International Trade Committee on March 12th, 2021

[The Chair (Hon. Judy A. Sgro (Humber River—Black Creek, Lib.)), Liberal, Judy Sgro]

I call the meeting to order.

Welcome to meeting number 19 of the House of Commons Standing Committee on International Trade. Pursuant to Standing Order 108 and the motion adopted by the committee on October 23, 2020, the committee is studying Canada's efforts to reform the World Trade Organization. Today's meeting is being webcast and is taking place in a hybrid format, pursuant to the House order of January 25, 2021.

I welcome our witnesses for the first panel. From the Business Council of Canada, we have Trevor Kennedy, director of trade and international policy; from Canadian Manufacturers & Exporters, we have Matthew Poirier, director of trade policy; and from the Centre for International Governance Innovation, we have Bob Fay, managing director of digital economy.

Mr. Kennedy, you have the floor.

[Trevor Kennedy, Director, Trade and International Policy, Business Council of Canada]

Thank you, Madam Chair and committee members, for the invitation to take part in your meeting today on reforming the World Trade Organization.

The Business Council of Canada is composed of 150 chief executives and entrepreneurs of Canada's leading enterprises. Our members directly and indirectly support more than six million jobs across the country and hundreds of thousands of small businesses. Representing different industries and regions, these men and women are united in their commitment to improve the quality of life for all Canadians.

We are a trading nation. Our prosperity and living standards depend on trade, and 65% of our GDP is tied directly to it. The postwar rules-based system under the General Agreement on Tariffs and Trade—and now its successor, the World Trade Organization—propelled economic growth and facilitated the expansion of our firms into new markets. Throughout this period, global merchandise trade grew by an average of six per cent a year among its members. Today, WTO members account for 98% of global trade.

While bilateral deals, including NAFTA—now CUSMA, the CPTPP and CETA, have helped to grow the pie, many of our firms continue to rely on the global system for access to critical markets and to ensure there are common, predictable and enforceable rules around the world. As Canada looks to rebuild its battered economy, the global system will be even more important for Canadian exporters to succeed in the post-pandemic world. Merchandise exports to the world fell by 12.3% in 2020, a decline of $70 billion.

As with any relevant organization, the WTO requires both maintenance and modernization. Unfortunately, because of disagreements around key elements like dispute settlement, we have not been able to advance this organization for some time.

Given the recent challenges it has faced, some have even questioned the long-term viability of the WTO. However, Canada has not. In an effort to be constructive and to provide steps toward modernization, Canada took the lead by creating the Ottawa Group. With EU members, Japan, Australia and other countries on board, the Ottawa Group represents a critical mass of like-minded partners that are serious about reforming the system.

Canada played another important role in establishing the multi-party interim appeal arbitration arrangement, the MPIA, which includes many Ottawa Group members and several countries outside that group. The MPIA is a critical stopgap measure to ensure that the WTO dispute settlement mechanism continues to function in several leading economies, but we know this is not an alternative to WTO reform.

The Business Council of Canada has been supportive of both the Ottawa Group and the MPIA. For the past year, our president and CEO, Goldy Hyder, has proudly served as WTO business advisory council co-chair to the Minister of International Trade. In this capacity, we have supported the government in its effort to drive more private sector engagement in Canada and with our international business counterparts in the Ottawa Group process.

Last year we organized round tables on issues including e-commerce and dispute settlement. The latter included high-level participation from the U.S. private sector, a key stakeholder if we are to achieve meaningful WTO reform.

Dispute settlement is by no means the only thing the WTO does, but because of long-standing disagreements over its function, it has become a roadblock to moving the rest of the organization forward. It is critical that we bring the U.S. back to the table. We believe Canada and the Ottawa Group are well positioned to do that. Early signs from the Biden administration, such as its support for the new director general and openness from Congress, are encouraging. At the same time, many of my counterparts in the U.S. consider WTO reform and restoring its functionality a priority.

The council and its members are eager to support efforts to engage the U.S. government and the private sector to achieve reform. If we work together in good faith, I believe we can overcome our disagreements.

Beyond repairing dispute settlement, the WTO needs to change with the rapidly evolving global economy. As an example, we believe recent developments, such as the WTO joint statement initiative on e-commerce negotiations, can liberalize and create a level playing field for Canadian firms in fast-growing areas of our economy, including digital trade and e-commerce. We were pleased to join the International Chamber of Commerce and a wide group of international business groups in a letter supporting these negotiations earlier this year.

In conclusion, Canadian business leaders value the role the WTO plays in our economy, and they support reform and modernization to ensure that it remains a relevant institution. We encourage Canada to continue its important work within the Ottawa Group.

I thank you for the opportunity to speak here today, and look forward to answering your questions.

[The Chair, Liberal, Judy Sgro]

Thank you very much, Mr. Kennedy.

We'll move on to Mr. Poirier, please.

[Matthew Poirier, Director, Trade Policy, Canadian Manufacturers & Exporters]

Good afternoon, everyone, and thank you for inviting me to participate in today's discussion. It's my pleasure to be here on behalf of Canada's 90,000 manufacturers and exporters and our association's 2,500 direct members to discuss World Trade Organization reform.

Our association’s members cover all sizes of companies from all regions of the country and all industrial sectors. We represent the majority of Canada’s manufacturing output as well as Canada’s value-added exports.

Manufacturers are some of Canada’s largest exporters, and global trade is the lifeblood of our sector. The manufacturing process relies on global supply chains to source and to make all the goods that the planet needs.

Our sector sells products to every corner of the earth, sustains good, high-paying jobs in Canada and creates wealth and prosperity for all Canadians. Therefore, the WTO and standardized global trading norms more broadly are critically important to managing the trade that our industry and our economy rely on.

Since its inception, the WTO has been instrumental in setting the rules for global commerce and for resolving disputes that arise while conducting business abroad. It has been a singular achievement and has established an international framework for productive and peaceful international trade.

This doesn’t mean we haven’t encountered problems along the way. Our research shows that Canada’s share of global exports started to decline around the same time that China was admitted to the WTO at the beginning of the century. Having such a negative and large player enter the club meant that Canada and its allies were at a cost disadvantage overnight.

Once legitimized by WTO membership, China increasingly became an indispensable part of global supply chains, and we are inextricably linked to it today as a result. The WTO’s handling of the China question will undoubtedly define its future and the future of the global trading order.

In any event, a lot of time has passed since the WTO’s inception in the nineties. Much as NAFTA started to show its age before we moved on to CUSMA, the WTO is now clearly in the same situation. Worse, the dysfunction we’ve seen in recent years at the WTO threatens its very existence and makes reform of the organization not a “nice to have” but a “must do”.

CME supports the WTO and its necessary reform and is especially appreciative of our government’s efforts at modernization, through the Ottawa Group. It is an example of global leadership, and we commend Minister Ng for spearheading this initiative.

For too long, everyone around the globe has whined about the WTO, but this push is the only real effort to actually do something about it. CME is proud to be part of this work, and it is definitely something we hope to support in the years ahead.

Because of the work of the Ottawa Group, we believe Canada is now in a position to play a larger role in the reform movement. Canadian manufacturers and exporters believe the following principles and areas of focus should be included in the WTO reform agenda:

Number one would be to strengthen the WTO’s monitoring function. This is a core responsibility of that body. The WTO is meant to police actors and ensure countries are living up to the rules and standards of their trade agreements. Transparency is key. Without it, actors can be tempted to use trade-distorting practices. Without proper monitoring and the production of real trade data, these distortionary actions are easier to slip in. Therefore, a robust and enhanced monitoring ability would keep everyone honest and potentially avoid having to resort to, and overburden, frankly, the dispute resolution mechanisms of the WTO.

Number two would be to strengthen those dispute settlement mechanisms. When monitoring and mitigation fail, the dispute settlement mechanisms need to be able to resolve disputes between trading parties quickly and fairly, with emphasis added on “quickly”. Before the appellate body atrophied last year, it was still taking years for decisions to wind their way through the system. This creates the incentive for bad actors to exploit and game the system and intentionally bog down disputes because it’s in their interests to do so. More concerning, it removes consistency and stability for business, and the trade ecosystem suffers as a result.

Number three would be to modernize trade rules to avoid falling further behind. Because there's been a lack of consensus on how to update global trade rules, countries have gone about resolving those issues in bilateral or multilateral trade deals, like Canada has. If the WTO cannot keep up, it will inevitably be left in the dust.

Canadian manufacturers and their global peers run into so many issues when trading abroad: unfair competition from state-owned enterprises, dumping, currency manipulation, industrial subsidies and trade barriers more generally. This is in addition to global trade rules not coming to terms with broader issues like digital trade, sustainable development and environmental regulations. In order to tackle all these issues, Canada should seek consensus with like-minded countries and prioritize which challenges to address first, and then update those rules accordingly.

To recap, WTO modernization efforts must focus on strengthening monitoring and dispute resolution mechanisms, and work with like-minded nations to update the rules.

However, as you've heard me say here before, while WTO reform work is very important to Canadian manufacturers and exporters, we still have the problem of our domestic industry's increasing inability to take advantage of global trade. Canada's manufacturer exporters are too small, and at full capacity. Generally speaking, a higher proportion of Canada's businesses are small SMEs than is the case for most of our global competitors. From a fundamental, structural perspective, then, we need to get our companies to invest in their businesses and help them grow and scale up. Larger companies are simply better positioned to take advantage of global trade.

The Canadian government is uniquely positioned to help in this way by continuing to support exporters through its various agencies, but also by investing in mentorship and trade skills training. We need to increase our production capacity and our domestic trade expertise to tackle this problem.

In conclusion, CME strongly supports Canada's efforts and leadership in WTO reform. This is not some arcane, theoretical exercise. It has real-world consequences, and will only become more important if we see these retrenchment trends in global trade, as a result of the pandemic, continue. A strong, rules-based enforcement body such as the WTO will be even more necessary in that scenario. However, it is all moot if we do not help Canadian industry first, at home. Only then will we be able to reap the benefits of global trade and thrive.

Thank you again for inviting me. I look forward to the discussion.

[The Chair, Liberal, Judy Sgro]

Thank you very much, Mr. Poirier.

We go on to Mr. Fay, please.

[Bob Fay, Managing Director, Digital Economy, Centre for International Governance Innovation]

Good afternoon and thank you, Madam Chair and honourable members, for the opportunity to present the views of the Centre for International Governance Innovation, or CIGI, on World Trade Organization reform.

As you've heard, the WTO faces many challenges. Indeed, it is experiencing a crisis of legitimacy in each of its three core functions—negotiation, dispute settlement and transparency. More generally, the WTO finds itself struggling to respond effectively to the challenges of rapid economic, political, social and technological changes.

Multilateralism and rules-based trade co-operation are critical for Canada’s prosperity and relations with the world. As a middle power with a trade-dependent economy, Canada has both the incentive and the capacity to contribute enlightened ideas and to advance novel reform initiatives to the WTO. As we have also heard, Canada has done so with the creation and leadership of the Ottawa Group to guide WTO reform efforts.

I will first provide specific reform ideas within each of the WTO’s three core functions. Then I'll turn to areas where trade rules need to be modernized. More detail is provided in the background brief and in the CIGI WTO reform essay series that can be found on our website.

First, on the negotiation role, the WTO today is negotiating on a wide range of issues. Indeed, the trade governance agenda is almost entirely a “trade and” agenda, with a daunting list of “ands”. They include labour, gender, indigenous peoples, climate change and the environment, data, digital issues, e-commerce, human rights, development and intellectual property. It's hard to visualize the WTO dealing with these issues in their entirety, much less adjudicating disputes around them.

CIGI suggests that member states reinvent the WTO by abandoning the effort to manage so many “behind the border” issues that cover such disparate elements of economic and social policy. The “single undertaking” approach, whereby all manner of topics were pooled to make broad-based progress while allowing for trade-offs between them, should be ended.

Nevertheless, the WTO must continue to monitor these diverse areas. Indeed, all WTO member countries could be mandated and provided incentives to report trade impact assessments on these “and” issues to develop a better database for measuring the distributive consequences of trade measures. The WTO must also place a greater focus on facilitating negotiations and increasing barrier-free trade.

Although multilateralism is best, in current circumstances, a plurilateral approach is more workable and can help to build consensus among like-minded countries. An example of such an approach was the agreement of Canada, Chile and New Zealand on issues of trade and indigenous peoples.

The WTO can also work better with other international organizations—other stakeholders—and can create expert groups to develop consensus on technical issues. Bringing in the Group of Twenty, the G20, might be useful in helping to choose among the options and set a realistic course for WTO modernization. The G20 could also be used to achieve consensus and reach compromise on key issues over which the WTO is negotiating, and to help develop a new program of work for the WTO.

I will now turn to the dispute settlement system that has understandably attracted much attention. The impasse over the Appellate Body threatens the whole system and distracts from discussion of other improvements that would make the dispute settlement system more inclusive and effective for many members. In fact, for many WTO members, the WTO functions well.

The problem of the dispute settlement system stems from the relationship between the first stage in dispute resolution, which is the WTO panels, and the next stage, which is the Appellate Body. The standard for Appellate Body review should be reshaped more towards a deferential one, in which the reasoning and findings of panels are respected when they are of a bilateral nature—less involving third party interests—and those relating to technical matters.

While there's hope that the Appellate Body issue may be resolved with the appointment of a new director general, while it continues not to function there are other solutions. We've heard that Canada, with the EU and other countries, agreed to the multi-party interim appeal arbitration arrangement. In addition, members could follow no-appeal agreements and use dispute settlement mechanisms in other trade agreements.

Turning to the third core function of monitoring, effective trade co-operation depends upon information sharing of national measures that might affect trade. The current paralysis in the WTO is caused in part by insufficient information on which to pursue informed negotiations and deliberations.

Government notifications remain the most important source of information, and many governments face capacity challenges in complying with these requirements. Notifications can be improved by ensuring that information requirements are fit for purpose, and by providing support for building governments' capacity to gather and share information. The secretariat could also be tasked to compile this information. China presents a special case, especially with its subsidies notifications, but it could be encouraged to centralize notifications, make them in the original language and have other members “counter notify” China's measures from their own sources.

Then, the WTO trade policy reviews could be improved by making their timing more flexible, their content more targeted and detailed, and their discussions more probing.

Let me now turn to three areas in which trade rules need updating.

The first is development and trade. Addressing development issues will be important to successful WTO reform, including ways to provide flexibility in the rules for developing countries commensurate with their level of development, and building their capacity to take on new commitments. There is a need to encourage efforts to find solutions-oriented approaches to the controversial issue of developing country status and eligibility for special and differential treatment.

Next is digital trade. The digital transformation and the data-driven economy call into question numerous aspects of the WTO system. Digital trade goes well beyond e-commerce. It includes cross-border data flows, with implications for data and AI governance, competition, privacy, intellectual property and other areas. Much of the technical regulation in these areas must be developed through parallel processes outside the WTO and then fed into WTO negotiations.

We must also be wary of using regional trade agreements that can act as stepping stones into other policy spaces and become a multilateral standard. More generally, the WTO should not be the organization that determines the division of rents in the intangibles economy. Here, I would refer committee members to remarks I made to this committee on CUSMA in February 2020 in this area.

Finally, I will turn to what's referred to as TRIPS, the trade-related aspects of intellectual property rights.

During decades of negotiation, all parties have recognized that the world trade system could not function without integrating intellectual property. The advent of artificial intelligence and the explosion of cross-border data flows changes the economics of innovation and the nature of trade, and thus requires a rethinking of TRIPS. This could be done in conjunction with the World Intellectual Property Organization and other international bodies, which could then feed into the implications for trade by the WTO.

In conclusion, there are many strategic choices awaiting the WTO. At the same time, it is important to keep in mind that the WTO's enduring strength is as a form of compromise, where consensus results are not always economically or politically optimal.

Thank you for your attention. I would be pleased to answer any questions you may have.

[The Chair, Liberal, Judy Sgro]

Thank you very much, Mr. Fay.

We'll go now to the committee.

We have Mr. Aboultaif for six minutes, please.

[Ziad Aboultaif, Conservative, Edmonton Manning, AB]

Thank you to the witnesses, Mr. Kennedy, Mr. Poirier and Mr. Fay.

Regarding the WTO, of course, we hear about problems. We hear about dispute settlements, negotiation function, transparency and accountability or notifications. Canada has stepped up with many countries. They share the same worries, on probably different agendas, to be able to somehow counter and try to lobby for an improvement to the system, fixing the system and doing something about the existing problems that the WTO is going through.

China is a big player now, of course, besides the United States. It seems that the big economies are somehow trying to eat the lunch of the others in one way or another. That's appearing here and there in different fashions. Canada took the initiative with the Ottawa Group and is working on an MPIA to somehow improve the system.

My question to the three witnesses is, what other options do countries like Canada have? Do we have an option, through specific legislation, to somehow change course? That will, of course, lead to pre-negotiation on any trade agreements or on any future relationships when it comes to trade relationships.

Do we have an option to change legislation in Canada in order to be able to change the course over things that happen with the WTO?

I'm happy for any of you to start, but if I can choose, let's start with Mr. Kennedy.

[Trevor Kennedy]

Rather than looking at legislation, as I noted in my opening remarks, Canada has a policy window at the moment with the new administration to engage on this issue. There's an openness in the United States right now. There is very encouraging language coming from different policy-makers at different levels. I really think Canada should lead the charge to engage the United States. That's the best path forward, in my opinion.

[Matthew Poirier]

I would have to agree with Mr. Kennedy.

Off the top of my head, I don't see a legislative path domestically. As I mentioned, Canada is already showing great leadership, through the Ottawa Group, with respect to reform and leading other people. Also, let's face it, Canada benefits from the WTO as a middle player, more so than the big countries you mentioned. It's in our interest, as well, to have a WTO that functions and doesn't sort of wither on the vine and disappear.

I think our current efforts are well placed and that we should continue pushing on that front as well.

[Bob Fay]

I agree with my fellow witnesses. What we want to do is essentially work with countries with which we share similar views and values, and that really is a plurilateral approach. We know that a multilateral or plurilateral approach is an effective way to influence global discussions. If we can get a lot of countries to agree in a certain area—and this is the Ottawa Group's purpose—then we can push ahead to make it more global.

I'd like to bring up one other point, though. I don't want to comment on domestic legislation per se, but I think it's important that Canada has well-defined views to bring to the table. This is particularly important on the digital economy and when one thinks about the whole myriad of issues that pertain to it. For example, if we take something like data governance, where Canada is still working on its position, we risk taking on board what other countries have already defined, like the EU and the General Data Protection Regulation.

[Ziad Aboultaif, Conservative, Edmonton Manning, AB]

Thank you. That's good feedback.

On specifically the nuts and bolts of the trade barriers for Canada's industries, what are the top barriers that you believe our industries will be facing? Would you be able to name the top two for me?

This question is for all of you, starting with Mr. Fay.

[The Chair, Liberal, Judy Sgro]

Give brief answers, please.

[Bob Fay]

I'll leave the trade barriers to my colleagues, but I think a big issue going forward is intellectual property and the division of rent.

[Ziad Aboultaif, Conservative, Edmonton Manning, AB]

Chair, would you allow the two other witnesses to give us brief answers?

[The Chair, Liberal, Judy Sgro]

Yes.

[Ziad Aboultaif, Conservative, Edmonton Manning, AB]

Thank you, Chair.

Mr. Poirier.

[Matthew Poirier]

For us, trade barriers are really country dependent, but a common one for manufacturers comes from standards. That's through the regulatory process or otherwise. To give you an example, auto manufacturing parts will arrive at a port in a foreign country. All of a sudden, the requirements that are needed for those parts will change. Those parts stay sitting on the dock for months on end until they can comply.

That's a trade barrier. That's intentional.

[The Chair, Liberal, Judy Sgro]

Thank you, Mr. Poirier.

I'm sorry, Mr. Aboultaif. I have to move on.

Ms. Bendayan, please.

[Rachel Bendayan, Liberal, Outremont, QC]

Thank you, Madam Chair.

Allow me to thank you, witnesses, for this encore performance. I see a lot of familiar faces here today. I hope you realize that it speaks to the value we put on your perspective and your testimony. You certainly delivered once again in your opening remarks. I found all three very interesting.

Mr. Poirier, you mentioned a number of specific areas in need of reform. One of the things you pointed to was the quick resolution of disputes when they arise. It's certainly something I've heard. Obviously, it was a bit of the raison d'être of forming the Ottawa Group originally, although as you mentioned, it has evolved into something bigger thanks to Canada's leadership.

To go back to the quick resolution of disputes just for a moment, can you help enlighten the committee on what you're hearing on the ground from your manufacturers and exporters? Is this something that you hear as a concern from them before disputes even arise? Is it something you hear more after disputes have commenced? How does it impact Canadian businesses?

[Matthew Poirier]

That's a great question. It depends on the issue. We've certainly heard about the softwood lumber lows, but the WTO's been helpful, for the most part, on resolving those. Again, the emphasis is on whether it happens fast enough.

When we've taken cases recently, before the Appellate Body atrophied, we've seen that because other players know that it takes so long, the gaming happens almost instantly around that. For businesses, they might get a solution in three or four years' time. In that amount of time, the strategy could have been to build up the price of a stock that's in competition or whatever. These are in disputes that we've had with our closest neighbours too. By the time that courses its way through and a decision is made that's ultimately favourable for Canada, the stock price of the competitors in the other country has already risen. They've cashed out and moved on. That's a deliberate business strategy. It's a devious business strategy, but it is one nonetheless, because it works.

That's a good example of how having a slow dispute settlement process impacts players, especially smaller markets like Canada. They really rely on these systems to seek justice, because they might not have the weight to throw around that other countries have.

[Rachel Bendayan, Liberal, Outremont, QC]

Thank you.

You mentioned in your earlier comments how important the WTO is to Canada. Because of our relatively small population size, we need to export in order to grow our companies. Of course, you mentioned that other middle powers, like Canada, benefit disproportionately from the WTO.

I'm wondering if there are any comments on the floor from our witnesses with respect to how the business community is feeling about this renewed interest on the part of the United States to engage on this issue. Of course, thanks to the administration change in the United States, we have a new director general of the WTO. She is from Nigeria. This is the first time we have a woman, let alone an African woman, at the head of the WTO.

Perhaps we could have some thoughts from Mr. Fay, Mr. Kennedy and Mr. Poirier on how the business community is feeling about this change in mood and direction.

[Bob Fay]

I'm sorry. I can't speak on behalf of the business community, but I can speak on behalf of a think tank. We have done consultations at CIGI for Global Affairs. It's very encouraging to see the change in administration and the approach to more multilateral efforts. I don't think there's any doubt about that.

A lot of things need to change at the WTO, but they require a concerted effort, and because of the nature of the WTO you need consensus to make those changes. The multilateral approach and the re-engagement with the U.S. can only be helpful.

[Trevor Kennedy]

Everyone is cautiously optimistic, not just with the United States. The European Union's new trade policy signalled openness for reform. I think there is a moment right now, and if we can take advantage of it, we can make some meaningful progress. I'm certainly more hopeful than I was this time last year. I hope some of that work starts soon.

[Matthew Poirier]

I agree with Mr. Fay and Mr. Kennedy. The re-engagement with the U.S. will be critical in the months and years ahead, especially on this one. While the Americans did finally agree to appoint the new director, they were dragged into it kicking and screaming at the same time. I might not be as convinced yet that they're fully on board with WTO, but we do have CUSMA and probably other agreements in the future with them, so I'm not worried on that front. Engaging them will only help us convince them of the merits of the WTO.