International Trade Committee on Oct. 28th, 2024

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

I call the meeting to order.

This is meeting number 123 of the Standing Committee on International Trade.

Pursuant to Standing Order 108(2) and the motion adopted by the committee on Wednesday, August 21, 2024, the committee is resuming its study on protecting certain Canadian manufacturing sectors, including electric vehicles, aluminum and steel, against related Chinese imports and measures.

We have with us today, from the Inter-Parliamentary Alliance on China, Luke de Pulford, executive director, by video conference.

From The Committee for Freedom in Hong Kong Foundation, we have Samuel Bickett, lawyer, researcher and Hong Kong human rights advocate.

We welcome you all.

We will start with opening remarks and then proceed with a round of questions. Each witness has up to five minutes, and I will keep track of the time for everyone.

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

[Luke de Pulford, Executive Director, Inter-Parliamentary Alliance on China]

Thank you, Madam Chair. It's very good to see you again.

As you heard, I'm creator and executive director of the Inter-Parliamentary Alliance on China. That's an international cross-party group of parliamentarians working to address challenges associated with the Chinese Communist Party under the leadership of Xi Jinping. I'm proud to say that this includes around 30 Canadian parliamentarians from all parties, some of whom are represented today.

On electric vehicles, since 2020, China has emerged as the largest manufacturer and exporter of EVs in the world, and its capacity continues to grow as a result of policies such as extensive state subsidies and other non-market practices. In 2023, China's annual EV exports totalled $47.2 billion, up from $0.2 billion in 2018. Automobile imports from China to Canada's largest port, in Vancouver, jumped 460% year over year to 44,356 in 2023.

China undermines markets and competition with massive state subsidies that amounted to $57 billion between 2016 and 2022. A further 20% cost advantage is achieved through Chinese control over the supply chain and raw materials. This allows Chinese EVs to undercut the market by between 20% and 30%. This doesn't even include the advantage gained through China's comparative lack of environmental and labour standards, including through the presence of forced or state-imposed labour in Chinese supply chains.

Similarly, and very importantly, Chinese overcapacity in aluminum and steel is structural, persisting and worsening. These are highly strategic industries core to the development and deployment of innovation, especially in the defence and energy transition sectors.

Despite softening global demands, China, the world's largest steelmaker, has increased its steelmaking capacity by 18.6 million metric tons since 2018. This is more than Canada's total production capacity. Similarly, China's primary aluminum capacity has grown from 11% of global production share to 59% over the last two decades, with the government investing up to $70 billion between 2013 and 2017.

China's weakening economy now exposes this excess capacity even further, fuelling unprecedented export surges that are disrupting markets and creating spillover effects in other sectors and across the globe. Failure to address this spillover will leave our companies weakened and lacking the financial capacity to make investments required for the energy transition. Takeovers by Chinese companies, which would further embed Chinese supply chains, may end up being the only option to prevent permanent closures and resultant job losses across the whole of our own supply chain.

It's really important to emphasize that Beijing makes no secret of its intent to undermine the economic security of liberal democracies, as it views our values as an existential threat to the regime's legitimacy, and neither is Beijing averse to weaponizing its advantages in pursuit of its global ambitions.

Very briefly, what is the remedial action? What can we do? Addressing this is much more than simply seeking to protect our markets from Chinese overcapacity, unfair competition and distortionary practices. It's about the principles of free and fair trade, supporting the innovation of our companies and ensuring companies and workers gain from an energy transition that is secure and clean and aligns with our core values.

We have to think beyond bilaterals and tariffs. Low-demand overcapacity is proliferating globally in addition to and beyond China, in particular in the ASEAN, the Middle East and North Africa.

We'd recommend developing a shared strategy to address the issue in emerging economies. I want to emphasize that whatever is done, it has to be done in alignment with allies. The reason for that is that there are ways around tariffs, and the PRC has demonstrated willingness and ability to circumvent them. It's also worth noting here that misalignment with allies on tariffs can have far-reaching consequences for free trade and other bilateral or plurilateral trade agreements.

Canada could, and should, build upon the commitment from G7 leaders in June 2024 to act “together to promote economic resilience, confront non-market policies and practices that undermine the level playing field and our economic security, and strengthen our coordination to address global overcapacity challenges.”

This is an international problem that requires international alignment to address.

Madam Chair, I'm very happy to address questions or recommendations, and I yield the floor.

[The Chair, Liberal, Judy Sgro]

Thank you very much.

We go on to Mr. Bickett for up to five minutes, please.

[Samuel Bickett, Lawyer and Researcher, Hong Kong Human Rights Advocate, The Committee for Freedom in Hong Kong Foundation]

Good morning, Madam Chair.

Thank you for inviting me to appear before the standing committee on behalf of The Committee for Freedom in Hong Kong Foundation to talk about our work into how China uses Hong Kong to evade Canadian sanctions. This is an issue related to the import issues that you're speaking about today, and it really is about how the Chinese government is willing to evade tariffs and sanctions on a broader basis.

CFHK is a non-governmental organization operating in Canada, the U.S., the U.K. and the EU and is focused on human rights and freeing political prisoners in Hong Kong.

I am a human rights lawyer and an international sanctions specialist who is the author of the CFHK report called “Beneath the Harbor: Hong Kong's Leading Role in Sanctions Evasion”. For this report, we extensively reviewed data sources, including Russian customs records, vessel tracking data, Hong Kong companies and registry filings. We came to one inescapable conclusion: Hong Kong has gone rogue.

Previously a key partner in the global economy, the city's government now serves some of the world's most brutal regimes by smuggling military technology, cash and prohibited commodities through the territory to flout Canadian and international sanctions.

Our findings on Hong Kong's supply of military components to Ukraine are particularly alarming. Just after the Ukraine war began, in February 2022, Hong Kong shipments to Russia dropped for two months before beginning to rise rapidly in the spring. By the end of 2022, shipments had almost doubled from pre-war levels. These were not benign shipments. Between August and December 2023, of the $2 billion in goods shipped from Hong Kong to Russia, $750 million, nearly 40%—and this is U.S. dollars—comprised goods on the common high-priority items list. This is a list of items that Canada and its allies consider to be of the highest priority to Russia's war effort.

Statistics aside, our report reveals how the Chinese and Hong Kong governments are allowing unprincipled people to profit off the most dangerous, destabilizing states in the world, in particular the regimes in Russia, North Korea and Iran.

To give a couple of examples from our findings, the Hong Kong company called Piraclinos, which claimed to sell fertilizer and charcoal, shipped millions of dollars in military-grade semiconductors to sanctioned Russian military supplier VMK. We discovered that its true owners are carefully hidden behind a network of front directors and shareholders from Cyprus, Kyrgyzstan and Bulgaria. Neither Piraclinos nor any of their front companies or individuals have been sanctioned.

Li Jianwang was a Hong Kong trader who ran Arttronix International, a company shipping drone and missile components to Iran, which has regularly supplied these weapons to Russia and Middle Eastern proxy militias. When the U.S. sanctioned Arttronix last year, Li simply dissolved the company and started a new one called ETS International, which remains unsanctioned.

Hong Kong company Align Trading reported shipping two cargoes of integrated circuits purportedly produced by French company Vectrawave to AO Trek, a company suspected by Ukraine to be supplying the Russian military. Vectrawave is a military contractor that produces expensive, highly specialized chips for use in military aircraft and communications equipment. None of the companies or individuals involved have been sanctioned.

As this is happening, the Hong Kong government, at the behest of Beijing, has explicitly said that it won't intervene to enforce Canadian or international sanctions, effectively inviting these smugglers to set up shop in the city.

What can Canada do? For starters, Canada should use its new secondary sanctions authority to sanction Hong Kong, Chinese and other third-country evaders. In mid-2023, Canada amended the Special Economic Measures Act to permit secondary sanctions. This was a positive and essential step to addressing the problem, but more than a year later, Canada has yet to exercise this power. The United States and the EU, in contrast, have regularly designated third-country collaborators for sanctions throughout Russia's war in Ukraine.

Simply sanctioning trading companies is not enough, however. It is extraordinarily easy to dissolve a sanctioned Hong Kong company and set up a new one in a matter of days. Canada and its allies must get serious about targeting the infrastructure behind these activities by sanctioning logistics companies, corporate service agencies and, most importantly of all, financial institutions. Also, more focus must be placed on sanctioning the individuals behind these companies and, importantly, this must be done in concert with allies in the U.S., the EU and Australia.

Second, Canada should ramp up enforcement against Canadian participants in these schemes. In September 2023, the U.S. Treasury Department published data on suspicious activity reports related to Russian sanctions evasion. Of western countries discussed in the report, Canada ranked third, after the U.S. and the U.K., for SARs filed against its citizens. The companies and individuals named in these SARs are not public information, but they suggest there is the potential for more expansive investigation of Canadian sanctions evaders.

Finally, Canada and its allies must speed up the sanctions designation process. It typically takes many months to investigate and sanction a person. This pace has allowed evaders to run circles around the west, moving assets and changing corporate identities long before sanctions catch up to them. Bureaucracy and layers of review should be minimized, and investigators should be empowered to move quickly and efficiently, while being provided with all the resources they need. With Russia slowly but surely encroaching further into Ukraine, there is limited time for Canada and its allies to take decisive action. We strongly encourage the committee and the government to prioritize this issue.

Thank you for your time. I'm happy to answer any questions you have.

[The Chair, Liberal, Judy Sgro]

Thank you very much to both witnesses.

It's now over to Garnett Genuis for six minutes.

[Garnett Genuis, Conservative, Sherwood Park—Fort Saskatchewan, AB]

Thank you, Madam Chair.

Thank you, witnesses, for being here, and for your very important and powerful testimony.

I'll start with Mr. de Pulford.

In your view, is the Government of China deliberately pursuing a strategy to dominate the electric vehicle supply chain and undermine our strategic industries, or is it proceeding in this direction by happenstance?

[Luke de Pulford]

The short answer is yes. You don't have to take my word for it. You can listen to the words of the man himself. In a speech delivered at the 7th session of the Communist Party's finance and economic committee in April 2020, Xi Jinping said that China will aim to form a counterattack and deterrence against other countries by fostering killer technologies and strengthening the global supply chain's dependence on China.

That is a very literal translation, Mr. Genuis. You can see quite clearly that this is an explicitly stated strategy of the Chinese Communist Party. Why governments around the world continue to sleepwalk into this is a question that is completely beyond me.

[Garnett Genuis, Conservative, Sherwood Park—Fort Saskatchewan, AB]

Mr. de Pulford, I think that's a very powerful quote, because you're bringing us the words of Xi Jinping that explicitly frame the effort to dominate the electric vehicle supply chain in military terms—“counterattack” and “deterrence”. He is pursuing a policy that seems aimed at dominating and controlling these industries as part of what he perceives to be competition with us.

Our response, presumably, must be to take steps to not be dependent on the Chinese economy for these critical industries, and to allow ourselves to have other sources and alternatives that don't invoke the potential for this kind of counterattack and deterrence. Do you agree?

[Luke de Pulford]

Yes, I agree. Unfortunately, I fear that, in some industries, it might be a bit too late. Certainly, when it comes to rare earth materials, for example, China's processing capacity so dominates the global ability to process these kinds of materials that it's pretty difficult to know how else and where else we can get it done. Similarly, in renewable energy, or even in the production and processing of lithium and lithium batteries.... So many different areas related to renewable energy alone have become totally dominated by China as part of this explicit strategy.

Yes, auditing and reducing dependency as a matter of urgency is something we all ought to be doing.

[Garnett Genuis, Conservative, Sherwood Park—Fort Saskatchewan, AB]

Thank you very much.

I want to ask you about the ESG movement. I'll make a statement and invite your comment on it.

Too often, the ESG movement has led to an exclusive focus on the “E”, ignoring the social and governance consequences, as well as the strategic consequences, of certain decisions. The push for a green transition has been accompanied by certain decision-makers turning a blind eye to human implications in the way the sourcing of these materials has led to slave labour and deplorable conditions in, for instance, mines in the DRC. I know you have done a great deal of work on the Uyghur genocide, which is part of this, as well.

Do you agree that this is a problem, and is it critically important that we hold green industries to strong human rights standards and not allow a blind eye to be turned to human rights in the name of an aspired-for green transition?

[Luke de Pulford]

Without naming any specific companies and potentially abusing parliamentary privilege in the process, it has been a surprise to me just how many companies have been happy to burnish their credentials around the “S” and the “G” while continuing to source shamelessly from places that are known to be rife with Uyghur forced labour.

Let me give you a couple of examples. All four of the Uyghur region's polysilicon manufacturers are strongly implicated in the forced labour of Uyghurs—all four of them—and that accounts for about 40% of the global supply of polysilicon, without which it isn't possible to make solar panels.

Key actors in the lithium processing and distribution supply chain are very strongly connected to forced labour transfer schemes, these government-sponsored schemes where people, mainly from ethnic minorities, are effectively dumped in companies where they have to work against their will. We know this from Chinese government data, and it's demonstrated very credibly in the literature. Why these companies seem to be able to hold their noses where there's such a clear connection to forced labour is rather baffling.

I tend to agree with your analysis.

[The Chair, Liberal, Judy Sgro]

Thank you very much.

We'll go to Mr. Sidhu for six minutes, please.

[Maninder Sidhu, Liberal, Brampton East, ON]

Thank you, Madam Chair.

Thanks to our witnesses for coming today on this very important study.

Mr. de Pulford, the Canadian EV sector is growing, and we obviously see a future in which it will be a vital part of the green transition. How crucial is it that we protect these industries in their infancy from unfair labour practices?

[Luke de Pulford]

It's absolutely crucial, and it's crucial to do that in concert with allies.

We have to find ways of ensuring that the tariffs that are now being imposed by Canada itself—in a very welcome decision around tariffs imposed by Canada itself—but also by the EU do not find themselves circumvented by China through the development of electric vehicles in, say, Slovakia or perhaps other eastern European countries, and that there are no weak links in the chain of resilience.

Without that, it's hard to see how our electric vehicle industries are going to be able to survive when—you heard the numbers that I recited earlier—tens of billions of dollars of state subsidies have been pumped into them and the overcapacity is now so extraordinarily high that all of our domestic industries are on a hiding to nothing.

Absolutely, we need to do more to seed investment into our own electric vehicle manufacturing supply chain, but we need to ensure that we are resistant to the market distortion that China has become extraordinarily adept at meting out to our industries.

[Maninder Sidhu, Liberal, Brampton East, ON]

You mentioned Europe. Perhaps you can build on that. What is Europe doing differently from what we're doing here in North America? I'd like to learn more about that from your perspective.

[Luke de Pulford]

The European Union itself has just decided to impose tariffs on Chinese-made electric vehicles, and it's done that partly because last year, something in the region of well over 25% of electric vehicles in the European Union were produced in China.

The slight difficulty is that not every country in Europe has a similar relationship with the People's Republic of China. Some that decide not to impose bilateral tariffs or even unilateral tariffs might find themselves exploited as a market for Chinese electric vehicles.

For example, in my own country, the United Kingdom, which has not yet decided whether or not it will impose tariffs on Chinese electric vehicles, what that may mean is very cheap electric vehicles for U.K. consumers, but it's also going to mean an utter defenestration of the U.K. car industry, or what remains of it.

There's a bit of a disparity, just to answer your question, Mr. Sidhu, but I think there is clearly alignment between the European Union and Canada when it comes to tariffs, and that should be expanded to ensure that there is real trans-Atlantic resilience.

[Maninder Sidhu, Liberal, Brampton East, ON]

Yes, there definitely has to be unity shown against this.

We have unity here in North America, as you know. In addition to the study that we're doing here on the EV sector, our government is making decisive decisions to protect the industry and its workers. Our committee is also seized with the issue of the upcoming CUSMA review, which we began studying in the spring and which we'll be returning to shortly.

In your view, could the alignment that we've seen among CUSMA member states on EV tariffs help facilitate negotiations on these issues when it comes to the CUSMA review?

[Luke de Pulford]

Yes, absolutely. As I was trying to indicate in my presentation at the very beginning of my opening remarks, clearly the G7 commitment on this also needs to be fleshed out. I think there could be a real harmonization and cross-specialization between those two things. The key thing is to really underline and emphasize that if we think we're going to be able to deal unilaterally with this overcapacity and state subsidy problem—which is effectively dumping, although technically it's not—from China, we're really not. We need to try to create fertile soil for international co-operation wherever possible.

[Maninder Sidhu, Liberal, Brampton East, ON]

Thank you.

I have probably less than two minutes left, but I'll come back to you for recommendations. If there were three things that you would recommend to the committee or other member states to do to protect our industries, what would those be? You may have mentioned this in your opening statement, but I might have missed it.

[Luke de Pulford]

It's very important to audit dependency with a view to reducing that throughout these industries, but certainly in concert with allies. Again, I'll underline that whatever is done needs to be done in alignment with allies to ensure harmonization between our imposition of tariffs, for example, and our free trade agreements with one another, which can't be jeopardized where there is misalignment, and that currently is the case. There's quite a lot to be ironed out there.

I also feel that we need to do a lot more to bring front and centre our commitment to human rights in supply chains. We want a slave-free transition. We don't want a green transition on the back of Uyghur slavery, and if we continue to depend on China, that's what we're going to get.

[Maninder Sidhu, Liberal, Brampton East, ON]

Thank you for that.

Madam Chair, I think I have less than 30 seconds left, so I'll cede my time. There's not enough time.

[The Chair, Liberal, Judy Sgro]

Thank you very much.

Mr. Savard-Tremblay, go ahead for six minutes, please.

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

Thank you, Madam Chair.

I would like to thank the witnesses for their very useful presentations.

My first question is for the representative of the Inter-Parliamentary Alliance on China, or IPAC, of which I am a proud member, by the way, and which has members from several legislatures around the world.

Mr. de Pulford, on May 15, just before the G7 summit, you issued a statement outlining some of the priorities you wanted to see addressed at the summit. One of these recommendations was to coordinate responses to cases of economic coercion by any state actor, including China.

Do you fear that economic coercion measures could be put in place by China in response to the tariffs that have been implemented? What action do you recommend, if any?

[Luke de Pulford]

Thank you very much indeed for that question. I think there are a couple of things to say about economic coercion.

The first, and perhaps the most important, is that we are still lacking a coherence in terms of our response. You might remember that in the case of Lithuania, which, it was argued, had illegally been coerced by Beijing, there was a case brought forward by the European Union at the World Trade Organization, which was recently dropped under slightly mysterious circumstances. We know that the European Union has an anti-coercion tool or mechanism, which we've not seen work. We also know that the G7 has come forward with various proposals to try to combat economic coercion, but we've not really seen it happen. All of that is to say, there's a lot of talk and not much action. Economic coercion is extremely difficult to deal with.

I tend to rather agree with the former secretary-general of NATO, who spoke about an economic article 5, that we need to find a way of ensuring that when one of our democratic number is bullied or singled out for economic coercion, we will all come together and do what we can to support them.

Quite an interesting example of this, without going on too long, was the Australian wine tariffs. After Australia had asked for an investigation into the origins of COVID, China imposed 220% tariffs on Australian wine, which could have caused some economic damage, but the rest of the world seemed to pick up and buy more Australian wine to deal with it. That would be a slightly fatuous example of an economic article 5 that might be something we can look at.

Briefly, we need to find a way of coordinating our response to economic coercion, and we need to make sure that the commitments we've had at the G7 and the European Union amount to something.

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

I'd like to take this opportunity to ask you to expand on another of your recommendations, namely, to establish a coordinated approach to tackling forced, state-imposed labour and to promote human rights due diligence, while committing to updating, improving and coordinating risk advice to companies operating in or sourcing from problematic regions.

Do you believe that Canada's current legislation should go further and strengthen the role of the Ombudsperson for Responsible Enterprise?