International Trade Committee on Feb. 7th, 2022

[Arun Alexander]

Canada has made it clear to the United States at every opportunity, from the Prime Minister to the president, the Deputy Prime Minister, the minister, and all senior officials, that we are open to negotiating an agreement with the United States that is in the best interests of both countries. We make this very clear.

Unfortunately, the United States is not ready to negotiate an agreement that would be beneficial to both Canada and the United States. We will stand up for forestry communities, workers and the industry to achieve an agreement that is fair.

[Richard Martel, Conservative, Chicoutimi—Le Fjord, QC]

Why wasn't this discussed during the CUSMA negotiations? What happened?

While the Americans were negotiating with Mexico, Canada was once again seen lagging behind and it entered the fray in this way. Were there really any negotiations regarding softwood lumber in this agreement?

[Arun Alexander]

My understanding is that during the CUSMA negotiations softwood lumber was a priority for the government, but it became very clear during the negotiations that the United States was not ready to meet with us to discuss a fair and equitable agreement for the Canadian softwood lumber industry. Because of that, we did not include softwood lumber in the CUSMA. We wanted an agreement that would be fair to industry, workers and communities.

[Richard Martel, Conservative, Chicoutimi—Le Fjord, QC]

The Americans are still saying that they aren't ready to negotiate this agreement. Is Canada too soft, is the current government aggressive enough, or are we waiting for the Americans to decide? Can we take a proactive approach to this agreement?

[Arun Alexander]

I think that's a very good question, Madam Chair.

We are being proactive. We currently have eight cases before the WTO, the CUSMA panels and NAFTA. As the honourable member knows, this dispute has been going on for over 50 years. In all past disputes we have found that successful litigation before these tribunals is the way to force the United States back to the negotiating table, and so we have a very ambitious litigation strategy against the United States. When we are successful, as we have been in the past, we believe that the United States will return to the negotiating table, in earnest, to negotiate a fair and equitable agreement.

[Richard Martel, Conservative, Chicoutimi—Le Fjord, QC]

The arbitration panel handed the United States a narrow victory when it challenged Canada's tariff rate quotas on certain dairy products. While this currently doesn't change anything in terms of supply management, the American officials clearly considered this a victory that will enable them to further challenge our system.

Can you ensure that the supply management system will be maintained in its entirety by your government and that no further concessions will be made?

[Arun Alexander]

Madam Chair, I believe the minister has said that the government will stand by the supply management industry and will fight for the industry. I believe that has been the view of both the Prime Minister and the minister.

Thank you.

[The Chair, Liberal, Judy Sgro]

You have 47 seconds remaining, Mr. Martel.

[Richard Martel, Conservative, Chicoutimi—Le Fjord, QC]

I don't have any other questions. Thank you.

[The Chair, Liberal, Judy Sgro]

Thank you very much.

We go on to Mr. Arya for five minutes, please.

[Chandra Arya, Liberal, Nepean, ON]

Thank you, Madam Chair.

I would like to know if the Government of Canada has quantified the impact these tax credits will make on the imports and exports between Canada and the U.S.

[Arun Alexander]

Madam Chair, we have done some preliminary analyses on the impacts of the tax credits on the Canadian automotive sector. I think the preliminary analysis is based on how the legislation stood when it left the House. We may change it in the future, so the analysis is still preliminary. However, the results are that it would have a significant impact on the automotive sector starting now, but more in the future when there is a generational change in the structure of the industry towards greater electrification of vehicles. The investments in those vehicles and the production of those vehicles are very much dependent on the support that—

[Chandra Arya, Liberal, Nepean, ON]

Okay, I have it.

In addition to the automotive sector, does this tax credit affect other sectors in Canada?

[Arun Alexander]

I believe it probably would affect other... I don't know that the analysis went that far, but I assume it could affect other areas in the automotive sector and in other areas in communities where jobs are supported by the automotive sector.

[Chandra Arya, Liberal, Nepean, ON]

Thank you.

In October last year, the Government of Mexico highlighted a letter that was written by the U.S.-based embassies of Canada, Mexico and 23 other countries to the members of the United States Congress expressing their concern on this tax credit.

I'm not worried or concerned about what happens to the 23 other countries. I want to know if Mexico has expressed a willingness to work with Canada in pursuing this dispute settlement under CUSMA.

[Arun Alexander]

Madam Chair, no decision has been made on pursuing dispute settlement with regard to the EV tax credits under CUSMA at this time. The U.S. legislation is in abeyance right now at the Senate. If the legislation proceeds, the Deputy Prime Minister and the minister have made very clear that we would keep open the option of pursuing dispute settlement under CUSMA, and under the CUSMA rules, if Mexico wanted to join such a dispute, they would be allowed to do so.

Thank you.

[Chandra Arya, Liberal, Nepean, ON]

My question is: Has Mexico in any way indicated so far its willingness to join in that scenario?

[Arun Alexander]

We communicate regularly with Mexico about the EV tax credits, but our discussions haven't gone that far because we're not at the point where we would bring dispute settlement.

[Chandra Arya, Liberal, Nepean, ON]

Has Mexico also obliquely indicated they, too, will be contemplating certain retaliatory trade measures?

[Arun Alexander]

I'm not in a position to say what Mexico will do, but I know that the Mexican government has expressed its concerns about the EV tax credits. It is a point of discussion between the minister and her counterpart, Secretary Clouthier, when they meet, and they regularly discuss the EV tax credits and the impact that they would have on the North American automobile industry.

[Chandra Arya, Liberal, Nepean, ON]

On the Build Back Better legislation that has stalled, can you now update the committee on the current status during the last month and this month?

[Arun Alexander]

Madam Chair, my understanding is that the Democrats do not have enough votes in the House because Senator Manchin will not support the Build Back Better bill as it stands. He has concerns, including about the climate change provisions and the EV tax credits, so there is not enough support in the Senate to pass that legislation.

We also understand that discussions are not occurring right now between the Senate leadership and the Democratic Party, but perhaps they may continue in the future. If that does happen, we will be ready to advocate strongly for EV tax credits that allow for Canadian-assembled cars as well.

[The Chair, Liberal, Judy Sgro]

Thank you very much.

We will move on to Mr. Savard-Tremblay for two and a half minutes.

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

Thank you, Madam Chair.

I'll repeat a question that I asked the minister earlier and that remained unanswered.

Have you studied the provisions of the Build Back Better plan that may conflict with North American free trade? Have you studied this issue? Have you determined the potential legal sticking points?

[Arun Alexander]

Madam Chair, we are in the process of analyzing the provisions in the current Build Back Better bill. The provisions allow for, I believe, a $7,500 base tax credit for the purchase of electric vehicles. In addition, there will be a $4,500 tax credit based on where the vehicle is assembled. If it's assembled in the United States and if there's a battery built in the United States, there's an additional $500 tax credit. The whole $12,500 cash credit—and this is the most concerning part—will become available starting in 2027.

We have done an analysis, and the fact that it is based on the location of assembly we believe is a violation of the national treatment requirements in both CUSMA and the WTO, so we feel confident that, if a case was to be brought, Canada would stand a good chance of success.