International Trade Committee on Nov. 1st, 2022

[Flavio Volpe]

Thanks for the question. I get the nature of committees here. Sometimes I don't get the questions because the answers might be a little too frank.

We had a problem. The problem was that the American administration suggested a proposal for EV tax credits that was going to wipe out the Canadian auto sector. We worked very hard to change that EV tax credit, which was discriminatory against products that came from here. We worked with Minister Ng and Minister Freeland, but I think it needs to be said—and I know people don't like to hear these things—that nothing changed until the Prime Minister personally went to Washington and said publicly that this was unacceptable and that we needed a change.

We then worked together for the next six to eight months to get that change to include Canadian parts and cars. We explained directly to the White House that Brian's members are American companies invested in Canada buying 50% of their parts and 50% to 60% of their raw materials from the U.S., so their drawing a line was silly.

I think we ascribe a whole bunch of sophistication and value to American plans. I spend a lot of time in Washington. I spend more time talking to Republicans than Democrats because there is no traction to get with Democrats when we need to change things. In that, I'm always struck by the fact that the only things that matter are local politics and the upcoming mid-term election and/or presidential election.

I disagree with the premise that we're competing with and reacting to the U.S. This goes for every government that has preceded this one since Confederation. We're not going to set a policy; we're a market that's one-tenth the size of the U.S. That will cause the U.S. to react to us. I mean, it's silly. It's silly when you sit on one side of the House, and it's silly when you sit on the other side of the House.

If we talk about what we're doing, over the last 18 months, two parties at two different levels of government—three parties if we include Quebec—have been on a hell of a run with investment in the industry that I and a lot of my colleagues here represent. There's no piecemeal reaction here. There are two levels of government in three different parties working together for the biggest investment run in the history of the automotive sector since Confederation.

[Anju Dhillon, Liberal, Dorval—Lachine—LaSalle, QC]

Thank you so much for your candid response, Mr. Volpe. I will follow up with another question.

Given that the Automotive Parts Manufacturers' Association supports its members—who employ countless Canadians—how do you expect the implications of the Inflation Reduction Act to impact the number of Canadians employed? Do you think the number will continue to grow?

[Flavio Volpe]

I think it will continue to grow, but I share the concern of my colleagues, both there in person and on the phone, with specific regard to section 45X. I think what we need to do as a country—and I think we are doing it actively on a per-file basis—is properly inventory the impact of this unprecedented American credit on battery production, and then, on the companies we are chasing, make sure that we have a competitive offer.

We're doing that. This isn't my blanket support for the minister responsible. I said the same thing to the Premier of Ontario. Last time I checked, the province picks up half the bill. It's not a partisan issue and it's not a question of whether we need a grand strategy. If we want to land Volkswagen, we need to have the best package to land Volkswagen. If we land Volkswagen, there will be more cars to be made in this country, more parts to go into those cars and more people to make those parts.

I think we're doing well. I also think we should stop using terms like “gatekeepers” and “approvals”. In our business, you assemble land, you assemble capital, you make an offer and an automaker wins. It's land-use planning. Those rules have been in place and they've worked in our sector.

I see a few of my colleagues here representing the OEMs. It's been a while since we opened a new plant, but I don't remember seeing anything remotely close to decades for that type of investment. We're talking about months. It works at the municipal level. That's why auto parts makers, which are in hundreds of communities across this country, work with the municipal governments as well.

[The Chair, Liberal, Judy Sgro]

Thank you very much, Mr. Volpe.

We'll move to Monsieur Savard-Tremblay for two and a half minutes.

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

Thank you, Madam Chair.

We will probably have time to hear only one of the witnesses' answers. I invite whoever would like to do so to answer my question.

We talked about minimum requirements for battery content. Based on what we know of the U.S. law, it also mentions a minimum amount that can be recycled. Would it also be in our interest to develop a recycling strategy?

[Flavio Volpe]

Can I answer that?

Thank you, Mr. Savard‑Tremblay.

I think you've hit on something very important. We do need a strategy. In spite of the fact that we are one of the biggest resources of the critical minerals that go into battery production, there is a finite amount of those materials that we can extract in any given year to go into any number of batteries. Those vehicles all have a shelf life. What we will start to see is a volume of vehicles—eight years, 10 years, 12 years out—that will go to scrap. With that, what do we do with those batteries?

It's early days. We should lead this. We represent a very proud Canadian company called Li-Cycle, with operations in Kingston and Mississauga, that is the exclusive partner of LG and General Motors in the recycling of those critical materials through the manufacturing processes. I think what we need to do, and what bodies like this would be wise to do, is bring in experts like Ajay Kochhar, who runs that company. Ask him what he's seeing in the market, what that company is experiencing, how they plan to ramp up their capacity and what that cluster looks like. It is an important part of the future of zero-emission vehicles, and I don't think we've hit it yet.

[The Chair, Liberal, Judy Sgro]

Mr. Kingston wants to get in with a quick answer.

[Brian Kingston]

Very quickly, I'll note that we have currently in development in Quebec an industry-led battery recycling program. The batteries are extremely valuable. They have huge value in being recycled, particularly because of the critical mineral shortages that we potentially see on the horizon.

I'd be happy to share with the committee details around that program, if that's of interest.

[The Chair, Liberal, Judy Sgro]

Ms. Cobden is anxious to throw two words in there.

[Catherine Cobden]

All I want to say is please don't stop at batteries. Consider the cars that are produced, the washing machines and everything else in steel. We recycle all of that. We could definitely benefit from that type of strategy.

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

Thank you for the clarifications.

[The Chair, Liberal, Judy Sgro]

We have Mr. Masse for two and a half minutes.

[Brian Masse, NDP, Windsor West, ON]

Thank you, Madam Chair.

Mr. DiCaro, I remember the days when former CAW, now Unifor, was bashed because of the so-called costs of having investment in workers. Now we see ourselves with a massive labour shortage, which hasn't been raised here today. It's a significant one, even for investment. I'd like you to share your opinion on how important that is.

We're going to bring in dental care for Canadians soon. We need pharmacare. How important are those structures when you're negotiating an agreement? How important is it for keeping and retaining trained workers in your workforce when you have employees who are actually paid a living wage? How much less turnover do you have from that, and how much more efficiency and productivity are there?

For years this was always used as a club against the unions, which said it was too costly to keep these workers here and we're losing to Alabama and so forth. At the same time, we still have some of the best retention now. I think that's a clear asset coming into the next wave of a shortage of labour.

[Angelo DiCaro]

As someone who has to manage the spreadsheets when we're costing collective agreements as we go into bargaining with the automakers, I can tell you that two factors usually come into play when we're looking at the cost variables. One is the dollar and the other is Canadian health care. We don't have to pay the way the Americans do. That makes us incredibly competitive. Social programs are not only good in general as society-building policies and programs; they also indirectly serve as a useful attraction tool.

It's one of the things we've prided ourselves on, despite some of the darkest days we saw in the industry more than a decade ago and, frankly, despite going through a generation of watching the manufacturing sector get tossed aside like it was an old, tired sector that we needed to move beyond as part of the evolutionary economics of Canada. Now we're all kind of talking in different terms, which is interesting as well. We've managed to maintain what are good jobs with good wages and good benefits. That has not deterred investment in any way that we've seen.

Mr. Volpe recognized, too, that the run we've been on in the last two years has been incredible. There's been $16 billion of new investments, and a lot of that going to unionized facilities means that we're not a barrier. It means that our cost structures are totally competitive. We have an opportunity to do something really great in this sector as well.

[The Chair, Liberal, Judy Sgro]

Thank you very much.

Mr. Carrie, you have four minutes.

[Colin Carrie, Conservative, Oshawa, ON]

Thank you very much, Madam Chair.

Mr. Kingston, you brought up something that I wanted to delve into a bit. You mentioned the U.S. Defense Production Act. One thing I learned from working with the Americans was that the Americans put security and trade first. When I was working with them, we did this beyond the border action plan, which was about security and competitiveness. We really focused on NEXUS, FAST and radio-frequency identification in order to streamline the border.

If we started to work strategically with the Americans, how would that improve our competitiveness from the defence sector? I'm wondering if you could enlighten us on that.

Madam Cobden, I remember the steel and aluminum tariffs. I think a lot of that had to do with defence and the dumping of Chinese steel. It was something we should have gotten ahead of, but again, they put their security first, which is their right. The Five Eyes were taking so long to manage that, and it's about a buildup of trust.

How can we leverage that part of it? I think we have such good-quality products here with steel and aluminum, but I just don't see any action in that regard.

[Brian Kingston]

I agree. It's really important to always view U.S. diplomacy and international relationships through a security lens, because that's how a lot of foreign policy is dictated. That's where things like the Defense Production Act are so important. We can show the Americans that we are a trusted, secure supplier in this pivot as they try to onshore more of this manufacturing and things like critical minerals and CHIPS. We've seen the CHIPS act pass. Canada does have a role there, and we're recognized in the DPA as a domestic source. No other country is. I think we really need to double down on that and show them that we are a reliable, trusted partner and can play a key part in this supply chain transformation.

[Colin Carrie, Conservative, Oshawa, ON]

Well, I think we can do it all, but again, I'm concerned because of the investments. Everybody's making the investments now, across the board, in Canada and the U.S.

Madam Cobden, you mentioned that a lot of these investments are generational investments. Maybe framing it with the U.S. Defense Production Act and Canadian steel quality.... As you said, there's Gerdau and the recycling part of it. How could we make an impact in the United States by building back that trust with the Americans as far as security goes? It's about being able to, for example, make sure that our supply chains, such as the rail between Canada and the U.S., will not be blocked for long periods of time and being somebody who's really dependable. How would that help our competitiveness?

[Catherine Cobden]

I think it's crucial that we basically continue the journey of convincing the Americans—or not really convincing them but reminding them—that there's no better partner for them than Canada. We have the resources. We have the aluminum and steel. We have the energy. We have the transportation networks. We share the longest border.

I think there's an undercurrent at this table today that you've heard from us: Let's use this IRA as an opportunity. We have a shared vision on climate now. That's a new shared thing that we have with the United States that we should be exploiting fully to our advantage, because we really, truly are the best partner for the United States.

[Colin Carrie, Conservative, Oshawa, ON]

Just quickly, how important is it for us to get these generational investments within the next year or two? My concern is that they're going to be made in the U.S. if we don't get them right away.

[Catherine Cobden]

We are extremely pleased that we've made the generational investments we've made, and there are more to come. Every steel company in Canada is looking to be net zero by 2050. It's a big stretch, so there will need to be more. I don't think we need to believe that the time horizon is just one or two years. We believe that some of this will take much longer to achieve. We're waiting on technologies and that sort of thing, as you know.

It's urgent to act, but we also need to remember that some things will take longer than just a couple of years.

[The Chair, Liberal, Judy Sgro]

Thank you very much.

We will move to Mr. Virani for four minutes.

[Arif Virani, Liberal, Parkdale—High Park, ON]

Thank you very much, Madam Chair.

I have two questions. I want to involve Mr. MacKenzie in the discussion. He's been sitting there quite patiently.

In terms of Toyota, Mr. MacKenzie, we've heard a lot in the last couple of hours about the $16 billion in investment, which is really generational for the auto sector. We know that Toyota has been in southern Ontario since 1997. In 2019 you opened a second plant to promote the RAV4.

Can you talk to us a bit about Toyota's decision to continue their investments in southern Ontario in the auto industry, and what the success we had with fighting back on build back better has meant to the industry, including the electrification of the auto industry, and to Toyota?

[Scott MacKenzie]

Thank you for that. There's a lot to add there.

Our investment cycles are a bit different from some of the announcements in this last year and a half, but that doesn't mean we're not actively looking at opportunities in Canada. It certainly doesn't mean we're not committed to the Canadian market and manufacturing cars in Canada.

Today I'm at our manufacturing plant in Cambridge. We're currently launching the new Lexus RX, which is obviously a very prestigious model for us. We'll be starting production on that a bit later this month. That's a significant investment, but we haven't really talked about it publicly. It's not attached to any public funding.

For us the business moves on. We've launched two models in the last year. Our business and our future here are pretty secure and pretty certain, but that doesn't mean we're not looking at other opportunities. Yes, the industry is electrifying. Yes, Toyota is electrifying. We already make hybrids here. We've been making hybrids here for more than a decade. As we transition to greater levels of electrification, whether it's battery electric vehicles, plug-in hybrid vehicles or whatever it happens to be, we're pretty confident that we'll land those investments here.

You need to remember that Toyota is the largest OEM in the world, with the largest OEM in Canada by production volume. We're also 25% of all North American production for Toyota. We'll get ours: We're competitive. We're a competitive operation here.

The IRA is concerning for everybody. Before that was introduced late this summer, I would have said that future investments in Canada, apart from the ones that were already announced by some of the other OEMs in Canada, were going to continue. Right now there's a bit of a pause just to understand what the landscape is going to look like. Assuming that's not a threat and that at some point it gets resolved, I think our future looks very good.

[Arif Virani, Liberal, Parkdale—High Park, ON]

Mr. Volpe, I would invite you to comment on something that we've heard repeatedly. To borrow Ms. Cobden's phrase, because I thought it was an accurate one, climate policy is now trade policy. You talked about the fact that since Confederation, we've always been dealing with this economic titan at our southern border. I think that's right, but I think the environment has entered the equation now, and there's an alignment.

Can you talk about what that holds for the future of our discussions nation to nation? How do we emphasize, when we're dealing with those meetings with American senators and congresspersons, how economically viable and environmentally sustainable Canadian industry is?