Proceedings of the Standing Senate Committee on
Foreign Affairs and International Trade
Issue No. 52 - Evidence - Meeting of October 23, 2018
OTTAWA, Tuesday, October 23, 2018
The Standing Senate Committee on Foreign Affairs and International Trade met this day at 2:30 p.m. to study Bill C-79, An Act to implement the Comprehensive and Progressive Agreement for Trans-Pacific Partnership between Canada, Australia, Brunei, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.
Senator A. Raynell Andreychuk (Chair) in the chair.
The Chair: Honourable senators, we are meeting today to continue our examination of Bill C-79, an Act to implement the Comprehensive and Progressive Agreement for Trans-Pacific Partnership between Canada, Australia, Brunei, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam, often referred to as CPTPP.
I remind senators and anyone listening in that we did an exhaustive trade study not only on TPP at that time, but on trade agreements in general. We have had the benefit of the pre-study of the committee in the house, as well as their testimony.
Today, we’re pleased to continue with our study here of Bill C-79. Before doing so, I will just go around the room very quickly and ask senators to introduce themselves.
Senator Ataullahjan: Salma Ataullahjan, Ontario.
Senator Greene: Stephen Greene, Nova Scotia.
Senator Massicotte: Senator Paul Massicotte from Quebec.
Senator Cordy: Jane Cordy, Nova Scotia.
Senator Marwah: Sabi Marwah, Ontario.
Senator Saint-Germain: Raymonde Saint-Germain from Quebec.
Senator Bovey: Patricia Bovey, Manitoba.
Senator Dawson: Dennis Dawson from Quebec.
Senator Boehm: Peter Boehm, brand new.
The Chair: Raynell Andreychuk, very old, from Saskatchewan.
Senator Boehm, you come here with your experience, and some of us have had further experience on the committee, no doubt. We welcome you to the committee. Your experiences will be helpful to us as a new senator.
Now I turn to two other senators who have just come in.
Senator Oh: Victor Oh, Ontario.
Senator Ngo: Senator Ngo, Ontario.
The Chair: We are pleased to welcome to the committee further witnesses on our reflections and study of Bill C-79 and the CPTPP agreement.
Before us from Business Council of Canada is Brian Kingston, Vice President, International and Fiscal Issues, and Trevor Kennedy, Policy Associate; from Canadian Agri-Food Trade Alliance, Claire Citeau, Executive Director; and from Dow Chemical Company, Scott Thurlow, Senior Advisor.
I trust all of you have testified before this committee and others, so we would welcome your opening statements and then I will turn to the senators for questions.
I will take you in the order that I introduced you, so I will turn to Brian Kingston first.
Brian Kingston, Vice President, International and Fiscal Issues, Business Council of Canada: The Business Council of Canada represents chief executives and entrepreneurs of 150 leading Canadian companies from all sectors and regions of the country. Our member companies employ 1.7 million Canadians, account for more than half the value of the Toronto Stock Exchange and contribute the largest share of federal corporate taxes.
Trade has long been a powerful engine for Canada’s economy from the early days of the fur trade through to today where trade of goods and services represents around 64 per cent of our gross domestic product or GDP. Canadians have relied on international trade to prosper. According to Global Affairs, one in every five Canadian jobs is directly linked to exports.
The Business Council is a strong proponent of Canada’s participation in the CPTPP. In an era of increasing protectionism, it is increasingly important that Canada do everything possible to diversify its trade and investment relationships, to create new economic opportunities and to improve our long-term prosperity.
The CPTPP is a groundbreaking agreement that will support Canada’s standard of living and create high-value jobs. With both the CPTPP and Canada’s implemented agreement with Europe, CETA, our trade agreement network will cover more than 60 per cent of the global economy. That gives Canadian companies preferential access to nearly 90 per cent of existing export markets.
This positions Canada as the only G7 nation with free trade access to the U.S., the Americas, Europe and the Asia-Pacific region, including three of the world’s four largest economies. We believe that this wide-reaching network would position Canada as a global export platform, attracting investment and jobs to communities across the country.
There are three main reasons why we believe the CPTPP is critical to Canada’s long-term economic prosperity. The first is that Canada must diversify its trade relationships. Despite recent efforts to diversify trade, Canada still has much work to do. Nearly 76 per cent of our exports went to the U.S. last year. While our export dependence on the U.S. has declined somewhat from 87 per cent in the early 2000s, it remains stubbornly high.
With growing protectionism in the U.S., the need to diversify has never been clearer. Asia is the growth engine of the global economy, and Canada must be positioned to take advantage of it. Despite the region’s importance in the global economy, Asia-Pacific nations collectively account for only 17 per cent of Canada’s goods trade and 11 per cent of our services trade.
The second reason is that the CPTPP gives Canadian exporters a first-mover advantage. If we are among the first six countries to ratify the agreement, we will have preferential access over our competitors in lucrative markets such as Japan. Japan is the world’s third largest economy and our fourth largest merchandise trade partner.
Japan has a relatively high level of protectionism with an MFN-applied tariff of 4 per cent and a relatively low import penetration of only 15 per cent of GDP. With Canada currently selling $4 billion of agri-food products to Japan every year, or nearly 10 per cent of our total agri-food exports, we think the tariff reductions in the CPTPP will significantly boost our exports.
According to a study that was commissioned by Global Affairs last year, they expect CPTPP will boost exports of pork by 36 per cent, beef by 95 per cent, and wood products by 16 per cent. They are significant potential gains there.
The third and last reason why we must be part of the CPTPP is that it sets a new standard in regional trade agreements. By setting reciprocal enforceable trade rules and establishing disciplines in key areas of interest to Canada, a high-standard CPTPP agreement will promote Canadian economic growth and jobs.
One example is the services sector which accounts for 13.6 million jobs in Canada. It is responsible for over 70 per cent of our GDP. Canadian companies that excel at providing knowledge-intensive services, such as the financial services sector, will benefit from enhanced obligations covering a broad range of services, including financial services.
We also believe that through the agreement’s potential expansion to new members, it will provide the architecture for market-based rules to growing economies in the Americas and Asia. A couple of recent examples are Indonesia and the Philippines, which have indicated a desire to join the agreement. That would add 367 million people to the CPTPP market, increasing GDP by 1.3 trillion U.S. dollars. There is a long list of other countries that have expressed interest.
With that, I will conclude my remarks. I look forward to any questions you may have. Thank you.
Claire Citeau, Executive Director, Canadian Agri-Food Trade Alliance: Thank you for inviting me to speak on behalf of CAFTA, the voice of Canadian agriculture and agri-food exporters, regarding Bill C-79, the implementing legislation for the CPTPP.
This is a very exciting time for Canadian exporters and our long aspiration to be more competitive and lucrative in the fast-growing Asian markets. To be on the cusp of ratifying this agreement and begin to diversify our trade in a meaningful way is truly historic and great news for Canada.
CAFTA represents 90 per cent, or the vast majority of farmers who depend on trade, as well as producers, processors and agri-food exporters who want to grow the economy through better and more competitive access to international markets.
Our members include the beef, pork, grains, cereals, pulses, soybeans, canola, malt, sugar and processed food industries. Collectively, that’s over 90 per cent of Canada’s agri-food exports and represents about $57 billion in exports last year and about a million jobs in urban and rural communities across the country. A significant portion of these jobs would not exist without competitive access to world markets.
Competitive access to global markets through FTAs is our top priority. The Asia-Pacific, including Japan, North America, Europe and China, are among our top export priority markets. Ultimately, the success of both our farmers and our exporters depends on the timely negotiation and timely ratification of preferential access to many of the same markets our competitors are also after.
As you can imagine, the agriculture and food sectors are fiercely competitive, making every day count. We have long advocated for Canada’s participation in the CPTPP and have supported government efforts to secure outcomes that provide real benefits for Canadian agri-food exporters.
The need for Canada to remain competitive with some countries, while staying ahead of the curve with others, is why CAFTA strongly supports the CPTPP and urges senators to review and swiftly approve legislation to implement the deal on a timeline that will, first, enable Canada to be one of the first six nations to ratify the agreement and, second, bring the agreement into force before December 31, 2018.
This vital trade agreement will come into force 60 days after it is ratified by the first six countries. Timing is critical as the race is on with our other CPTPP countries vying to be among the first six to ratify so the agreement can be brought into force this year. This timeline can only be achieved if six signatories complete ratification by November 1.
Canada’s swift ratification can help ensure that this agreement comes into force promptly, unlocking significant benefits for Canadian farmers, agri-food workers and communities.
The benefits of this agreement are real. According to research commissioned by CAFTA, food exports will grow by nearly $2 billion annually for a variety of ag and food products, including beef, pork, grains, canola, pulses, soybeans, sugar and processed foods. Being among the first six countries to ratify will help us secure the coveted first-mover advantage in some of these important and fast-growing markets. This will help us retain, create jobs, secure billions of dollars in prosperity, and ensure that we are not left behind in a very competitive sector and region.
It’s extremely critical that Canada be among the first six countries to ratify in order to benefit from the first round of tariff reductions. It should be understood that a failure of Canada to be among the first six to ratify would not result in the status quo. Rather, it would constitute a needless reduction and erosion of Canada’s competitiveness throughout the Asia-Pacific region.
The CPTPP region, representing a market of 500 million people, is really a once in a lifetime opportunity to establish Canada’s footprint in Asia. Today, we only have one free-trade agreement in Asia and that’s with South Korea.
Specifically, our members are really keen on securing free trade access to Japan, a premium market that buys $4 billion a year in Canadian agri-food products. That would be a huge win for us in the CPTPP.
The CPTPP also secures access to fast-growing and important markets like Vietnam, Singapore and Malaysia for our exporters. It will provide a competitive advantage, since the U.S. is not part of the agreement.
However, today, our exporters are becoming increasingly concerned that they will no longer be competitive in Asia, and in Japan in particular, as they watch their competitors surge ahead with free-trade agreements, including Australia, Chile and most recently the European Union. Ratifying the CPTPP will help address that concern.
As we saw in South Korea with our competitors beating us to free trade access through a free trade agreement before us, losing the first-mover advantage is not easily recovered.
In closing, Canada risks losing the first-mover advantage if it’s not in the first tranche of countries ratifying the deal. At the same time, today we have an opportunity to seize this advantage.
We urge senators to help keep Canada’s trade-reliant economy moving forward to the benefit of all Canadians. The best chance to implement the agreement quickly, maintain and enhance our competitive edge is to ratify the agreement quickly.
Scott Thurlow, Senior Advisor, Government Affairs, Dow Chemical Company (Canada): Thank you, Madam Chair and honourable senators, for allowing me to appear today to express Dow Chemical Company support for the Comprehensive Progressive Trans-Pacific Partnership, CPTPP.
Dow supports all efforts toward the development of a global, rules-based trading system to foster economic growth and sustainable development around the world.
Dow combines the power of science and technology to passionately innovate what is essential to human progress. The company is driving innovations that extract value from material, polymer, chemical and biological science to help address many of the world’s most challenging problems, such as the need for clean water, clean energy generation and conservation, as well as increasing agricultural productivity.
Our 2025 sustainability goals continue to drive our innovation. We are guided by our responsible care ethic, which has been recognized by the United Nations.
Dow is a company that is headquartered in Midland, Michigan. Dow has been present in Canada for over 80 years. Our founder, Herbert Henry Dow, was born in Canada.
In 2017, Dow had annual sales of nearly $63 billion. The company’s more than 6,000 product families are manufactured at 179 sites in 35 countries across the globe.
While I am here today on behalf of Dow Canada, please understand that Dow has been very vocal in supporting this agreement in the United States and across the CPTPP 11. We will continue to work closely, as a North American company, with our governments to promote free and fair trade.
In Canada, with our corporate headquarters in Calgary, Dow has facilities in Fort Saskatchewan, West Hill which is in Scarborough, and Varennes. We jointly operate facilities in Prentiss and Fort Saskatchewan. With the growth of opportunities in Eastern Canada, we have recently opened a sales branch in downtown Toronto.
Dow’s integrated, market-driven, industry-leading portfolio of specialty chemical, advanced materials, agrosciences and plastics business delivers a broad range of technology-based products and solutions to customers in approximately 180 countries and in high-growth sectors such as packaging, electronics, water, coatings and agriculture. We have a presence in every one of the current signatories to the CPTPP.
We are actively engaged in promoting policies that eliminate trade barriers and enhance overall market access to provide a level playing field for the chemical industry and our downstream customers globally.
We are advocates for tariff elimination and especially the removal of non-tariff barriers. We also need to be able to deal with non-tariff barriers and with ensuring a strong dispute resolution mechanism is at the centre of moving NTBs.
As a U.S. company with facilities in 34 other countries, we strongly support the need for investment chapters in trade agreements, including access to an independent international investor state dispute settlement process, ISDS.
The CPTPP offers substantive value to our company and many others, including educating countries on the value generation of global supply chains; promoting an open-market job creation versus short-term protectionism mindset in key emerging economies such as Vietnam and Malaysia; and addressing 21st century issues such as reforming outdated regulatory schemes to address real commercial significance, digital trade and competitive treatment for state-owned enterprises.
We continue to promote efforts at regulatory cooperation which would ensure fair, transparent and efficient regulatory processes based on sound science and risk assessment principles. For all of these reasons, the Dow Chemical Company strongly supports the CPTPP.
The CPTPP agreement is a significant move forward to promote advanced manufacturing. It’s crucial for the chemical sector as it will significantly eliminate tariffs to access fast-growing markets in Latin America and Asia, promote engagement with industry on developing sound science, risk-based regulation, and secure strong enforcement of intellectual property rights to include trade secrets among other commitments.
Southeast Asia and its growing markets, for example, is a magnet for North American feedstocks and manufactured goods, agricultural products and services. Specifically, the following provisions within the CPTPP directly benefit Dow. The new investments that we are planning for North America are projected to increase exports to the Asia-Pacific and Latin America, and chemical tariffs will be reduced significantly.
All of these tariff eliminations remove a substantial competitive barrier and create real opportunities for the chemical industry, large and small companies, and our downstream users.
The TPP also creates a mechanism for regulatory coherence for dealing with long-term regulatory market access barriers. A more integrated and efficient regulatory environment can enhance the competitiveness of Canadian and U.S. manufacturing industries.
Formulation of regulatory coherence committees can help eliminate unnecessary burdens on regional cross-border trade, reduce costs, promote investment and provide more certainty for business and the public, while maintaining high levels of protection for human health and the environment.
More domestic regulatory rigour and higher standards of industry engagement will support better domestic regulatory procedures and increase transparency, engagement and ultimately cooperation.
Here, I will specifically speak to Canada and the potential to export its world leading Chemicals Management Plan. This approach has been the cornerstone of the United States Toxic Substances Control Act and was signed into law by President Barack Obama. Canada has set the gold standard with this program, and it should continue to share its experience with other regulators.
At Dow, we are working actively to promote industry engagement in support of regulatory cooperation. We lead the efforts of the International Council of Chemical Association, the ICCA, in fostering opportunities for Canada to brief on the Chemicals Management Plan in Latin America and at a workshop in Indonesia this November.
There are also 21st century issues. The free flow of data across international borders is an important issue for all companies, including manufacturers. Data flow is critical to our personal data management practices, to our business engagement with global customers, and to our research and development, as examples. Ensuring the free flow of data and preventing forced localization practices will enable global value chains to remain competitive, operate efficiently and support manufacturing in the U.S. and throughout the CPTPP region.
We also support the inclusion of a new chapter addressing state-owned enterprises. It seeks to level the playing field by outlining competitive principles.
Trade facilitation and rules of origin are other important parts of the CPTPP. Trade facilitation will support efforts to create a single window, to advance custom platforms, to ensure secure and efficient transitive goods based on electronic filing platforms, and to facilitate time to market particularly for perishable goods such as agriculture.
The rules of origin requirements also ensure an efficient, flexible platform for companies to be able to demonstrate compliance and benefit from the TPP market opening commitments. Clarity on rules of origin is crucial for large but especially small companies to take advantage of this FTA.
As an innovative company that is granted over 600 patents a year, the IP chapter in TPP serves to modernize IP standards of both the protection and enforcement provisions.
Finally, as it relates to the growth of the engagement, we would welcome additional expressions of interest to join from South Korea, Thailand, Indonesia and the Philippines.
While I am here, I would be happy to talk to you about our global initiatives about plastics recovery and reduction, as well as the work we are doing to phase plastics out of the marine environment, the Dow Energy Bag Program.
The CPTPP doesn’t seem to be getting as much media coverage as the other deal that Canada has just completed, but it will certainly have a profound impact on our economy. We would strongly support the bill’s speedy passage.
Senator Massicotte: We all have biases. I buy into the benefits of free trade. I buy into the fact that it is how you remain competitive. It’s obviously in the long-term interest of the very important economic and social aspects of Canada’s future. However, when I get into the details of this agreement, I have some questions to help me maintain the whole principle of being favourable.
Most of you are exporters who will see a benefit from increased exports of our product to those countries. That’s an easy buy-in. Global Affairs says that around 10 years from now exports will be around $3.2 billion and in the short term it will be $2 billion going up to $3 billion. That is very good. It creates employment, good living conditions, wealth in our country and so on.
The hiccup, though, is that imports will be up to $6.9 billion, which is more than double the exports. I presume the reverse occurs. It means that we will have outsiders delivering completed or semi-completed products to Canada. Therefore, that would compete with our own firms, which presumably are not as competitive. That’s why we have imports. Thus means a loss of jobs and some negative economic impact on those affected.
Obviously, beef, pork, sugar, leather and chemical products are the winners. The losers are not at this table. I wonder how they would feel about this agreement.
Another issue is that the numbers show us that the duties collected today are close to $500 billion a year, relative to duties on imports which will disappear.
Why is this so good for Canada? We fall back on our economic principles and say that this is good because we have free trade and we remain competitive. However, if we look at the free trade agreements we’ve signed in the past with Colombia, Honduras, Jordan, Panama, Peru and South Korean, the pattern of trade in all those cases that followed the agreement, in spite of the big splash or big fanfare, there has been no significant impact on our exports in relationship to our imports. There has been no significant economic benefit.
Help me out here. Why is this so good for Canada?
The Chair: I think we need to have the answer. You have asked a few questions.
Senator Massicotte: Why is this good for Canada? Why should we buy into this deal at this point in time?
The Chair: Who would like to answer that?
Mr. Kingston: I am happy to start. We’re guilty of always focusing on exports as being the main beneficiaries of trade deals, but importers also benefit.
The companies we represent are large global companies with supply chains that span North America and the globe. Having access to cheaper imports and cheaper inputs actually makes them more competitive in the products that they produce. We see an increase in imports as just as beneficial as an increase in exports. I don’t think we should characterize exports as being better than imports, necessarily.
To your point, though, how do we take advantage of the opportunity provided by a deal like this one? If we look at previous deals, we could argue that we haven’t seen a boost in exports. We’ve been advocating for more funds to the Trade Commissioner Service. Canada has a fantastic suite of trade agreements, but we have an underfunded Trade Commissioner Service. Compared to other export promotion groups around the world, we actually don’t give them enough resources. If you go to the TCS website, it looks like something out of the late 1990s. It needs a total digital overhaul.
There is more we could do to help exporters understand what the opportunities are and to provide them world-class services that the TCS could provide with more funding.
Finally, to your point on duties, yes, we will lose duty revenue. According to the Global Affairs study on this agreement, it will grow the economy by $4.2 billion in GDP.
I would argue that we may lose some revenue right out of the gate when we get rid of the tariffs, but the overall economic growth will far overwhelm any of that lost revenue. You will see it in increased personal and corporate tax revenue over time.
The Chair: I am mindful of the time, so it would be helpful if you covered something other than what Mr. Kingston said.
Ms. Citeau: Our members welcome that it will increase imports, but they welcome the opportunity to compete on a level playing field internationally.
If we look at the free trade agreements, to date Canada has ratified 14 or 15 in total. The major one has been the NAFTA and, more recently, CETA that was implemented last year.
For our exporters, the other agreements are with markets that are not seen as priorities to date. That’s why our focus is in Asia and the CPTPP to help us get a foothold in that region.
Mr. Thurlow: In the absence of tariffs, goods will flow to the markets naturally. That is good for Canada because we do enjoy a competitive advantage in many spaces.
To answer your question as to why this is good for Canada, the creation of enforceable global trade rules is incredibly important for Canada. You could find a long list of examples of Canadian businesses that have tried to access these markets and have been trumped at the border by some type of an NTB. This deal provides a very clear dispute resolution mechanism that would stop that.
Senator Ataullahjan: I have a quick question for the Canadian Agri-Food Trade Alliance. Are there any countries where Canada’s agri-food sector is expecting to face trade barriers? If so, how can the federal government help you overcome those?
Are there any countries where the agri-food sector specifically is expected to face some barriers?
Ms. Citeau: I will say all countries. When free trade agreements are implemented, we typically see tariffs come down but non-tariff barriers come up.
As my colleagues have said on tariffs, the CPTPP sets a number of standards and rules to address non-tariff barriers that often are more problematic for a portion of our members than tariffs themselves.
We see non-tariff barriers come up everywhere with the U.S. and Europe. We have a number of non-tariff barriers to address with CETA, so that we can benefit and see the real potential of that agreement.
That’s why we increasingly want to address tariffs and non-tariff barriers in free trade agreements, and the CPTPP creates a platform to do that.
Senator Saint-Germain: All four of you argue very strongly for the treaty to be ratified by December 31.
Ms. Citeau, you said the following:
It is extremely critical that the treaty be ratified by December 31, and not ratifying it would not result in status quo.
What would be the concrete consequences for your particular industry in Canada of not ratifying the CPTPP by December 31? I would like numbers, if possible.
Ms. Citeau: If the other countries ratify and Canada is not in the first group of countries that is implementing the deal on December 31, basically our competitors will see their tariffs reduced. We will be on the sidelines watching the train go by.
Then, on January 1, the tariffs will come down and we won’t get the tariff reductions that our competitors will have.
Senator Saint-Germain: It won’t be until next year if we ratify after December 31.
Ms. Citeau: Until we are in the deal and we get access to the tariff reductions that we are granted under the agreement.
If Canada is one day late in notifying the New Zealand depository of the agreement, Canada has to wait at least 60 days before the agreement can come into force for Canada. Those 60 days are already a market share loss.
Senator Saint-Germain: Do you have estimates on it? Is it billions or millions?
Ms. Citeau: Not in terms of the 60 days specifically, but I can tell you that to date our barley and canola exports are at a disadvantage because one of our competitors, Australia, already has access to the Japanese market through a free trade agreement. That is costing our exporters every day.
Why should a farmer in Australia or New Zealand get better tariffs than a farmer in Alberta or Quebec?
Mr. Thurlow: I could investigate and get back to you with those hard numbers.
Senator Bovey: I have to say that I am glad to hear your comment that intellectual property was included. You have all spoken regarding the benefits to Canadians as a whole. It is clear some sectors will be better poised than others to benefit.
I want to go to the concept of regions, if I may. What is your estimate of the dollar benefits for Canada’s Arctic and the Prairie provinces?
Mr. Kingston: I don’t have hard numbers in front of me on what will be the regional benefits. However, I would point to Global Affairs Canada economic study that looked at this on a regional basis. One area that stands out in particular, as Claire Citeau has said, is the agri-food sector. It will stand to benefit. It will have a significant benefit in the Western and Prairie regions due to exports primarily to Japan, which has a highly protected agricultural market.
I think that is where you would see a significant benefit right out of the gate due to the tariff elimination. I can’t speak to the Arctic with certainty.
Senator Bovey: I wonder if the Arctic numbers could be given to us because it increasingly seems to be a disadvantaged part of the country.
What do businesses in these regions have to do to take best advantage of the CPTPP?
Mr. Thurlow: I also can’t speak to the Arctic, but I can tell you that we operate facilities in Canada’s Prairie provinces and that is opening up new markets to us.
Ms. Citeau: I am happy to give a sample of the projected benefits for our agri-food exports, if you wish.
These numbers are the benefits expected in the CPTPP, so expect them to be much greater now that the U.S. is no longer part of the agreement.
It will be at least $780 million per year for canola and for pork producers, $300 million for pork to Japan primarily. Canadian beef producers also expect to double or triple their exports to Japan to $300 million. It will be about 500 tonnes of barley a year. Sugar and products containing sugar products will also see increased exports into Japan.
They are analyzing the details of other opportunities in Vietnam and Malaysia. We expect fairly similar numbers from pulse, wheat and grain exporters.
Senator Bovey: What about fish?
Ms. Citeau: We don’t represent the fish sector, so I can’t speak for them.
Senator Cordy: A lot of the questions that I jotted down earlier have been asked and answered.
You have all spoken about the need to pass it fairly quickly so that we are one of the first six signatories on the deal and that we get the benefits you have all explained.
Does the Canadian Agri-Food Trade Alliance believe that there has been enough cost analysis and enough study of this legislation and this bill?
I want to say over the past year, but as the TPP it was around for a long period of time with the previous government. Do you think there have been enough impact and cost analyses to provide us with sufficient information and not reinvent the wheel or restudy it? Has enough been done?
Ms. Citeau: From our perspective, yes, we have advocated for the deal since Canada considered taking part in the negotiation when it was first negotiated as the TPP. We have been going to every single round of negotiations when it was the TPP and when it was the CPTPP.
For us, there is no question that there has been extensive consultations and discussions about the value of this agreement. Our members have engaged closely with the government and negotiators. We believe that we need to ratify this very quickly, yes.
Senator Cordy: From the Business Council of Canada and following up on Senator Massicotte’s questioning, all three of you expressed the idea that we should be moving quickly so that we are one of the first six to sign it.
Have you looked at the costs of this agreement? As Senator Massicotte said, we not only have goods going out but we have goods coming. Have you done an analysis of that?
Mr. Kingston: We have, and our assessment is that overall it is a net benefit to Canada. There are some immediate costs, as Senator Massicotte indicated, the obvious one being the loss of tariff revenue. Our projections show that the economic gains from this will far outweigh any losses.
Also there is a cost related, as I noted, to the Trade Commissioner Service. If we really want to take advantage of it, we could increase its funding to make sure the agreement gets attention it deserves and is fully utilized.
Those costs would be minor compared to the long-term economic benefits.
Senator Oh: I want to bring you back a bit to the Korean market. We used to do very well. We exported a lot there, until the FTA was implemented. After the signing of the FTA, New Zealand and Australia were suddenly ahead of us. We lost a lot of our market share on dairy and agri-food products.
What do you think the government should do with the CPTPP? We learned the lesson with Korea because of the new emerging markets in Asia. That is very critical and very important for our exports. What do you suggest the government should do?
Ms. Citeau: It should ratify the CPTPP quickly. The loss of the Japanese market overnight cost us about half a billion dollars and was directly attributed to the fact that our competitors, mainly the U.S. and the EU, had access to that market and we did not. We need to learn that lesson.
Another lesson we need to learn is the need to diversify that we should all have learned with the renegotiation of NAFTA, which is now the USMCA. We can’t put all our eggs in the same basket. We need to diversify our markets and provide opportunities for exporters to get access to large, high-value markets such as Japan.
Trevor Kennedy, Policy Associate, Business Council of Canada: To elaborate on the issue of being slow to ratify deals or of having some of our competitors gain market access beforehand, Australia ratified this deal last week and New Zealand is very close. They are direct competitors in the agri-food and other industries, so it’s absolutely critical that Canada move quickly to ratify the agreement so that we don’t erode our market access.
Mr. Thurlow: You have to go to where the growth is. If we aren’t there when those original trade corridors are created, it will be that much harder to break into those trade corridors.
Let’s go to where the growth will happen, and that’s absolutely in Asia.
Senator Oh: Once we lose our place we have to get it back.
Senator Dawson: I would like to make two comments. First of all, I wonder this.
Do we bite off more than we can chew?
Since I’ve been on this committee, we have adopted dozens of agreements. Have businesses been given the necessary support?
We are in the process of concluding this agreement — and I, too, hope it will be done quickly — but at the same time, we are preparing the agreement between Canada and Israel. We want to adopt this agreement as soon as possible, because we want to implement the agreement between Canada, Mexico and the United States. Are we aiming too wide?
Quebec dairy producers have informed us that the agreement reached with the Americans only adds to what has been lost under CETA and the CPTPP. Do dairy producers continue to lose opportunities every time an agreement is reached? Also, to what extent should they be compensated?
Ms. Citeau: I can’t speak for the dairy producers because we don’t represent the interests of that sector. We represent the whole agri-food sector, except supply management. We only act in the interests of our members. Have we taken advantage of all the agreements that have been negotiated? I believe it’s important to open markets to our exporters and let them decide where the best opportunities for their business are from a commercial point of view.
Mr. Thurlow: I can answer the first half of your question: Are we biting off more than we can chew? Give us more restaurants to choose from and we will chew appropriately based on what we can provide in the markets.
I don’t think there is any universe where we should be disappointed that we are ratifying many trade deals simultaneously. Part of that is an error of history about who is ready to partner with us and who is not.
The markets will open themselves up to our products. As those markets open themselves up to our products, our products will flow into those markets which want them and will pay a fair market value for them.
Right now we have a very artificial barrier to many of these markets, which is the tariffs. If we eliminate the tariffs and provide a platform to ensure safe and fair market access, I believe Canadian companies can compete.
Mr. Kingston: Regarding taking advantage of these deals and whether or not we’re biting off more than we can chew, an important thing about Canada’s trade profile is that 60 per cent of our exports are done by companies with 500 or more employees. They are large businesses, and large businesses only represent 2 per cent of all establishments this is Canada.
We’re very much an SME economy, yet large businesses are the major drivers of our exports. If we want to take advantage of trade deals and become more of a trading powerhouse, a good step would be to make sure to help SMEs understand the access they have in these deals and to help them access markets through the fantastic services of our Global Affairs department.
Regarding supply management and the dairy sector, we have been long on record calling for the transition of the supply management system into a more free market-based system. We think dairy farmers should be treated fairly. There should be a transition process in place, but ultimately we think the system should be reformed to allow farmers to take advantage of the amazing export opportunities in growing markets around the world.
The Chair: Following up on what Senator Dawson said about the fact that we sign trade agreements, we filed a report that said a lot of things about SMEs and the assistance they should have.
The gist of our report was that trade agreements are fine to sign but there has to be implementation by Canadians and not by government. The government’s role is to make the environment or to give the support.
First, have any of you entered into discussions with the government about implementation? You’ve told us about the Trade Commissioner Service. We don’t have time to say how you think that should be changed, but are there ongoing discussions on implementation?
Second, trade agreements are not good across the board for everyone but they might help a region that has a uniqueness? Has there been any discussion about the niche markets we were talking about as another area that we should go into?
Am I on the right track and is this committee is on the right track that implementation is all?
Mr. Kingston: I agree with that. It is absolutely the right approach.
I can assure you that we have had numerous conversations with Global Affairs and the Trade Commissioner Service around making sure the services provided by the TCS are meeting the needs of companies and finding ways for large companies to help small companies in their supply chain access to new markets. Those conversations are happening.
Mr. Thurlow: I can answer the second part of your question. We have our own trade service. It is our company. We have locations, as I said, in many of these countries. Our intracompany discussions often lead to a good exchange of information about how we can work with each other across borders.
Ultimately, that comes to a discussion about what are the barriers that keep the country itself from trading with itself, which is often quite challenging.
I would point out, as well, that in the chemistry industry we are often talking about very niche markets and in some cases custom-made niche markets, as we are given specifications from one of our clients to create chemical X, Y or Z.
The more access we have to these developing economies in a highly technical environment like Japan, where they are seeing this innovative need all the time, the better.
Senator Massicotte: I could talk about numbers forever. You talk about GDP which is more like the sales figure. You also talk about the duties which are more like the net profits. I think we’re mixing numbers, but let me jump subjects.
Some people are happy and some are unhappy with the provision for investor protection. In other words, the government has negotiated to remove that, which was part of the agreement when the United States was there.
I am not the expert, but a lot of people interpret that from a business point of view as being negative for investors, but governments like it because it takes away the risk of getting sued and so on.
Mr. Kingston, what are your thoughts on that? Is it an important issue? Is it something we should not fret about?
Mr. Kingston: Investor protection is extremely important, particularly in markets where there is potential for expropriation or unfair treatment of investors. We think it’s unfortunate that the investment protection chapter is not in the CPTPP as it was originally included in the TPP.
Companies need strong investment protection, particularly when going into a market like Vietnam where there is a real risk that your investment might not be protected. We would have liked to have seen that included.
Senator Massicotte: Mr. Thurlow, as an international investor, what are your thoughts on that?
Mr. Thurlow: We strongly support the need for investment chapters in trade agreements, including access to independent, international investor-state dispute settlement processes.
The Chair: Senators, we have come to the end of the questioning. I thank the witnesses for giving us their industry perspectives. It has been extremely helpful. You touched the areas of concern to us.
We’re pleased to have on our next panel today Rob Cunningham, Senior Policy Analyst, Canadian Cancer Society; Steven Schumann, Director, Canadian Government Affairs, International Union of Operating Engineers; Mark A. Nantais, President, Canadian Vehicle Manufacturers’ Association; and by video conference from Toronto, Angelo DiCaro, Acting Research Director, Unifor.
I will turn to our witnesses in the order they were listed on our program and identified here.
Mr. Cunningham, the floor is yours to make your presentation. Welcome to the committee.
Rob Cunningham, Senior Policy Analyst, Canadian Cancer Society: Thank you for the opportunity to appear today.
My name is Rob Cunningham, lawyer and Senior Policy Analyst for the Canadian Cancer Society.
The focus of our testimony regarding the CPTPP is to express support for article 29.5 of the agreement. This provision exempts tobacco control measures from the possibility of legal challenges under the investor state dispute provisions in the agreement, notably regarding claims for expropriation of an investment.
This important article responds to the long history of abuse by the tobacco industry, seeking to use international trade agreements to block or delay adoption of tobacco control measures and to overturn such measures once adopted. The tobacco industry has for decades sought to use international trade agreements to have a chilling impact on governments implementing measures such as plain packaging.
Australia was the first country in the world to require tobacco plain packaging. I have some examples of packages with me.
The health warning stays on the package but there are no brands, colours, logos or graphics. All brands have the same drab, brown colour. The brand name appears in a standard white font size and font style. It takes away the packages as mini billboards and it takes away promotion.
Philip Morris brought legal challenges under international trade agreements against Australia’s plain packaging with claims for billions of dollars in compensation. Though all claims were ultimately dismissed, the Australian government had to incur years of legal costs in defending a public health measure that applied equally to domestic and foreign tobacco companies and was in no way a protectionist measure.
As indicated in the Canadian Cancer Society international report that has been distributed to you by the clerk, there are now nine countries that require tobacco plain packaging and 16 that are working on it. This is encouraging, but governments have had to fight every inch of the way.
In Canada, tobacco exemption in the CPTPP is especially timely and important as Canada finalizes and implements tobacco plain packaging. The companies have claimed again that these regulations violate international trade agreements and constitute expropriation of an investment. These arguments were made among other places in Senate committee during consideration of Bill S-5. Thank you to the Senate for the support of the tobacco plain packaging measures in Bill S-5.
Although the tobacco industry claims are without merit, the Canadian government should not have to spend years in legal proceedings to defend a public health measure that saves the lives of Canadians. Tobacco products are highly addictive and are the leading preventable cause of disease and death in Canada, killing 45,000 Canadians each year.
The tobacco product exemption in CPTPP means that federal, provincial and municipal governments in Canada and in any of the other CPTPP countries would not be threatened by a claim under the agreement’s investment chapter. It should be noted that the CPTPP tobacco product exemption does not apply to leaf tobacco as an agricultural product.
Threats of legal proceedings can delay legislation. For example, New Zealand, a relatively high capacity country, expressly delayed plain packaging for several years in order to see how legal challenges against Australia’s plain packaging proceeded.
In Uruguay, Philip Morris brought a claim under a bilateral Switzerland-Uruguay trade and investment agreement regarding Uruguay’s strict packaging measures but not plain packaging.
Though the claim was ultimately dismissed, Philip Morris was trying to intimidate a small country to repeal its legislation. As small as Uruguay is with just 3.4 million people, Uruguay is still larger than nine of 13 of Canada’s provinces and territories and larger than every municipality in Canada.
In Australia, in one of three legal challenges, Philip Morris brought a claim for compensation under a bilateral Hong Kong-Australia trade and investment agreement. For several years prior to regulations being finalized but after the Australian government had announced its intention to proceed with plain packaging, Philip Morris shifted the parent holding company of its Australian subsidiary to Hong Kong. In reality, Philip Morris was jurisdiction shopping just to bring a claim against Australia. Though this claim was ultimately dismissed, as was a different claim before WTO, the Australian government had to spend years in legal proceedings.
In Canada there have been many similar tobacco industry arguments in the past. In 1994, the House of Commons Standing Committee on Health recommended plain packaging despite tobacco industry claims of trade agreement violations. In 2000, the tobacco industry argued before the committee and parliament that health warnings covering 50 per cent of the package front and back constituted expropriation of an investment. In 2011, the same argument was used when the size of the warnings increased from 50 to 75 per cent. In 2009, the tobacco industry opposed Bill C-32 banning flavoured cigarettes, arguing this was an expropriation of an investment.
Canada has a goal of achieving under 5 per cent tobacco use by 2035. To achieve this crucial objective, Canada will need many future tobacco control laws at all levels of government. Canada should be able to protect the health of Canadians and save lives without threatened claims of billions of dollars in compensation under international trade agreements.
In conclusion, article 29.5 of the CPTPP is a provision that we strongly support and should be replicated in other trade agreements to which Canada is a party.
Steven Schumann, Director, Canadian Government Affairs, International Union of Operating Engineers: On behalf of the International Union of Operating Engineers, IUOE, and the nearly 55,000 men and women we represent, I am pleased to appear today. We are the heavy equipment operators on a construction site, like tower cranes and earth-moving equipment. The IUOE is part of Canada’s Building Trades Union, CBTU, which represents nearly 500,000 men and women in the unionized construction trade sector. We build and maintain everything from roads to schools, hospitals, wind turbines, nuclear facilities and pipelines. We build everything.
Canada’s construction sector makes up 14 per cent of Canada’s GDP, and our industry maintains and repairs more than 2.2 trillion in assets. As the CPTPP is currently written, we and the CBTU cannot support the agreement. Our issue is with Chapter 12, “Temporary Entry for Business Persons.” This chapter could allow corporations to bring in an unlimited number of temporary workers into Canada while circumventing Canada’s labour and immigration laws that are in place to protect the integrity of our labour market.
We fear that the broad, expansive provisions of Chapter 12 will exacerbate and worsen the problems that already exist in Canada’s current regulatory regime for temporary foreign workers. The current system, with all its regulations, is already being abused. Now imagine what could happen when these regulations are removed under this agreement.
This agreement could have a severe and devastating impact on Canada’s construction industry and our economy. In particular, under Chapter 12, we are concerned with two things: section B on intra-corporate transferee and section D on entry of professionals and technicians.
With the entry of professionals and technicians, depending on the annex agreement, CPTPP allows for electricians, plumbers, contractors, supervisors of heavy construction equipment crews and other construction trades to enter Canada. Under this agreement we believe that those entering Canada may not have the qualifications or training to meet Canadian standards. Therefore it would become a risk on the job site and would endanger the integrity and safety of the structure they are working on, which in turn poses a safety risk to all Canadians. Again, there are no requirements to validate that the person entering Canada has the skills and training needed to work here. I can explain this further during our Q and A.
Another issue is the way our National Occupational Classification, or NOC, list is written. Currently, contractors and supervisors in the construction sector could actually be allowed to work on the tools of the trade, thus allowing another avenue for companies to bring in even more workers under Chapter 12, again with no certainty if they are qualified to work in Canada.
We have the same concern with intra-corporate transferees in section B. Although meant for management and specialized skills, the way it is drafted it could be ripe for abuse. We have already seen this under NAFTA, where an American company brought in 11 workers through the system. Through a legal challenge by the IOE, a judge found that the vast majority of the workers did not meet Canadian standards and should not have been given permission to enter Canada to work. Unfortunately, the case had to be dismissed because the company left Canada.
We fear that large, multinational construction companies, and there are many, will now set up shop in Canada and use this provision to bring in their own workforce. Imagine the federal government investing billions of dollars in major infrastructure projects and the only people reaping the benefits are foreign workers and foreign companies. It could happen.
Over the past three years, we have been meeting with various government officials and relevant ministers to find a solution. Our first solution was to carve construction trades out of Chapter 12 but that fell on deaf ears. After the agreement was signed, we again raised this with Minister Champagne’s office. It finally seemed to resonate with him and he agreed to work with us to find a solution to our concerns.
The solutions we proposed are threefold: first, demonstration of skills for any person who seeks entry into Canada as an electrician, plumber or any other NOC-defined construction trade; second, a change of wording within the NOC list to ensure that any contractor or supervisor cannot work on the tools of the trade; and, third, a change of wording to ensure that all construction trades under the NOC list are excluded from the intra-corporate transferees. We asked this to be part of the legislation, but the government stated they could only accomplish this through regulations, which is not ideal but will address our concerns. If we are able to meet these three safeguards, we would be supportive of the agreement.
Currently, we are in the process of working out the details of the demonstration of skills component. It appears we may have secured the change in wording of the NOC list for supervisors and contractors. However, the intra-corporate transferees remain the sticking point. This could be the biggest area of abuse. Precedence does exist to fence out and safeguard the construction trades. This request should not be difficult to accomplish, but we continue to face some pushback. While working on solutions, I would caution that to date nothing has been finalized with the government.
Unfortunately, for some reason the construction trades are included in this agreement. This makes no sense to us since trade agreements are supposed to be mutually beneficial to both countries. Canadian construction workers, with few exceptions, will not seek out temporary employment opportunities abroad with the exception of the United States, which is not part of this agreement. For the most part, this type of mobility does not exist in the new USMCA. Therefore, such an agreement does not benefit the construction trades at all but can only harm our sector.
To ensure our construction sector remains vibrant and prosperous, we need to have these regulations in place to safeguard our industry and our workers, unionized or not. We are asking the Senate to ensure that the federal government has the regulations in place before implementing the agreement. We have been strongly advocating this for the last three years. Now, with the agreement in place, we need the extra push and ask for your help.
Mark A. Nantais, President, Canadian Vehicle Manufacturers’ Association: I am pleased to be here on behalf of my member companies, Fiat Chrysler, Ford and General Motors.
The members of the CVMA are supportive of fair and balanced trade opportunities. To achieve this, we submit the following as key provisions necessary to create the proper foundation for free and open trade in automotive goods.
First, it is necessary that there be no differentiated outcomes between Canada and the United States with respect to automotive trade; second, that currency disciplines are required to ensure market access provisions in the final agreement are not undermined by a country’s inclination to manipulate its currency given the intersection of trade and finance; third, that outcomes be favourable to the North American integrated automotive industry interests and to the economy; fourth, that free trade agreement rules of origin must fully consider and align with our strong dependence and ongoing reliance on sourcing within the North American trade region; fifth, that the full acceptance of U.S. and Canadian safety emission standards are compliant with any FTA country partner rules; and, sixth, that all non-tariff barriers such as unique regulations or taxes be removed.
The CVMA commends the government on the successful concluding of the United States-Mexico-Canada Agreement. This has been a tough and intense negotiation, and the Canadian negotiating team is to be commended on its outreach to industry seeking guidance and arriving at a modernized agreement which provides more certainty and builds a strengthened platform for trade across the industry. From the very start of the USMCA negotiations, through to its conclusion, the high level of industry consultation was an effective approach. We strongly recommend the same level of effort be extended to all FTAs Canada pursues going forward.
We recognize the government’s trade diversification agenda but underline that it must not come at the cost of Canada’s domestic manufacturing industry and its position as part of the North American highly integrated industry. Trade agreements have a significant role in determining where companies invest and where jobs are created, maintained or lost.
As you may already be aware, CVMA does not support the CPTPP. Why is that? The CPTPP disproportionately opens the Canadian market to companies that do not build in Canada, do not use our Canadian suppliers and do not generate manufacturing jobs for Canadians. While eliminating tariffs essentially incentivizes growth and automotive imports, it will have an adverse effect on auto manufacturers that invest, produce and employ here in Canada.
As complex as these trade agreements can be, they have been traditionally been focused on reducing tariffs. The reality, however, is that some nations such as Japan and Korea don’t have automotive import tariffs. Instead, they maintain long-standing industrial strategies that use other non-tariff, protectionist measures or barriers to protect their markets from vehicle imports regardless of trade agreements. They have a strategy to keep their auto market largely to themselves while also tooling up their factories for vehicle exports to North America and even farther abroad. In 2017, for every one vehicle that Canada exported to Japan, Japan exported approximately 1,700 vehicles into Canada. Japan and South Korea, I might add, remain the two most closed markets among OECD countries that produce over one million units per year.
Trade agreements that help to reduce our auto tariffs accelerate a one-way flow of exported vehicles while protecting jobs at home in these countries. Trade agreements that unilaterally bring down Canada’s remaining auto tariffs essentially hand an incentive worth hundreds of millions of dollars annually to automobile importers that produce nothing here, that don’t use our Canadian auto suppliers and that don’t generate Canadian jobs. This, in turn, reduces the incentive for auto manufacturers that do produce and employ here.
The CPTPP includes several countries that represent significant market access challenges due to protectionist, domestic industry policies. Vietnam and Japan are examples. Let’s just look at what happened during the negotiations. Vietnam issued its Vietnam Decree No. 16. It was actually introduced while the negotiations were underway and created unfair competition among domestic and foreign manufacturers, essentially closing its market to imported vehicles. The requirements under this decree came into effect on January 1, 2018, before the Comprehensive and Progressive Trans-Pacific Partnership agreement was concluded. It raised barriers related to vehicle-type approval, certificate requirements, lot-by-lot testing requirements, test track requirements and procedural issues. These are in particularly short timelines for compliance.
As Canada pursues further trade diversification, it will need to ensure that there are enforceable provisions to support market access and to eliminate both current and future non-tariff barriers to trade. The CPTPP provisions only address future barriers in our opinion. Non-tariff barriers include complex federal and state tax regimes, import licensing requirements, complex legal and customs procedures, just to name a few. Companies expend significant resources in both time and dollars to address non-tariff barriers and often with very limited results. The enforcement provisions required to address non-tariff barriers and dispute settlement mechanisms need to be rigorous, time efficient and legally binding.
Acceptance and recognition of technical safety standards pursuant to the Canada Motor Vehicle Safety Standards, which are aligned with the U.S. safety standards, I might add, is another critical FTA provision to ensure Canadian vehicles are readily accepted in other jurisdictions. Alignment with and recognition of North American regulatory standards, which are underpinned by both scientific evidence and rigorous compliance certification requirements, would encourage more automotive trade and create new supply chain opportunities between the North American trade bloc and other jurisdictions.
I appreciate that the CVMA was invited to appear today to speak to you about the CPTPP. However, the overarching message I would like to impart, as the government moves forward with its trade diversification agenda, is that we strongly encourage an approach of ongoing consultation with industry as demonstrated through the USMCA negotiations and the thoughtful consideration of key provisions which we put forth as necessary to create the proper foundation for free and open trade in automotive goods.
I conclude on that remark and would be willing to answer any questions senators may have.
Angelo DiCaro, Acting Research Director, Unifor: On behalf of our national president, Jerry Dias, I thank the committee for the invitation to appear and share our views on the proposed Trans-Pacific Partnership or the CPTPP as it is now called. I am Acting Research Director of Unifor’s National Research Department. One of my core areas of focus is on international trade and trade policy.
Unifor is a union that represents 315,000 working people across the country and in every major economic sector. Unifor has opposed the TPP and CPTPP for a variety of reasons. I want to focus my opening remarks on two aspects of this deal of particular concern to Unifor members: auto rules and labour standards.
Our union applauded the proposed changes to auto trade rules under the newly negotiated USMCA. North American auto rules for trade matter most for Canadian manufacturers. Virtually everything we build in Canada is destined for sale in North America with the lion’s share, or about 85 per cent of assembled vehicles, destined specifically for sale in the United States. Trade diversification is important for Canada. However, these are the facts we face and this is our reality.
New stronger USMCA rules attempt to rebalance continental trade flows, preserve good jobs and drive new investments toward Canada, both in assembly and in parts production. Frustratingly, CPTPP auto rules work at cross-purposes to these USMCA objectives. To qualify for free trade treatment into Canada, less than half of a car, or 40 to 45 per cent, must contain TPP-region content. That is a far cry from the 75 per cent requirement established under the USMCA.
I guess what is most perverse is that car makers sourcing parts from low-wage suppliers, including from China, will realize the greatest benefits from this deal. More than half of a car and nearly two-thirds of component parts needn’t even be built in the TPP region to secure tariff-free access. We expect no material gain in exports for Canada resulting from this agreement, including to Japan, the most lucrative of the TPP markets where trade is a virtual one-way street.
Just to add some colour to that, as of last year we exported approximately 200 passenger vehicles to Japan, whereas Japan exported back 170,000 to us. To put that into some perspective, our Oakville Ford assembly plant, which currently employs 4,500 people, builds about 250,000 units per year. What is equally disappointing is how new CPTPP rules walk backward on labour standards from the original deal at a time when workers’ rights provisions are becoming more deeply embedded into trade policy.
In this supposedly more progressive TPP, parties have agreed to suspend a clause clarifying that public entities may include basic labour standards as a condition of public procurement. The new deal waters down a package of major labour reforms previously committed by Vietnam, reforms that would have encouraged union independence, worker protections and other improvements as a condition of their involvement in the deal.
In fact, the new CPTPP eliminates previously negotiated labour reform programs with both Malaysia and Brunei altogether. Perhaps most damning is that partner nations have accepted a deal that maintains language that renders the CPTPP labour chapter effectively unenforceable.
A now infamous 2017 arbitration panel ruling under the Dominican Republic-CAFTA trade pact found that despite evidence of severe intimidation and reprisal faced by Guatemalan trade unionists and the failure of the Guatemalan state to enforce its labour laws, the challenging parties could not prove that these violations occurred in a manner affecting trade and investment or in a sustained and recurring course of action.
The panel published that decision at the onset of CPTPP negotiations. That means that TPP partners knew full well the failings of this language, yet still agreed to settle a deal without any attempt to clarify or strengthen these terms. This is hugely disappointing, and the fact that this agreement has been rebranded as progressive is quite frankly shameful.
We understand this committee has gathered to discuss implementation measures under Bill C-79. Unifor cannot, unfortunately, in good conscience offer specific recommendations to a bill that implements a trade agreement we believe is not in Canada’s best interest. A Global Affairs analysis suggests the net GDP gains to Canada from this deal are virtually nil. The TPP is at odds with progressive trade policy and with some of the forward-looking elements of the USMCA. It represents an incoherent trade policy framework for Canada, most notably with Mexico, both a USMCA and TPP trade partner.
Therefore, Unifor urges this Senate committee to request a deeper analytical study of the CPTPP with a focus on how the deal serves to advance the interests of Canada’s auto industry. This could be expanded to include other industries, including on issues of investment, export potential, job growth and potential ramifications in light of new USMCA rules.
I look forward to answering any questions you might have.
The Chair: I think we’ve heard varying points of view, and I will turn to Senator Massicotte first.
Senator Massicotte: Thank you very much to all of you for trying to get us smart for at least half an hour or two. Having said that, I am trying to understand Mr. Nantais’ and Mr. DiCaro’s argument. To make it more simple, you’re saying what could occur with this agreement and with the NAFTA 2.0 is that we could see cars being imported from Japan that are 45 per cent built within the area of the treaty and compete directly with cars fabricated in North America, consistent with our NAFTA 2.0 agreement. Even if the seemingly same rules apply, you say that’s unfair because there are hidden hurdles and hidden ways to protect the market in Japan, let’s say. Therefore it’s not going to work, not because of duties but because of other forms of obstacles to free trade.
Is that the issue? Is the way I understand it accurate?
Mr. Nantais: That is generally accurate. Under the CPTPP countries like Japan have companies domiciled in that country that continue under this agreement to have access to low-cost jurisdictions. They come into Canada duty-free and without making any investment in Canada. That’s the unevenness here. We have two Japanese companies that actually invested in Canada. They should be commended for that because they followed through with their intentions at the time. However, we have several Japanese companies that get considerable tariff relief in hundreds of millions of dollars with no investment in Canada.
Under the new agreement, and notwithstanding the differences in rules and whatnot that were mentioned by Mr. DiCaro, that’s just not going to provide any real benefit. In fact, it’s going to detract from jobs in Canada. That’s the essence of the argument here.
As I mentioned, we have countries like Vietnam that in the midst of the negotiations went and introduced Decree No. 116, which virtually closed the market. We had always said from the very beginning that Canada needs to slow down. It needs to get sightlines on what was going to come out of NAFTA before they went ahead with CPTPP.
Senator Massicotte: I think you’re saying the same thing. Here is a little problem I have. In the numbers that Global Affairs gave us relative to exports/imports as projected from this agreement, they see an increase in motor vehicles and parts by $256 million in the short term and an increase in exports of $84 million. For some reason they see a significant increase in our capacity to export the product emanating from this agreement.
That seems to be good to us. What is the problem here? I am trying to figure out what is wrong with these numbers, if your opinion remains?
Mr. Nantais: The issue is non-tariff barriers. We want full market access. The agreement does nothing to address existing non-tariff barriers to trade. The Japans and Koreas of the world are consummate, what I call NTBers. It’s like a game of whack-a-mole. You nail one down and another one pops up elsewhere. You don’t have true reciprocal access to these markets. It costs a lot of money and resources to try to break into a market when, if you get there, somebody makes a tweak to a standard and all your product sits on a dock not for a day but for months. It goes down to regional zones or even municipalities where zoning laws prevent you from establishing a dealer network to support the very products you’re trying to put into that market. The increases that we see are generally increases in premium vehicles where you have a considerable amount of profit margin. The BMWs and the Mercedes of the world have made progress, but 10 per cent of zero is not very much.
Senator Massicotte: What I am hearing is that if you represent the industry at large you benefit significantly from this treaty, but there are some losers. There are some parties, as you mentioned, that are not manufacturing cars here. Given their cost factor, they can compete and erode the competitive advantage some people have in this country or on this continent? Is that a good sum-up?
Mr. Nantais: What is our interest here? Is our interest trying to get access to markets abroad? Yes, that is part of it. I would say to you that what is most important is trying to preserve jobs or create jobs here. We operate in an integrated North American market. That was the case under NAFTA. That’s the case now. We have some real differences now that exist in CPTPP in North America. We need North American integration, by the way, to remain competitive. You have a select number of premium vehicles that are simply like a cultural thing. They are like name plates. Generally speaking, we can compete in these markets, product for products. The question becomes how you can do it profitably. You start out small and you gradually grow. That’s how it works, but if you can’t start small and grow because of these non-tariff barriers to trade you are no further ahead.
Senator Massicotte: You have a lot of people involved in the automotive industry. Some parts of it you don’t like. If you look at the increase in exports from your client base, it’s not perfect but it seems to be pretty good. How do you respond to that?
Mr. DiCaro: If the level of exports you’re referring to is the projected $250 million that came out of the Global Affairs study, I think that’s a separate conversation we can have both on the structure and methodology of that Global Affairs study. I think Mark Nantais pointed out that it’s nearly insignificant figure. We would look at these rules as to whether or not they provide incentive for new domestic investment and if these would measurably and markedly improve our access to the Japanese market. On both of those fronts the answer is no.
Mark Nantais can correct me, but to repeat or underline this point, we will now be in a situation where Canadian automakers will be building to a new USMCA standard because that standard is the standard that matters. What we have done through this agreement is to make it more advantageous for Japan to lean on non-TPP nations where they can extract lower cost supplies to put into cars and now have a tariff elimination that can help them one-way trade into Canada. That’s the bottom line issue.
In terms of the number of $250 million, we have a trade deficit with Japan of $5 billion. It’s important to put that into context.
Senator Cordy: Was the Canadian Vehicle Manufacturers’ Association or Unifor consulted by the government at all in its development of TPP and then CPTPP? This goes back a long time.
Mr. Nantais: It does go back a long time, senator. We were consulted but were not in the same manner we were in relation to the USMCA. I would suggest to you that the consultations were less than satisfactory. We raised concerns about the TPP at the time, about moving ahead of the U.S., and basically it fell on deaf ears, to be truthful.
Senator Cordy: I don’t want to get into a discussion on the USMCA, but do you feel that is more beneficial to the vehicle manufacturers than the CPTPP?
Mr. Nantais: Understanding the impacts on companies that manufacture here, invest here and create jobs here is what matters. If it’s simply trying to get another trade deal for the sake of getting a trade deal, I would suggest it’s the wrong objective. Don’t get me wrong. It makes sense to diversify because some sectors that will benefit from it. There are some people who will not or some sectors that will not benefit as much.
Why did we support CETA? It was because CETA was negotiated on the basis of recognizing the integration of our industry. It was with the expectation that sooner or later the U.S. would also join with the EU to create an agreement so that we could, for instance, accumulate content. Moving forward, since the U.S. delayed that, we got a derogation of 100,000 units, which meant we could still produce vehicles in Canada and ship them to the EU notwithstanding. That derogation is there indefinitely until such time as the U.S. steps forward to strike a deal with the EU. That recognizes the integration of our industry.
We should be negotiating these agreements to recognize the integration of our industry across three countries. That will result in a more effective agreement from a competitive standpoint and in terms of our ability to access markets competitively.
Senator Cordy: Mr. Schumann, you are with the International Union of Operating Engineers. Is that Canada-U.S. or is it other countries?
Mr. Schumann: It would be Canada and the United States.
Senator Cordy: You spoke about Chapter 12 where foreign workers could be brought in, but then you said you had discussions with the previous trade minister and that he listened to some parts of it.
I am wondering whether or not these safeguards can be dealt with through regulations. I have been in the Senate for a while. Very often we have regulations brought to us before a bill is passed. It has never happened yet, so I would not be too hopeful on that. Can it be dealt with through regulations?
Mr. Schumann: Yes, it can. We had ongoing discussions with them for three years. They move slowly on the department side. Thanks to current Minister Carr, we have one coming forward. When I talked about the contractors/supervisors, we need to submit something to the people responsible for NOC. Hopefully that will be addressed. Demonstration of skills, partly because it involves provinces, is going very slowly. On the third one regarding Intra-Corporate Transferees, I don’t know where we are at with that. I have talked to the minister’s office. It involves several departments. I believe it could be easily resolved through regulations, but there is some pushback within the departments somewhere on this matter.
Like you, I am leery about regulations, but since we can’t get this in legislation we hope we can get this to safeguard our sector.
Senator Cordy: Mr. Cunningham, when I read our agenda I was quite surprised to see the Canadian Cancer Society was coming to our meeting, but after listening to you I fully understand why.
You feel that article 29.5 should be replicated in other agreements so that we will have plain packaging. When you said nine countries have plain packaging and 16 don’t, is that within the TPP?
Mr. Cunningham: Within the TPP, Australia and New Zealand have done it. There are other countries internationally that are working on it. There are 16 works in progress.
Senator, thank you for your compelling speech with respect to Bill S-5 and plain packaging.
Senator Cordy: You’re welcome.
Senator Ngo: I would like to follow up on some questions. Canada signed the binding letter with Japan in the auto sectors.
In the binding letter, the Japanese confirmed that U.S. standards were adequate for vehicles sold in Japan and that Canada would, of course, follow these standards as well. Furthermore, Japan and Canada would develop a binding dispute settlement mechanism to make sure that all rules are applied properly. This mechanism must be in place by the time both countries ratify the CPTPP.
Do you feel that the binding letter signed between the two countries is an efficient way to deal with the auto sectors, Mr. Nantais and Mr. DiCaro?
Mr. Nantais: We felt the side letter fell short of its objective. We believe that if you are to address NTBs, you need a resolution within the agreement itself. That carries more weight, legally speaking.
You can argue that a side letter will carry that weight as well, but we did not feel that the side letter was sufficient to deal with existing non-tariff barriers as opposed to future non-tariff barriers. Then there are qualifiers as well that would be problematic.
Mr. DiCaro: Yes, I think a conversation can be had about the dispute settlement piece in that side letter and the merits of having it in the actual agreement or not. There is also something to understand about the level of ambition with the terms of the side letter itself in terms of market access. You certainly have to bore everyone or get into some significant technical discussion about this.
Canada has effectively secured very modest enhancements to try and work through what is referred to as a preferential handling procedure in Japan for imported vehicles. Our view and our understanding of that is that it is a system where vehicles coming into the country go through a streamlined process, but those vehicles are capped.
It is an opening into what is traditionally a closed market, but what we have managed to secure is some extension as to how emissions testing is done. We have some assurances about U.S. safety standards, although the whole package of components aren’t exactly on the list in terms of that. It is a very modest side agreement in itself. It is enforceable through those terms, but the bigger picture is about what this will yield in terms of export opportunities. I think that’s where the failure is.
Senator Massicotte: Mr. Schumann, we heard your opinion but when you try to negotiate something and people don’t always agree with you, people usually deal in good faith to get the solution. Sometimes you have to ask yourself why they disagree with me?
They are obviously smart people and they mean well. Why do you think they have not bought into your argument?
Mr. Schumann: When the U.S. pulled out of the TPP, we thought there was an opportunity for us, especially on the side letters, to get ourselves removed. They explained to us that they couldn’t make any deals on the side agreements yet. They still signed side agreements on various things including labour standards with Vietnam.
To say we were disappointed there wasn’t a willingness to amend this deal, I can’t explain how frustrating it was, particularly since this was the first time the construction side, the trade side, the labour side, has ever been in any trade agreement to this extent. Unfortunately, we were not consulted when it was first drafted under the previous government.
I will give credit to Minister Freeland. When she was in international trade she met with us on a couple of occasions to talk to us about it. We also met with officials, but again with the U.S. their hands were tied. When the U.S. left, we were hoping that something would change but it didn’t. The day it was signed, I talked to Minister Champagne’s office and explained what happened again. I don’t know if a bell went off or something, but they finally realized this might be a problem.
I must say that the staff in Mr. Carr’s office have now tried to come up with resolutions. However, as we know, bureaucracy and regulations move slowly sometimes. I am hopeful we will still get solutions, but I think this government needs to be pushed on it. I have come to the Senate in the hope that you will be that final push that we need.
Senator Massicotte: You’re in negotiations and I hope they will finish well.
Mr. Schumann: Yes.
The Chair: Mr. Nantais, I understand what you think is wrong with it. If Canada didn’t enter into this agreement, with that market we keep being told about with the CPTPP countries and with the possibility that the U.S. may enter at some point as administrations change their points of view, et cetera, what would be your disadvantages, and therefore Canadians’ disadvantages, of not being in CPTPP? Is yours sector driven, and is that what you’re focusing on?
Mr. Nantais: Clearly, we’re focusing on our sector. There will be opportunities for other sectors. It makes sense to diversify, but our point is that if you are concerned about automotive jobs in Canada then one needs to understand how we are to be undermined by unfettered access to our market without having full market access on the other side.
That’s our point here. We need to operate as a trade bloc. We need to negotiate as a trade bloc. We have not done that in this particular case. Even when the U.S. was at the table, we raised concerns about the language under TPP. They went ahead under the new round. We said, “You need to go back and revisit that language,” but the answer was no. From our standpoint that was problematic.
From our standpoint, the agreement certainly benefits those countries from an auto perspective but it disadvantages us from a competitive perspective.
The Chair: I get what you’re saying. Were you surprised when these side letters came along? It’s a new concept. We’ve had side agreements, but we are told that these side letters have a legal import. I often wonder why they didn’t just say it was an agreement if it has the same approach.
Mr. Nantais: That’s a question I can’t answer. We weren’t surprised whether it was a side agreement or a side letter. The question is: Does it effectively address the issue that was perhaps outside of the agreement? Our view was that it did not. It fell short on objectives in several respects. It was somewhat constraining in terms of how it would actually address this issue. Some of the procedures that were mentioned by Mr. DiCaro are clearly not addressed. That was the problem.
The Chair: We have come to the end of our time. I thank all of you for bringing your varying perspectives. I think it’s helpful in our work. We will adjourn this portion, but I would ask members if we could very quickly go in camera for five minutes for some information.
(The committee continued in camera.)