International Trade Committee on May 1st, 2023

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

I call the meeting to order.

This is meeting number 61 of the Standing Committee on International Trade.

Today's meeting is taking place in a hybrid format, pursuant to the House order of June 23, 2022. Members are attending in person in the room, and remotely by using the Zoom application.

I'd like to make a few comments for the benefit of witnesses and members.

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Pursuant to Standing Order 108(2) and the motion adopted by the committee on Friday, November 25, 2022, the committee is resuming its study of non-tariff barriers in Canada’s existing and potential international trade agreements.

Today, from the Canadian Chamber of Commerce, we have Michael Harvey, vice-president, policy and international; from the Canadian Nuclear Association, we have George Christidis, vice-president, government relations and international affairs; from Global Automakers of Canada, we have David Adams, president and chief executive officer, by video conference; and from the Tree of Life, we have Lisa MacNeil, president.

Welcome to all of you on this rainy, miserable Monday. I hope you all bring a smile and some happiness to our outlook on today's schedule.

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

Mr. Harvey, I invite you to begin with an opening statement of up to five minutes, please.

[Michael Harvey, Vice-President, Policy and International, Canadian Chamber of Commerce]

Good morning.

I would like to thank the members of the Standing Committee on International Trade for the opportunity to share my views on non-tariff barriers in international trade agreements.

For nearly two years, I have been the Vice-President, Policy and International for the Canadian Chamber of Commerce. We represent more than 400 members, including local, provincial and territorial chambers of commerce, and about 100 member associations, for a total of 200,000 businesses.

I will make most of my remarks in English, but I will answer questions in French if I am asked in that language.

Madam Chair, I have been involved in international trade discussions from private sector, government and industry perspectives for more than 25 years. I will limit my comments today to a more strategic level, as I am not a specialized trade lawyer with deep technical experience.

That said, many companies we represent are facing specific issues in different countries, and we have informed our members they can make written submissions to you for this study.

As committee members are aware, non-tariff barriers are obstacles to trade that are not in the form of tariffs. Common examples are quotas, technical regulations and licensing requirements. These barriers can be challenging for businesses, and I do not believe they will ever totally be eliminated. There are often legitimate reasons for technical regulations and licensing requirements, and businesses constantly manage them. What we seek is that these regulatory requirements not become discriminatory trade barriers.

I recently participated virtually in a panel that was organized in Brussels by the Canada EU Trade and Investment Association. I learned that under CETA, regulatory co-operation has been key to solving disputes. CETA represents a third-generation trade agreement, one that aims to create deep economic and trade links by focusing on barriers to trade beyond tariffs.

CETA has a complex system of regulatory co-operation with a long list of dialogues and committees dealing with specific areas of regulatory co-operation, as well as a general regulatory co-operation forum. I am not a specialist, but I learned that a number of disputes are being solved through these mechanisms. I was told that often the EU regulatory authorities simply need to better understand how the Canadian product is meeting the goals of the EU regulation, if not the letter of the law or the way the law has been applied in the past.

That said, we should not be naive. Sometimes these non-tariff barriers are largely an excuse to try to keep Canadian goods out of a market. When that is the case, Canada needs to expend political capital to push for barriers to be lifted.

This political capital does not always need to be at the highest level. We do not want our bilateral relationships to be hostage to specific disputes. However, our trade commissioners need to constantly push to call out when non-tariff barriers are being used unfairly, and work to ensure regulatory authorities prioritize meetings with Canadian regulators who are able to explain how our products meet the spirit of local requirements, taking away any excuses that may be used by local regulators to prevent market access.

Dispute settlement mechanisms can often also be a key factor when seeking redress. Sometimes what regulators need is an external referee who takes the burden of decision-making off their shoulders. It is easy for a regulator to be captured by local industry interests, and it can be very strategic for Canada to obtain dispute settlement mechanisms in our trade agreements.

The success of dispute settlement mechanisms in investment protection is well established. I can underline, from my Latin American experience, that dispute settlement mechanisms are essential when governments change and new administrations seek to overlook the commitments made by their predecessors. This principle can be usefully applied to regulatory disputes.

I would like to end my comments by noting that we are living in difficult times with respect to the international commitments of various countries. Think of Russia's illegal invasion of Ukraine or the challenge to the international rules-based order posed by the Chinese government.

Unfortunately, even the United States, the leader of the international system set up in the post-war era, refuses to fully implement decisions that are unfavourable to it. A recent example is the decision of the panel established under the Canada-U.S.-Mexico Agreement on the domestic origin of cars. Another example is the United States' use of the so-called national security test to defend its steel and aluminum tariffs at the World Trade Organization.

While these examples underscore the magnitude of the challenge, Canada must do its utmost to protect the international trading system of today and develop the international trading system of the future. We will do so in part by finding solutions to non-tariff barriers.

I commend the members of the Committee for taking the initiative of studying the issue, with a view to proposing possible solutions.

Thank you.

[The Chair, Liberal, Judy Sgro]

Thank you very much, Mr. Harvey.

We'll move on to Mr. Christidis for up to five minutes.

[George Christidis, Vice-President, Government Relations and International Affairs, Canadian Nuclear Association]

Thank you, Madam Chair.

Thank you very much to all the members here for the opportunity to speak with you today and appear before the committee.

On behalf of the Canadian Nuclear Association, first I'd like to acknowledge we're on the historical territory of the Algonquin.

On behalf of the nuclear industry, I'd really like to thank the committee again for this opportunity.

Our membership represents about 100 companies across Canada, which employ about 76,000 Canadians directly and indirectly in uranium mining and exploration, fuel processing, electricity generation and production and advancement of nuclear medicine.

Canada is a leading exporting country in terms of uranium, and with its CANDU technology, has been a tier 1 nuclear country for over 60 years. Today, nuclear energy produces about 20% of Canada's non-emitting electricity, including 63% in Ontario and 30% in New Brunswick. Canada is one of the top producers and exporters of uranium, providing steady, high-quality jobs to northern and indigenous communities in Saskatchewan.

Over the past decade, the Canadian nuclear industry has showcased its world-class expertise with the refurbishment of the CANDU reactors by Ontario Power Generation and Bruce Power, with these projects being on time and on budget. It's really creating a strong foothold for the industry as it looks into the future, which includes small modular reactors.

In terms of building on this success, working in co-operation with the provinces—the provinces being Saskatchewan, Ontario, New Brunswick and Alberta—and the federal government, there's been a wide and recognized role in terms of the opportunity Canada has around small modular reactors. This includes OPG's decision to build an SMR at its Darlington plant by 2030, potentially followed by a plant in Saskatchewan. This is enabling opportunities in eastern Europe. New Brunswick's efforts with ARC Clean Technology and Moltex Energy aim to create a hub in New Brunswick, which itself is creating opportunities internationally.

The federal government has made recent investments in nuclear energy in the last budget, and we fully acknowledge this. The Prime Minister, the Deputy Prime Minister and key ministers such as Minister Wilkinson and Guilbeault have made clear statements that nuclear energy needs to be part of the efforts to fight the climate crisis, as well as to increase energy security for Canada and its partners. We fully support these initiatives.

The CNA believes that the Canadian industry is a model and it is at a crossroads in the sense of the significant opportunities that now exist for nuclear technologies on the international stage. For example, as nations are dealing with the energy crisis or climate crisis and energy security concerns, nuclear technologies have been identified as part of the solutions to those issues.

However, the nuclear industry has a unique set of requirements. Along with recommending that obviously international trade agreements are positive for the industry, there needs to be a set of requirements and obligations under international and domestic laws for trade to enable trade in the nuclear industry. For example, the nuclear industry requires nuclear co-operation agreements between Canada and the intended countries in order to take advantage of those opportunities. Therefore, as we are looking at the opportunity around Canada's international trade, we are looking at nuclear co-operation agreement processes to be well funded and supported by the Canadian government in order for those opportunities to be enabled.

There are other countries that are also looking at the international opportunities around nuclear energy, including the United States, France, the United Kingdom and Japan, which are all looking at providing or augmenting their capabilities in nuclear expertise and nuclear energy to meet the growing demand for the technologies overseas.

Hence, in the context of existing and new trade agreements, we make the following recommendations.

The first is to include nuclear in any clean energy or green definitions within international trade agreements as a way of signalling the inclusion of nuclear technologies.

Second, we would encourage the continued alignment between the international trade agreements that Canada signs and its own nuclear co-operation agreement processes, making sure the departments are well resourced to take advantage of these growing markets we're expecting.

We also look at the clear inclusion of nuclear in the financial models, whether it's the Export Development Corporation or the Canadian Commercial Corporation, to engender the opportunity to export Canadian capabilities abroad. The financial models are there, but they need to be much more explicitly stated.

We're also looking at continually supporting efforts by the regulators, CNSC, and we encourage them to continue the good work they're doing in looking at the opportunities to harmonize internationally with some of these new technologies that the regulatory regimes are engendering and with the opportunities around nuclear technologies abroad.

Thank you.

[The Chair, Liberal, Judy Sgro]

Thank you very much.

We'll go on to Mr. Adams, please.

[David Adams, President and Chief Executive Officer, Global Automakers of Canada]

Madam Chair and committee members, thank you very much for the opportunity to appear today on behalf of the 15 members of the Global Automakers of Canada to discuss the important topic of non-tariff barriers to trade under Canada’s international trade agreements.

A fundamental tenet of the Global Automakers of Canada has been its long-standing support for transparent, open, rules-based trade in automotive goods.

Let me begin by stating that Canada’s automotive industry is a product of trade agreements, from the 1965 Automotive Products Trade Agreement, or Auto Pact, with the United States through to the CUSMA of 2020. While the Canada-Korea FTA, the CETA and the CPTPP facilitated some automotive trade, it should be understood that Canada’s automotive industry was built on the premise of supporting an integrated North American automotive market and is reliant on barrier-free access to that market. For all five manufacturers of vehicles in Canada, the market for their production is almost exclusively North America. The Canadian manufacturing entities of both American and Japanese companies were established in Canada via trade agreements and trade policy dating back more than 50 years.

The intent of North American automotive trade policy was to produce vehicles in factories on either side of the 49th parallel and for both markets to take advantage of the economies of scale that arise from longer production runs. Thus, whether we are talking about Toyota or General Motors, roughly 85% of Canadian vehicle production is exported almost exclusively to the United States. Therefore, the non-tariff barriers this committee should be concerning itself with are those related to access to the U.S. market, as far as the automotive sector is concerned.

While manufacturers have flirted with the idea of using facilities in Canada as export platforms to countries overseas, the reality is that those markets are generally served by localized production from the same Japanese and American automakers that are operating in Canada. The vehicles built in Canada by any auto manufacturer are designed to suit the needs and proclivities of North American consumers.

With respect to Canada’s broader automotive sector, what assures the success of the Canadian automotive parts manufacturing sector is its proximity to Canadian-based vehicle manufacturers and, to a certain extent, those in the United States. While it was pivotal when Honda and Toyota established vehicle manufacturing facilities in Canada in the late 1980s, the untold story is the hundreds of parts manufacturers that also followed them to Canada to support vehicle production. The “build where you sell” orientation of both Toyota and Honda, as well as most of our other GAC members, has led to the establishment of vehicle manufacturing facilities in the CUSMA region to service the North American automotive market. By point of reference, in 2022 only 1.3% of Honda’s sales in Canada were built outside of North America. For Toyota, that number was 18.9%.

Few Canadians would appreciate that Toyota Motor Manufacturing Canada is Canada’s largest vehicle producer and last year produced more vehicles in Canada than Ford and General Motors combined. Honda Canada, the association’s other manufacturing member, was the third-largest vehicle producer in the country last year.

As we have observed over the last three to five years, the automotive industry has become increasingly regionalized in nature, owing primarily to geopolitical concerns. We have all been witness to the tools of industrial policy being applied to further accelerate and codify country-specific or region-specific automotive or automotive parts production, such that industrial policy seemingly trumps trade policy on any given day. Canada needs to be vigilant in this regard, especially with respect to the practices of the United States, while also ensuring that it has clean hands in not emulating these similar practices.

In conclusion, the Canadian automotive industry exists to service the United States. In addition to continuing to ensure access to that market, we need to be constantly vigilant with respect to non-tariff barriers in that relationship, whether they arise in the form of different standards, labelling provisions or the use of subsidies, etc.

I would be pleased to answer questions from committee members.

Thank you very much.

[The Chair, Liberal, Judy Sgro]

Thank you very much, Mr. Adams.

Ms. MacNeil, please go ahead for up to five minutes.

[Lisa MacNeil, President, Tree of Life]

Thank you, Madam Chair.

Members of the committee, good morning. My name is Lisa MacNeil, and I'm the president of Tree of Life Canada.

While Tree of Life Canada is one of the largest distributors of specialty and natural foods in Canada, I come to you today as the importer of British clotted and double creams. Traditionally served as part of an afternoon tea alongside scones and jam, these specialty creams are sold in tea shops and retail stores across Canada. All told, we supply these creams to roughly 2,000 SMEs.

I am here to provide the real-world perspective on how certain non-tariff barriers imposed by the government affect small to medium-sized Canadian businesses, our customers and ourselves. I will also offer some recommendations as to how the government could proactively address these issues in current and future agreements.

The specialty creams we distribute from our U.K. supplier are unique. They are prepared in a dedicated glass bottling plant using a proprietary production process that yields export-ready creams with a long shelf life and a fat content just below butter.

Despite the fact there are no similar products produced in Canada or in any country with which Canada has trade agreements, Tree of Life Canada has faced many unnecessary and burdensome barriers while trying to import these specialty creams.

For years, we were nearly denied outright access to the Canadian market simply because the products did not fit naturally and neatly into any of the categories across the cream quotas. As a result, our harrowing and completely avoidable experience has played out across several quotas.

First, Tree of Life Canada has been denied access to the WTO specialty creams quota since 2016. This quota uses a tiered system that prioritizes cans of thick cream with a fat percentage 20% lower than clotted cream. Any unused quota, which hasn't happened since 2016, is given to glass jars.

From 2016 to 2019, we were able to depend on a supplementary cream permit process, which is granted at the discretion of the minister. However, Global Affairs Canada and the minister abruptly decided to refuse our application in 2019 and encouraged us to look for a domestic producer, which doesn't exist, because it's such a niche product and therefore costly to produce on a small scale.

When there's a demonstrated and steady consumer demand, you would expect that obtaining permission to import the product would be relatively simple. It's been anything but.

From 2019 to 2021, we were unable to bring in any of these products tariff-free, which caused a dramatic disruption to our customers. We've since been able to secure temporary permits through the supplementary import process, but this method of access provides little room for business planning and growth and could be taken away at any time at the discretion of the minister.

Because we regularly run out of this imported cream, we have to turn away customers and Canadians have to go without the product for absolutely no good policy reason. While some claim that the CPTPP will fix all market access issues with regard to Canada-U.K. trade, this access is not the miracle that is being portrayed. This is a result of the allocation and administration policy chosen by Canada.

Indeed, for the CPTPP cream quota, distributors like us would get less than 10% of the overall cream quota access. If that doesn't change, we would be importing far less than we even do today.

The government can avoid these many pitfalls by revisiting its approach to quota administration and allocation in existing and future trade agreements. The comprehensive review of the allocation and administration of tariff rate quotas offers Canada the opportunity to align its quota allocation and administration policy with both its trade obligations as well as Minister Ng's mandate to ensure that trade benefits SMEs across Canada. However, for various reasons, the TRQ review, which began in 2019, has yet to be concluded. We are hoping that some of these issues will be addressed when the review finally resumes.

Thank you, and I look forward to your questions.

[The Chair, Liberal, Judy Sgro]

Thank you very much, Ms. MacNeil.

We'll move to the committee for questions.

Mr. Seeback, please go ahead for six minutes.

[Kyle Seeback, Conservative, Dufferin—Caledon, ON]

Thank you, Madam Chair.

Mr. Harvey, when you gave your opening statement, you talked about chamber members being concerned about some specific non-tariff barriers. You mentioned a bit of that in your opening statement.

Are there any specific ones you would want to raise with the committee today from a specific industry sector you're hearing from?

[Michael Harvey]

Thank you for the question, but I don't think I'm here today to represent just some of them, because frankly, there are so many that I would be picking and choosing a bit too much.

I could mention that I was preparing myself to appear at a meeting in Brussels a couple of weeks ago. As soon as I put on LinkedIn that I was going to be appearing before a committee in Brussels, people started reaching out to me, mentioning different things. One specifically, without getting into the exact company, was somebody who made mining equipment—somebody I knew from a past life in the mining industry—who was saying that the EU legislation on safety regulations was preventing their equipment from going easily into the EU. As a Canadian who has worked in the mining industry, I think it's quite obvious that Canadian-made mining equipment has to be meeting the same standards. It's strictly a non-tariff barrier that needs to be worked through in these discussion groups.

That's the case for almost everything. When you're talking about people of good faith who are blocking your product, it's really a question of getting into these regulatory co-operation mechanisms so you can talk through the issue and get to the proper result. That's as long as what we're talking about are people of good faith who are blocking something because they don't have an exact understanding of it. If you're talking about a situation in which people aren't acting in good faith and are just trying to block your product, that's when I think political capital needs to be expended.

[Kyle Seeback, Conservative, Dufferin—Caledon, ON]

I agree.

I know you don't want to get into each and every person who has been in touch with you, but I suggest that you reach out to those folks and suggest they reach out to the committee, either through written submissions or by requesting to appear. To me, it's great to talk about the generalities of non-tariff barriers—you gave a great summary of that—but I think the specific examples give the committee something to work with and to advise the government on, so I would ask you to do that.

You mentioned robust dispute settlement mechanisms as a way to resolve these things. Do you have any additional comments on that? As I look around the world and see the challenges with getting disputes resolved at the WTO, I think we have to be able to resolve disputes within trade agreements more expeditiously.

If you have some more in-depth comments that you would like to make about those challenges, and perhaps suggest, within a particular trade agreement, the dispute resolution mechanisms that are working really well, maybe you could comment as well on whether you know of some that aren't working as well as they could.

[Michael Harvey]

I think at the end of the day, the dispute settlement mechanisms in international trade law do not work in the same way that the dispute settlement mechanism does in domestic law.

I know you have litigated cases in the past as a lawyer, and I did motions 30 years ago, when I was starting. In a domestic court, you have a judge and the judge decides, and that's it, right? You can appeal, but there are no situations of a policy not being applied because there's a lack of political will, etc. It's very difficult, though it also exists a bit.

I think the world right now is unfortunately going, in general, in the direction of not applying the rules. Even the United States, as I mentioned, has had decisions that were made against it over the last year, and they are just not following through. That's something we're always going to have to deal with. However, I think what you try to do is institutionalize your dispute as much as possible, to give you something to hang your argument on that can maybe help overcome a certain amount of political resistance.

With regard to my Latin American experience in investment disputes, my last job was with a gold mining company in Mexico for seven years. In the past few years, there have been several investment disputes in which the companies in question have obtained arbitral awards. That's for a lot more money than your average trade dispute. In a big trade dispute, an arbitral award can be something that forces the local government to stick to their national commitments.

On specific trade agreements, I would say that the CETA appears to be the best, because it creates all of these regulatory co-operation mechanisms. It's a long, hard slog to get through those regulatory co-operation mechanisms, but frankly, we're talking about a group of advanced industrialized democracies that are much more willing than countries in a lot of the world to talk through these issues with us. The CETA, I would say, is top of class, but it's still early days. It takes a long time for these things to play out.

[Kyle Seeback, Conservative, Dufferin—Caledon, ON]

I want to ask Ms. MacNeil a question.

On the challenges you have had, I would say it seems to be a non-tariff barrier that's existing within Canada. How often and for how long have you tried to resolve that dispute? Maybe it's not a dispute, but how long have you tried to resolve the issue with the government?

[Lisa MacNeil]

We've been working for a long time to resolve the issue with the government.

I'd like to say the biggest impact we're faced with right now, with the trade barriers, is loss of business and sales. A great example of that would be how we're not able to sell into food service due to the tight volume restrictions imposed by Global Affairs Canada. Places like the Château Laurier, which is a Fairmont hotel, can't buy from us, because we're simply not able to guarantee them supply on a frequent basis.

From a barrier perspective, our largest barrier is being forced into the supplemental cream quota process since 2016. We've talked to the government about this. It's bad for business. It's a bureaucratic process. There's uncertainty from year to year as to whether we're going to be able to import clotted creams.

I would end with this: Imagine telling the customers you've been selling clotted cream to for over 20 years that you're not sure if you're going to be able to get them any next year. There are lots of conversations.

[Kyle Seeback, Conservative, Dufferin—Caledon, ON]

If I were the minister of international trade, what would the fix be?

[The Chair, Liberal, Judy Sgro]

I'm sorry, Mr. Seeback, but you're out of time.

[Lisa MacNeil]

Fix allocation.

[The Chair, Liberal, Judy Sgro]

We have Mr. Virani for up to six minutes.

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

Thank you very much, Madam Chair.

I want to say thank you to all the witnesses for appearing. It's very informative and helpful for this discussion.

I want to direct my first set of questions to George Christidis and David Adams.

I'm quite taken by the initiatives happening in the nuclear sector. George, you and I have discussed this in the past. In budget 2023 there are obviously some major shifts occurring. You see clean electricity generation tax credits of 15% that apply to both large and small modular reactors. You also see a clean-tech manufacturing tax credit of up to 30% that applies to nuclear energy equipment and a commitment to extend the reduced tax rates for zero-emission tech manufacturers. It was broadened out by three years. The broadening out also subsumes nuclear equipment within it. We heard what the Prime Minister said at a U of O conference just last week here in Ottawa about needing more nuclear. We had Chrystia Freeland at the Pickering plant. These are all steps in the right direction.

For George's and David's benefit, when VW was here and made that very massive announcement, I also heard that the cleanliness of the Ontario grid is the reason they're locating their first-ever electric battery manufacturing plant outside Europe in Ontario. It's 90% non-emitting right now.

Could you comment, George, on the signals in the budget, and how you feel about those?

David, could you wade into the perspective on what a clean grid—one that's also being cleaned by nuclear—means for the next set of investments from a future VW, in terms of attracting investment into the country?

It's over to the two of you. If I could ask you for about 60 to 80 seconds each, that would be great.

[George Christidis]

I'll take it. I'll start.

Obviously, the federal budget tabled by the Deputy Prime Minister was very significant in terms of setting the stage for continued growth and the acceleration of growth in the nuclear industry in Canada—as you pointed out—in areas like the investment tax credit and the inclusions. We see it as a very positive signal by the Prime Minister domestically, along with the international signals that are there, as you pointed out, in the recent statement issued by President Biden and Prime Minister Trudeau and the recent G7 and G5 ministerial meetings, as well as the energy ministers' meetings in Japan, which Minister Wilkinson attended.

There's a significant signal occurring that nuclear will have to be part of the solution to meeting the climate crisis and increased concerns about energy security in key markets such as eastern Europe, where you already have Romania, which is a CANDU country. We're fully engaged there. That type of opportunity is real and there for Canada. Other countries are mobilizing, of course, to try to take advantage of these opportunities.

In terms of VW, I can't speak to that deal particularly, other than what I've read in the press. It's certainly very true that clean energy will become a fundamental point for any investments moving forward across various different sectors. We're seeing this domestically, where the natural resource sectors are looking at, for example, very small reactors and how those could be applicable in the development and export of resources abroad. We're also seeing it with large industrial users looking at technologies—small modular reactors, as well as potentially large reactors—in various different ways that will increase the ability to provide clean energy that's also reliable.

One thing I can say is this: Different markets in Europe, for example, had learned certain lessons when they did not take a multi-technology approach. They have left themselves vulnerable, and their industrial base has had to adjust accordingly. They've seen emissions go up. In the experience of Germany, which made certain decisions, they've seen a significant increase in emissions and they have also experienced energy insecurity, so from that perspective—

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

Thank you for that, George.

If I can, I'll turn to David to ask him to comment on that VW deal specifically and the cleanliness of the Ontario grid.

[David Adams]

I can echo George's comments about the provisions in the budget as far as investment tax credits are concerned.

To your specific questions about the importance of green electricity, I think it's important to the whole green supply chain, including green steel that will be produced in Hamilton. Clean electricity and all those things are important factors as we enter an investment climate that has some significant ESG concerns baked into it, and I think this will only become increasingly important as we move further into the future.

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

Thank you, Madam Chair. Do I...?

[The Chair, Liberal, Judy Sgro]

No. I'm sorry. You have 14 seconds remaining.

We'll go to Mr. Savard-Tremblay for six minutes, please.