the international market right now, but the export quotas would prevent them from expanding their business, not just into the U.S. and Mexico, but into other international markets as well. The cap this year is 55,000 megatonnes, and it will be 35,000 megatonnes in the second year. The dairy fiscal year is from August 1 to July 31, and there is a serious concern that if the deal is ratified before August 1, year two will begin on August 1, which doesn't align with their production forecast for the coming year.

I know that in CETA, for instance, a large percentage of the agreement has been ratified and implemented, but the provisions on ISDS are being held back, which hasn't prevented the rest of the deal from going forward.

Has the government made any provision for enacting the lion's share of this agreement but holding back on dairy until August 1 to protect dairy producers, at least this year?

[Aaron Fowler, Chief Agriculture Negotiator and Director General, Trade Agreements and Negotiations, Department of Agriculture and Agri-Food]

It is a situation that we are well aware of. The volumes that are provided within the export thresholds for the three products that you're talking about are to be administered on a dairy-year basis. There is no provision in the agreement to pro-rate those in light of the entry-into-force date of the agreement, so there is the possibility that if the agreement enters into force late in the dairy year, Canadian exporters may not fully utilize the export volume that is provided within the threshold.

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

Passage of the ratification legislation in Parliament doesn't mean that the government has to implement the agreement immediately. It could, anytime after the legislation passes, but the Governor in Council could choose to delay implementation of the agreement at least on paper.

Is that accurate, yes or no?

[Steve Verheul]

Yes, the government can decide when the implementation of the agreement will take place. I think the provisions in the agreement are actually fairly clear though. I think you're familiar with this. It would be the first day of the third month after the last party ratifies the agreement. So that definitive point would be when we actually ratify the agreement. Then it would be the first day of the third month after that.

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

So if the agreement were ratified after May 1, then that would push us into the next dairy fiscal year.

[Steve Verheul]

It would be at the beginning of August, yes.

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

Okay.

Thank you.

I know there were media reports early on in the negotiation process for the new NAFTA that the government was committed to preserving the ISDS provisions in NAFTA. I'm wondering at what point in the negotiation the government decided to respond to American pressure to remove the ISDS provisions and no longer hold those as an objective in its negotiations.