International Trade Committee on June 6th, 2024

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

I call to order meeting number 110 of the Standing Committee on International Trade.

Before we begin, I need to ask all members and other in-person participants to consult the cards on the table for guidelines to prevent audio feedback incidents.

Please take note of the following preventive measures in place to protect the health and safety of all participants: Use only an approved black earpiece. Keep your earpiece away from all microphones at all times. When you are not using the earpiece, please place it face down on the sticker that's on the table.

Thank you for your co-operation.

Today's meeting is taking place in a hybrid format. For members in the room, please raise your hand if you wish to speak. For members on Zoom, please use the “raise hand” function. We will manage the speaking order.

Pursuant to Standing Order 108(2) and the motion adopted by the committee on Tuesday, October 17, 2023, the committee is resuming its study of the 2026 CUSMA review.

We have with us today people we are very familiar with. They have been with us several times.

From the Automotive Parts Manufacturers' Association, we have Flavio Volpe, by video conference. It's good to see you again.

From the Canadian Agri-Food Trade Alliance, we have Michael Harvey, executive director.

From the Canadian Produce Marketing Association, we have Ron Lemaire, president.

From the Digital Media Association, we have Graham Davies, president and chief executive officer, by video conference.

From the National Cattle Feeders' Association, we have Janice Tranberg, president and chief executive officer, by video conference.

Welcome to you all.

We will start with opening remarks and then proceed with rounds of questions.

Mr. Volpe, I invite you to make an opening statement of up to five minutes, please.

[Flavio Volpe, President, Automotive Parts Manufacturers' Association]

Thank you, Chair.

Thank you, members of the committee.

Thank you to the staff of CIIT for inviting the APMA back again to talk about our favourite topic—trade within the Americas.

The Automotive Parts Manufacturers' Association is the national association representing automotive suppliers to the global original equipment makers or carmakers market.

We represent over 200 companies and 95% of independent parts production in this country. In a normal, non-constricted year, that capacity is about $35 billion worth of components and systems. About 100,000 people are directly employed.

The APMA took part in the original NAFTA renegotiations from 2017 to 2019 in earnest, working closely with officials in Ottawa as well as Mexico City and Washington, D.C. We attended all seven rounds and one unofficial round of the negotiations with a view to improving and updating the rules of origin as they pertain to automotive supply.

Together, with leadership—especially that of the Canadian negotiating team in automotive—the results were that the new rules represented, in our estimation, about 25% higher volume for Canadian-based supply into the North American automotive market, and that probably means $6 billion to $8 billion in incremental business every year.

As we prepare for the inevitable conversation about the renewal of the CUSMA with either a new or a re-elected American administration and a new Mexican administration, the focus for the automotive sector is twofold, both aspects of which fall under the same context.

Eighty per cent of the business that we do in this country and 80% of the cars that we make in Canada are exported to the U.S. The U.S. vehicle market is the best indicator of the Canadian manufacturing sector's prospects. We always harmonize, in the automotive sector, our regulations and other tools that govern and shape the market with the Americans.

The Americans, after we concluded the new NAFTA—the CUSMA—changed their interpretation of “roll-up”, which, in layperson's terms, means that you have to qualify a subcomponent at a certain percentage of local content before it becomes part of the equation for whether the vehicle has met its local content requirements for tariff-free sale.

The new administration had a different interpretation of roll-up and a stronger one of what was required to qualify than the one that the three countries had agreed on. Canada and Mexico joined together in a CUSMA dispute claim, and ultimately a CUSMA panel ruled in favour of Canada and Mexico over the U.S. We're still waiting for the Americans to come to the table with a response and to comply with the ruling, and it is of concern for the parts sector, especially because it very clearly changes how we interpret supply logistics and content.

In China and on EV mandates, in Canada we've pushed for 100% zero-emission vehicle sales by 2035, as well as in the U.S., but the curves are different. The markers in Canada are higher than in the U.S. in those 11 years between now and then, and it is of concern to us. I think it will be part of the CUSMA discussion with the Americans.

As well, the Americans have now launched tariffs against Chinese-sourced vehicles and critical minerals. Canada has not indicated whether it's going to respond and match that or do something materially the same. We think that's going to be a very important context for how the Americans view our view of our renewing relationship for 2026.

Thank you very much.

[The Chair, Liberal, Judy Sgro]

Thank you very much, Mr. Volpe.

Mr. Harvey, you have up to five minutes, please.

[Michael Harvey, Executive Director, Canadian Agri-Food Trade Alliance]

Good morning to everyone.

Thank you to the members of the committee for inviting me to appear today.

The Canadian Agri-Food Trade Alliance, or CAFTA, is a coalition of national organizations advocating for a more open and fair international trading environment for agriculture and agri-food.

It's in Canada's interest to have a freer and fairer international trading environment for the agri-food sector. Agri-food represents one in nine jobs in Canada, the majority of which are in export-based agri-food. More than half of our agricultural production is exported or processed to be exported.

[Tony Baldinelli, Conservative, Niagara Falls, ON]

Chair...?

[The Chair, Liberal, Judy Sgro]

Hold on a second, Mr. Harvey. We're checking for translation. The volume for the interpreters is very low.

I can barely hear him.

[A voice]

I think he should continue, and then we'll be able to...

[The Chair, Liberal, Judy Sgro]

Continue, Mr. Harvey. We'll stop you if necessary.

[Michael Harvey]

Sure.

CAFTA's priorities are as follows: Number one is to open new markets for Canadian agri-food, number two is to uphold the international rules-based trading system and number three is to strengthen trade diplomacy capacity and industry/government collaboration.

The United States is Canada's largest agricultural trading partner by far, buying 59.2% of Canadian exports and supplying 57% of Canadian imports. Canada is the leading agricultural trade partner of the United States when exports and imports are combined.

Canada ranks among Mexico's leading agri-food suppliers. Mexican agri-food imports from Canada reached $2.9 billion in 2022. Mexico's large population, growing middle class, geographic proximity and political stability make it an important market for CAFTA exporters.

The deep integration between the Canadian and U.S. agricultural sectors is largely a question of proximity, but trade agreements and a deep, positive relationship with our American friends and allies are also vital. The Canada-U.S. Free Trade Agreement of 1989, followed by NAFTA in 1994 and then CUSMA in 2020, have dismantled most tariff and quota barriers to Canada-U.S. agricultural trade.

I want to underline that for Canada-U.S. agri-food trade, CUSMA benefits trade investment for both countries through highly integrated supply chains. This includes intra-industry trade for important sectors, with each country exporting products to the other within these sectors. Pork and beef are important examples, as well as grains and feeds. Bilateral trade also covers many semi-processed and finished processed products such as sugar-containing ingredients and food products.

Our supply chains are so deeply integrated that in essence our countries are producing together, making technological advances together and using an integrated transportation system. These are important elements to emphasize when interacting with U.S. counterparts. Napoleon famously said that geography is destiny. This is clearly true for Canada's international trading relationships. Nothing is more important than our relationship with the United States. CAFTA is a strong supporter of diversification of our trading relationships, but the U.S. will always be the most important. In an increasingly uncertain international environment, neighbours and partners like the U.S. and Mexico must be carefully nurtured.

Our security relationship, border management and the management of key trade infrastructure cannot be separated from the trading relationship. As a country, we must manage North American relations holistically. CAFTA members can play a useful role in the team Canada approach by working with our U.S. counterparts to underline the importance of CUSMA to them. U.S. farmers and producers are politically relevant, including in key swing states.

Finally, I wish to emphasize the need to avoid unnecessarily provoking U.S. trade negotiators. CAFTA firmly believes that Bill C-282, which would prevent Canadian negotiators from discussing tariff quotas in supply-managed industries, is sending a warning signal to U.S. interest groups in key states. We call on the Senate to reject Bill C‑282, which has not been thoroughly studied in the House of Commons.

I look forward to answering your questions.

Thank you.

[The Chair, Liberal, Judy Sgro]

Thank you very much, Mr. Harvey.

Go ahead, Mr. Lemaire, please, for up to five minutes.

[Ron Lemaire, President, Canadian Produce Marketing Association]

Thank you, Madam Chair and committee members, for the opportunity today to speak on the potential issues for consideration in relation to the 2026 review of the Canada-U.S.-Mexico agreement.

As the committee has heard me say in the past, our produce supply chain is highly integrated across borders. CPMA represents over 870 companies growing, packing, shipping and selling fresh fruit and vegetables in Canada. Our members are responsible for 90% of the fresh fruit and vegetable sales in Canada and make a significant contribution to Canada's economy, in the amount of approximately $15 billion in GDP.

The pandemic has highlighted that the Government of Canada must prioritize food as an essential item in framing our trade agreements, with the fundamental goal of supporting domestic markets while strengthening food security and ensuring product diversity.

It is also critical that the government support all Canadian agriculture and food products in trade negotiations and not prioritize certain sectors to the detriment of others. CPMA cannot understate the critical importance of CUSMA in supporting our integrated supply chains. Our partners in CUSMA are by far Canada's largest trading partners when it comes to fresh produce, and particularly the United States, both in imports and in exports. There are also many companies that operate across all three jurisdictions.

In looking to the 2026 review, I would like to highlight three areas of focus.

First, over the past number of years, we have seen some push coming from U.S. growers on trade actions, including an attempt to impose seasonal tariffs on certain fresh fruit and vegetable commodities to protect U.S. domestic producers from what they described as unfair competition from imports, which was not validated.

Between 2020 and 2022, the U.S. International Trade Commission also undertook a safeguard investigation into blueberry imports, as well as a fact-finding investigation regarding cucumber and squash imports. Investigations into strawberry and bell pepper imports were also launched, but ultimately stalled.

Thankfully, the commission's findings were ultimately in Canada's favour, but the process cost Canadian businesses and governments significant amounts of time and legal costs. There are concerns that these types of investigations will rise again under a new administration south of the border.

I will note that CPMA once managed the U.S. duties for produce and for our industry, which were phased out under the Canada-U.S. Free Trade Agreement and then NAFTA, along with the phasing out of duties with Mexico and Chile. The Government of Canada should look at opposing any reintroduction of any types of duties on our industry as we look at the 2026 CUSMA review.

Second, Canada's free trade agreements, including CUSMA, should support regulatory harmonization that can lead to adoption of higher standards and regulations across countries, ensuring that products and services meet the same safety standards and quality standards while reducing regulatory burden and associated compliance costs for businesses. Plant health and pest risk management are areas of potential improvement when it comes to regulatory collaboration.

Finally, CPMA would like to draw to the committee's attention the potential trade irritant related to the government's proposals in relation to plastic packaging. Our North American partners have raised concerns that the introduction of the federal plastics registry may violate the environmental and trading provisions under CUSMA, including the requirement to disclose proprietary information such as composition of packaging. Other concerns with the registry include the lack of clear guidelines on registration duties and accountability across the supply chain, as well as the increased risk of supply chain disruptions due to discrepancies with existing supply chain data systems.

ECCC's proposed actions in the form of the pollution prevention notice plan for primary food packaging, as well as proposed labelling and recycled content regulations, also contain requirements that are highly problematic to the North American fresh produce industry. The combination of these actions, if implemented, could mean a significant disruption to our industry and impact over 160 different countries that ship to Canada. There are also concerns that the proposed regulatory regulations create an unfairness around the delivery of our products domestically and internationally.

The continuation of a free trade framework for fruit and vegetables under CUSMA is vital as we navigate a world of high food inflation and growing production challenges.

In closing, as representatives of a highly globally integrated industry, CPMA is supportive of the government's progressive trade agenda, which aligns to business growth and market access, and we hope that we can continue that within a review of the current agreement.

Thank you.

[The Chair, Liberal, Judy Sgro]

Thank you very much.

Mr. Davies, you have five minutes, please.

[Graham Davies, President and Chief Executive Officer, Digital Media Association]

Madam Chair, members of the committee, and committee clerk, thank you for the opportunity to testify before you today on this important subject.

My name is Graham Davies. I'm president and CEO of the Digital Media Association, or DiMA. I'm sorry that the timing has meant that I'm unable to be with you in person today.

DiMA is the voice of music streaming, representing the world's leading audio streaming companies, the economic engine of the modern music industry. With a membership that includes Amazon Music, Apple Music, Pandora, Spotify and YouTube, DiMA promotes and protects the ability of music fans to legally access and engage with music whenever and wherever they want, and for artists to reach fans and make new ones more easily.

It's not that long ago that the music industry was in serious decline. DiMA's members have in large part rescued it from the harms of piracy by establishing a new sustainable business model that is quite different from broadcasting and other forms of entertainment. In music streaming, around 70% of the money from consumers is paid through to music labels, music publishers and collective rights management organizations. By way of a comparison, a commercial radio station in Canada is likely to pay less than 9% to the music rights holders.

In exchange for the large proportion of music streaming revenues being paid through to the rights holders, our members rightly expect those rights holders to not only—of course—fairly and appropriately pay the songwriters and performing artists they represent, but also to invest in the search for and development and promotion of a diverse and talented pipeline of new Canadian creative talent.

Investment in creative output has always been the role of record labels and music publishers in Canada and everywhere else in the world. Again, that role justifies the large proportion of revenues paid through to those entities. Nonetheless, streaming services have taken it upon themselves to improve upon the prior model. DiMA's members also invest in local teams and resources that discover, develop and promote Canadian artists. This has resulted in a great success story for Canada, with artists like Charlotte Cardin from Montreal and Tate McRae from Calgary developing domestic and global followings through the power and reach of streaming.

I've explained these economics to provide context to the government's implementation of the Online Streaming Act. As you may know, earlier this week the CRTC introduced an unprecedented and discriminatory 5% tax on music streaming services. We are concerned that this action will undermine the investments made by DiMA's members in the Canadian music industry and may also have unintended consequences to consumers, particularly younger Canadians, who are the predominant users of music streaming services in Canada. In general, rising costs can lead to rising prices, and we have identified nothing in the new regulations to soften the impact of this economic rule.

To add to these negative impacts, the CRTC decision is now forcing U.S. and international companies to pay large sums into a fund they cannot access. In addition to the upward pressure on consumer affordability, we believe this is a discriminatory trade policy that comes on top of other digital trade-related concerns.

Leading trade commentators are warning that the cultural exemption in the current agreement does not apply. Even if it did, it explicitly allows the U.S. to countervail for equivalent value in such situations. Why, then, given the other members of today's panel, should Canadian beef farmers or the auto sector, for example, be expected to pay the price for this misguided and onerous regulation?

The U.S. Secretary of the Treasury and the U.S. ambassador to Canada have expressed strong opposition to any discriminatory taxes against U.S. firms. On the same day the CRTC announced this 5% tax, the American Chamber of Commerce in Canada declared that it violates Canada's obligations under the trade agreement. The U.S. chamber has strongly objected also.

DiMA and its members have worked tirelessly to inform and educate the Canadian government and the CRTC as to why the Online Streaming Act is bad for Canada. This has been to no avail, though we continue to encourage them to change course. My intention today is to raise awareness of this developing situation with the honourable members of this committee and encourage you to keep close scrutiny on the implementation of this legislation.

DiMA and its members wish to continue supporting and investing in Canadian music and culture. We are concerned that the implementation of this legislation jeopardizes the ability for us to meaningfully do so.

Thank you. I look forward to your questions.

[The Chair, Liberal, Judy Sgro]

Thank you very much, Mr. Davies.

Ms. Tranberg, go ahead, please.

[Janice Tranberg, President and Chief Executive Officer, National Cattle Feeders' Association]

Thank you very much for the opportunity to present to this committee on behalf of the National Cattle Feeders' Association. NCFA is the national voice for cattle feeders and a critical component of the beef value chain.

At approximately one year of age, calves move from a cow-calf farm to feedlots, where they're fed a high-energy ration that brings them very quickly to market weight. Feedlots are important to efficiently produce consistent, high-quality beef in quantities that are required for domestic and export markets year-round.

Canada's beef industry contributes around $21.8 billion to the national GDP. Our beef sector is very export-dependent. Each year, we export approximately half of the cattle we raise, and the United States accounts for around 75% of those exports. While our sector works to diversify in other global markets, the current geopolitical environment can often make this quite challenging. Over the last 10 years, our Canadian live cattle and beef exports have seen tremendous growth, with the United States being behind the majority of that. While this is good news, our sector is disproportionately dependent on the American market. Thus, the 2026 CUSMA review is of great importance to us.

Our interest in the CUSMA 2026 review is rooted in the highly integrated North American beef industry. It provides benefits to both sides of the border. In practicality, the Canadian and U.S. beef industries operate within a single North American market, where processed beef and live cattle move across the border relatively unimpeded and tariff-free. Imports for feed are also a critical part of this integrated market with the U.S. Increasingly volatile political environments, not only in the U.S. but also globally, make CUSMA and the predictability it provides more important than ever.

I'll go directly into the CUSMA review. The NCFA calls on the Canadian government to do three things: do no harm, improve market access where possible and focus on regulatory co-operation.

We call upon the Canadian government to ensure that there are no new tariffs or trade-restricting measures result from this review. With skyrocketing input costs, unpredictable supply chains and extreme weather conditions, the beef industry is simply not positioned to sustain a trade disruption with any of our trading partners.

Canada must enter the CUSMA review with a strong and clear position that's not limited by the interests of one sector. Both countries have trade-sensitive commodities, but the goal of this review must be to increase access to each other's markets.

In an integrated North American industry, we call for an increased focus on regulatory alignment and co-operation. This can include aligning rules on transportation, disease control measures and inspection requirements so that trade within North America can be unimpeded and consistent with rules.

An equal commitment to the delivery of timely border services is essential to meet required inspections by the USDA officials and vets when shipping live cattle. We need to push for an increase of USDA border crossings, not closings or reductions of these services.

Finally, it's important that we have equivalency in rules for the approval and use of new products, so Canadian and American farmers have access to the same tools at the same time and can move live animals freely across the border, knowing that products are accepted on both sides.

We urge the committee to ensure the government protects the economic and competitive benefits that live within the CUSMA agreement.

Thank you.

[The Chair, Liberal, Judy Sgro]

Thank you very much.

We'll go on to questions from our colleagues.

Mr. Jeneroux, go ahead for six minutes, please.

[Matt Jeneroux, Conservative, Edmonton Riverbend, AB]

Thank you, Madam Chair.

Thank you, witnesses, for taking the time to be with us here and joining us on a Thursday afternoon.

Quickly, Mr. Davies, I need a simple yes-or-no answer: Would you agree that Canada's digital service tax proposal would undermine the Canada-U.S. trading relationship?

[Graham Davies]

My response relates to music streaming specifically. As outlined, we do see trade problems with the Online Streaming Act.

[Matt Jeneroux, Conservative, Edmonton Riverbend, AB]

Do you agree, then, that the Online Streaming Act would run counter to Canada's commitments under the OECD and G20 inclusive framework on base erosion and profit shifting?

[Graham Davies]

I'm not a trade expert. My testimony today is to raise the concern that we're seeing from our members and a number of trade experts, a concern about this very recent decision. The decision was only made this week, so there's a lot of gathering around as to the implications of it.

For the committee, if there are specific questions like that, trade questions, I'm very happy to take those back and come back to the committee.

[Matt Jeneroux, Conservative, Edmonton Riverbend, AB]

It would be great to get your organization's opinion on that indeed, so I'll take you up on that, if you don't mind returning to the committee.

[Graham Davies]

Of course.

[Matt Jeneroux, Conservative, Edmonton Riverbend, AB]

You did raise the issue during your testimony about allowing the U.S. to countervail for equivalent value in such situations, and then your next sentence was, for example, on beef farmers and the auto sector.

Could you expand on what exactly you mean by those two examples?

[Graham Davies]

Yes, of course. They're only used by way of example.

Obviously, we are keen that the future trade discussions be as smooth as possible. It's everyone's objective, so we are just flagging this as an emerging problem. It wouldn't be for us to comment on how that could impact the future CUSMA review, but I mentioned some other parties because they're on the panel here today. That was the main reason for calling them out.

[Matt Jeneroux, Conservative, Edmonton Riverbend, AB]

Then would it be reasonable to assume from your comments that if this were to continue to go ahead, the beef farmers and the auto sector would presumably pay a price for the regulation?