International Trade Committee on Feb. 14th, 2022

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

I'm calling the meeting to order.

This is meeting number six of the House of Commons Standing Committee on International Trade.

Today's meeting is taking place in a hybrid format. The Board of Internal Economy requires that committees adhere to the following health protocols, which are in effect until February 28, 2022.

Anyone with symptoms should participate by Zoom, and not attend in person. Masks must be worn in committee rooms, except when members are at their place. All those inside the committee room should follow best practices of maintaining a physical distance of at least two meters from each other. As the chair, I will enforce these measures and I thank you for your co-operation.

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When speaking, please speak slowly and clearly. I remind you that all comments are to be made through the chair. The committee clerk and I will maintain a speaking list for all members.

Pursuant to Standing Order 108(2) and the motion adopted by the committee on Monday, January 31, the committee is beginning its study of the modernization of the Canada-Ukraine Free Trade Agreement.

With us today by video conference, from the Department of Foreign Affairs, Trade and Development, we have Jay Allen, director general of trade negotiations; Darren Smith, acting director general of trade in services, intellectual property and investment; Andrew Turner, director of the eastern Europe and Eurasia division; Dean Foster, director of trade negotiations, Africa, Americas, Europe, India, Middle East; and Sean Clark, director of the trade agreements secretariat. Also, from the Department of Finance, we have Sven Linkruus, director.

Welcome to you all. I apologize for being delayed a few minutes this afternoon.

We will start with five minutes of opening remarks, after which we will proceed to rounds of questions.

Mr. Allen, I invite you to make an opening statement of up to five minutes. Please go ahead.

[Jay Allen, Director General, Trade Negotiations, Department of Foreign Affairs, Trade and Development]

Thank you, Chair.

Good afternoon, committee members, and thank you for the opportunity to provide an update on the status of the modernization of the Canada-Ukraine Free Trade Agreement, or as you'll hear me refer to it, CUFTA.

To begin, I will provide an update of our trade relations with Ukraine before delving into the modernization of CUFTA.

In 2020, total bilateral merchandise trade between Canada and Ukraine was $305 million, with Canadian exports valued at $161 million, led by fish and seafood, vehicles and machinery. Canada's imports from Ukraine stood at $144 million, led by electrical machinery, fats and oils, and machinery. Canadian investment in Ukraine stood at $81 million in 2020.

Preliminary data for 2021 shows that overall bilateral trade between Canada and Ukraine saw significant growth, with an increase of over 25% from 2020, surpassing $400 million in total bilateral trade for the first time.

CUFTA was negotiated between 2010 and 2015 and entered into force on August 1, 2017. Upon its entering into force, Ukraine immediately eliminated tariffs on approximately 86% of Ukraine's imports from Canada, and Canada immediately eliminated tariffs on 99.9% of imports from Ukraine. The balance of tariff concessions is to be implemented by January 1, 2024.

While CUFTA is a comprehensive free trade agreement from a trade-in-goods standpoint, it does not cover services or investment due to significant differences in positions at the time. CUFTA includes a review clause that committed the parties to review the agreement within two years of its entry into force with a view to expanding it. The review clause specifically identifies cross-border trade in services, financial services, investment, telecommunications and temporary entry, but does not restrict parties from exploring other areas.

We're going to work with Ukraine not only to include the provisions covered in the review clause, but also to expand the agreement into new areas. We will seek to update some of the existing chapters, too.

Provisions covering cross-border trade in services, financial services, investment and temporary entry of business persons would increase transparency and predictability, reducing uncertainty to service providers. Updated disciplines on domestic regulation and mutual recognition agreement guidelines for professionals would also facilitate services trade.

The Canada-Ukraine foreign investment protection and promotion agreement, or FIPA, which entered into force in 1995, provides a baseline of protection to Canadian investors in Ukraine, but it is an older FIPA based on an earlier model agreement, and there is scope to modernize it.

The CUFTA review clause also offers an opportunity to pursue a more comprehensive and inclusive agreement. Canada will seek to add new provisions on good regulatory practices, trade and gender, trade and indigenous peoples, and trade and SMEs, among other updates. The modernization of CUFTA offers an opportunity to increase the agreement's benefits for Canadian workers, entrepreneurs and small businesses while advancing fair, inclusive and transparent trade with Ukraine.

This review process formally started in July 2019, when Prime Minister Trudeau and Ukrainian President Zelenskyy announced that they had agreed to expand the agreement. Following our respective internal preparations and a pause due to COVID-19, Ukrainian officials confirmed in September 2021 that they were ready to proceed. On January 27, 2022, Minister Ng and Ukraine's minister of economy, Yulia Svyrydenko, announced the launch of negotiations.

The modernization of CUFTA is a clear demonstration of Canada's steadfast commitment to Ukraine. Modernization of the agreement will help build commercial ties and contribute to long-term security, stability and broad-based economic development in Ukraine. Indeed, our Ukrainian partners welcomed the launch of our negotiations last month through the same lens.

Thank you.

[The Chair, Liberal, Judy Sgro]

Thank you very much, Mr. Allen. I very much appreciate the information.

We move to questions from the committee members.

Mr. Martel, you have six minutes, please.

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

Thank you, Madam Chair.

Thank you to the witnesses for being here today.

My first question is for the officials from the Department of Foreign Affairs, Trade and Development.

It's clear that opinions differ on whether a Russian attack is imminent. President Biden seems certain that Russia could attack in the very near future. President Zelensky, however, doesn't appear to be as certain, even calling on western leaders to adopt a more cautious tone in their rhetoric on Russia.

Are we fanning the flames? Can this conflict be avoided?

[Jay Allen]

Thank you for the question.

With respect, I would say no, I don't think so.

What we are doing is signalling our strong and continuing support for Ukrainian people. The Prime Minister, Minister Ng and Minister Joly have been very clear that we stand with the people of Ukraine. This is an opportunity to demonstrate that.

We absolutely abhor the situation of the buildup at the border. Fundamentally, we think this is a signal of our continuing confidence in the government.

I will turn to my colleague Andrew Turner, who is our expert on relations with Ukraine, to see if he has anything he'd like to add.

[Andrew Turner, Director, Eastern Europe and Eurasia Division, Department of Foreign Affairs, Trade and Development]

As my colleague clearly explained, we have confidence in Ukraine. The Ukrainian government has asked us to start the discussion around modernizing the Canada–Ukraine Free Trade Agreement. Ukraine is not to blame for the current crisis. Russia is the one deploying its armed forces in the region.

We are very pleased to take part in discussions aimed at modernizing the agreement, as requested by Ukraine's government.

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

Very good.

France and Germany seem to be much more in favour of using diplomacy to avoid a conflict. In fact, the two countries' leaders are in Moscow today and will be in Kiev tomorrow in an effort to defuse tensions.

Does the fact that Germany and France have come to rely heavily on Russian oil affect the diplomatic and military choices they make in this conflict?

[Jay Allen]

With respect, Madam Chair, as a trade negotiator, I feel unqualified to respond to that question.

I can ask my colleague Mr. Turner if he has any thoughts.

[The Chair, Liberal, Judy Sgro]

Thank you very much, Mr. Allen.

We're here to discuss trade. We have the trade officials. Naturally, members are going to raise other concerns as well, given the situation.

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

I'll move on to my next question.

In March 2021, Canada announced that it was signing an energy agreement with Germany. Under the agreement, Canada would send more natural gas to Germany so that it could reduce its reliance on Russia.

How does Canada intend to live up to its end of the agreement and increase its production of liquefied natural gas, or LNG, available for export?

[Jay Allen]

Madam Chair, again I find myself at a loss to answer that question.

Again, I'll turn to Mr. Turner to see if he has any information.

[Andrew Turner]

We are continuing our discussions with allies and partners to encourage LNG exports and identify other strategies to reduce their energy dependence on Russia.

Not only have Germany and France stated formally that they are prepared to pursue serious action should Russia launch a military invasion of Ukraine, but so too has every country in the G7 and North Atlantic Treaty Organization, or NATO. They have all made that clear.

As far as economic and energy ties go, that does not diminish the need to continue working together to avoid a conflict and find a diplomatic solution.

[The Chair, Liberal, Judy Sgro]

Thank you very much, Mr. Martel.

I'm sorry, but I think your time is almost up.

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

Thank you.

[The Chair, Liberal, Judy Sgro]

Thank you.

I'd like to acknowledge that we have Mr. Baker with us as well today, at least later on in the question period.

Mr. Virani, go ahead.

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

Thank you very much, Madam Chair.

As a member of Parliament in Toronto who represents a large number of Ukrainian Canadian constituents, let me just say that they've been communicating with me extensively over the past six and a half years, but never more so than now. They've been indicating appreciation for some of the things that you just mentioned in terms of the efforts by Minister Joly, the Prime Minister and Minister Ng—things such as Operation Unifier, Operation Reassurance and the sanctions that we have imposed. They've also taken note of things such as the sovereign loan of $120 million that was provided about two weeks ago.

I want to pick it up there. It seems to me that there's some consistency between a sovereign loan to meet immediate economic needs and what we're trying to do with a new and modernized CUFTA.

I'm wondering if you could help us understand, as committee members, how a modernized CUFTA—that is, reopening what was already a successful document—helps to embrace some of that economic liberalization and economic empowerment, which, therefore, leads to a situation where Ukraine is reinforced in terms of its own sovereignty and security. Perhaps you could help us connect those two dots, please, Mr. Allen.

[Jay Allen]

Sure. Thank you for the question.

Fundamentally, a trade agreement is about establishing and building a relationship. In the case of Ukraine, one of the fundamental purposes of this agreement was to help the economic development in Ukraine. The original agreement was based around tariffs, and it allowed trade in goods to flow between us.

This offers an opportunity to help integrate Ukraine into the international trade and services. It will also help make Ukraine a more attractive investment location.

When a country moves in a direction of adopting the types of commitments that we put into our FTAs, this allows it to show the international community that it is rising to that level, and it's that level of predictability and certainty that these sorts of agreements will inspire within its government. Those changes are what will attract trade and what will attract investment, and ultimately that trade and investment will lead to development, which leads to more tax revenue and more jobs, which ultimately lead to better institutions and the stability that provides.

Fundamentally, it is about creating opportunity, and it's opportunity not just for economic growth but also for stability.

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

Thank you very much, Mr. Allen.

I'll just note in passing that it's interesting because it's that kind of institutional stability that's part and parcel of applications that all international nations make to join global compacts, global agreements, for example. It's even in things such as NATO applications. People are looking at a certain stability for certain member nations, and this contributes part and parcel to that good governance sort of model.

Let me ask you something very specific. I'm also a Muslim Canadian member of Parliament, and I've been quite taken by the Crimean Tatar situation because of what it represents in Ukraine, a minority group that has been the subject of aggression, including very recent aggression, on the part of Russia. We know there is an annexation, and that annexation has not been accepted by Canada or many other nations.

I ask this because of the connection potentially to inclusive trade, because I know what we've tried to do with things such as CUSMA and other agreements going forward—including women, indigenous voices and Black entrepreneurs.

Could you speculate about different ways in which we might be able to empower economically what has been a targeted minority in Ukraine, the Crimean Tatars who might be living in Kyiv or other parts of the country, for example? When we're dealing with CUFTA 2.0 and we're expanding it out to hitherto unrepresented businesses, how might we broach this idea of how the Crimean Tatar voice could come to the fore? In the same way we could be accentuating indigenous voices here in Canada, the Tatar voices and Tatar business perspectives might be accentuated on the Ukrainian side of the ledgers.

Could you explore that with us, please?

[Jay Allen]

Sure. In fact, inclusive trade is fundamental to our approach to trade in Canada. We design our trade agreements so that they do offer explicitly the opportunity for groups that have traditionally been under-represented in trade to enjoy the benefits of these agreements.

You're absolutely right. We're going to seek to include modernized provisions on labour to prevent discrimination. We're going to seek commitments to the International Labour Organization's fundamental codes. We're going to seek provisions on gender and trade with SMEs, and certainly in terms of indigenous rights. That's going to be fundamental to what we are seeking.

You are absolutely right. That constellation of tools that will be put into an agreement not only highlights for these specific communities what's in the agreement for them, but it usually comes along with an agreement to share information, to have dialogues with the groups and between the economies so that we can exchange best practices, so that we can work together to improve the lot of these groups. They're important parts of society. Our trade agreements—you're absolutely right—are designed to encourage their growth.

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

Thank you very much.

Madam Chair, how much time do I have?

[The Chair, Liberal, Judy Sgro]

You don't have any. You have 15 seconds left, sir.

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

Okay. Thank you very much for your work, officials, and thank you very much, Madam Chair.

[The Chair, Liberal, Judy Sgro]

Thank you.

We have six minutes for Mr. Savard-Tremblay, please.

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

Thank you, Madam Chair.

I appreciate all the witnesses being with us today.

I'd like to draw on your expertise as negotiators and your experience in engaging in trade talks with Ukraine. How do you explain the fact that, since the signing of the agreement, we have seen marginal, if not zero, impact. Canada's exports to the Ukraine haven't increased.

Where should we look to understand why this has been a zero-sum game?

[Jay Allen]

Well, in fact, the numbers appear be a zero-sum game, in the sense that they haven't gone up dramatically. What has actually decreased is our exports of coal. Our exports of things like manufactured products and other products have actually increased quite dramatically. I believe it's 28% growth in those products.

We've stopped selling them things like coal, but we've started selling others. Overall, our trade is up, and it's growing. It's certainly on the right path to continued growth.