International Trade Committee on Feb. 24th, 2020

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

Indeed. If the Canadian government isn't bargaining on behalf of the Canadian economy, I don't know—

[Mark Nantais]

CETA was an improvement.

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

—who we are bargaining for.

[Mark Nantais]

If we didn't have CUSMA, and we couldn't operate as a fully integrated industry, we would not be competitive, globally speaking. It's very critical.

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

Thank you for your comments.

[The Chair, Liberal, Judy Sgro]

Thank you to all of our witnesses for that very valuable information.

We will now suspend for approximately two minutes before we convene the next session.

[The Chair, Liberal, Judy Sgro]

I'm calling the meeting back to order.

We will continue our study of Bill C-4, an act to implement the agreement between Canada, the United States of America and the United Mexican States.

Welcome to all of our witnesses for our second week of hearings.

From the Canadian Electricity Association, we have Michael Powell. From the Canadian Federation of Independent Business, we have Corinne Pohlmann and Jasmin Guénette. From the Chemistry Industry Association of Canada, we have Isabelle Des Chênes and David Cherniak. From the Retail Council of Canada, we have Jason McLinton.

Mr. McLinton, we'll start with you.

[Jason McLinton, Vice-President, Grocery Division and Regulatory Affairs, Retail Council of Canada]

Thank you, Madam Chair and members of the committee for the opportunity to come and discuss with you Bill C-4, An Act to implement the Agreement between Canada, the United States of America and the United Mexican States .

RCC, the Retail Council of Canada, strongly supports Bill C-4

I will briefly introduce the RCC.

The retail trade is the largest private employer in Canada. More than 2.2 million Canadians work in our industry. Recognized as the voice of retailers in Canada, RCC represents more than 45,000 businesses of all types, including department stores, grocery, specialty, discount, independent and online stores.

The grocery members of the RCC are proud to be an integral part of the Canadian food system. They constitute the final and direct link with consumers, offering Canadians the wide variety of foods they eat every day.

RCC is highly supportive of Bill C-4.

Canada is a trading nation. Free trade is essential to a modern economy, allowing Canada access to world markets for its exports and allowing retailers and consumers in Canada to access a variety of goods at competitive prices.

The renegotiated NAFTA, otherwise known as the Canada-United States-Mexico agreement, or CUSMA, preserves key elements of the previous free trade agreement and incorporates new and updated provisions that seek to address 21st century issues.

Let me be clear. CUSMA is good for retailers and CUSMA is good for Canadian consumers.

Specifically, I'd like to make comments on two points within CUSMA.

The first one is the de minimis threshold. Retailers in this country are pleased that the Canadian negotiating team delivered a deal that protected Canadian retailers from the most unreasonable demands made by the U.S. side. With U.S.-based online merchants and couriers pushing hard for an increase of the de minimis level to $800 U.S., it could have been devastating for retail merchants in Canada and to the over 2.1 million Canadians working in the retail sector.

This level would have created a tax and duty advantage for foreign shippers over Canadian retailers, essentially incentivizing Canadians to shop anywhere but in Canada, at the expense of those who actually invest and employ in Canada. Clothes, books, shoes, toys, sporting goods, consumer electronics and housewares would have been particularly hard hit, and these tend to be the areas in which small and medium-sized retailers specialize.

We're very pleased to say that the Canadian negotiating team did not cave in to these demands, and I would personally like to thank the Prime Minister, Minister Freeland and the Canadian negotiating team for the work they did in this area.

The second area that I'd like to comment on is the tariff rate quotas for supply-managed goods. Through negotiation of CUSMA and other new trade agreements, such as the CPTPP and CETA, Canada has increased its TRQ commitments for supply-managed goods nearly threefold, and the landscape of Canadian industry and consumer demand has changed significantly.

RCC is supportive of the government's decision to conduct this comprehensive review of its TRQs for existing and new trade agreements, such as CUSMA.

That said, if the purpose of these trade agreements is to bring competitive pricing for Canadian consumers, retailers must be given their fair share of duty-free quota under Global Affairs Canada's review, to maximize consumer choice and bring these better prices.

In particular, quota on products meant for final retail sale to the consumer should be allocated directly to retailers, rather than slicing the pie so thinly that each piece of the pie would be of negligible value, or allocating the bulk of ready-for-sale goods such as fluid milk, cheese and poultry up the line.

Having fewer price takers along the supply chain will ultimately lead to more competitive prices for Canadians.

While quota cannot be allocated directly to consumers, it can be allocated to the people who are closest to consumers, and that is retailers, if Canadians are to see the full benefits of this deal.

In conclusion, thank you once again for the opportunity to present the perspective of food retailers and other retailers on Bill C-4.

I'll be pleased to answer your questions.

[The Chair, Liberal, Judy Sgro]

Thank you very much.

Next is the Chemistry Industry Association of Canada.

[Isabelle Des Chênes, Executive Vice-President, Chemistry Industry Association of Canada]

Thank you, Madam Chair.

It's an honour to appear before the committee today.

The trading relationship that Canada has with the United States and Mexico is a key pillar of our economy. The Canada, U.S. and Mexico trade agreement represents a step forward in that relationship and the Chemistry Industry Association of Canada and its members support its ratification with the passage of Bill C-4.

Canada's chemistry industry is a vital component of our economy and is the fourth-largest manufacturing sector, at just over $58 billion in annual shipments. Ours is also a very highly skilled industry. More than 38% of our nearly 90,000 employees are university graduates, second only to the IT sector. These highly skilled employees are well paid with an annual average salary of $80,000. The chemistry industry also supports an additional 525,000 Canadians in indirect jobs. While few people give thought to the role of chemistry in the economy, more than 95% of all manufactured goods are directly touched by the business of chemistry. This includes key sectors of the Canadian economy, such as transportation, agri-food, natural resources and, of course, the municipal entities through water and sewage treatment.

In my brief time with you today, I want to share a few key points on behalf of Canada's chemistry sector. First, free trade has been an unquestionable benefit for our chemistry sector and nowhere is that more prevalent than here in North America. Canada's chemistry sector is highly integrated into international trade flows. Our industry exports nearly $40 billion of chemical products each year, second only to transportation equipment providers in the manufacturing space. On the other hand, we import just under $60 billion from other nations. Taken together, the chemistry sector trades around 100 billion dollars' worth of products each year.

With respect to our North American neighbours, approximately 76% of our exports and 58% of our imported chemical products come from the United States and Mexico, equating to over 65 billion dollars' worth of trade annually. Our members have offices and production facilities across Canada, including in B.C., Alberta, Saskatchewan, Manitoba, Ontario, Quebec and New Brunswick. Every single day these facilities trade hundreds of millions of dollars of products with our American and Mexican neighbours. Every day they send hundreds of train cars from Fort Saskatchewan, Sarnia and Bécancour to facilities in Texas, Illinois, Ohio, Coahuila, Chihuahua and Mexico City. In return, these U.S. and Mexican companies send hundreds of cars back, picking up new products in Guadalajara, Louisiana, New Jersey and Washington along the way, and sending them to manufacturers in Red Deer, Toronto and Montreal. Thousands of trucks and train cars cross our three borders each day in a highly efficient and integrated manner. All of this has been possible through free trade.

My second point is that once it became clear that a renegotiation of NAFTA was imminent, CIAC wasted no time in articulating clear and concise priorities that would preserve and modernize North American trade. While it was important for us to maintain tariff-free access for chemical products into the U.S. and Mexico, we wanted to use this once-in-a-generation opportunity to modernize key aspects of the North American trade framework. Addressing non-tariff issues through free trade negotiations is a constructive way to ensure a common approach among trade partners, vital to a knowledge-based economy. This means finding new ways to strengthen government-to-government co-operation, avoiding duplication and enhancing regulatory cohesion among trade partners. Just as important as enhancing the free flow and security of goods, the flow of ideas and information helps to strengthen our supply trains, improve our businesses and improve business certainty. Modern trade agreements go far beyond tariffs and it is crucial that these agreements evolve with the economy.

In a unique step, we collaborated with our sister associations in the United States and Mexico to offer tripartite recommendations to our respective negotiating teams on modernizations to the areas of rules of origin and regulatory co-operation. These two areas are uniquely critical for the trade of chemical products.

CUSMA preserves and enhances the trilateral trade of chemistry products in North America. It prevents new tariffs from being applied to chemical products, modernizes rules of origin by offering companies a clear menu of options for documenting the origin of their products, enhances regulatory co-operation with a sectoral annex intended to facilitate cross-border information and burden sharing to protect human health and environmental health, and strengthens Canada's world-leading risk management approach to chemicals management. Finally, it facilitates digital trade by ensuring that industry data can flow freely and securely across borders.

The chemistry sector has evolved significantly since the original NAFTA was adopted. Today, tens of billions of dollars' worth of chemical products are traded across our borders. CUSMA will provide for tariff-free trade of chemical products. It modernizes key areas vital to a knowledge-based 21st century economy and it strengthens Canada's risk-based approach to chemicals management.

Finally, we'd like to thank the Prime Minister and Minister Freeland for their extensive engagement on the file. We can't say enough about Canada's negotiating team at Global Affairs Canada. They proved that despite the tense rhetoric, you can achieve win-win-win outcomes. I'd also like to note the high degree of participation from the provinces as well.

In the interest of time, I will leave it at that and welcome your questions.

[The Chair, Liberal, Judy Sgro]

Thank you very much.

We will go to the Canadian Federation of Independent Business, with Ms. Pohlmann.

[Corinne Pohlmann, Senior Vice-President, National Affairs and Partnerships, Canadian Federation of Independent Business]

Thank you for the opportunity to be here today to share the perspectives of small and medium-sized companies on the trade agreement between Canada, the United States and Mexico.

I'll be sharing my time with Jasmin Guénette, my colleague. He'll be starting off, and I will be ending the presentation.

[Jasmin Guénette, Vice-President, National Affairs, Canadian Federation of Independent Business]

Thank you, Ms. Pohlmann.

The Canadian Federation of Independent Business, or CFIB for short, is an independent and non-partisan non-profit organization representing 110,000 small and medium-size independent businesses across the country in every sector of the economy.

Our last survey on international trade dates back to 2017. We received 4,400 responses, and we used the data to publish a report containing many of our members' comments as well as real-life examples of issues they face when they engage in international trade. We have a few copies of the report with us, so if anyone would like a copy, I can provide you with one after the presentation. We can also send it to you by email.

It's important to note that more than 90% of Canadian exporters are considered small businesses. What's more, 31% of survey respondents said they had some experience with exporting, and 71% reported having experience with importing. Some engage in international trade only occasionally, whereas for others, it's a regular, if not daily, practice. What matters, however, is that they be able to trade with others as smoothly and as swiftly as possible, regardless of how often.

In addition, 63% of respondents import products or services from the United States, while 28% export to the U.S. Clearly, the figures aren't as high when it comes to trade with Mexico, but the country remains a major trading partner for Canadian businesses, and that trade is growing. These figures show just how important our trading relationship with the U.S. is, while highlighting the need for clear rules and a predictable trading environment to make it easier to trade with our partners.

We asked our membership what motivated them to engage in more international trade. It may be greater demand for a product or service, a desire to grow their business or a business opportunity. More than a third of members indicated that good trade deals influenced their plans to export products or services.

In 2018, we asked our members whether a new agreement between Canada, the U.S. and Mexico should include provisions specific to small and medium-size businesses, so we are pleased to see an entire chapter devoted to them in the new agreement, recognizing their important role in the economy. As one of our top recommendations in connection with the negotiations, this is a positive step forward, one we hope will make it easier for small and medium-size businesses to engage in more international trade.

I will now turn the floor over to my colleague, Ms. Pohlmann.

[Corinne Pohlmann]

Thank you, Jasmin.

We'll get into our priorities and recommendations. I want to say, first and foremost, that we encourage the government to move forward on ratifying this agreement as soon as possible. We have experienced a lot of uncertainty in international trade over the past few years, and this would help bring some needed stability with Canada's largest trading partner.

In addition, we're very pleased to see a small business chapter, as Jasmin pointed out, included in this agreement, which recognizes the particular challenges small businesses face when it comes to trade. If we want to see more small business engage in trade, we would encourage the government to move quickly on many of the ideas and principles found in the small business chapter and throughout the agreement.

While eliminating and/or lowering duties is important, almost more important to smaller businesses is to focus on making border processes easier. This includes improving how quickly trucks can cross the border but also finding ways to clarify and simplify customs processes and paperwork. In particular, things like the rules of origin can be a real challenge for smaller firms who may not have the expertise or resources to address issues that may arise in that area.

Also important, though, is to review things like trade facilitation programs such as FAST, C-TPAT and PIP and to make sure that they consider the needs of small and medium-sized companies when they're being designed, and making sure they're easy to access for smaller firms, as well. Too often they're really focused on the large firms and not on the small firms.

I want to touch on a couple of small things. While we'd like to see this agreement move forward as soon as possible, we also know there are a couple of areas of concern. We recognize that certain sectors may be hurt by some aspects of the agreement, and action must be taken to address those issues. For example, we know the dairy industry will see U.S. competitors gain greater access to the Canadian market. To deal with this, the government should provide a detailed transition plan, provide clarity on what compensation will be offered and provide assurances that these measures will work for smaller producers, as well.

As an aside, I should mention that our members in the grain and livestock industries are also struggling due to trade issues with places like China and India, so we would certainly welcome efforts to resolve those issues, as well.

We're also concerned with the higher de minimis. While we agree with the Retail Council, we were pleased to see that the government sort of stuck to the ground and didn't go to the $800 that was being pushed by the Americans. We are still concerned that it is doubling the cost from $20 to $40 for tax purposes and up to $150 for duties.

Small Canadian retail businesses are already facing intense competition from online and international businesses, and we feel that some of these changes will actually make it worse. At the very least, we ask that government direct stronger enforcement of the rules by Canada Post and CBSA. The issue here is that the rules are in place but they're not being applied. We need to see stronger rules enforced and make sure that the rules that are in place are being properly enforced by Canada Post and the CBSA.

We would also encourage the government to look at ways that we could potentially offer other relief should this become an issue for smaller retailers on the ground here in Canada.

These are the issues we hope to address today. We'd like to thank you for the opportunity, and we look forward to your questions.

[The Chair, Liberal, Judy Sgro]

Thank you very much.

We'll go to Mr. Powell from the Canadian Electricity Association.

[Michael Powell, Director, Government Relations, Canadian Electricity Association]

Madam Chair, thank you for the opportunity to speak in support of Bill C-4 and CUSMA and how it helps Canada in the North American integrated electricity grid.

CEA is the national voice of electricity. Our members operate in every province and territory in Canada and include generation, transmission and distribution companies, as well as technology and service providers from across the country.

Our electricity sector employs 81,000 Canadians and contributes $30 billion to Canada's GDP. Indirectly, our sector supports essentially every job in Canada, as electricity is the foundation of the modern economy.

Electricity is at the heart of Canada's transition to a low-carbon economy. More than 80% of Canada's generation is already non-emitting, making it one of the cleanest grids in the world. In fact, the Canadian electricity sector has already reduced GHG emissions by 30% since 2005.

Electricity will play an essential role as Canada transitions to a low-carbon economy.

[The Chair, Liberal, Judy Sgro]

Excuse me, Mr. Powell. Translation is asking you to slow down a little. I appreciate the speed, but the translators can't keep up.

[Michael Powell]

The sector is uniquely positioned to help advance Canada's clean energy future and provide, as the throne speech aspires to, clean, affordable power in every Canadian community.

Canadians and Americans share a highly integrated electricity grid, connected by more than 35 high-voltage cross-border transmission lines. Our members also engage in bidirectional electricity trade with the United States and work with American counterparts to keep the grid reliable and secure.

Trade integration forms the backbone of a highly positive and mutually beneficial cross-border electricity relationship, which provides economic, environmental, resiliency and security benefits to Canadians and Americans and contributes to affordable and increasingly clean energy for customers on both sides of the border. Overall, the binational integrated electricity system exemplifies the advantages of partnership and collaboration and benefits both countries.

In recognition of these mutual benefits, CEA and its U.S. counterpart, the Edison Electric Institute, submitted joint comments to negotiators on both sides of the border during the renegotiations. These joint comments highlighted our shared view that the existing cross-border trade relationship works well and the importance of preserving it. For more than 25 years, NAFTA has provided stability and predictability to our shared interconnected grid. Its value is underpinned by NAFTA's guarantee of tariff-free electricity trade, and it is positive that the Canada-United States-Mexico free trade agreement maintains this integral guarantee.

CEA also supports the greater integration and interdependence of North American energy systems and was pleased to see the inclusion of a CUSMA Canada-U.S. energy side letter on regulatory measures and regulatory transparency.

Over 70 terawatt hours of electricity flowed across the border in 2018, representing an electricity trade relationship of over $3 billion. Approximately 30 states engage in electricity trade with Canada each year, with Canadian exports to northern border states being particularly robust. This two-way exchange enables electric supply to meet demand in the most efficient manner, increases resilience, boosts affordability for customers and helps regions meet policy and business goals. Many Canadian and U.S. electricity companies own assets in both countries.

Canadian export volumes are high relative to import volumes, as Canadian generating capacity generally exceeds requirements. In 2018, net exports were 48.2 terawatt hours, which represented a net value of $2.4 billion Canadian. We have additional surplus supply as well as rich resource development opportunities.

From a Canadian perspective, electricity trade provides system reliability and resilience and economic and affordability benefits. While exports represent a valued source of revenue for many Canadian electricity companies, that is only half of the story.

From the American perspective, particularly for northern border states, our electricity is an affordable, reliable, safe, secure, clean supply option that contributes to national energy security, environmental goals and economic success. Given our abundant clean electricity profile and rich clean resource development opportunities, Canadian electricity imports contribute to the shrinking of the U.S. carbon footprint and can also serve as backstop energy to support the development of U.S. variable renewable resources such as solar and wind.

This relationship is more than powering homes and businesses. National energy security has also been a major Canadian preoccupation throughout the negotiation of the agreement. The interconnected nature of the North American grid means that its reliable and safe operation is a shared responsibility. Canada and the U.S. have worked together to develop effective institutions in support of a safe, secure, reliable electricity system to the benefit of both Canadian and U.S. businesses and communities.

The Canadian electricity sector is an active participant in cross-border institutions and programs that aim to secure the grid, such as the Electricity Subsector Coordinating Council, which enjoys participation of senior government officials in the sector and electricity industry CEOs from both countries. The electricity sector and the government also participate in major cross-border security incident response exercises like GridEx, which was held this past November across Canada and the U.S.

To this end, Canada and the U.S. work very closely on the protection of critical infrastructure. Cybersecurity and physical security are top of mind for industry and government alike. While there is good collaboration between our governments and industries, there is always opportunity to strengthen cyber protocols.

All things considered, there are further opportunities to leverage the positive electricity partnership between Canada and the U.S. The ratification of CUSMA will help provide the stability and predictability to our shared interconnected electricity system to help forward this valuable partnership.

We'll keep working to make North America the world's leading energy region by promoting energy security and affordability, strengthening energy and infrastructure protections and achieving environmental goals.

Thanks for your time.

[The Chair, Liberal, Judy Sgro]

Thank you very much, Mr. Powell.

We'll now move to the members and will start with Mr. Hoback.

[Randy Hoback, Conservative, Prince Albert, SK]

Thank you, Chair.

Thank you, witnesses, for being here this afternoon. I appreciate it.

I'm sure you're aware that we're doing extended sittings all this week. We're doing as much as we can to give the 200 people who want to appear in front of the committee a chance to talk about the impact of CUSMA, the new NAFTA.

The concern we have is not the deal; we're going to approve the deal. The bill should go into clause-by-clause study hopefully on Thursday or Friday, and then it will be out of here. Now with regard to the Senate, that's a different story. The Prime Minister will have to deal with them; that's his baby. However, as far as the House of Commons is concerned, we should get it through, which I think everybody wants to see.

There are some concerns I want to bring in.

I'll start with the CFIB.

A lot of people will say to get it done, yet when you start telling them what's in the deal, they say, “Oh, I didn't know that.”

You used a good example. You talked about the de minimis. It goes from $20 to $40, and then the duty is to $150.

Do you realize that Canada Post doesn't qualify? It is only a courier outside of Canada Post that would qualify for those types of situations.

[Corinne Pohlmann]

Yes, and that's part of the reason we're a bit worried about the impact this is going to have. Canada Post is the one that's the real problem. It has never been the couriers. I think that the couriers have always done a fairly good job of collecting duties and taxes, even under the current rules. Canada Post never did, and now they're being exempted.

I would suggest—and perhaps the Retail Council knows better than I do—that most shipments are coming through Canada Post.

[Randy Hoback, Conservative, Prince Albert, SK]

Yes, so the reality is that it's going to be $20 if you go through Canada Post, but if you go with another courier—pick one—then you go to the new rule.

The weirdness in all of this is, why exempt Canada Post? The only profitable part of their corporation is the courier side of it. If you go to most of the business community, they think it's everybody. If you ship with Canada Post, you don't get it, and they go, “Oh, wait a minute, what else is in here?”

That goes to why we need to have a little more time to go through this to the nth degree. Hopefully in the implementation, maybe we can change that somewhere down the road.

However, the Retail Council may not want to see it changed.

You may want to leave it the way it is. Was that part of your strategy when you were doing the consultations, to—?

[Jason McLinton]

Yes, we participated in the consultations extensively, as you know.

Our members would like to have seen the de minimis threshold moved to zero. As you mentioned, in the renegotiated NAFTA or CUSMA, with any purchase you're making under that $40 limit for taxation and $150 for duties, you're essentially incentivizing those purchases to be made anywhere but in Canada. We would like to have seen that remain the same, or even lowered to zero.

That being said, there are the very practical realities of having to administer this thing at the border, as well as the pressure that the Canadian negotiating team was getting from the U.S. government.

All in all, it's not something our members are ecstatic about, but they are very, very pleased to see where we did land on it compared to what had been the pressure that the negotiating teams were under.

[Randy Hoback, Conservative, Prince Albert, SK]

Yes, I know that the $800 would have had a devastating effect.

Actually, if you look again at the cost of doing business in Canada versus the cost of doing business in other jurisdictions around the world, with carbon tax and everything else, it's quite a bit more to do business here. As you said, you take the de minimis and you increase it and the tax to $150, and all of a sudden you're competing against that American across the line who is selling something even in that $60—

[Jason McLinton]

Ultimately, I think our members would have been fine with that if that same $800 tax break were given to Canadian retailers and consumers would have....

I can't comment on what that would have done to government revenue, but if you're going to give a tax break to retailers outside of Canada, you'd have to give that same tax break to retailers who are investing in this country.