Natural Resources Committee on Feb. 24th, 2020

[Paul Lefebvre, Liberal, Sudbury, ON]

Those are my questions, Mr. Chair.

[The Chair, Liberal, James Maloney]

Mr. Simard.

[Mario Simard, Bloc, Jonquière, QC]

Thank you for your presentation, sir.

I know that this does not deal with natural resources, but there has been talk about amending the agreement. You indicated that it could be quite difficult because it implies starting new negotiations. However, we know that there is a mechanism that makes the agreement a living thing, that can work by exchanging letters.

Do you think it would be possible to establish a mechanism of that kind so that aluminum would have more or less the same status as steel in the current agreement?

[Steve Verheul]

Well, yes. To make myself clear on that point, while I think there are certainly challenges if we were to make amendments to the agreement before we ratify the agreement, in other words, before it came into force, after it comes into force there are provisions in the agreement whereby we can propose changes to the agreement. We can propose areas where we want to make certain improvements or changes. With respect to aluminum, for example, we certainly have the ability to approach our other two partners and propose changes to the agreement, but only after we are part of the agreement, not before.

[Mario Simard, Bloc, Jonquière, QC]

So, it is your opinion that we could not have that kind of discussion until after the agreement is ratified. At the moment, before the process is finished in the House of Commons, it would be impossible for the parties to start a discussion on the situation I described about steel and aluminum.

[Steve Verheul]

No. I'm sorry. I think I wasn't clear.

I think we can certainly have those discussions. In fact, we have been having some of those discussions already. We can have those discussions, but what I was referring to that would be more challenging would be if we proposed formal amendments to the content of the agreement itself before ratification, because those would have to be agreed to by the U.S. and Mexico formally and they've already ratified the agreement.

[Mario Simard, Bloc, Jonquière, QC]

Okay. I understand completely.

Let me come back to softwood lumber for a few moments. The softwood lumber industry in Quebec is still affected by a tax that is somewhere around 15% today. You mentioned the negotiations that are currently going on at the World Trade Organization, the WTO. In your experience, what would a reasonable timeline for the WTO to render a decision look like?

[Steve Verheul]

We've actually initiated challenges both at the WTO and under the existing NAFTA provisions on softwood lumber. I think we're probably looking at both of those avenues as providing us potential benefits.

We already have some decisions from panels. In particular, we have a decision on injury, which is probably the most important element to be on the right side of, and if we can proceed further on that challenge, then we do have a good chance of greatly improving our position in relation to that issue.

[Mario Simard, Bloc, Jonquière, QC]

I saw a definition of renewable energy in the agreement, but nowhere does it say that we want to encourage the commercial development of renewable energy. Were there any fruitful discussions or, at the very least, preliminary discussions on the possibility of increasing this sector of activity around renewable energy? After all, we are faced with global warming and an energy transition. Were there any discussions with the United States?

[Steve Verheul]

Yes. We have had those discussions. We do have an environmental co-operation agreement under the new NAFTA that does incorporate areas that we're going to be looking to co-operate on in trying to move issues forward, including energy efficiency, alternative and renewable energy and low-emission technologies. All of that is on our work program to attempt to move forward, and all three countries have agreed to that.

[Mario Simard, Bloc, Jonquière, QC]

Thank you.

[The Chair, Liberal, James Maloney]

Mr. Cannings.

[Richard Cannings, NDP, South Okanagan—West Kootenay, BC]

Thank you for being here.

I want to start with a natural resource that I don't think is covered in this agreement, and that's water. I know that, on November 30, when the agreement was signed, there was a side letter between Mr. Lighthizer and Ms. Freeland about water. That letter states, “Unless water, in any form, has entered into commerce and becomes a good or product, it is not covered by the provisions of the Agreement. Nothing in the Agreement would oblige a Party to exploit its water for commercial use....”

There's a lot of concern that I hear from some of my constituents about water as a trade good between Canada and the United States. It's my understanding that, for instance, we have companies like Nestlé that bottle water in Canada and ship it to the United States or abroad, I don't know, and we are essentially.... The amount we charge Nestlé, or whatever company it is, is more of an administration cost. We're not charging them for the water.

I'm wondering why we do that and what the risk to Canada and its water resources would be if we treated water like a product. Would there be some obligation that fell from that, and what are those risks? Why don't we charge more for our water resources?

[Steve Verheul]

First of all, the side letter largely replicates what we have in the NAFTA as it stands now and, as you described it, water in its natural state is not affected by any provisions in the agreement. It's only when it becomes a commercial product that it's then subject to the various provisions relating to tariffs or relating to considerations of trading the product back and forth across the border.

The issue of the amount that would be charged for water that's being bottled by any particular company is a domestic policy decision. It is not anything that is governed by this agreement or any other trade agreement.

[Richard Cannings, NDP, South Okanagan—West Kootenay, BC]

I'll move on then to follow up on some of the questions about softwood lumber. It's a big issue in British Columbia, where I live.

You mentioned that there are a couple of panels that have yet to make their decisions. You mentioned the one on injury that has made a decision.

I assume this agreement has no effect on the work of those panels, that they continue on and didn't have to be reconstituted in any way. I'm not sure if that's what Monsieur Simard was asking, but what might the timeline be on those next decisions?

[Steve Verheul]

As I said, there are, I think, two challenges at the WTO, and we have NAFTA challenges as well.

I'd like to ask our director of the softwood lumber division to come to the table to give some more precise answers.

[Colin Barker, Director, Softwood Lumber Division, Global Affairs Canada]

Good afternoon. I'm Colin Barker. I'm the director of the softwood lumber division at Global Affairs Canada.

As Steve mentioned, we do, in fact, have two challenges at the WTO that are ongoing and three under NAFTA chapter 19.

We're expecting one decision, our countervailing duty challenge, at the WTO to come out later this year, perhaps around the summertime, so that will be an important decision to have. Under the NAFTA, as Steve mentioned already, we have an initial panel decision on injury, which, of the three challenges we've launched there, is perhaps the most important for potentially getting an eventual decision that will be very helpful to Canada.

Unfortunately under the NAFTA process, it sometimes takes a little time. There can be remands back and forth between the panel and whichever government entity is the subject of the challenge. We've had one remand already in that process. We probably will expect at least one or two more this year. Hopefully we will get to a decision maybe in the next year on that one, which will be helpful.

[Richard Cannings, NDP, South Okanagan—West Kootenay, BC]

I have another bit of detail while you're up here.

There was news recently of the U.S. Department of Commerce reducing tariffs it was charging, but there was nothing on reparations in terms of the tariffs that have already been charged and collected.

What's the mechanism for getting our money back, and how long might that take?

[Colin Barker]

You're quite right. There was an announcement from the Department of Commerce on preliminary duties as part of their first annual review of their investigation. These reviews will happen every year. In that preliminary decision, the duty rates were reduced quite significantly.

Now I'd caution that those preliminary rates don't actually take effect.... We have to wait for the final rates to come out in the summer. It's a sort of two-step process. These preliminary rates may be indicative of where those final rates will come out, but they're not a guarantee. We'll have to wait and see what the final rates are. If those final rates are lower, companies would then pay that rate going forward. They would benefit from the reduced rate.

Unfortunately, the way the system is set up, there's no immediate refund because of the ongoing challenges. The ongoing challenges basically suspend any liquidation of those duties until those challenges are completed.

[The Chair, Liberal, James Maloney]

That was right on time. Thank you.

We're now moving into round two, with five minutes.

Mr. Deltell, I believe you're going to speak.

[Gérard Deltell, Conservative, Louis-Saint-Laurent, QC]

Thank you, Mr. Chair.

Madame, messieurs, welcome to your House of Commons. It has been a real pleasure to hear you, and I appreciate your hard work. Through you, I want to pay my respects to all of our people on the team who participated in these huge, long and very exhausting discussions.

Behind you, I see a civil servant with a huge document. It's quite impressive. It reminds me of the famous quote by John Crosbie, who once said that he signed the deal, but he didn't read it because it was a little bit too heavy. Mr. Crosbie said that he sold dictionaries but he never read them. That was quite interesting.

My thanks to you all. Let me remind this committee that, as a free trade party, we are clearly in favour of free trade and of agreements that are positive for Canada.

We recognize that nothing in this world is perfect, but we still want to point out that a number of our members have gone to Washington in recent years to make Canada's case. Our two leaders—our interim leader, the Hon. Rona Ambrose, and the current Leader of the Opposition have advocated for Canada at those meetings, representing our party, as Canada's official opposition.

I would like to address the issue of aluminum. As you know, in Quebec this is a very big issue. Aluminum was everything but the winner in these negotiations, to say the least.

The situation has changed a lot since the first free-trade treaty in 1988. Everyone recognizes that. Everyone knows that, at the time, Mexico was not the port of destination for Chinese products.

However, this is the reality of the day.

I would like to express everybody's concern about the fact, and everybody recognizes it, that the deal is not very good for us, not very good for the aluminum producers, and especially those from Quebec, because we produce the cleanest aluminum in the world.

My questions are quite simple.

How can our companies ensure that Chinese products, which will literally be dumped in Mexico, can be considered in the same terms as the green products made in Quebec?

[Steve Verheul]

Let me start by just describing the outcome.

What we did with aluminum and steel in the original agreement from November 2018 is that we included a provision that said 70% of the aluminum and steel purchased by manufacturers had to be of North American origin. As you point out, if it's going to be of North American origin, chances are it's going to be from Canada, and chances are it's going to be from Quebec. We did, for the first time, have that 70% requirement.

It doesn't exist in NAFTA now. In NAFTA now, there are no requirements whatsoever for aluminum to be used in the production of automobiles. This is a specific requirement for aluminum that has been included.

On top of that, we have much stronger regional value content, going from 62.5% of an auto that has to be of North American origin, to 75% . On top of that, we have core parts that have to be at 75%. Along with a number of other provisions, it means there's much more pressure on manufacturers to use inputs from North America. They don't have any option if they're going to meet—

[Gérard Deltell, Conservative, Louis-Saint-Laurent, QC]

But the point is that, coming from Mexico, is that coming from North America, yes or no? Did it come from China before? The Chinese people dump it into Mexico and then it suddenly becomes a North American product. Is it correct to say that? If so, this is everything but good for us.

[Steve Verheul]

The 70% requirement for both steel and aluminum applies to purchases by manufacturers. Any purchases by manufacturers have to be of North American origin.

[Gérard Deltell, Conservative, Louis-Saint-Laurent, QC]

We all know that the last step of that production is in Mexico, but the major steps have all been done in China without any respect of the environmental law that we have here. Without a shadow of a doubt, there's no comparison with the clean aluminum we produce in Quebec and Canada.

Do you think it's fair for our producers, yes or no?