Natural Resources Committee on Feb. 24th, 2020

[Steve Verheul]

I don't disagree with your characterization of the industry in Quebec, but I think the treatment between steel and aluminum is not that different, other than what happens after seven years, if that comes to pass. After seven years, manufacturers will have to demonstrate that the steel was melted and poured—

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

Aren't we talking about 10 years for aluminum instead of seven years?

[Steve Verheul]

There's a 10-year review after that. I can tell you that we have already begun discussions with the U.S. and with Mexico to start to monitor imports of aluminum from countries like China into the North American market. If we can demonstrate a case that it is happening and it is pushing out Canadian aluminum, then I think we have a very strong case to have the same kind of rules that are in place for steel.

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

You can be assured that we are very concerned with that issue.

[The Chair, Liberal, James Maloney]

Thank you, Mr. Deltell.

Ms. Jones.

[Yvonne Jones, Liberal, Labrador, NL]

Thank you very much.

It's a great discussion. I really appreciate your being able to join us on short notice. It's my first opportunity as a parliamentarian to thank all of you for the hard work you've done on behalf of Canadians and Canadian industry. We certainly do appreciate it.

You talk about how this agreement has been modernized and improved. No doubt all of us at the table will see where that has occurred in many different sectors. We also talk about how you've been able to maintain the regulatory piece that has allowed Canada to be successful on certain industry fronts, although we know there was tremendous push-back by the United States. Like every agreement, there are always going to be questions and wondering whether we could do better in certain sectors or in other sectors.

I'm going to continue on the aluminum front. When I look at the agreement, I look at it from a little different perspective than some others in the room, but certainly I understand the points that are being made. It was my understanding that there were about 230 or more tariffs on aluminum going into the United States, and you guys were able to successfully negotiate those tariffs away. I'd like to know what that actually means for the industry in Canada. Surely it must mean an opportunity to grow the aluminum industry and to be able to see those sales increase, not decrease.

I know you responded to my colleague with regard to the guarantee that 70% of that aluminum would be in North America. His question regarding Mexico and the import from China is a very important one. I would like to know, even with that 70% guarantee, if there is any provision within the agreement that would allow Canada to maximize our productivity on aluminum and the use of aluminum under that agreement from where it is today going forward.

While it may not be the 100% that we were looking for or it may not have the origin as specific as we were looking for, do you see how it's going to project further growth and further opportunity in Quebec and in Canada by that account because of those two particular changes in the agreement?

[Steve Verheul]

Yes, I think there are two elements of particular interest here.

First, because we were able to negotiate an outcome to this agreement, we then subsequently managed to have removed the national security tariffs that the U.S. imposed on both steel and aluminum, the 15% tariff on aluminum in this case. Those countries around the world that don't have any kind of an agreement with the U.S. are still facing those tariffs into the U.S., so we have an advantage over those other countries.

We also have the provisions in relation to autos. As I mentioned, the 70% requirement does exist. As I explained a bit earlier, we have also introduced a requirement that means much more of any automobile manufactured in North America has to be produced from North American sources.

The fact that we have gone to 75% means there is a much stronger incentive to use products like aluminum for engine blocks, for other parts of cars, to have them come from North American origin because there are certain elements of cars that are not produced within North America. I have mentioned before in other committees that the screens we have in all our cars these days are not produced in North America. They are imported.

A number of products in a car have to be imported. That squeezes it even more. Every manufacturer is looking to use as much North American content as they can because they don't have a lot of flexibility. Between the removal of the 15% tariff on aluminum and the incentive to use further aluminum that's now contained in the agreement with respect to autos means that we do have incentives to use more Canadian, Quebec, aluminum in the production of cars and for other purposes.

[The Chair, Liberal, James Maloney]

Thank you. You're right on time.

Mr. Melillo.

[Mario Simard, Bloc, Jonquière, QC]

Some confusion has arisen.

[The Chair, Liberal, James Maloney]

Sorry, Mr. Simard. Mr. Melillo's next. You will have to wait a bit longer.

[Eric Melillo, Conservative, Kenora, ON]

Thank you, Mr. Chair.

I don't want to spend too much time echoing what has already been said, but thank you to all of you for being here today and for your hard work on this file.

I will change course from what we have been discussing. I would like to focus most of my time on the removal of NAFTA's energy proportionality clause, understanding that Canada will no longer be penalized for shipping less oil to the U.S.

I would like to know if Canada has a plan now to diversify our exports and reach new markets for Canadian energy.

[Jeff Labonté, Assistant Deputy Minister, Major Projects Management Office, Department of Natural Resources]

The removal of the proportionality clause essentially takes away one element of our energy policy space in its ability to be sold and traded around the world that basically had a restriction, that had a lien, if you will, that was both in an agreement with the United States, and one of which was never used, but certainly existed.

From an energy policy point of view, Canada's position on trade in energy products has always been and remains that it's an open market, and that market is either for investment into the energy sector or the sale and export of energy goods.

To put it in a more direct way, the diversification would be easier, if you will, without the proportionality clause, although it was never used and has never been a barrier to our trade at this point.

[Eric Melillo, Conservative, Kenora, ON]

Thank you.

Did any industry representatives request the removal of this clause?

[Zachary Archambault, Deputy Director, Tariff and Goods Market Access, Department of Foreign Affairs, Trade and Development]

We had discussions with a broad range of stakeholders. Most calls for removal of proportionality came from civil society. We engaged with indigenous groups, civil society, as well as industry. I wouldn't say that industry was calling for that per se, but certainly members of civil society and indigenous...the working group certainly raised some concerns around the proportionality clause in NAFTA.

[Eric Melillo, Conservative, Kenora, ON]

Were any foreign governments also requesting the removal of that clause?

[Zachary Archambault]

No.

[Eric Melillo, Conservative, Kenora, ON]

Would it be correct to assume that now this clause doesn't appear in the agreement is a result of the United States' increased energy independence and their being less reliant on Canadian energy?

[Jeff Labonté]

I think, to take that question at a broader level, the movement of energy goods from Canada to other countries is one that's defined partly by the product that's being produced, the demand for what might be in place, as well as the existing infrastructure investments in the particular country.

In the U.S., for example, there is a fairly complex, large refinery industry that makes use of different crude oil inputs, as an example, to produce gasoline, diesel fuels and other forms of energy that are consumed. Many of those investments are seeking a particular type of crude, and that crude oil is one that Canada produces.

As an example, and I think I'm telling you something you already know, the ability for us to move energy to markets is defined by the demand, the supply, the cost and the infrastructure to get it there, as well as the different investments that already exist in those particular countries that are consuming what we're producing, whether it's electricity, gasoline or diesel, or crude or natural gas.

[Eric Melillo, Conservative, Kenora, ON]

To change gears slightly, but still on the topic of oil and gas, the Canadian Association of Petroleum Producers has requested that oil and gas companies be given national treatment. Is that contained within the rest of this agreement?

[Steve Verheul]

Yes, there are national treatment requirements that did apply quite broadly, including that particular area.

[Eric Melillo, Conservative, Kenora, ON]

Can you tell me any more about the investment protection for Canada's oil and gas sector?

[Steve Verheul]

Well, we did agree with the U.S., in particular, that we would not have investor-state dispute settlement processes continuing to apply between Canada and the U.S. If a Canadian investor in the U.S. had some kind of complaint, we would have to go through a state-to-state dispute settlement, rather than the investor-state dispute settlement process. We have never had a case go forward in the U.S., whereas the U.S. investors have had multiple cases go forward in Canada, so we considered that mechanism between Canada and the U.S. was of limited value. We retained that mechanism with respect to Mexico through the trans-Pacific partnership.

[Eric Melillo, Conservative, Kenora, ON]

Thank you.

[The Chair, Liberal, James Maloney]

Ms. Jones, we'll go back to you for five minutes.

[Yvonne Jones, Liberal, Labrador, NL]

Thank you.

Maybe I'll just pick up on the proportionality clause and where you were going with that, because I see this as a longer-term benefit for Canada. When I look at it, I see it as an opportunity for us not only to expand our market access, but also to look at how we can use future projects that we're developing in Canada for gas and oil, and how that can feed into our ability to export to different countries and to have more options available to us. Maybe you can address that a little more. I'd like you to also talk about how this actually helps Canada maintain its own sovereignty over the oil and gas industry for the longer-term future and benefits of Canadians.

For me, I don't see a downside in what we've done with regard to that cause. My understanding of it is that it's a huge upside for Canada and it allows us opportunities that we have not had in previous agreements like NAFTA.