Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue No. 39 - Evidence - April 26, 2018
OTTAWA, Thursday, April 26, 2018
The Standing Senate Committee on Banking, Trade and Commerce met this day at 10:33 a.m. to study new and emerging issues for Canadian importers and exporters in North American and global markets; and in camera, for the consideration of a draft agenda (future business).
Senator Douglas Black (Chair) in the chair.
The Chair: Good morning and welcome, colleagues and members of the general public who are following today’s proceedings of the Standing Senate Committee on Banking, Trade and Commerce either here in the room or listening via the web.
My name is Doug Black. I’m a senator from Alberta and I chair this committee.
Would senators present please identify themselves for the witnesses?
Senator Marwah: Sabi Marwah, Ontario.
Senator Unger: Betty Unger, Alberta.
Senator Wallin: Pamela Wallin, Saskatchewan.
Senator Wetston: Howard Wetston, Ontario.
Senator Tkachuk: David Tkachuk, Saskatchewan.
Senator Frum: Linda Frum, Ontario.
The Chair: Thank you very much. Of course, we’re ably assisted by our clerk and our analysts.
Today our committee will continue our hearings on new and emerging issues faced by Canadian importers and exporters in relation to international competitiveness.
The committee is interested in learning about the potential impacts of developments on Canadian importers and exporters competitiveness, as well as the manner in which Canadian importers and exporters and the federal government might respond to developments.
Today I’m very pleased to introduce our witnesses, who have been invited to comment as part of a panel to provide an overview of this topic from the regulatory landscape perspective.
Via video conference from Washington, we have Laura Dawson, Director, Canada Institute, Wilson Center. Good morning, Laura. In the room here today is Philip Cross, Senior Fellow, Macdonald-Laurier Institute.
Thank you both for joining us. We’re going to start with opening statements and we’ll start, please, with you, Ms. Dawson and then senators will, of course, have questions.
Laura Dawson, Director, Canada Institute, Wilson Center: Good morning. I’m going to assume you can hear me all right. I have a bit of a delay on the feed.
Thank you, Senator Black. It is delightful to join you and your colleagues. If you will excuse me, I have what I would call laryngitis but it’s more “NAFTA-itis.” There’s a lot going on with this trade agreement. I’ve been talking about it a lot and my voice is suffering.
I’m also delighted to be presenting with Philip Cross. Phil is such a wise and experienced analyst and a great commitment to public service. Anything Phil writes, I read.
Where are we? I want to talk this morning about defending the business climate for Canada’s importers, exporters and investors.
When I was a trade professor, we used to talk about offensive and defensive interests in trade. The offensive interests were the new markets you were trying to get and the new opportunities you were trying to find. The defensive interests were making sure you preserved and protected the things that you already had.
I think at this point in this very disrupted global economy, Canada is doing a very good job in its offensive interests. For a mid-sized, export-oriented economy, it’s doing some very important things. In particular, I think the outreach and diversification on trade agreements is a very good move. We’ve completed the TPP — excuse me; I live in Washington and I still say “we.” I am very much a Canadian nationalist.
We’ve completed the TPP. We have completed a great deal with the European Union. We are talking about a prospective deal with China. We’re diversifying in Latin America and we are in the midst of this NAFTA renegotiation. Canada is definitely looking outward to new markets. That is good and that is important.
Canada is also investing in domestic research and development, innovation, the new superclusters programs, et cetera — all very good. The investment in skills; making sure people have the skills they need for the new economy, and the immigration policy that’s oriented to bringing in the skills Canada needs, helping workers through transitional periods, making sure they have the supports they need, and also bringing in nontraditional workers. This is all excellent stuff.
If you just looked at this and Canada’s orientation to clean, green, new technologies, artificial intelligence, we’re really leading the pack. What I’m concerned about, however, is that Canada is playing a weak defensive game. If you’re a golfer, I don’t think the short game is really up to par at this point.
I think Canada is aiming towards the economy they would like to have without necessarily keeping a close eye on the global economy as it is today. Also, keeping in mind the realities of Canada as a relatively small, resource-oriented, export-oriented economy living next to a large and very volatile economy to which Canada has something like 70 per cent of exports going southward.
I feel like there are some major concerns in the defensive area that are affecting Canada’s ability to import and export, to maintain effective supply chains and to attract investment.
The Trump disruption, if I can call it that without getting fired from my current job at the Wilson Center, is having a big effect on Canada.
I think Canada has done the right thing in terms of really paying the cost in disruption to get a good modernized NAFTA deal.
There’s a cost to investor uncertainty, a cost to supplier, supply chain uncertainty there, but I think it’s worthwhile paying that in order to get the kind of modernized trade agreement that Canada, Mexico and the United States all need to be competitive in the coming years.
At the same time, we also have a lot of arbitrary trade actions on the part of United States. Steel and aluminium tariffs, and other tariffs which seem to be shots across the bow. Every single week, there is something else that affects Canada and makes global investors say, “Do I really want to put my money there?” It makes domestic investors say, “Do I really want to expand my production there?” Canada is paying a cost for that.
Canada is also going to be paying the costs for the gap in tax rates. The Trump tax plan creates a significant disparity between Canadian and American tax rates. It also gives capital equipment 100 per cent write-offs. Phil is the economist; he will tell you smart things about stuff like that.
Needless to say, it’s also encouraging investors to keep their hands in their pockets or move southward.
We also have a carbon gap. Yes, Canada is a world leader in forward-thinking on dealing with global climate change, and yes, that is important. But when your largest trading partner has put the brakes on its carbon reduction plans and Canada now has some of the most expensive carbon prices in North America, again, why am I going to invest there rather than here? When a Big Three automaker is looking at its competitive pressures, Ford is not looking at GM and Chrysler; Ford of Canada is looking at Ford of Indonesia, Ford of China, Ford of someplace where the carbon prices may be lower. So that’s another competitive aspect that is really affecting Canada.
Another thing, of course, is transportation bottlenecks. I don’t have to tell you how important these elements are in terms of rail bottlenecks, not being able to move grains and fibres, and of course pipeline bottlenecks, not being able to get Canada’s energy products to tide water.
Finally, the regulatory burden. This is something we can definitely do something about. The more that businesses have to pay in border measures, unnecessary inspections and pieces of paper at the border, the less competitive are our exporters and importers. In particular, this hits small- and medium-sized enterprises disproportionally hard. We are still doing paper and pen clearances at the borders. We need to move into an era of iPads.
All of this to say the cost of doing business is increasing in Canada, it’s diverting investment and it’s making Canada a much less attractive place to do business in the short term. I deal with a lot of businesses here who are also invested in Canada, and they’re having concerns about the continued viability of the Canadian business climate.
One last thing before I finish off my 10 minutes. I eat, breathe, think and sleep NAFTA these days. I will just give you a one- or two-minute update on that.
I think Canada is doing a tremendous job at the negotiating table. Minister Freeland and Steve Verheul and his team at Global Affairs Canada could not be stronger and better placed to deal with this very volatile, very uncertain and very politicized negotiation. At the same time, it’s a tough negotiation. As of two weeks ago, we only had 6 of 32 chapters fully closed. We may have somewhere up to 10 at this point. And yes, the United States is giving it political attention so that we can get through maybe some of the most difficult what we call “poison pill” issues. I don’t see that we have had enough movement to really close off this negotiation prematurely, despite the U.S. congressional midterms and the Mexican presidential elections. We’re going to have to find some way around this.
I don’t think Canada is going to leave the table with a NAFTA-minus agreement. That is a worse deal tomorrow than they had yesterday. I think the minister has this very strongly in mind, but because of the complexity of the negotiations, and the very many things still to be cleared, I don’t see that we’re going to have this cleared up by the weekend. I could be wrong, and I could be the goat by next Monday, but I don’t think so.
One final word, then, on competitiveness. Again, Canada’s long game, it’s offensive game is terrific. Canada is doing many important things externally that it should be doing, but domestically, I am really concerned the government is not looking after the things that are in its control, its defensive interests, to mitigate against the disruptions that we’re experiencing from external factors and the disruptions that we cannot control. Thank you.
The Chair: Thank you very much, Ms. Dawson. A tremendous presentation.
Mr. Cross, please go ahead.
Philip Cross, Senior Fellow, Macdonald-Laurier Institute: Thank you for your kind words, Laura. I quickly learned when I made the transition from government to the wonderful world of think tanks six years ago that smart people like Laura who deliver products on time are worth their weight in gold. I’m indebted to her.
I’m going to read quickly through my prepared statement to allow maximum time for discussion.
Canada’s role in the global trading system is largely defined by our relationship within North America, especially the U.S., which accounts for over two thirds of our trade. There are two main issues surrounding Canada’s role in the global trading system. First, will Canada remain part of the North American Free Trade Agreement? If so, what will be our role in that regional trading bloc? The answer to the first depends on negotiations about the rules governing trade. The second answer depends on our cost competitiveness, largely ignored in the current focus on trade deals.
Within the broad outline of global trade, three regions dominate the network of supply chains that trade in intermediate inputs: Europe, North America and East Asia. It is misleading to say there are global supply chains according to Richard Baldwin’s analysis in The Great Convergence. While raw materials such as crude oil and finished goods such as smartphones are shipped around the world, producer supply chains tend to be highly regional. Latin America and Africa are not part of any major regional supply chain, one reason why their development lags and our joining the Latin American trading bloc would be pointless.
Each of the three main trading blocs has wealthier countries where supply chains are designed and controlled and low-wage countries that produce goods with less value-added. Western European producers, notably Germany, outsource to low-wage countries in Eastern Europe. Richer Asian nations like Japan and Australia contract out parts of their production process to low-wage countries like China. The outsourcing is done to nearby countries and not overseas to save on the cost of moving people, notably those overseeing production, which is still high relative to the cost of moving goods.
It is delusional to think there are substitutes for NAFTA in determining Canada’s place in the international trading system. While more trade overseas is always welcome, we are fundamentally and inextricably part of the North American supply chain, and our relationship with the U.S. will continue to drive Canada’s future external trade. Our place in North American trade reflects both the rules governing trade and our ability to compete within those rules. Negotiating trade deals while ignoring our cost structure is the ultimate bad trade strategy.
Canada’s role in the North American supply chain has changed markedly over time, demonstrating that cost competitiveness is as important as the rules governing trade. In the years after the original 1988 free trade agreement with the U.S. and before Mexico joined, Canada became the de facto low-cost producer for the U.S. This is because our steadily declining exchange rate led to the rapid expansion of export industries producing cheap consumer goods in Canada. The exchange rate helped lower the cost of producing in Canada enough that not even the 1994 entry of Mexico into NAFTA slowed the growth of these industries in Canada, a risky bet that depended too much on maintaining a low-cost structure and a weak Loonie.
The result was a perverse skewing of Canada’s economic development to exports in the 1990s. Our manufacturing industries took advantage of a low dollar to specialize in low-wage industries. Overlooked at the time, Canada was the only G7 country where manufacturing employment grew during the 1990s, a measure of how profitable it was to produce and hire workers who were paid in Canadian dollars to earn export revenue in U.S. dollars. Even tech firms like Nortel exploited this strategy.
Meanwhile, our oil and gas sector grew rapidly, encouraged by the secure access to the U.S. market granted by the free-trade agreement after decades of quotas and trade restrictions by both Canadian and U.S. governments. It is forgotten how the U.S. forbade imports of natural gas as part of a misguided strategy to encourage the development of its own energy industry after the 1974 energy crisis.
Canada’s place in the North American supply chain worsened when its cost structure began to rise rapidly after 2002 as the dollar returned to parity with the U.S. greenback and governments raised labour and energy costs and environmental regulations at the very moment China joined the WTO. Producers of cheap consumer goods industries, such as clothing and furniture, soon could no longer compete, and these industries quickly disappeared or moved abroad.
What remained in Canada’s manufacturing sector was resource-based industries in capital goods, both of which pay high wages, along with some surviving assets in the auto industry. The sharp drop in exports and the abandonment of malinvestments in manufacturing recalls the insight of John Crow, former Bank of Canada governor, who said it is a bad idea to have a policy of promoting currency decline, even if it appears beneficial in the short-run.
Canada’s changing role in the North America supply chain helps clarify what is at stake in the current blizzard of our trade negotiations and deals. While trade deals with Europe and Asia are important to the producers of natural resources and our consumers of imports, we will never be an integral part of their supply chains. Canada is simply too remote and has too high a cost structure.
Canada’s trading future depends upon finding its proper niche in the North American supply chain. Even with the loonie’s devaluation after 2014, exports have stagnated because our high costs and low productivity increasingly limit our role to produce raw materials, buying finished goods and supplying high-cost capital goods such as aerospace and some high-tech equipment. This underscores the fundamental importance of both a successful renegotiation of NAFTA and lowering our costs, the only way we will expand the range of products we export.
Concluding trade deals between Canada and other nations is complicated by the government’s fixation on progressive trade that inevitably raises our cost structure. This government says it will not sign a bad trade deal. Agreeing to trade deals while saddling our businesses with higher costs would be even worse. We would have access to export markets but would not be able to compete in them.
An even more fundamental point is trade agreements only prod a country to become more efficient in using the best technologies and management techniques of the day. In the long-run, what determines a country’s prosperity is not this efficiency gained from trade but its ability to harness Schumpeter’s “creative destruction” that drives innovation.
As articulated by Deirdre McCloskey in her trilogy on the bourgeois and economic growth, capitalism and innovation flourish in cultures where entrepreneurship and business are valued and encouraged; words and attitudes matter.
The Canadian public uniquely in the G7 supports free trade, a good starting point. Unless we can develop a culture that better encourages business to develop, including building pipelines, Canada will continue to struggle to succeed in trade. If our living standards continue to lag the U.S., Canadians would inevitably begin to question their support for freer trade.
The Chair: Thank you very much, Mr. Cross.
Senator Stewart Olsen: Both your presentations were very helpful. Ms. Dawson, as you know, we’re writing a report that hopefully the government will pay attention to. I’m wondering if you could give me, off the top of your head, the first three steps that Canada should be taking, perhaps in the short term, to be more defensive on our competitiveness.
Ms. Dawson: Thank you, Senator Stewart Olsen. I always have a numbered list in my head.
We’re going to stipulate that trade is going as well as it possibly can. So Canada should stay the course on trade, should not react or take any knee-jerk reactions to things like the steel and aluminum tariffs that would make Canada give early concessions for key industries. Let’s take, as stipulated, trade is going pretty well.
Again, I am very concerned about the tax situation for Canadians. If there is a way Canada can be more defensive and responsive to what has happened in the United States on taxes — in particular that write-off for capital goods that U.S. manufacturers have, very important — to look carefully at how Canada is rolling out its carbon reduction plans. I understand the intention is to ensure the impact is revenue neutral and that it not make businesses less competitive. However, there’s a lot of difference between intention and what we get at the end of the day. We don’t have a lot of time to be worrying about implementation.
Of course, I’ve already mentioned transportation bottlenecks. Let me jump to a third one, the regulatory burden.
Canada has done a good job on the Regulatory Cooperation Council. It’s been picked up from the Harper government. Minister Scott Brison is in the lead. They’re working very hard. They’re working with the United States to reduce red tape and inspections, and reduce harmonized regulations where possible. This is largely on consumer goods, products, food products, all to the good.
Do you know what we dropped the ball on, though? We dropped the ball on the border initiative that we have had with the United States, formerly called the Beyond the Border initiative. This was a cooperative plan with the U.S. to focus on moving goods across the border faster, better, through a number of pilot programs, pre-clearance programs, better movement of passengers, et cetera.
We’ve kept the initiatives that are within Beyond the Border. They are still in play with various Canadian government departments. There is no longer the overarching political momentum and investment of resources and pressure on the U.S. to cooperate with us. When you have that executive-level pressure, you get motion. We no longer have that on the border. This really surprises me given the importance of cross-border commerce.
Senator Stewart Olsen: Thank you very much.
Mr. Cross, do you have anything to add to that?
Mr. Cross: Nothing specific. I think it’s very important the broad range signals sent out by governments to the business community. I don’t think it matters that you get everything right, but I think when we have repeated instances where we can’t build pipelines, we raise minimum wages sharply without a lot of notice to the business community, when we allow our regulatory and tax structure to become uncompetitive with the U.S., when we get everything wrong, I think that sends a message.
I think you can afford to get one or two things wrong. It’s just matter of looking at business confidence. Business confidence is at a very low level in this country, especially in Ontario. It’s had very high levels in the U.S.
I always go back to: If you want to know if somebody is anti-French, ask a francophone. If you want to know if someone is a racist, ask a visible minority. If you want to know if the government has taken the right actions for the business community, ask a business person.
I think business people are clearly saying there are a lot of things we’re getting wrong in this country.
Senator Wallin: You’ve both have touched on this. Yesterday, our witness was the Governor of the Bank of Canada, and we were going through the list of things they look at, and we’ve all reiterated some of them here: a softer dollar, low interest rates and taxes. The border, Laura, as you mentioned, is a huge issue. Our non-energy exports to the U.S. are way down. We’re selling our resources at bargain prices.
A comment from both of you. I know you’re a bit of an optimist, Laura, but why would the Americans need to make a trade deal with us, given all those factors?
Ms. Dawson: That’s a great question. For centuries, we have become family members with the United States. Our supply chains are very integrated. You just can’t take the eggs out of an omelette and put them back in their shells. Our auto sector and agri-food sector are very integrated with the United States. We are still their nearest and easiest market. For U.S. small- and medium-sized enterprises, Canada is the first place they try to export. Proximity shared business culture and business values are very important.
Similarly, Canada, through its trade agreements and things like the Regulatory Cooperation Council, et cetera, we have really aligned our regulations to the United States, so it is like doing business at home. There are not that many differences that a U.S. exporter or business person will face. Therefore, it’s easy for us to work with them. For the United States, working with any other market is much more difficult. We have tradition and institutional embeddedness on our side.
We have had a lot of great advocacy from senators like yourself to premiers, to business groups coming to the United States and reminding the U.S. how important that relationship is, how closely we are all integrated.
We are each other’s largest trading partner. We are the largest export destination for the United States. Unfortunately for Canada, we have an asymmetry. About 20 per cent of our GDP comes from trade with the U.S., and less than 2 per cent comes from trade with Canada.
The U.S. needs friends in the world. Canada can continue to be that friend, but by gosh, we really have to hunker down and be creative and resilient in this relationship right now.
Mr. Cross: I’d agree with that. Trade is important to the U.S., but this deal is critical to Canada. That is something that we’re see playing out in negotiations.
The U.S. is more militant than in previous trade deals in asserting what it wants. In the original free trade agreement with the U.S., for example, we put about 25 per cent of our economy off limits to telecommunications, the supply marketing, the banks, the culture industries and so on. We got a lot of what we wanted. The U.S. is now saying, “You got what you wanted. Now we want more.”
Senator Wallin: And that’s where we’re at.
Mr. Cross: That’s where we’re at and frankly they’ll get more because we have to have this deal.
Senator Tkachuk: Mr. Cross, you said the modernization of the free trade agreement was a positive thing. Maybe the two of you could help me out here. You touched on it Mr. Cross when you said the free trade agreement, they got a lot of what they wanted in the United States. Maybe it’s time that — or we got a lot of what we wanted. They may say it’s time they want something.
Could you tell me what areas need to be modernized, and where do you think the negotiations are going? We really don’t know, but maybe you could have good guesses or insider information as to where you think the Americans are going to increase their trade capacity versus us.
Mr. Cross: Laura is the expert on this, but briefly, for example in 1994 when NAFTA was signed, there wasn’t the Internet. Intellectual property rights were not of the importance that they are today. Obviously these agreements are being updated. An opportunity was missed. We could have updated a lot of these areas under the TPP, but when the U.S. pulled out, renegotiating NAFTA is really the only way to incorporate some of these new technologies and new ideas. But as I say, I’ll let Laura give the answer in depth on this one.
Ms. Dawson: Thank you. There are two or three tracks in these negotiations. One we hear most about is the political track. It’s one of these new “poison pills”, or as Chrystia Freeland calls them, unconventional issues, things like a rule of origin for autos that no North America automaker could make, a sunset clause that would kill the deal after five years, a government procurement offer from the U.S. that is so much worse than what Canada has in the current NAFTA or the WTO. The complete gutting of the dispute settlement system, chapter 19, which Canada needs for softwood lumber, chapter 20, chapter 11 investor-state dispute settlement.
Those are the politicized issues and the ones we hear about the most. But in fact there’s not a lot of business support for those in the United States. There’s not a lot of congressional support for those. Those are the politicized issues playing to the base who elected President Trump. Those have to be managed somehow, and those are the ones really throwing sand in the gears as we’re moving forward, but they’re actually not the most important issues from an economic standpoint.
The most important issues from an economic standpoint are the greatest hits issues, the things we have always negotiated with the U.S. about; market access, agriculture, technical barriers, sanitary and phytosanitary measures, as well as the modernization issues that Phil touched on.
A lot of the modernization issues come from the Trans-Pacific Partnership. We have already agreed with United States and Mexico on what is in Trans-Pacific Partnership. Things like digital modernization, regulatory good practice, what they call trade facilitation — which is a euphemism for doing better stuff at the border — state-owned enterprises, et cetera. On a lot of things we are in agreement about, we’ve already done in the Trans-Pacific Partnership. The U.S. can’t use them in the TPP, so we want to bring them over into the NAFTA.
The great irony I think is that on a dollar-for-dollar basis on things that would help Canada’s economy today, it’s mostly stuff that we have already agreed on collectively that are good; the regulatory good practice, the customs measures at the border, the digital modernization that brings our online economy into the 21st century, some new measures on intellectual property, et cetera. Those are things that are going to affect today and tomorrow’s economy. We have pretty good consensus on it, but politically we need to keep duking it out on these unconventional issues and that’s a real shame because Canadian importers and exporters could use a new NAFTA today, not next year, not 2021.
Senator Tkachuk: Could you both comment on the marketing boards? Is that a problem? I think it is a problem on the free trade negotiation but I would like your comments.
Ms. Dawson: The decision to maintain supply management programs in Canada is a domestic policy decision that has to be taken by the people of Canada, by the government and by the consumers and by the producers. I’m not going to tell you what you ought to do with that.
The Canadian negotiators will tell their American counterparts that the U.S. has lots of their own protectionist policies and why you can’t export sugar or cotton to the United States and the U.S. Jones Act and their own dairy protectionist policies. From a negotiating perspective, dairy has become a political flashpoint in Donald Trump’s campaign, in his outreach to his base. It’s made even worse by the way that supply management for dairy is structured. We prevent imports to all of the products that are listed, and we keep the market closed and that’s fine and we don’t export either and that’s fine. That’s okay with the WTO.
But once in a while a new product enters the list. Something is innovated and developed that isn’t protected, that isn’t restricted. The U.S. producers get market access. Why? Because Canadians buy the stuff.
This issue with the class 7 milk is a primary example. U.S. exporters have been exporting to Canada with this product. To them it looks like a wall has arbitrarily come down and Canada is shutting off its market and that doesn’t look like fair trade to them.
The nature of the way that the marketing boards supply management system is set up and operated I believe will continue to cause problems with Canada’s negotiating leverage and perception by external trading partners.
Mr. Cross: I don’t have anything to add to supply management on top of what Laura said. I will take the opportunity though to elaborate my answer to the first question, if you will indulge me.
One other thing that’s changed and why we’re renegotiating NAFTA now is NAFTA in the mid 1990s, from the American point of view, it was supposed to help reduce the inflow of illegal immigration, that we would export some jobs to Mexico and keep them there. What has changed, what was not foreseen at the time, was that Mexico would have repeated crises, first the peso crisis of 1994-95. They had a very severe recession in 2001. Their real wages collapsed 40 to 50 per cent. The Americans never anticipated that real wages in Mexico would do what they ended up doing.
If they had known that real wages were going to fall 40 or 50 per cent in Mexico, I think they probably would have insisted on a separate deal in 1994 and lo and behold here we are in 2016 and Donald Trump comes along and says this has been going on way too long. We have a huge deficit. We didn’t anticipate this.
As I say, part of the problem is the world changed in an unforeseen way.
Senator Tkachuk: I notice you had mentioned Donald Trump’s base. But there is a Donald Trump base and a Bernie Sanders base, and both have basically the same feelings about trade. It’s a big issue politically down there, and not just on the right wing but on the left wing.
Senator Frum: I want to ask you both to elaborate more on the cost and consequences to Canada’s competitiveness of the carbon tax. Ms. Dawson, you asked rhetorically with the highest carbon prices in North America why would investment come to Canada? Mr. Cross, you gave an interview on BNN where you said if it’s going to be a small tax, it won’t have much of an impact and if it is a large tax then there will be big implications for the economy. Can I invite you both to elaborate?
Mr. Cross: Sure I’ll start on this one if Laura will indulge me.
It looks like carbon taxes are not designed to have an impact on actual behaviour. At the moment the goal is a $50 a tonne tax which works out to 5 cents a litre at the pump. My goodness, my gas price fluctuates daily these days by 5 cents. That’s no big deal.
It seems to me it looks like a papal indulgence. We’ll pay this 5 cents and then carry on behaving as we were, but we can say to the world, “Aren’t we green? Aren’t we nice? We have a carbon tax.”
If we’re going to fundamentally change behaviour, I think anyone who seriously looks at this realizes we’re going to have to go to a price of something like at least $150 to $200 to really start changing people’s behaviour. At that point governments go, “No, sorry, we’ve lost interest.” No government would get re-elected if they brought in a tax like that.
It seems to be something that is a lot more aimed at — it’s like the blue box and the green bins. It’s all very nice. We feel very good. We tote these out every week and then we go back to driving to work and flying all over the place, but we say, “Well, I put out the blue box. That makes me good.”
Senator Frum: At the blue box level, it may not have that serious a consequence, then, from a competitiveness point of view vis-à-vis the U.S. if it stays as small as it is.
Mr. Cross: Right. At which point I would say, “What’s the point, then?”
Senator Frum: Fair enough.
Mr. Cross: If it’s just so we feel good, then let’s say that. Don’t pretend this is going to change our economy. Don’t pretend that we’re going to reach our carbon goals with this type of policy.
Senator Frum: Right. Fair enough.
Ms. Dawson: The challenge, I think, among many challenges, is differences among jurisdictions. That’s something trade agreements, WTO, always struggles with when costs are different in one region because of one policy decision than they are in other decisions.
Essentially Canada’s carbon taxes become a subsidy to the United States. In fact, they become a subsidy to anybody who is sending products into Canada that does not have similar carbon taxes. You have to find some way at the border to equalize those costs. We will have to have a system of green tariffs. You have another thing that businesses are going to have to contend with at the border in order to adjust for this perceived subsidy in the other place.
Now, to make it even more complicated, we’re going to have different prices between provinces. As if the interprovincial trade issue wasn’t hard enough, now we’re going to have to do border adjustment taxes when a product moves from a low carbon cost province to a high carbon cost province. Now, again, the government says, “We are going to find ways to give you remissions and rebates,” and we’ve done this through the HST, et cetera. If you’re a small- and medium-sized enterprise you already have so many pieces of paper on your desk you are trying to work your way through. It is just another burden making it harder.
I would point you to a great submission I read from the Canadian Trucking Alliance on how they are going to try to manage different fuel costs across jurisdictions and whether their trucks are running just in Canada or whether they go in and out through the United States, whether they buy their fuel in the U.S. and then transport. It is a logistical nightmare.
The premise is good. The idea is good. But the more you create cost differences between jurisdictions, the more you are making it harder to do business in Canada.
Senator Wetston: I’m still thinking about the answer to the last question, which for me provokes a lot of concern about these types of issues. I’m sure both of you have recently noted the Comeau decision in the Supreme Court, which doesn’t, I don’t think, accelerate the opportunity for promoting interprovincial trade more positively. I think there is a lot of comment about that. I’m not going to ask you to comment on that unless you’re constitutional scholars.
I would like to follow up a bit on this issue of export stagnation. I kind of have some sympathy for what John Crow said with respect to the idea of promoting currency decline.
Do you think that’s what the Bank of Canada has been doing? Have they been promoting currency decline, from your perspective?
Part two to that question is, you know, we have had a rather unfortunate history of poor productivity in this country and as a result, that seems to flow from an apparent weakness of investment. How will NAFTA, if we arrive at an agreement, enhance the opportunity for greater productivity in Canada?
Do you have any comments on both of those?
Mr. Cross: Sure. I think the Bank of Canada, Governor Poloz in particular, has jumped on every opportunity to surprise markets, such as when he cut interest rates unexpectedly in January 2015 to accelerate the decline in the dollar. I think that has a very short-term impact. Broadly speaking, though, the dollar fell 25 per cent from parity due to the drop in oil prices. The timing might have been accelerated a bit by the governor’s actions and statements, but the currency was going to drop 25 per cent at some point no matter what.
I think the Bank of Canada, I would say they encourage this. They have accelerated it. They don’t really change the fundamental value of it.
NAFTA and business investment, I think it’s quite true that, particularly during this period of uncertainty, there is every incentive for firms to build their plant to expand their operations in the U.S. If NAFTA gets done you can then export duty-free back into Canada. If NAFTA don’t get done, you’re set up in the U.S, which is where you want to be. I think particularly during this period of uncertainty, it aggravates the other incentives we’ve talked about, taxes and so on, that give firms an incentive to invest in the U.S.
I think it’s quite notable that business investment is, according to Statistics Canada’s latest survey of investment intentions for 2018, firms are planning the fourth straight decline in business investment. Meanwhile, investment is picking up in the U.S.
The most obvious discrepancy between the Canadian and U.S. economies these days is in the area of business confidence and business spending.
Ms. Dawson: I’m not going to respond to the Bank of Canada question, but on the what good will NAFTA do to productivity competitiveness, I agree with Phil. I’ll also just echo what I said to Senator Frum; differences cost money. We have a “senior citizen” trade agreement that hasn’t been modernized since 1994. There are a lot of things that need to be tweaked and improved so we don’t have unnecessary differences between the United States, Canada and Mexico.
There are sanitary and phytosanitary measures in agriculture, agri-food products. The unnecessary differences that are costing producers money. The technical barriers to trade, labelling issues, weights issues. I know these seem like little niggling things, but it is the death by a thousand cuts that reduces competitiveness because of these differences and encourages investors to go to where the large market is, where the United States is 10 times the size of Canada. Canada is not worth the effort if differences are too great.
One thing the new NAFTA brings that I think will assist Canada’s competitiveness and also is a bit more resistant to some of the economies of scale problems that Phil has brought up is the digitization, digital modernization element.
On high-tech industries, on digital industries, Canada can compete with any country in the world with the resources, knowledge, brains, start-ups, incubation, et cetera. Canada can be on the front edge, but there are a lot of regulatory hurdles that would impede Canada’s ability to be as strong as it could be.
For example, data localization rules, being unable to store your customers’ data in Canada. We say to ourselves, “That’s not a problem for Canada; that’s a problem for other countries.” No. There are countries in the world who say, “I don’t want my customer data going anyplace else other than where I live.” If you’re a small Canadian start-up, you are impeded by these data localization rules.
Similarly, just being unable to track what is moving through the digital economy, not knowing what is there makes it very difficult to make policy to support what is there. I think many of the new measures from the digital modernization chapter — and you can read it online, because it’s pretty much what is in the TPP — will make a big difference for Canadians and Canadians industry. I would caution those rules were in the main influenced by the U.S. If Canada has any input or different perceptions, now would be a good time to make sure those are reflected in the new NAFTA.
For example, the TPP included one-hundred-year protection for copyright. That’s not something that Canada thought was necessary for its own innovators and creators, so that might not necessarily be in the new NAFTA.
Senator Unger: Thank you both for your presentations. I have a question about regulations. President Donald Trump has been busy cutting regulations and it seems to me, as I’m from Alberta, that the Energy East pipeline was shelved because of increased regulations. That’s one issue.
The other is, Mr. Cross, you said we have too high a cost structure. In what ways is government driving that cost structure higher? Is there anything that could be done to lower it?
Mr. Cross: Well, undoubtedly governments have played a big role, especially since 2003, particularly in Central Canada in raising the cost structure. In the last couple of years we have seen very sharp electricity rate hikes in Ontario and very large minimum wage increases in Alberta and Ontario. Over and above the increasing regulatory burden, I think there is a study by the Ontario government itself where they found that they have 300,000 regulations on the books. The province with the next highest number of regulations, I believe, is B.C. at something around 75,000. Even the Ontario government looked at that statistic and said “maybe we’ve gone a little too far.”
I think there’s a great deal of evidence that some provinces have taken actions that have significantly increased the cost of doing business in this country.
As to how much President Donald Trump is dismantling the regulatory burden, I leave that to Laura.
Ms. Dawson: Just turning this on its head, the United States does have a president who has focused on deregulation. Eliminating unnecessary regulations with his two for one program, for example. The United States is very focused on regulatory reduction. In some areas you may say “he’s moving too fast”, but in other areas he may be making things more efficient. If you look at pipelines, the U.S. currently has a president who is pro-pipeline which reduces regulation. Previously, under President Barack Obama, he was a president who was somewhat anti-pipeline, at least anti-cross border pipeline, and had higher levels of regulation.
The problem is not the level of regulation, it is in the over-politicization of the regulatory process. I think for pipelines, and any other projects that we’re looking at where there are economic goods balanced with public and social goods, we can eliminate political discretion as far as possible. Not that you folks shouldn’t be involved, but a transparent process where investors know how it works from start to finish and it is predictable, that’s what investors need - predictability. It’s when the rules change every couple of months, when you believe it’s one thing and it becomes another, that’s where you lose investor certainty. That’s where you become less competitive. Without commenting on the efficacy of Canadian pipelines, just to make a less politicized, more transparent process would help everyone. Similarly, the United States could do with less politicization as well.
Senator Marwah: Ms. Dawson, I just want to elaborate on a point you made about IP and the digital economy. Canada seems to be fixated on attracting the U.S. tech giants rather than focusing on building a vibrant high-tech industry in Canada. Although I must admit the super clusters have the potential, I repeat potential, to be very positive, are we doing enough in this area? This is the future. This is an area where Canada can compete. Are we doing enough in IP policies and IP strategy, rules, regulations and red tape? Are we doing enough? Because this is going to be our future for the next hundred years.
Ms. Dawson: I think Canada is doing a lot of very good things. As I mentioned, the super clusters, investment in innovation, support for education, support for women and children and nontraditional folks to learn coding — this is all great.
Canada has a great reputation and history for starting innovative businesses; how do we keep the innovative businesses is the problem. What can we do to make sure that once you have a great start-up in the Ottawa valley that you don’t move to the Silicon Valley? I think Canada has been pretty good at attracting private sector investment venture capital, but not good enough. The venture capital is available but just not at the levels and the intensity of the major American clusters.
I think a lot of things Phil has been mentioning just in terms of cost structure, tax, et cetera. Why would you want to stay in Ottawa when you could move to Palo Alto is the big question.
I’ll go back to the regulatory side. Canada has to balance the largely U.S. desire to move information quickly, easily, faster and better with the desire to ensure that personal information is safeguarded and personal property is protected. The data-scraping Facebook issue brings that to the fore. How can we balance that? That’s a real challenge for Canada, to make sure its innovators have everything they need to innovate without putting policies in place that hobble them in terms of their ability to compete globally.
The world of digital trade is emerging. We have some rules in the Trans-Pacific Partnership. We have other rules coming through the WTO agreement on services. The U.K. and the EU are exerting a lot of leadership here. At the other end of the spectrum we have China, whose rules on digitization and localization of data are restrictive and aggressive and distorting the market. Canada needs to find its place in that spectrum between very open and very closed, and figure out how to balance consumer protection with support for our innovators.
Senator Marwah: Mr. Cross, any thoughts?
Mr. Cross: I wouldn’t automatically assume the next hundred years are going to unfold in a certain way for Canada. I think the best predictor of how we are going to develop in the next hundred years is how we developed over the last hundred years.
We will always play to our strengths; to our comparative advantages. What are we good at? What is this country all about? It’s huge. We’re good at transportation over long distances, good at pipelines and railroads, and good at communications over long distance.
Where did we hit high-tech home runs in the past? They were in Nortel and BlackBerry. Did those come out of clusters picked by government? No. That came out of our natural advantages of communicating over long distances. Nortel in particular came out of Bell Canada.
We’re good at energy. It’s a cold country. We have to have energy transmitted over long distances, hence Hydro-Québec was a world leader in transmitting electricity over long distances.
We’ve always been good at banking. That came from the beaver trade. The beaver trade required three years between when the guys first went out and when they got their product sold in Europe. You had to have a banking system that would fill the gap.
When people ask what is Canada going to be good at in the future, I’m saying these are our comparative advantages, and these are the areas out of which our future will continue. If something is good in Silicon Valley and it doesn’t resonate, if there isn’t something Canadian about it, I’m not going to try to imitate it and say that is the model for growth in the future.
Senator Stewart Olsen: Thank you. I’m going to ask a question. I’m not sure of the implications. I’m a bit worried about this.
Ms. Dawson, you talked about how we seem to have moved away from opening our borders which would facilitate trade.
Do you foresee the new marijuana legislation as causing any problems with the further opening of the borders?
Ms. Dawson: Great question. Yes. In a word, yes.
In the long run, when we’re all dead, it will be fine because the U.S. state policies are moving in the same direction as Canadian policies. What we are going to be encountering over the next five or 10 years are individuals, people at the border moving across the border, trying to do things internationally that they want to do at home.
For example, a snowbird coming from Oshawa going to Florida with her medical marijuana prescription in her pocket is fully lawful in Oshawa, but once she hits that border, she is going to be faced with a number of questions that the Customs and Border Protection officer has to ask. It’s an algorithm. If you say yes to this, then you say yes to that, and then you end up in a secondary room.
The U.S. indicates, I believe from talking to officers, they would like to give it a light touch. They don’t want that lady from Oshawa having to be banned for life from the United States. The way their regulations are written, if you get this kind of answer, you have to take that kind of response. I hear from U.S. customs and border operators they would really prefer Canada just dial this back so that we can perhaps do it together. Again, back to the earlier point, differences cost money. In this case, differences are going to create difficulties for Canada. We’re going to be seeing a number of problems, I believe, before we figure out how to manage this. Simply asking the U.S. to take a lighter touch is probably not a long-term, workable solution.
Senator Dagenais: I like Ms. Dawson’s answer. Imagine the person crossing the border being a truck driver with goods to deliver to the United States. I am sure there would be a second inspection and they would be delayed, and that would have an economic impact. That driver would have to undergo a second inspection, and that would slow down fluidity at the border. What you are saying is quite right.
Ms. Dawson: I’m only going to give an answer based on having heard from representatives from the trucking industry a couple of weeks ago on this issue. They first made it clear that any fleet operator has their own set of rules and regulations and ensuring all of their drivers are operating lawfully — they won’t tolerate drivers using drugs is the bottom line.
At the same time, any time you have discretion among border officers that they can delay something and enforce the rule of the law, not necessarily the spirit of the law, you are creating the potential for delay. The more you can take the discretion away from individuals and make things automatic and institutionalized, the less impact and the less cost that border has.
The Chair: We were very excited to have you, Ms. Dawson and Mr. Cross. We were hopeful that you would accept our invitation to appear because of your depth of knowledge and the breadth of your experience over a number of years. That has certainly shown itself to be very clear today. Your presentations have been very helpful to us on any number of fronts.
Thank you very much. I hope we can reach out to you again at some appropriate moment. Thanks very much, Laura. Thank you very much, Mr. Cross.
Senators, by way of information, before I introduce our next witness, when we’re done with the questions here, we’re going to move to a meeting in camera. There are a number of things I’m looking forward to bringing senators up to date on. I know a number of senators have to leave a little bit earlier, so we’ll get a note from the clerk around to senators so they know what we’re covering.
As you know, because you’ve met the senators, my name is Doug Black. We’re very pleased to have Lai-King Hum, the Principal/Senior Lawyer of Hum Law Firm, with us today. We would ask for an initial presentation, and then we’ll move to questions.
Lai-King Hum, Principal/Senior Lawyer, Hum Law Firm, as an individual: I have a statement I will read. After that, I’m happy to answer any questions.
Thank you, honourable senators, for this invitation to speak to you in the traditional, unceded territory of the Algonquin Anishnaabek peoples.
I am very honoured to have been invited to share my observations with this Senate committee.
I’m an employment lawyer with a human rights background. I’m also a board member of the Toronto Chinese Business Association and a trustee of the CPAC Foundation, which assists internationally-trained professionals. My comments are my own but informed by various roles, particularly representing business clients from start-ups to Fortune 100 companies and amongst them are companies headquartered in the Silicon Valley, the U.K., China and Korea and companies in Canada acquired through foreign direct investment.
As Canadians, we generally recognize and value the need for fair and equitable workplaces, the need to provide stability to workers and to ensure compliance with fundamental human rights.
I think it matters we remain emphatically Canadian in our approach to international trade as we strive to achieve and maintain a competitive advantage.
I’m going to speak about two topics, the first being labour standards and the second labour mobility.
In terms of international trade and labour standards, the committee has been asking questions about NAFTA and free trade generally. The question arises whether Canada should be insisting on a modern and progressive agenda as it relates to employment laws and human rights when negotiating free trade agreements.
In my view, the Canadian government should pursue negotiations that elevate trade and workplaces, pursuing new generation free trade agreements and not engage in a race to the bottom but lead the race to the top.
I have a number of international clients, including new Canadians who have started businesses here. In the words of one, “Of course, making money is important, but it is not the only thing.”
Business and international relations is conducted against the backdrop of values, including a progressive agenda, intertrade negotiation has risks.
As Laura mentioned earlier, the practical reality is many potential trading partners have far greater leverage. To take Canada and China as an example, they are very different countries, with a distinct history, societal values and challenges. That should be recognized and agendas may have to be pursued selectively.
The view of some clients is that labour standards and human rights dialogues should be sustained on a separate track.
Having a trade relationship and a friendly relationship with that country will garner far more influence than imposing standards that a country is not yet ready to take, for myriad reasons, with a consequent failure of Canada to have a trading relationship.
My own view is there are basic standards that all countries should be able to adhere to and these should be incorporated into free trade agreements. The new generation of free trade agreements have these labour standards.
Further, to address internal challenges when competing against a right to work jurisdiction south of us or other low-wage jurisdictions with lower operational costs, my clients have invariably spoken about getting fair tax treatment in return for shouldering the financial burden of fair treatment of workers and creating jobs in Canada, especially for start-ups in the early years to encourage risk-taking and growth.
They also point to a need to modify the small business tax so it incentivizes rather than discourages actual growth and job creation.
I concur with an earlier speaker who mentioned that tax reform is long overdue. Clients also appreciate government programs that open up channels of trade, including popular trade missions and information sessions aimed at increasing international trade opportunities. This is so particularly for my SME clients.
A related topic is labour mobility. Underlying the questions this committee has been asking about NAFTA and free trade generally and competitiveness in Canada is perhaps a broader question about our workforce. Many clients lament an inability to obtain skilled workers to work on their projects and have slowed down their business expansions, especially those in highly skilled technology or biotechnology fields.
As such, in addition to concerns about labour standards in free trade negotiations, clients would like to see international trade negotiations incorporate provisions on greater labour mobility, especially amongst professionals. This has been incorporated into the recent CETA negotiations.
We cannot effectively compete against low-wage jurisdictions when it comes to traditional manufacturing jobs, but our knowledge based services, industries and digital development technologies can be competitive.
Based on comments from clients, I would encourage continued government investment in developing more truly world leading educational institutes and technology and innovation hubs in Canada and assisting start-ups in these areas, all of whom benefit from labour mobility.
I urge the Senate committee to make recommendations to government that build on Canada’s progressive standards but also serves to increase its ability to compete.
I will summarize with two final points. One, assisting businesses in Canada through (a) preferential taxes and possibly overall tax reform that recognizes business’s role in shouldering the financial burden of fair workplaces and the creation of jobs; (b) assistance with creating channels and opportunities for international trade; and (c) investing in excellence in education, tech and innovation hubs to create more diverse industries in Canada.
The second point is working with a progressive agenda and new generation of FTAs but allowing for flexibility with some trading partners by finding common ground on core labour standards.
Senator Dagenais: I want to thank our guest. Your presentation was very interesting. You mentioned NAFTA. There will probably be talk of a symbolic agreement in a few weeks. However, a symbolic agreement remains just that.
Do you understand French?
Ms. Hum: Yes, I speak French.
Senator Dagenais: The Americans came back with the “sunset clause” so that, in five years, they can end NAFTA, which will force us to renegotiate.
You talked about the tax rate for employers, which can stop businesses from coming to Canada. You also talked about the tax rate for workers. Often, workers are less heavily taxed in the U.S., but they have fewer social benefits. However, they are still drawn to the United States.
If you had an important recommendation to make to the government to attract businesses and workers to Canada, what would it be?
Ms. Hum: To attract employers and to attract businesses and also workers into Canada, if I understand you correctly: I think that’s a two-part question. I don’t have one principal answer for that.
I think Canada is attractive to workers generally. It has very high standards when it comes to workplaces and a very generous social protection net. These are standards which are to be emulated by other countries.
However, when it comes to business interests, it’s hard for me because I get the clients once they have actually invested. Once clients have invested in Canada, they feel they will manage the changes, the increased minimum wage.
Part of the reason they have invested in Canada is because it has a generally diverse population with a good standard of living.
What I don’t see in my work is those businesses who choose not to employ, because I don’t see them; they choose not to invest in Canada.
My understanding from reports is foreign investment in Canada, businesses deciding to open in Canada, has dipped to the lowest level in, I believe, a decade. That is of some concern.
I know that the employers I deal with here are concerned they bear a large financial burden for treating their workers well. None of my clients have said they wish any of these standards to be rolled back. They weren’t pleased with the speed of the minimum wage changes in Ontario, but they understand the need for a fair wage.
What is of concern is these social benefits, work benefits to workers, are being done at the financial expense of employers. What they would like to see are tax changes that will assist them to be more competitive. This is particularly an issue with the smaller businesses.
Senator Dagenais: You seem to be knowledgeable in cross-border workforce. Perhaps you have had to deal with arbitrations concerning specialized workers, such as IT workers, who have had to decide between working physically in the United States or in Canada.
Given the advantages that represents, setting aside significant subsidies, does their choice tend more toward the U.S. or Canada?
Ms. Hum: My practice as a lawyer is limited to Canada. That’s just the nature of employment and labour laws. I have not engaged in any arbitrations that cross borders. It’s difficult to answer that question.
Senator Wetston: Do you know — and I don’t know this specifically — does NAFTA presently have labour mobility provisions in it?
Ms. Hum: Yes.
Senator Wetston: Do you know whether they are negotiating newer or more modern labour mobility provisions as part of the NAFTA negotiations?
Ms. Hum: I’m not aware that labour mobility provisions are an important part of current negotiations. I follow the NAFTA negotiations, and it’s part of the conversations I have with clients and colleagues. Labour mobility is of concern as far as the current status of the TN-1 visa, the professional labour mobility. I understand the list of the professions that is part of the TN-1 visa is unlikely to be expanded.
I would like to see it expanded. I don’t think the current American administration is keen on seeing it expanded, and I don’t think an expansion of that list is on the agenda. I may be mistaken.
I do think the list needs to be expanded, though, because the current list is based on the labour market and the marketplace as they existed 20 years ago. Some of the important labour mobility pieces will have to deal with professions and job skills that did not exist at that time. I’m thinking of high tech and other people in that field.
Senator Wetston: The Senate will be soon dealing with the budget implementation bill, and perhaps it’s started already. As you know, there was a lot of controversy this summer with respect to various amendments to the Income Tax Act — passive income, et cetera.
Ms. Hum: Yes.
Senator Wetston: I’m a little unclear as to whether or not your practice is exclusively representing international clients maybe investing in Canada, or I suspect you also deal with domestic entities who are here, perhaps start-ups and SMEs, obviously.
Do you have any comments on that, particularly from your clients as well?
Ms. Hum: I do. The professionals and small and medium-sized businesses are concerned. The passive investment piece, particularly, is a way for a business to grow. It is also a way for professionals and small-business owners to create their own pension plans. They are able to secure, within the business, a means to grow. The changes were much talked about among my clients. It was of great concern.
The Chair: Following up on the question of Senator Wetston, is it your view that Canada is at a competitive disadvantage — or advantage; you tell me — in respect of our labour mobility regime? Is it a help to Canada or is it not a help to Canada when we look at our competitive position? I’m interested in your view.
Ms. Hum: I think there are several pieces. Increased labour mobility is helpful when you are able to draw on talent from around the world to grow businesses in Canada. There is a shortage of certain skills. There is a shortage of talent, let’s say, to assist Canadian businesses to grow.
The opposite side is a potential for brain drain. If it’s easier for Canadians to go to other jurisdictions, then there is that potential as well.
Given Canada’s prominence in terms of higher education, one of the areas that could benefit from easier labour mobility is a focus on being able to attract students who will be able to stay, making it easier to be recruited into Canada and to convert their status as international students into a permanent status.
The other issue with labour mobility is the mutual recognition of foreign credentials. When it comes to professionals, for instance, an engineer from the United States would have to qualify and go through a long process of making sure their licensing requirements match the licensing requirements in whichever jurisdiction they come into in Canada.
There are several pieces to that. The American licensing standards may be different from the way they are here in Canada; and in Canada itself, there are different licensing standards within each province.
In order to have true international mobility when it comes to professional credentials, the provinces would have to work with the federal government in order to implement it, which is what took place with CETA.
Senator Unger: Thank you for your presentation. I’m looking at your section under “In terms of international trade and minimum labour and employment standards.” You make the statement that “Business and international relations is conducted against a backdrop of values,” and then a statement that “Including a progressive agenda into trade negotiations has its risks.”
Could you expand on that?
Ms. Hum: In the current NAFTA negotiations, Canada included pieces about labour standards as well as the recognition of gender equality and Indigenous rights. That is a progressive agenda.
On the labour standards, I think Canada wants to eliminate the right to work in various states in the United States. Canada is a jurisdiction which has mandatory unionization. In the United States, even if a union is in place, workers individually may opt out and not pay union fees. This is seen by many in Canada as an unfair advantage, and it’s something which the Canadian government is currently trying to negotiate out.
While we may wish to be progressive and we want to advance an agenda that creates fair working conditions for everyone, including women and ensuring there is access to employment opportunities for Indigenous peoples, it could create risks of a trade dealing falling apart if that is a make or break deal. That’s what I was referring to.
At the same time, a lot of these provisions, whether in NAFTA or the CPTPP, are aspirational in nature. If it has no teeth, if there is no enforcement mechanism, if there is no way to monitor it, I’m not sure of the value of inserting those pieces.
Canada would like to see the gender equality piece as part of enforcement mechanisms. This was just in the last few weeks. I’m not sure how it will work. I think the United States has some concern that Canada could use it to enter into a dispute about certain trades.
The Chair: Thank you very much, Ms. Hum, for being here. We very much appreciate that you took time from your practice to come and share your point of view on labour mobility issues. It’s a new point of view. We need to hear it for the work we’re doing, and we’re indebted to you for taking the time to come and share your point of view with us.
Ms. Hum: Thank you.
(The committee continued in camera.)