International Trade Committee on Feb. 5th, 2020

[Steve Verheul]

Well, we did have discussions. There was no definition of what a meaningful surge would be. We have had a number of discussions at a technical level with U.S. authorities since the lifting of the tariffs on steel and aluminum. We've talked about the trade that has been occurring. We've talked about our pattern of exports to the U.S. and what that pattern looks like. I think it's safe to say that we have not been hearing expressions of concern from the U.S.

In many ways there was an artificial distortion introduced into the North American market. There was a bit of a rebound after that, which would be expected, but we have not heard any threats from the U.S. to reimpose those tariffs. Of course, we would react very strongly if they were to consider that path.

[Chris Lewis, Conservative, Essex, ON]

Supplementary to that, the deal also limits how Canada can use retaliatory tariffs, because we can only retaliate on steel and aluminum products. Traditionally, we would have retaliated with a broad range of tariffs that would strategically target specific sectors and legislators.

In your opinion, would we no longer be able to do that?

[Steve Verheul]

I think it would all depend on if the U.S. were to consider taking some kind of action against our steel and aluminum tariffs, and if they were going to justify it on national security considerations, as they did in the past. If we felt that those justifications were unjust, then I think clearly all bets are off.

But we did agree, to get removal of the tariffs, that we would monitor the trade going back and forth. The biggest concern of the U.S. was about any product coming in from outside of North America through Canada into the U.S. We've been ensuring that we can demonstrate that we're not importing product from China, or other countries around the world, and transshipping that into the U.S. That was their fundamental concern.

I think as long as we can demonstrate that we're operating within a North American market, we don't have to get into those considerations.

[Chris Lewis, Conservative, Essex, ON]

I have a final question, Madam Chair. I believe I have two minutes left.

The new NAFTA has a complex series of rules for the auto rules of origin. These rules layer on top of each another and are complicated, and most industry analysts say that these will raise the price of a North American car by thousands of dollars, particularly compared with a Honda or a Toyota.

What economic impact analysis has the government conducted regarding the auto chapter, and can that analysis be provided to the committee?

[Steve Verheul]

We haven't done any kind of quantitative economic analysis, any kind of modelling of what that would mean. I think it's going to be something we won't really start to see the impact of until the rules come into effect.

I think without a doubt the rules of origin on autos are going to encourage further production within North America of both inputs to the auto sector and the autos themselves. I think it's reasonable to assume that it might make North American-built cars a little bit less competitive in other markets, but the whole thrust of these changes was to create more of a North American market where those products would be used within North America to the benefit of auto workers in Canada and the U.S. in particular and our various manufacturers that are producing these models.

[Chris Lewis, Conservative, Essex, ON]

Thank you very much. Thank you, Madam Chair.

[The Chair, Liberal, Judy Sgro]

Thank you, Mr. Lewis.

Go ahead, Ms. Bendayan.

[Rachel Bendayan, Liberal, Outremont, QC]

I want to thank Mr. Verheul for joining us.

The new agreement, the CUSMA, is clearly a victory for Canada and Canadian workers. However, I can't help but notice that some of my colleagues on the other side of the House and across the table, as far as this committee is concerned, seem worried about the impact of this agreement on the aluminum sector and on workers in Quebec.

I want you to explain the difference between the past situation and the future situation under the new agreement. In particular, I want to know the impact of the new protections that we discussed. You mentioned that 70% of the protections didn't exist before. I want to know the impact of the protections, but also which negotiations led to this situation.

Thank you.

[Steve Verheul]

There was a lot of focus, in those negotiations on the rules of origin, on trying to encourage and incentivize further production within North America. When you take into account elements like the labour value content...in particular bringing production back to the U.S., and because we're in the same kind of category, back to Canada as well. Under the existing NAFTA, as you point out, there are no requirements whatsoever for the use of aluminum, or steel for that matter. There was the very simple requirement that 62.5% of that auto had to be produced from products of North American origin. We now have a much more complex system. It does have aluminum and steel specific obligations contained in it, but I think at least as important as that is the fact that we've gone from this 62.5%, which exists in NAFTA, to 75% not just on the vehicle but also on the core parts and the labour value content.

As we discussed a bit earlier, that leaves a pretty small margin for what you can bring in from offshore and have it as part of your originating content to meet those obligations. As Martin pointed out too, certain elements or products in the production of a vehicle are simply not produced within North America, so that automatically takes up part of that room. Couple that with the fact that evolution in the auto sector is geared toward trying to produce lighter products, lighter cars. That encourages the greater use of aluminum in things like engine blocks and other products, because it's lighter than steel and therefore more energy efficient. We do feel there are significant incentives to using more aluminum than in the past. Again, if we do we start to see aluminum coming in through the back door, in some cases—through Mexico, for example—we will be watching that very closely. We have avenues to pursue that, if necessary.

Martin might have something to add.

[Martin Thornell]

With regard to the latter part of your question, about the negotiating dynamic, Steve mentioned in his opening remarks that some of the U.S. initial proposals were unorthodox. That's very fair in the case of the rules of origin package they initially presented. In addition to the 50% U.S. content requirement, they had some ideas whereby you would need to know the origin of the petroleum, for example, that was used to make plastics found in the vehicle. There were similar things with respect to other metals and materials.

To go back to the question raised earlier about keeping the industry competitive, when we spoke to the industry, they simply said that these ideas were untenable. That amount of tracing or tracking of materials was something they just wouldn't undertake, especially when, in some instances, we're talking about getting a fairly small amount of preference. With a car entering the United States, it's only a 2.5% tariff. There's only so much compliance work on rules of origin that a company is prepared to do to save that 2.5%.

Some of these ideas, such as the 70% steel and aluminum requirements and some of the other things in there, I wouldn't say were all Canadian ideas, but we tried to move the negotiations in the direction of finding ways to incentivize the use of North American materials while not completely undermining the competitiveness of the auto industry. Of course we want automakers to use Canadian materials and Canadian parts, but we have to be mindful that they have to stay competitive and recognize that producers from outside North America are not facing those same sorts of requirements. This is within the NAFTA regime.

That's sort of how some of these ideas evolved.

[The Chair, Liberal, Judy Sgro]

Thank you very much.

Mr. Savard-Tremblay, you have two and a half minutes.

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

Thank you, Madam Chair.

We'll talk about another issue, if you don't mind.

Since we were discussing aluminum, we also spoke a bit about supply management.

I'll talk about an entirely different issue, namely, the environment. I know that there's now a separate chapter on the environment.

Does this chapter set climate standards and water and air quality standards? Does it require the agreement to comply with international environmental agreements? Does it establish a system to stop potential environmental violations?

[Steve Verheul]

Certainly with this agreement we made significant advancements when it came to environment. Under the existing NAFTA, there is no chapter on environment; it was in a side agreement. We now have a full chapter in the agreement. It is subject to dispute settlement, so we can take cases against it under the dispute settlement process that applies to the entire agreement.

We have a variety of new commitments that have been included on environment. We have new commitments to address various global environmental challenges: illegal wildlife trade, illegal fishing and depletion of fish stocks, species at risk, conservation of biological diversity, ozone-depleting substances, marine pollution, and for the first time in an environment chapter, commitments to improve air quality and combat marine litter.

We've been—

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

If I may, that's precisely the question that I wanted to ask.

Are these commitments binding or are they only intentions?

[Steve Verheul]

Absolutely, these are binding requirements. If one of the other parties does not comply with the obligations—a number of which I've just set out, but there are various others as well—we can pursue a dispute settlement case against them.

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

Those are dispute settlements.

[The Chair, Liberal, Judy Sgro]

Mr. Tremblay, you have less than 30 seconds left.

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

I have 30 seconds left. It won't do me much good to try to use the remaining 30 seconds.

[The Chair, Liberal, Judy Sgro]

I'm sorry, but your time is up at this point.

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

So many aspects of this agreement could have been discussed.

[The Chair, Liberal, Judy Sgro]

Absolutely.

Mr. Blaikie.

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

In chapter 32 of the agreement, it says that at least three months prior to commencing negotiations, Canada will notify the other parties—meaning the U.S. and Mexico—of its intention to commence free trade agreement negotiations with a non-market country, and also that no later than 30 days before a date of signature, we would forward the text of that agreement to our CUSMA partners.

Given those provisions, is it not the case that, as a matter of law, the U.S. and Mexican governments would have more right to information about a trade deal with China than the Parliament of Canada?

[Steve Verheul]

No. My view would be absolutely not.

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

Does the government have a legal requirement to share the text with Parliament 30 days prior to signing the agreement?

[Steve Verheul]

No, but we do that as a matter of course.