International Trade Committee on Feb. 18th, 2020

[Rachel Bendayan, Liberal, Outremont, QC]

Yes, I can imagine. Of that family, how many workers would you say are there in Canada who rely on trade with the United States and/or Mexico? I'm only looking for an approximate number.

[Hassan Yussuff]

In the manufacturing sector, and also in the resource sector, I would say we've got probably several hundred thousand members who are impacted by it, who work in industry and also in the supply chain, including agriculture. Our members actually work in many of the agriculture sectors that produce products that get exported to the United States.

[Rachel Bendayan, Liberal, Outremont, QC]

What—

[The Chair, Liberal, Judy Sgro]

I'm sorry, but the time is up.

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

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

Once again, my question is for the gentlemen from the United Steelworkers.

In terms of the labour chapter improvements needed, you said the International Labour Organization conventions were preferable to the Declaration of the Rights at Work. Could you elaborate on that?

[Mark Rowlinson]

Unless I'm mistaken, the three signatories to the agreement have to adhere to the 1998 declaration, which is less stringent than the International Labour Organization conventions. It is our position that the agreement should have included the conventions, in terms of both content and the jurisprudence flowing from the conventions, not just the declaration, which has been signed by nearly every country.

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

Quickly, can you give us examples of tangible differences between the conventions and the declaration?

[Mark Rowlinson]

I'm more comfortable discussing technical details in English.

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

No problem. We have interpretation services.

[Mark Rowlinson]

Okay.

For example, convention 87, the convention on freedom of association, incorporates a number of specific tests as to how countries need to respect workers' rights to join a trade union. In Mexico, that's the central issue. As Hassan was mentioning, and as others have mentioned, the central issue in Mexico is whether Mexican workers have the authentic right to join a free trade union. If you incorporate all of the decisions and the jurisprudence as part of that convention, and it's actually enforceable, that's a much stronger standard than simply signing up to the 1998 declaration, in our judgment.

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

I suppose I'm out of time.

[The Chair, Liberal, Judy Sgro]

Yes, you have half a minute.

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

Very well. That's all for now.

[The Chair, Liberal, Judy Sgro]

All right, thank you.

Mr. Blaikie.

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

Thank you very much.

I just want to come back to the steel and aluminum content requirements. One of the things I certainly found interesting and somewhat shocking was that when we had Canada's lead negotiator and his team here, and we asked what percentage of North American steel and aluminum are currently in autos, they said they didn't know, that they didn't have that information.

I'm wondering what work needs to be done in light of this agreement in order to make sure Canadians know whether those content requirements are being met, whether they're improving over time, whether they're worsening over time. What kind of homework do we have to do here in Canada to make sure we're getting the promised benefit of this content requirement?

[Ken Neumann]

Maybe Mark can answer some of it.

The fact is that statistics show that with more vehicles being built in Mexico, they're not getting their aluminum from.... I don't know where they're sourcing their materials. I think a lot of it is from offshore. They've now surpassed Canada by more than a million cars. I think you're right that the North American content in those vehicles is something we should have at our fingertips if you're going to a GM plant or a Ford plant.

My experience has been that, because our organization uses North-American-built cars, I can tell you that it's very difficult to find a North American car with 50% North American content, and that's an issue.

Mark may have something to add.

[Mark Rowlinson]

I'll just add one thought, which is that in the United States they have done fairly detailed economic analysis of the employment and economic impact of this agreement. As far as I can tell, in Canada, we have not done any of those analyses, and that is disappointing to us. I appreciate that there is a desire on the part of many in this room to pass this agreement as quickly as possible, but this is an agreement that is going to fundamentally change and control the central economic relationship we have as a country for the next number of decades, if not longer. It seems to me that we should not be rushing into this, that we should actually be doing a detailed analysis on the kinds of things you're talking about.

[The Chair, Liberal, Judy Sgro]

Thank you.

I want to thank all our witnesses for coming and sharing valuable information. We appreciate that very much.

We will suspend for the next panel to come on board and give everybody a chance to say hello to the witnesses.

Five o'clock is our next panel.

Thank you.

[The Chair, Liberal, Judy Sgro]

I'm calling the meeting back to order as we continue to do a study of Bill C-4, an act to implement the agreement between Canada, the United States of America and the United Mexican States. Will our witnesses please join us at the table?

With us, from the Aluminium Association of Canada, we have Jean Simard, president and chief executive officer. From the Canadian Automobile Dealers Association, we have Huw Williams, director, public affairs, and Oumar Dicko, chief economist. From the Canadian Chamber of Commerce, we have Jackie King, chief operating officer, and Mark Agnew, director, international policy. Finally, from the Canadian Steel Producers Association, we have Catherine Cobden, president.

Mr. Simard, I will start with you.

[Jean Simard, President and Chief Executive Officer, Aluminium Association of Canada]

Thank you, Madam Chair.

My intervention will be in sequence in both official languages, if I may.

I'd like to thank you for giving us the opportunity, as part of these consultations, to share the viewpoint of the industry we represent, Canada's primary aluminum industry.

I'll start with a few figures. Some 8,700 people work in our nine plants producing 3.2 million tonnes of low-carbon aluminum, nearly 90% of which is exported to the United States. Although our region-based production generates about $7 billion in exports, the activities that form our industrial fabric, ranging from research to processing, represent nearly $15 billion annually.

Since we export 90% of what we produce, mainly to the United States, free trade is woven into our DNA. That is why we unconditionally support the swift ratification of the free trade agreement between Canada, the United States and Mexico. That is also why we unconditionally supported the other two major trade deals: the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, or CPTPP, and the Canada-European Union Comprehensive Economic and Trade Agreement, or CETA.

At a high level, the parameters that govern trade under these agreements increase the predictability needed by an industry with such highly integrated value chains as ours. Our planning and investment decisions depend on our ability to anticipate changing market needs within a stable and predictable business environment.

We believe the agreement lays the foundation for modernizing our trade relationships, by providing a framework that can lead to industry improvements in the months and years ahead, with a view to creating value for all three countries, as well as our industry, workers and host communities.

Now I'd like to debunk some myths. Certain things that have been said about the agreement's repercussions on the aluminum industry are worth a closer look. In recent weeks, comments have come to light regarding the so-called repercussions of the ultimate agreement, including job losses and the cancellation of expansions and investments. For the past decade, we've been experiencing a depressed price environment, crippled by the Chinese presence, and just recently, we endured a slew of events that disrupted our main market, the United States.

Make no mistake: although it is true that projects have been scrapped in recent years, it is not accurate to claim that the outcome of CUSMA negotiations is putting jobs at risk or resulting in cancelled or delayed investments. The postponement of expansion projects is not related to the agreement negotiations or framework agreement. The fact of the matter is that investment decisions are based on, and greatly affected by, three fundamental elements.

The first is the price of the metal. Since 2008, we have been in a long stretch of depressed prices, largely caused by China's exponential growth in the market. The Chinese government subsidizes production costs, which has the effect of keeping the world price low. We are being paid a 1990 price, but we have 2020 costs, thereby reducing our margin to less than 44% of what it was in 1990.

Tariff uncertainty is the second element. That refers to tariffs on competition from countries that export to the American market. Ironically, the tariff—which makes the American market the one providing the best price for aluminum in the world—preserves market volatility because no one knows when one or more countries might be exempted, which would change the price dynamic. That's another element of uncertainty we have no control over.

The third and final element is construction costs, in other words, our capital expenditures, which are four to five times higher than in China. What's more, our construction time frames are three times longer. What takes us three years to build, China is able to build in 12 months at a quarter of the cost. When we build a single plant here, the Chinese build three and do it for cheaper.

You can see that these three basic reasons alone are enough to scrap any major project. We don't need to add any more reasons.

What are the benefits of CUSMA for the aluminum industry? In the short term, Canada and its aluminum industry benefited from a full tariff exemption, making it the sole significant primary producer in the world with unfettered access to the U.S. market.

While the old NAFTA had a 62% regional value content for most parts, CUSMA takes us further ahead. In the long term, the agreement globally increases the overall regional content for the automotive industry through increased RVC, bringing the threshold all the way up to 75% in certain cases. By naming aluminum within this context, it sends a clear signal to the automotive industry as to the importance of and expectations regarding the use of this metal.

We also understand from our meetings with government officials that these multiple layers of regional content requirement thresholds for key components with significant aluminum content will incentivize OEMs towards using regionally produced metal. We are thus far from where we were with the old NAFTA.

How do we make this happen so that Canada reaps the full benefits of this agreement? Our recommendations are as follows.

First, to protect free and fair trade between the three countries, we need a shared approach to metal import monitoring in order to ensure that unfairly traded aluminum does not enter the region. While Canada added aluminum products to its import control list as part of a commitment with the United States to prioritize trade monitoring and enforcement, we need Mexico to do the same. Canada, with the United States, must ensure that Mexico adopts an import monitoring system for aluminum imports into its territory as robust as that implemented by Canada on September 1, 2019.

We must maintain our unfettered access to the U.S. market and benefit from the growth in demand in the transport sector without being subject to market erosion stemming from surges in imports of unfairly subsidized Chinese aluminum. A trilateral mechanism should enable industry, alongside governments, to monitor progress toward the joint monitoring of metal and non-market behaviours from third countries.

Next, we must harmonize tariff codes with the United States and Mexico to better track flows and protect the region against unfairly traded aluminum.

Finally, the integrity of our low-carbon and responsibly produced metals must be preserved through traceability as it enters the U.S. market as a CUSMA Canadian origin metal, not to be confused with others. With the help of the Quebec government, industry has been working with modern traceability tools on pilot projects tracing the metal from smelter to border. As we conclude our pilots, the next step will require the help of the Canadian government to ensure full implementation in a timely fashion.

I would like to conclude with the following, Madam Chair.

After Canada's ratification of CUSMA, the following months will provide an opportunity to further develop the rules for regional content, thereby sending additional signals for the realignment of value chains. We believe that this step remains crucial in order to help the automotive sector achieve the full value of CUSMA for the economy as a whole.

We'll continue to work with the government to ensure that the rules of origin benefit the entire North American value chain, including Canadian primary production, so that our low-carbon footprint aluminum contributes in innovative ways to the transformation of the North American vehicle fleet of the future.

Given the current price environment, our fragile markets and the effects of the rail crisis on our operating costs, we must rely on the financial assistance and co-operation of the Canadian government if we want to fully benefit from this agreement for our employees and communities and for our shareholders.

Thank you.

[The Chair, Liberal, Judy Sgro]

Thank you very much, Mr. Simard.

We'll go on to Mr. Williams from the Canadian Automobile Dealers Association.

[Huw Williams, Director, Public Affairs, Canadian Automobile Dealers Association]

Good evening.

Madam Chair, thank you for having us before the committee. I have to give you a quick shout-out for all of your decades of work on behalf of the auto industry. You've been one of the most approachable members of Parliament in terms of auto issues. I should probably give a shout-out as well to the member from Oshawa, Mr. Carrie, who's been equally accessible on automotive issues over the years. It's a pleasure to be here.

I'm very pleased to be here representing the car dealers association. We have 3,200 members across the country and 160,000 employees. We're the largest employer in the auto sector. Our employees have well-paying, stable careers in every community across Canada. As I look across the ridings that are represented here around the table, I think most of you will know your car dealers, and if you don't, you'll get to know them over the next four years.

I'd like to start off by thanking the Prime Minister. I'd also like to thank the Deputy Prime Minister, Minister Freeland, and really, all MPs of all parties for the non-partisan push to get this trade deal on the table. As we watch the activity coming out of the United States, we see that the auto sector was very much in the targets with the automotive trade tariffs. I think the work done on a non-partisan “team Canada” approach was really quite spectacular. Also, I think the Leader of the Opposition deserves a shout-out for the work he did helping promote the concerns of our sector when we raised the automotive tariffs' impact on communities.

I'm just back from Toronto, where I spent time touring the auto show floor. The Toronto international auto show, for those of you who don't know, is the largest consumer trade show in the country, dealer-owned. Minister Bains made an announcement there, and I had the opportunity to show him around the car show and work with him. Both he and Premier Ford attended the show, Premier Ford for a separate announcement on the project we're doing on jobs and youth skills training. We had conversations with both of them, which I think shows the non-partisan nature of this. They both stressed how this is really a team Canada approach, and that we all have to be behind making sure we have good long-term relations with the U.S. and that we get these elements over the goal line.

The trade deal in itself was hugely important to the auto sector. We're one of the most integrated sectors there is. In our view, if the tariffs that were threatened by the White House had been brought into place, they would have been devastating, and according to the analysis of our economics team led by Mr. Dicko, they would have cost about 120,000 jobs.

It's worth highlighting that the automotive trade between Canada and the U.S. is worth $150 billion per year. That's more than $400 million per day. It's important, again, to underline that 80% of Canada's automotive trade and production each year is destined for U.S. consumers, and Canadians each year buy a similarly large proportion of vehicles coming from the States. The seamless traffic of automotive parts—automotive manufacturing—is important not just to the parts-manufacturing sector. It's critical for dealers and consumers in this country.

We reached out to our counterparts, the National Automobile Dealers Association, during these negotiations. We made sure we talked to them directly to get them on the same page about delivering a unified message in Canada and the United States that auto tariffs are bad for consumers, bad for the economies and certainly bad for car dealers, and that we needed automotive free trade. I think it's tremendously important that every association that deals with their U.S. counterparts delivers that message on both sides of the border to put Canada first.

I'm going to turn to a little bit more negative commentary now with respect to things that we should spend some time being concerned about. The agreement is a terrific first step, but we sit on what's known as the Canadian Automotive Partnership Council, which is a committee of industry and government put together. Minister Bains is a key player in that, along with his Ontario counterpart, Minister Fedeli. This body was formed to help increase investment in Canada and for Canada to get a better share of automotive investment. The bad news for Canada is that we've been getting only 7% of automotive investment since 2009. That's clearly not sustainable from the point of view of maintaining a competitive footprint here. We need both federal and provincial governments to really help reduce the cost structure to get these investments and build a strong base across Canada, which is pivotal to the economy. It's good for the economy, obviously, but it's good for dealers and it's good for the whole supply chain and for consumers ultimately.

I'd also like to spend a couple of minutes talking about another potential trade irritant that's on the horizon. Members will know about the proposed luxury tax on automobiles over $100,000. It's poised to affect about 1% to 1.5% of automobiles. We've negotiated one free trade agreement and we've negotiated another free trade agreement with the Europeans. This particular proposed tax has the potential to disrupt trade with the Europeans. Ninety per cent of the vehicles targeted by this are from European destinations, and it really contradicts the spirit of free trade with those countries. This really isn't a theoretical example. Australia and the European Union are struggling over this very point of a special tax imposed in Australia.

I would also point out that the biggest problem with these taxes is that they don't work. The U.S. tried a luxury tax whereby they imposed a luxury tax on vehicles over $100,000, on boats, planes and automobiles, and it had to be repealed by the Clinton administration in the nineties because people either buy around it or hold off on their purchases or make different purchases, so it doesn't raise revenue. In Canada we have the perfect example, which I'm sure Mr. Dicko would be glad to answer questions about. The provincial luxury tax in British Columbia has added another 20% on top of the purchase price of vehicles. We've seen a sharp decline in luxury sales in that province because people just hold off, don't buy or buy elsewhere. We've also seen job losses reported in that province. We're on a downtrend in terms of overall sales in the car industry, so it's just not the time to make that happen.

In conclusion, I would like to say thank you again to this committee for having us in. My appreciation goes to the last Parliament, and of course this Parliament, for all the hard work in getting this deal in what was a very difficult circumstance.

Thank you, Madam Chair.

[The Chair, Liberal, Judy Sgro]

Thank you very much, Mr. Williams.

We'll move on to Ms. King from the Canadian Chamber of Commerce.

[Jackie King, Chief Operating Officer, Canadian Chamber of Commerce]

Madam Chair, thank you for the invitation to appear before the committee today regarding the CUSMA implementing legislation. Given the critical importance of this agreement for Canadian businesses, I'm really delighted to be here. I'm joined by my colleague Mark Agnew, who leads our international trade work.

The members of the committee will certainly be familiar with local chambers of commerce in their communities. At the national level, the Canadian Chamber of Commerce represents over 200,000 businesses in all sectors and all regions of the country. Our membership encompasses not only chambers of commerce but also sectoral associations and companies, including everything from small to large multinational organizations.

The Canadian Chamber of Commerce was actively engaged throughout the CUSMA negotiations. We attended the negotiating rounds and mobilized our network of chambers, associations and companies through our “keep trade free” coalition. We also work closely with our counterpart business associations in the United States and Mexico.

With respect to the legislation currently before the committee, this trade agreement and its associated implementing legislation are critical for the Canadian economy. North America is, and will remain, our most important trade and investment partner. Businesses across the country have suffered from significant disruptive uncertainty since President Trump came to office. Although the CUSMA is not a panacea for the erratic trade policies emanating from the White House, it is crucial that we turn the page and lock in the new arrangement to provide certainty for our Canadian companies.

It's in that spirit that we urge the expeditious passage of Bill C-4. Every trade agreement involves trade-offs, and no agreement is perfect. However, our trade negotiators did an extremely commendable job with their efforts, during a very difficult set of circumstances, to deliver the agreement that is now before Parliament for consideration.

Now I'll highlight some of the particular benefits of CUSMA, from our perspective.

Foremost is maintaining the original NAFTA's benefits with respect to tariff-free market access for goods, given the volume of cross-border trade. The importance of the certainty this provides has been underscored by media reports earlier this month, stating that the U.S. is considering raising its WTO bound tariff rates.

CUSMA's goods market access has been complemented by customs and trade facilitation provisions to help ensure that products can move more easily across borders.

Shifting to the services sector, the retention of the labour mobility provisions from the original NAFTA will help to ensure that companies are able to attract the best talent. While we certainly had hoped to expand the list of covered sectors, enhanced labour mobility under the U.S. administration was realistically a bridge too far.

We also welcome the inclusion of digital trade provisions, which will help play a key role in setting global standards on issues such as cross-border data flows. More specifically, these types of provisions are helping to shape the ongoing WTO e-commerce negotiations.

Crucially, CUSMA preserves the NAFTA's dispute settlement provisions for anti-dumping and countervailing duty cases, and strengthens the panel process for state-to-state disputes.

Last, the side letters on section 232 measures provide a degree of protection for Canadian exporters. However, we cannot afford to be complacent under either this or a future U.S. administration.

As I noted a moment ago, the chamber gives its full endorsement to the passage of Bill C-4, and Canada completing its CUSMA ratification process in a timely manner. However, the clear message is that we do not want to see this process as the end of the road when it comes to ensuring Canadian businesses remain competitive while attempting to access opportunities in the North American market.

A perennial concern for us is buy America provisions at the federal and state levels, which attaches conditions to require the use of American-manufactured products. This considerably limits the ability of Canadian firms to participate in many U.S. infrastructure projects, and more specifically, the ability of Canadian companies to use their Canadian-based operations to participate in those contracts. The prevalence of buy America provisions risks creating incentives for companies to move manufacturing jobs to the United States. Unlike NAFTA, CUSMA does not cover U.S.-Canada procurement, and there is a risk—we understand from the media reporting—that the Trump administration may withdraw the United States from the WTO GPA.

Another concern is softwood lumber. Canada's softwood lumber industry remains in a challenging period due to a range of factors including market access and issues with the U.S. The government should continue its efforts to reach a resolution in the softwood lumber dispute in collaboration with our exporting companies.

Finally, regulatory barriers and border frictions continue to create problems for Canadian companies seeking access to the U.S. With the CUSMA negotiations now concluded it is important for the government to ensure the regulatory co-operation council works in partnership with industry-led initiatives such as the Beyond Preclearance Coalition. These types of initiatives may not provide a photo opportunity but they are absolutely critical for companies that move goods across the border.

While these three issues are not ones that we expect to be resolved in CUSMA negotiations, they are crucial to our members and should be priorities for the government now that the CUSMA negotiations are concluded. However, as I mentioned at the outset, we urge the committee to move ahead with its study as expeditiously as possible so that we can complete our domestic ratification procedures and refocus our energy on these outstanding issues.

Thank you, once again, for the opportunity to appear before this committee.

I look forward to your questions.

[The Chair, Liberal, Judy Sgro]

Thank you very much, Ms. King.

We'll move on to the Canadian Steel Producers Association with Ms. Cobden.