International Trade Committee on Feb. 25th, 2020

[Dominique Benoit]

Good morning, committee members. On behalf of the Dairy Processors Association of Canada, I want to thank you for the invitation to appear this morning to discuss the bill to implement the Canada—United States—Mexico Agreement, or CUSMA, and the impacts of the agreement on Canada's dairy processing industry.

I'm the treasurer and an executive member of the board of directors of the Dairy Processors Association of Canada. I'm also the senior vice-president of institutional affairs and communications at Agropur, the largest dairy cooperative in Canada. With me today is Mathieu Frigon, our president and chief executive officer.

This morning, we first want to bring to your attention to the harm that CUSMA will cause to our industry. We then want to focus on the government mitigation measures that would help our industry adjust to the new market environment that we're now facing as a result of CUMSA and other recently signed agreements.

[Mathieu Frigon, President and Chief Executive Officer, Dairy Processors Association of Canada]

As the second-largest food processing industry in Canada, dairy processing contributes more than $14 billion annually to the country's national economy. Dairy processors directly employ 24,000 Canadians in 471 facilities across the country, with an aggregate payroll of $1.2 billion. Our industry is a major employer in rural and urban communities, providing high-paying jobs to middle-class Canadians.

Canadian dairy processors have invested $7.5 billion over the past decade in their business. This includes capital investment to expand and update existing facilities as well as to build new ones to support increased production. It also includes investment in research and development to spur innovation and bring new products to market.

Dairy processors are dedicated to investing in a vibrant industry to support Canadian jobs and the Canadian economy. However, recent trade agreements threaten to curb this growth and diminish the long-term competitiveness of the Canadian dairy industry.

[Dominique Benoit]

At full implementation, access granted under CUSMA, in addition to existing concessions pursuant to other agreements, will represent about 18% of our Canadian market. When considering the latest three trade agreements, Canadian dairy processors will lose $320 million per year on net margin once the agreements have been fully implemented.

On top of the market access concessions, CUSMA includes a clause that imposes export caps on worldwide Canadian shipments of milk powder, protein concentrates and infant formula. For example, for skim milk powder and milk protein concentrates, a cap of 55,000 tonnes will be imposed for the first year, and 35,000 tonnes for the second year.

Considering that, in the 2017-18 dairy year, Canada exported more than 70,000 tonnes of skim milk powder, there's no question that a clause in CUSMA limiting our exports worldwide will drastically impact Canadian dairy processors and domestic milk supply requirements from Canadian dairy farms. We estimate that the export caps could result in an annual loss of $60 million for dairy processors.

We also want to note the extremely peculiar aspect of imposing caps on Canadian exports of milk powder to all countries, including countries that aren't part of the Canada-United States-Mexico Agreement. This is a first in an international trade agreement, and a dangerous precedent for Canada.

One way for the government to mitigate the negative impact of the export caps is to ensure that CUSMA enters into force on August 1, 2020, or later, so that the industry operates an additional full year under an export cap of 55,000 tonnes.

[Mathieu Frigon]

To mitigate the negative impact of the increase in market access under CUSMA, we propose a twofold approach: first, the allocation of dairy import licences to Canadian dairy processors; and second, a dairy processor investment program.

We want to reiterate today that dairy import licences, commonly known as dairy TRQs, must be allocated to dairy processors. Dairy processors possess the expertise and the distribution network to import a wide variety of dairy products that complement the domestic offering, as opposed to replacing it. The government must refrain from repeating the same mistake it made for CETA, where it allocated more than half of the CETA cheese TRQ to non-dairy stakeholders such as retailers and brokers. Those non-dairy stakeholders do not have a vested interest, as dairy processors do, in importing dairy products that would minimize the impact on existing production line and manufacturing platforms in Canada without displacing Canadian farm milk. In addition, dairy processors continue to invest, maintain and generate well-paying jobs across the country, particularly in rural areas. Additional imports that are poorly planned or poorly targeted will undermine the survival of many businesses.

The second mitigation tool we recommend is a dairy processor investment program. The diary-processing industry is made up of businesses of various sizes and product mixes, all of which will experience the impact of these trade agreements in different ways. As such, we recommend that the government create a program for dairy investment and compensation that would aim at supporting investment in dairy-processing capacity, competitiveness and modernization. That program would include tools such as non-repayable investment contributions and refundable tax credits. The program would work on a matching principle basis. In order to receive funds, a dairy processor would have to commit to making investments here at home.

[Dominique Benoit]

Last year, recommendations were submitted to the Department of Agriculture and Agri-Food by the mitigation working group—created by the government in October 2018—on programs to address the financial impact of the three trade agreements on the dairy processing sector. We actively participated in this work. We made recommendations based on the government's commitment to provide full and fair compensation to the sector, meaning to both dairy producers and dairy processors.

We're hopeful that the coming budget will instill much needed confidence in the future of dairy processing through an announcement regarding a dairy processing investment program.

Rightly done, these two measures—the allocation of import quotas to processors and a dairy sector investment program—taken together could fairly and fully compensate Canada's dairy processing industry for the negative impact of the trade agreements. Only through these types of mitigation measures will the dairy processing industry be able to safeguard existing jobs and significant investments in Canada, while continuing to develop our future.

Thank you for your time and consideration. We're ready to answer your questions.

[The Chair, Liberal, Judy Sgro]

Thank you very much.

We'll move to Mr. Lewis.

[Chris Lewis, Conservative, Essex, ON]

Thank you, Madam Chair, and to all the witnesses for coming out today.

Let me start by saying we certainly are the party of free trade. It's not our intention at all to hold up CUSMA in any way, but we also have to do our due diligence. It's for our families, our businesses and our country. That's why we ask a lot of these questions. As many of you will know, unlike the U.S. Congress that was provided with an in-depth economic study, Canadian parliamentarians have received no analysis despite repeated requests. We've had to depend on other studies, most recently the C.D. Howe Institute's report and the testimony before this committee.

Some industry leaders have described CUSMA in less than glowing terms, saying the deal is better than no deal, while others have offered their enthusiastic support. Most have welcomed the stability it will provide after three years of uncertainty. Some have said the devil is in the details.

To the chamber of commerce, sir, you represent a number of sectors in Quebec. Does the level of enthusiasm for this agreement differ from sector to sector?

[Michel Leblanc]

It does, because it's not the same, but in general, it's a very high level of enthusiasm. It's not equal in every sector, but as a community, it is really behind this accord.

[Chris Lewis, Conservative, Essex, ON]

Have you or has the chamber done its own economic impact analysis? Does it line up with the C.D. Howe's assessment that Canada's GDP will drop by 0.4% and that the Canadian economy will lose up to $10 billion?

[Michel Leblanc]

No. From various exchanges that I've had over the years, the impact of not having an agreement was immense. If we had numbers, they were more about the impact on our export businesses, on our companies here, if we were not to have such an agreement with the U.S. Of course, the CGI of Montreal, the Couche-Tarde of Montreal, the Saputos of Montreal, are all businesses that are now very active in outside markets, including the U.S.

Clearly, the signal from all of our companies was that the price we would have to pay as an economy if we were to not have an accord would be immense.

[Chris Lewis, Conservative, Essex, ON]

I heard you say the word “export”. Does the chamber have any concerns about implementation, particularly the short 90-day time frame from ratification to implementation? Do you share the C.D. Howe Institute's concern about the potential for a thickening at the border, in other words, issues with tariffs, issues with the CBSA not having additional resources and/or funding to implement all this stuff?

[Michel Leblanc]

We do have concerns, as always, when there are new agreements and new rules, that they will have an impact. We have what we call “trade missions”, and one of our most attended trade missions brings new exporters to the border, where they get a chance to understand the processes and the treatment of exports. Clearly, we expect over the next months to have lots of demand to make sure that everybody understands what, if anything, has changed.

In effect, there will be probably an adaptation period, but again, this is seen as a positive evolution from our community's standpoint. We were very concerned that because of President Trump's position, we might not have such an agreement. We're very happy that we do have one, and we want to move forward as quickly as possible.

[Chris Lewis, Conservative, Essex, ON]

Thank you very much for your answers.

Thank you, Madam Chair.

[The Chair, Liberal, Judy Sgro]

We'll go on to Mr. Sarai.

[Randeep Sarai, Liberal, Surrey Centre, BC]

Thank you, Madam Chair.

Thank you all for coming.

I'll start with you, Mr. Trew. My question is on the ISDS. When it originally was implemented, a lot of people thought it would be helpful for Canadian companies and protect them against any regulatory changes that might be imposed in the U.S. Later on, it was actually the reverse. We faced more.

Do you think the absence of that, though, might have some implications going forward, where it might get abused just because we might have taken an action thinking it was more discriminatory to Canadian businesses and less the other way around? Do you think that not having that dispute settlement system might pose a challenge in the future?

[Stuart Trew]

If I understand the question, do you mean is it going to be more bad for Canadian business than for the United States if we don't have the ISDS?

[Randeep Sarai, Liberal, Surrey Centre, BC]

Yes.

[Stuart Trew]

The record is pretty bad for Canadian companies using ISDS to challenge U.S. policies. They've never won a case. I think that probably says something about how it works going up against a country as powerful as the United States. There are many opportunities, many means that Canadian companies have to assert their rights under U.S. law, their rights to do business in the United States, which are extensive. The U.S. legal system is one of the most established and elaborate in the world with respect to protecting private property. I don't think Canadian businesses are under any threat operating in the United States without ISDS.

[Randeep Sarai, Liberal, Surrey Centre, BC]

Thank you. That's what I wanted to hear.

In terms of labour, you said the new improvements are a lot better having it in there. Do you think there could be improvements on how we can access those? I think your concern was the fact that a government would have to bring the labour complaint. This would be at national levels, not on perhaps individual levels. How do you see the labour provisions being enforced?

[Stuart Trew]

The idea we're thinking through—and I just mentioned it briefly in my presentation—would be to have some kind of prima facie means by which labour unions, individuals or community groups could bring forward a challenge related to the labour protections and have it decided in an independent way. Is there a value to this? Is there a reason to move forward with this?

If the panel said their was, and they do this similarly with procurement disputes, then the government would be obliged to take this forward to government-to-government dispute.

[Randeep Sarai, Liberal, Surrey Centre, BC]

That is currently not in the system. That would be something that would have to be devised amongst the three countries.

[Stuart Trew]

Exactly.

[Randeep Sarai, Liberal, Surrey Centre, BC]

My next question is to you, Mr. Leblanc.

In terms of small and medium-sized businesses, how can you, in your experience as the chamber representative, increase the knowledge of and access to those new opportunities and, quite frankly, some of the existing opportunities that were there in NAFTA to help Canadians, especially SMEs, increase their businesses in the other two countries?

[Michel Leblanc]

We do several things, and perhaps we could do more. Of course it always depends on the funding. I would send a message that the federal government can play a role here.

First, at the entrepreneurship level, we try to put in place everything we can to have them “born global”, as we call it, which means that right from the inception and the development of their initial business plans, we incite and work with those SMEs to make sure they take into account the possibility of exporting, which means if they develop their website, to make sure it's transactional. From Quebec it can be transactional in English. Internationally we make sure that, if they hire people, they hire people with the intent eventually to develop their international markets. That's one.

Second, we have lots of training activities, and as part of those training activities, as I was mentioning, we have all those groups that we take to the border. It's really to explain it and make it as simple as possible for those SMEs to see the American market as part of their backyard, part of their growth area.

Last, we organize missions in the U.S., where we take SMEs.... Usually we do not take large companies—they don't need us—but we will take SMEs into the U.S., into the New York area or to Silicon Valley. There we facilitate with the personnel who are either from the delegation of Quebec, the embassies or the consulate. We work with them to make sure we develop those one-on-one contacts. The whole strategy is to make sure that, as quickly as possible, our SMEs realize that their growth opportunity is to have access to that market.

Now with the new—

[Randeep Sarai, Liberal, Surrey Centre, BC]

Have you also—