Good afternoon, Chair and members of the committee. Thank you for the invitation to appear before the committee today. We look forward to answering questions regarding the outcomes of the Canada-U.S.-Mexico agreement, or CUSMA, following my opening remarks.
Signature of the CUSMA on November 30, 2018, followed 13 months of intensive negotiations. It brought together a broad range of officials and stakeholders, with a strong partnership between federal and provincial officials. That agreement achieved several key outcomes that served to reinforce the integrity of the North American market, preserve Canada's market access into the U.S. and Mexico, and modernize the agreement's provisions to reflect our modern economy and the evolution of the North American partnership.
On December 10, 2019, following several months of intensive engagement with our U.S. and Mexican counterparts, the three NAFTA parties signed a protocol of amendment to modify certain outcomes in the original agreement related to state-to-state dispute settlement, labour, environment, intellectual property and automotive rules of origin. These modifications were largely the result of domestic discussions in the U.S. However, Canada was closely involved and engaged in substantive negotiations to ensure that all of these modifications aligned with Canadian interests. Throughout the negotiations, Canadian businesses, business associations, labour unions, civil society and indigenous groups were also closely engaged and contributed heavily to the final result.
Just by way of context, we need to recall that the NAFTA modernization discussions were unique in terms of free trade agreement negotiations. First of all, it was the first large-scale renegotiation of any of Canada's free trade agreements. Normally, free trade agreement partners are looking to liberalize trade. In this process the U.S. goal from the start of the negotiations was to rebalance the agreement in its favour. The U.S. President had also repeatedly threatened to withdraw from NAFTA if a satisfactory outcome could not be reached.
The opening U.S. negotiating positions were, to put it mildly, unconventional. These included the complete dismantlement of Canada's supply management system; the elimination of the binational panel dispute settlement mechanism for anti-dumping and countervailing duties; a state-to-state dispute settlement mechanism that would have rendered the agreement completely unenforceable; a 50% U.S. domestic content requirement on autos, which would have decimated our auto sector; removal of the cultural exception; a government procurement chapter that would have taken away NAFTA market access, leaving Canada worse off than all of the United States' other free trade agreement partners; and a five-year automatic termination of the agreement, known as the sunset clause.
The U.S. administration also took the unprecedented step of imposing tariffs on imports of Canadian steel and aluminum, on the basis of purported threats to national security, but without any kind of justification. The U.S. administration had also launched an investigation that could lead to tariffs on imports of Canadian autos and auto parts.
In the face of this situation, Canada undertook broad and extensive engagement with Canadians on objectives for the NAFTA modernization process. Based on the views we heard and on our own internal trade policy expertise, Canada set out a number of key objectives, which can broadly be categorized in the following overarching areas. First of all, we wanted to preserve important NAFTA provisions and market access into the U.S. and Mexico. Second, we wanted to modernize and improve the agreement, where that was possible. Third, we wanted to reinforce the security and stability of market access into the U.S. and Mexico for Canadian businesses.
In terms of outcomes, Canada maintained NAFTA tariff outcomes, including duty-free treatment for energy products. We maintained provisions on the so-called chapter 19 binational panel dispute settlement mechanism for anti-dumping and countervailing duty matters. We preserved the temporary entry for business persons chapter and access. The cultural exception was preserved. State-to-state dispute settlement was not only preserved but also improved in the negotiations.
In the area of autos, changes were made to the rules of origin regime to encourage the use of more inputs from Canada, in particular by increasing the regional value content requirements for autos and auto parts and removing incentives to produce in low-cost jurisdictions. Together with the quota exemption from potential U.S. section 232 tariffs on autos and auto parts, secured as a part of the final outcome, these new automotive rules of origin will incentivize production and sourcing in North America and represent important outcomes for both our steel and aluminum sectors.
With respect to modernizing NAFTA, we modernized disciplines for trade in goods and agriculture, including with respect to customs administration and procedures, technical barriers to trade, sanitary and phytosanitary measures, as well as a new chapter on good regulatory practices that encourage co-operation and protect the government's right to regulate in the public interest, including for health and safety.
Commitments on trade facilitation and customs procedures have been modernized for the 21st century to better facilitate cross-border trade, including through the use of electronic processes, which will reduce red tape for exporters and save them money. New and modernized disciplines on technical barriers to trade in key sectors are designed to minimize obstacles for Canadians doing business in the U.S. and Mexico, while preserving Canada's ability to regulate in the public interest. The agreement also includes modernized obligations for cross-border trade and services and investment, including financial services, telecommunications and a new digital trade chapter.
On labour and environment, we have made important steps forward by concluding ambitious chapters that are fully incorporated into the agreement and ensure that domestic laws will not be deviated from as a means to gain an unfair trading advantage.
The outcome also includes a special enforcement mechanism that will provide Canada with an enhanced process to ensure the effective implementation of labour reforms in Mexico, specifically related to freedom of association and collective bargaining.
Finally, the outcome has advanced Canada's interest towards inclusive trade, including through greater integration of the gender perspective and better reflecting the interests of indigenous peoples, including through an exception for indigenous rights.
There were a few other outcomes of interest.
On supply management sectors, I'll start by recalling that the U.S. made an explicit and public demand for the complete dismantlement of Canada's supply management system, but in the end we preserved the three key pillars of supply management and granted only limited access to the U.S. The government has been clear in its commitment to provide full and fair compensation to farmers for losses in market access.
On intellectual property, certain outcomes will require changes to Canada's current IP legal and policy framework in certain areas, such as IP rights enforcement to provide ex officio border authority for suspected counterfeit or pirated goods in transit, as well as criminal offences for the unauthorized and wilful misappropriation of trade secrets.
In other areas, Canada has transition periods to implement its commitments, for instance, on the obligation to provide a copyright term of the life of the author plus 70 years. Again, it currently provides a term of life plus 50 years. We have a two and a half year transition period to implement this obligation.
Under the amending protocol, the parties agree to remove the obligation to provide 10 years of data protection for biologic drugs, meaning that Canada does not need to make any changes to its existing regime in this area.
With respect to energy specific obligations, the agreement addresses a long-standing request from Canadian industry to resolve a technical issue related to the use of diluents, a petroleum-based liquid that is often added to crude oil to ensure it flows properly through pipelines. This issue had previously added upwards of $60 million a year in duties and other fees for Canadian businesses.
We also addressed an issue of concern to some Canadians by removing the energy proportionality clause. It also recognizes the parties' interests in harmonizing energy efficiency performance standards and test procedures.
Canada and the United States also agreed to a bilateral side letter on energy co-operation and transparency. It includes provisions that will help provide Canadian stakeholders with more assurances and transparency with respect to the authorization process to participate in the energy sector in the United States. For example, Canada and the U.S. agreed to publish information, including the application process, monetary payment and relevant timelines related to these authorizations.
In closing, I would like to underline that objectives for these negotiations were informed very closely by Canadian priorities and interests, close engagement with provinces and territories as well as a wide range of stakeholders.
This concludes my opening remarks. Alongside my colleagues, I would be pleased to answer any questions you may have.
Thank you.
