THE STANDING SENATE COMMITTEE ON FOREIGN AFFAIRS AND INTERNATIONAL TRADE
OTTAWA, Tuesday, March 10, 2020
The Standing Senate Committee on Foreign Affairs and International Trade met this day at 3:30 p.m. to study the subject matter of Bill C-4, An Act to implement the Agreement between Canada, the United States of America and the United Mexican States.
Senator Leo Housakos (Chair) in the chair.
The Chair: Honourable colleagues, this is the Standing Senate Committee on Foreign Affairs and International Trade. My name is Leo Housakos. I am a senator from Quebec, and I’m the chair of the committee.
The committee has been asked by the Senate to do a pre-study of Bill C-4, An Act to implement the Agreement between Canada, the United States of America and the United Mexican States.
This is the beginning of our hearings on the Canada-U.S.-Mexico Agreement Implementation Act. Before we begin, I would ask the senators to introduce themselves, starting on my right.
Senator Dawson: Dennis Dawson, Senator from Quebec.
Senator Ataullahjan: Salma Ataullahjan, Ontario.
Senator Ngo: Senator Ngo, Ontario.
Senator Massicotte: Paul Massicotte, deputy chair of the committee, from Montreal.
Senator Coyle: Mary Coyle, Nova Scotia.
Senator Cordy: Jane Cordy. I’m also from Nova Scotia.
Senator MacDonald: Michael MacDonald from Nova Scotia.
Senator Dean: Tony Dean, Ontario.
Senator Boehm: Peter Boehm, Ontario.
Senator Harder: Peter Harder, Ontario.
The Chair: We have the honour in this first meeting to have with us on our panel Dan Ciuriak, Director, Ciuriak Consulting; Fellow in Residence, C.D. Howe Institute; and Senior Fellow, Centre for International Governance Innovation.
Also with us in the room is Colin Robertson, Vice-President and Fellow, from the Canadian Global Affairs Institute.
And by video conference from Toronto, we are joined by Lawrence Herman, Counsel, Herman & Associates.
Welcome to the committee and thank you for accepting this invitation. The first panel is going to set the stage for this wonderful pre-study that we’re doing. There is no pressure. Each member of the panel has five minutes for testimony, and then my colleagues will have a number of questions for you. Would anyone in particular like to go first?
Dan Ciuriak, Director, Ciuriak Consulting; Fellow in Residence, C.D. Howe Institute; and Senior Fellow, Centre for International Governance Innovation, as an individual: Thank you very much, Mr. Chair and honourable senators. It is an honour and pleasure to be here before you.
I would like to make three quick points: First, I will provide evidence on the quantitative impact of the new agreement; second, I will comment on what the agreement does and does not do for business confidence and certainty; and third, I plan to comment on the suitability of the agreement for the emerging knowledge-based and data-driven economy.
On the economic impact, relative to the status quo of an in-force NAFTA, we have estimated that the CUSMA generates a negative impact on the Canadian economy of about 0.4% in terms of real GDP. This is on a permanent basis. Relative to a baseline in which the counterfactual is NAFTA lapsing and section 232 tariffs are in place, Global Affairs Canada has estimated that the CUSMA is an improvement of 0.249%. If we put our own study into the same context, we get a very similar figure of 0.206% positive. It is negative relative to the status quo, but it is better than no NAFTA and section 232 tariffs being in place.
When we compare our numbers for the United States, we get a negative 0.1%. This is very similar to the United States International Trade Commission’s estimate of negative 0.12%. This triangulation gives us considerable confidence that we’re in roughly the same ballpark as the official estimates in terms of real GDP and economic welfare.
The main reason for the negative impact of this new agreement is the stricter rules of origin that drive sourcing into North America. This makes the North American production platform less efficient globally, and the impact of this on Canada and Mexico is proportionately larger than on the U.S. because a greater proportion of our economy is destined to produce for export to the United States. That is the reason for the negative impact and the greater negative impact on Canada.
With regard to business uncertainty, historically Canada has always been subject to trade shocks from the U.S. This goes back to the 1866 abrogation of the Elgin-Marcy Reciprocity Treaty, the 1930 Smoot-Hawley Tariff Act, the 1971 Nixon measures and the frequent targeting of Canada by anti-dumping and countervailing duty actions once these started to become a major item of trade protection in the 1980s. There is also the post-9/11 border thickening, the Buy American provisions adopted by the Obama administration after the great financial crisis of 2008-09 and the section 232 tariffs by the Trump administration. These things are a constant feature of Canadian life.
Uncertainty acts as a non-tariff barrier. Importantly, in this regard, the CUSMA retains the bi-national panel for a mechanism for trade remedy actions. It usefully improves the state-to-state dispute resolution mechanism, particularly in light of the fact that the WTO dispute resolution mechanism now no longer operates for the United States. It unhelpfully introduces a sunset clause that clouds longer-term business certainty. Worryingly, it does not address and restrict the use of section 232 in the future.
With regard to the knowledge-based and data-driven economy, our economy is evolving very rapidly today because of technological change with big data, artificial intelligence, machine learning and the looming Internet of Things. All of this is driving the potential for pervasive disruption. This emerging economy is also prone to market failure.
Globally, there is a high degree of regulatory ferment to establish guardrails for this new economy. Data is not treaty ready, and I would argue that CUSMA is not data ready. This agreement’s major impact on the data-driven economy is to lock in the wide-open regime that the big tech has had since the inception. By the same token, it limits Canada’s ability in the future to regulate this economy and, in fact, to develop policies which will enable us to prosper.
In conclusion, the CUSMA is a step backward in North American economic integration. It signals this with the absence of the words “North America” and “free trade” in its title. Its marginal impact relative to the status quo is negative in economic efficiency and welfare terms. It leaves Canada exposed to the risk in terms of our future market access, which Canada will have to address through trade diversification actions, and it forces Canada to work within a constrained policy space to prepare for our future in the data-driven economy.
In point of fact, senators, while the CUSMA has been billed as a 21st century agreement, the 21st century for which CUSMA was designed is effectively already over. Force majeure requires Canada to sign this agreement, but it is important in implementation to preserve and create as much policy space to allow Canada to chart its own future course in the real 21st century that is now rushing toward us.
Lawrence L. Herman, Counsel, Cassidy Levy Kent, as an individual: Thank you. I appreciate the opportunity to testify this afternoon as part of your study of Bill C-4.
I want to make some brief comments on Bill C-4. A number of things are critical here. The bill is a piece of implementation legislation to deal with a treaty that has been painstakingly negotiated and signed by Canada and the other two parties and ratified by the United States and Mexico. Of course, the bill has a provision that says the agreement is approved, so, in approving the bill, the Senate will be asked or forced to approve the agreement.
I don’t believe this agreement can be entirely assessed by economic modelling. Economics is an uncertain art and there are many dynamics in the business relationship that belie any attempt to fix a gain or a loss on the basis of those models. But what is absolutely certain in my view is that, with an agreement signed and ratified by the United States after going through the U.S. Congress, were Canada not to follow suit and ratify this agreement, the consequences in terms of Canada-U.S. relations would be devastating. In my view, it is absolutely impossible to suggest that Canada should not proceed with the approval and ratification of this agreement.
Why? Because, as has been mentioned, stability and certainty are vital for the Canadian business community and for Canada-U.S. relations in particular.
Those are my comments. I’m happy to deal with any other questions related to the specific provisions in Bill C-4, but in my view, it would be a mistake of monumental proportions for Canada not to ratify an agreement that has already been ratified by our most important and ongoing trading partner, the United States. Thank you.
The Chair: Thank you, Mr. Herman.
Colin Robertson, Vice-President and Fellow, Canadian Global Affairs Institute: I encourage you to implement the Canada-U.S.-Mexico Agreement. It is not free trade, but it is freer trade. It is not perfect, but it is much better than no deal.
CUSMA gives us a set of revised rules essential for growing and sustaining our vital continental commerce, roughly about 75% of our trade. Its dispute settlement provisions provide the stability necessary for business and investment decisions. It draws much from the original NAFTA with updates drawn from the Trans-Pacific Partnership in digital commerce, intellectual property, labour and the environment.
CUSMA caps a decade-long effort by federal and provincial governments representing different political parties to open doors to key markets across the Pacific, the Atlantic and, of course, to sustain North America.
As this committee observed in its 2017 report, free trade agreements are a tool for Canadian prosperity. Trade generates two thirds of Canada’s GDP, making us the twelfth largest export economy in the world.
The trade deals — CUSMA, CPTPP, CETA — are a tribute to our leadership in governments, business and labour. They prove that we can make common cause on issues of national importance. Trade diversification is necessary, but for Canada, when it comes to trade and security, it will always be the United States and then the rest.
Now we need to make our trade deals work for us.
First, there is unfinished business when it comes to regulation, infrastructure and internal trade.
Initiatives launched by the Harper and Obama governments and continued by the Trudeau and Trump governments around regulatory cooperation and beyond-the-border action plans are buried within our bureaucracies. Progress requires political oversight. I encourage this committee to hold hearings to identify the roadblocks and keep governments’ noses to the grindstone.
U.S. Democrats and the Trump administration have agreed to a US$2-trillion infrastructure plan, although there is no agreement on how to pay for it. Since there is no procurement provision in the new trade agreement, Canada needs to link into this initiative. To get the best value for our citizens, premiers and governors need to work out the kind of reciprocity deal that the U.S. and Canada achieved in 2010. Again, it was the premiers.
Getting our goods to market means improvements to our ports, pipelines and grids, rail and roads. Canada has an infrastructure program, but is it moving fast enough? This should be an area of close collaboration with all levels of government. Again, parliamentary oversight of the process and progress is essential.
Free trade within Canada remains the unfinished business of Confederation and I applaud and underline the recommendations of the Standing Senate Committee for Banking, Trade and Commerce in its 2016 report, Tear Down These Walls.
Second, the all-Canada effort to remind Americans that our trade partnership is mutually beneficial must become a permanent campaign. American protectionism is older than the republic. It will continue no matter who is president.
While we can’t vote or make donations to campaigns, we can illustrate by district and state the jobs created by Canadian trade and investment. I encourage you to use your travel authority to go to Washington and meet your counterparts. I also encourage you to adjust the rules so you can travel throughout the United States.
This must be a permanent campaign encompassing all sectors, including our cultural industries. I applaud this committee’s recent report on making cultural diplomacy the main stage of Canadian foreign policy, and I would say that it starts with our North American market.
Third, we need to know more about North America, especially the United States.
Given our propinquity and innate understanding of the United States, why aren’t we turning this to our advantage? How many serious centres or research chairs focusing on the U.S. and our continental trade are there in Canada? You will be very disappointed in the answer.
Canada’s influence in the world is measured to a large extent by our understanding of the United States. By using our knowledge and relationships with Americans, our ability to leverage our influence in Washington and state capitals makes us a more desirable partner with the rest of the world. They also have to do business with our often complicated and sometimes confusing neighbour.
In conclusion, I encourage you to pass CUSMA while taking initiatives that will grow our commerce.
Senator Massicotte: Thank you for being here. This is an important step for Canada and an important decision we have to make.
I’ll start with Mr. Ciuriak. You heard the other witnesses. They were clear that despite some possible negotiations or deficiencies, irrespective of our circumstances, we should approve the agreement or the bill as proposed. I sense you were saying the same thing, but I wasn’t very clear because you spent three quarters of your presentation outlining some weaknesses or things that shouldn’t be there or could be improved.
At the bottom line, do you agree that our committee and the Senate has one choice to approve or disapprove? If you disapprove, it’s complicated. You have to go back to the United States and Mexico and, probably, given the temperament of the U.S. president, we may never have a deal. Could you clarify what your position is? What would you do in the final stages?
Mr. Ciuriak: It’s a good question. I agree with my colleagues that Canada will have to pass this agreement. What I urge you to focus on is how you pass the agreement. Our laws are not the same as in the United States and comparable measures in the U.S. and in Canada can have different consequences. We need to tailor the implementation of this agreement such that it leaves us as much policy space as we can possibly create to adjust to this coming data-driven economy to which I referred, which will require regulatory action in a number of areas. I could elaborate on that if you wish.
Senator Massicotte: What you’re saying is obviously, as you know, the agreement requires a lot of regulations. I think they’re going very hard in doing so — hundreds of pages. What you’re saying is don’t complete the negotiation. Try to negotiate a better — more freedom or more space in those terms to get us where we want to go. Is that what you’re saying?
Mr. Ciuriak: No, I don’t believe we have to renegotiate. However, I do believe we need to be very lawyerly and sharp in how we draft the implementing legislation and regulations. For example, the issue of tractors and repairing tractors has been put forward to the Canadian Parliament. In the United States, state-level measures allow farmers to repair their tractors. In Canada, the data provisions would preclude that. So we need to build in flanking measures in Canada such that our farmers can fix their own tractors if necessary at the same level at least as American farmers have. So it’s how you do it, rather than what we do here.
Senator Massicotte: Mr. Robertson, as you know, in negotiations they tried hard to improve the Buy American Act and all the infrastructure investments, but they got nowhere, and therefore they’re relying somewhat on WTO. What are your comments on that? Is there a way to get there? Because this is a big piece and a big number.
Mr. Robertson: Yes, I believe there is. Inevitably premiers and governors who have to administer the budget when it comes to infrastructure want to get the best value. One thing they also want to avoid is cartels within their state. So by opening it up to other vendors, you don’t necessarily take them, but perhaps it helps keep local vendors more disciplined. I referred to the 2010 reciprocity agreement on procurement.
At the federal level, we weren’t making much progress. It was something we knew. President Obama had put half a trillion dollars into infrastructure to restart the economy after the 2008 recession and we wanted a piece of it. This is how it turned out: Premier Wall came down with seven of the premiers to a conference of national governors in February 2010 in Washington and sat down. They said, “Look, we’ll open up our market if you open up your market, for the reasons I outlined.”
And it worked. We got this multi-page agreement. There were some exceptions and things, but at least it got us in the door.
I’m afraid that, with the pressure the U.S. is putting on the government procurement agreement negotiated in the WTO, we’ll have to resort to the relationships we have, and we are better placed than any country in the world to do that.
I talked about the relationships that you too can forge; many of you have. That’s going to be important, because more than any country in the world, Americans like us. We’ve got an advantage. We don’t like them as much as they like us, but we should take this as our advantage.
So I would say that we can achieve this, but it wouldn’t necessarily be the traditional trade policy route.
Senator Dawson: Being liked is not an objective we can attain every time.
I was going through the transcripts of the House of Commons, and I’ll quote what was said: “Those are weasel words,” because you said this is the best we can have under the circumstances.
There are flaws. I hope the tone set here today by our three witnesses will be maintained. I agree with you; it’s the best we can get. But there are weaknesses. We have talked about cultural policy being absent, and we have talked about provisions for the protection of data under Canada and the U.S., in particular, more than Mexico.
You said that we have to be lawyerly. It’s a question of trying to be sure that when we do report — I think we will accept this bill, and I think we will report on it and include comments. But I’d like you to give us some recommendations on what some of those comments would be regarding lawyering up, in particular for privacy, access to information and data collection.
I have to admit I was going through the different titles for it. We have USMCA, CUSMA, ACEUM and Mexicans call it the TLCAN. It was easier when it was NAFTA. We will have to find an agreement in our report as to what we really call this.
I would like you to give us some recommendations on what we could talk about in our report to the chamber and what needs to be done to attain the objectives you mentioned in your presentation.
Mr. Ciuriak: My first comment is that I’ve been referring to this agreement as the North American Me-First Agreement, or NAMFA.
Senator Dawson: That’s a new one.
Mr. Ciuriak: I don’t necessarily recommend that to the committee.
In terms of what could be done, I suspect that much of the work will have to be done outside of this particular implementing act. As I mentioned, there is a considerable ferment in regulatory activity going on, particularly in Europe, on things related to data, the GDPR and other areas.
We will face a very significant issue of developing regulations for security and for the Internet of Things. This has been described as the interactive central nervous system of the data-driven economy. It is open to hacking. We face major issues regarding who will supply the equipment for that, who will supply the software and how we will actually preserve the integrity of our backbone infrastructure for transportation, energy, finance and telecommunications.
Developing those regulations may require, for example, some degree of data localization. If you read the new European data strategy, it talks precisely about that. The question about whether we can have a secure backbone infrastructure for our economy with the data being located in the cloud — and I would remind everyone the cloud is just someone else’s computer — is this: What are the parameters for our regulatory framework that will be needed to secure this new economy?
On top of that, we have any number of issues regarding the use of data by platform firms, such as Google, Facebook and so on. The manipulation of elections, for example, is top of mind for many people right now. There are innumerable issues regarding what data should be collected, how it should be used and who should own it. This is all surfacing in the context of the Sidewalk Toronto project.
None of this is yet settled material. I certainly would not be the proper person, as a trade economist, to comment on how this committee should address those particular issues. I’m not even sure it is this committee that would be addressing those issues. But I do believe this committee should be looking very carefully to make sure that, as Canada proceeds on regulation for this data-driven economy across a number of spheres, the trade agreement is not overly restrictive.
We should not rush in this regard. The United States is not going to withdraw. The election is still some time away. This is not time-sensitive stuff for us. We can do our homework. I would urge this committee to bring in witnesses to hear about how the measures that implement this act should be drafted to ensure we have the proper language in place to provide us that policy space.
Senator Dawson: We had also said that, under the expectations, the Americans expected us to pass it quickly. That was many months ago. We promised them; we said, “Send it back to us, and we’ll pass it quickly.” So I don’t know how long we can continue working on the wording, but I certainly feel you’re right that we need to have some comments and give some direction to the government. But I certainly wouldn’t want to delay it that much.
Mr. Robertson, you were accused of using “weasel words” in the other place, so maybe you want to defend yourself as a parliamentary privilege.
Mr. Robertson: I thought what I said was clear, but I’ll just say that there is sometimes a temptation to look at trade agreements like a Christmas tree and put all sorts of things on them. I’ll just say that, with regard to data, there are other places where that is being discussed.
If it needs the time Dan says it does, I’m not sure this is the agreement. For that same reason, the environment is there and good, but we’ve got climate agreements, and we’ve gotten labour through the ILO. There are other fora where these things should be considered.
Never forget that we went into this thing with Mr. Trump saying that it was the worst deal ever negotiated, and his commerce secretary telling us that this was about Mexico and Canada giving and the U.S. getting. I think we’ve come out of this extremely well. It is our biggest market. It’s not perfect; it can doubtless be improved, but we can do an awful lot of this stuff under the existing agreement.
I’m not as fussed as some that there is a sunset clause, because there is a sunset clause in every agreement, effectively. You can dump these things off with six months’ notice, anyway. It is important, as with NAFTA, that you keep the thing evergreen. When we negotiated NAFTA, we didn’t travel with these things in our pockets. We weren’t thinking about big data, Google and Facebook. They weren’t around.
So this agreement is as good as it gets under the circumstances. We can make improvements, but let’s make improvements with it in place.
Senator Dawson: Thank you.
The Chair: You can see Senator Dawson is so kind as to pass around parliamentary privilege.
Senator MacDonald: I’ll direct my question first to Mr. Ciuriak, but I’d like the others to feel free to join in afterward.
I have two studies here, one from the C.D. Howe Institute and one from Global Affairs Canada. There are some discrepancies between these two studies.
I want to speak to U.S. section 232, national security tariffs. The C.D. Howe Institute states:
. . . the failure of the new agreement to eliminate the application of US section 232 national security tariffs on imports from its North American partners signals future risk concerning assured access to the US market.
The CUSMA does not prevent the future application of Section 232 tariffs, which have been revived by the Trump administration for ad hoc protectionist purposes . . . U.S. forbearance in applying section 232 tariffs to Canada and Mexico on autos, should those measures be adopted, is only incorporated through a side letter.
On the other hand, Global Affairs seems to say the opposite, that Canada has secured an exemption for many future U.S. section 232 tariffs on automobiles and auto parts.
Did we secure a legal exemption or not? If we did, does it hinge on the way according to a side letter in the 60-day exemption?
Mr. Ciuriak: I’m not a lawyer, and perhaps Larry Herman might wish to comment on this, but we do have an exemption from the application of the tariffs on autos should the Americans go ahead and impose 232 tariffs on the rest of the world. So does Mexico. That is subject to some kind of a ceiling on the amount that we might export to the United States in that event.
We also have the removal of the section 232 tariffs on steel and aluminum in the side letter. For those three product groups, section 232 is dealt with by the agreement. But there is no general mechanism that says Canada will have an ability to limit the application of section 232 to other Canadian products that might become of interest to the United States.
Here I would quote Ambassador Lighthizer testifying before Congress when he commented on Canadian aluminum. He said the problem is not that it is Canadian, the problem is that it is aluminum. The question becomes, what else will become an issue that the United States will deem to be a national security issue if economic security is defined as national security? My concern is that, unlike in 1989 when we obtained at least the bi-national panel mechanism to address each and every new anti-dumping and countervailing duty should we feel it was not properly applied, we do not have such a general mechanism now to deal with section 232.
In 2020, section 232 is what the anti-dumping countervailing duties were to Canada in terms of uncertainty about future access, as they were in 1989. Does that clarify this at all?
Senator MacDonald: I want to see what Mr. Robertson has to say, too.
Mr. Robertson: A lot of it comes down to interpretation. You have seen the official Canadian government interpretation that this gives us an exemption. That is the word we will take to our American counterparts, and we will have to continue to do that. Part of the reason that the steel and aluminum tariffs were lifted was because of the pressure that came from within the United States. It wasn’t Canadian pressure, although I think we helped make it possible by reminding all of the people who use Canadian aluminum — and they are in the hundreds of thousands. The actual number of steel and aluminum makers is maybe like 42,000, but there are hundreds of thousands who use our products. They were the ones who put pressure on their state legislators, their congressional delegates and on the administration to say, “Lift this, because it is doing measurable harm.”
The interpretation I would put forward would be the one that Global Affairs has taken, but it will be important for us to continue that permanent campaign to remind Americans of what they did. While Americans are extremely litigious, they also like to think they follow the letter of the law. If we put our interpretation of the letter of the law out, which is contained in the Global Affairs study, I think that will go some distance. I would just like to underline to you that when you deal with the United States, nothing is ever permanent. You have to be down there all the time reminding them of your interests. It is political.
Senator MacDonald: Of course. Does our third witness want to say anything? Mr. Herman?
Mr. Herman: Section 232 is the U.S. application of an exemption under the WTO agreement. It’s in the GATT, part of the WTO agreement. It gives countries the right to take national security measures. It has not been used under the WTO agreement until now that the United States has applied that exemption under the WTO agreement. They have retained that right under this agreement, and they had that right under NAFTA. Big deal. They have the right to apply national security measures. Now it is a matter of how they want to approach it. Other countries have restrained themselves from using that WTO-recognized exemption. Mr. Trump has seen fit to invoke that exemption, and that’s where we are today.
What we do have is an exchange of letters that amounts to an understanding between the two governments that section 232 would not be applied to Canadian automobiles unless they exceed a certain threshold of 2,600,000 units. So, we have got a restriction on their application of section 232 to the auto sector, but in terms of the general use of the national security exemption, it’s part of the WTO agreement. There is no way that we could convince the United States to abandon that right. That’s where we are. It’s no different, in my view, than what we had in NAFTA, with one important exception. They have agreed to cap the limit or to restrict the limit below a certain level of Canadian automotive exports. The automotive sector, in my view, is free and clear from section 232. Other sectors may not be, but let’s hope the United States exercises its own restrictions and doesn’t apply section 232 to a broad range of products.
Senator MacDonald: This question will again be for all three of you. It refers to article 32.10 of CUSMA, which requires the three parties to give three months’ notice to the other two countries before it begins negotiating a free trade deal with any non-market country. This provision has been described as unprecedented in that it requires any party to inform the other parties of the intention to convince any free trade negotiations with a non-market country at least three months before starting such negotiations.
I have a couple of quotes here from international trade law specialists. One is Clifford Sosnow, a Canadian international trade law specialist who said:
The measure sets up a level of closeness and consultation that one sovereign country typically doesn’t have with another sovereign country prior to reaching a trade deal with another country.
He added that:
It is quite remarkable.
Gary Hufbauer, senior fellow at the Peterson Institute for International Economics in Washington has further stated:
I know Chrystia Freeland says it’s not a restraint on Canada but we’ve never seen a provision like this, which holds out the threat of divorce if the U.S. doesn’t like the terms of an agreement.
Regarding that provision, Hufbauer also said that:
It puts a cloud over the ability of Mexico and Canada to negotiate with China and other ‘non-market countries.’
I guess I want to ask you two questions. Have you ever seen a provision like this in an international trade agreement? Is it not unusual that the Americans would, in essence, be informed about the content of Canadian trade objectives and in the negotiation with a non-market economy before the Canadian Parliament would be informed?
Mr. Herman: May I answer that?
Senator MacDonald: Certainly.
Mr. Herman: You mentioned Hufbauer and Sosnow and their analysis; I also did an analysis of 32.10 and it was published by the C.D. Howe Institute. The reality is that if we were to enter into trade negotiations with China — because 32.10 is aimed at China — naturally, we would advise the United States of our intentions. I think it is inconceivable that the Canadian government would not give the United States government, its major treaty partner in this trade agreement, advance notice. To my mind, 32.10 does nothing more than enshrine what would actually happen in practice.
Second, you have to read 32.10 very carefully. It says entry into trade negotiations. The reality is that free trade negotiations with China are a distant mirage. It’s not going to happen tomorrow. It’s not going to happen 10 years from now. The idea that we would be stymied at entering into trade negotiations with China because of 32.10 is a mirage. As I said, the main point is that we would consult and advise the United States — our major trading partner — if we were to embark on free trade negotiations with China, in any event. So I do not see 32.10 as being a serious impediment to Canadian trade policy in the least.
Senator MacDonald: You kept referencing China. I would like to hear what the other two gentlemen have to say about it.
Mr. Robertson: I would concur with Larry. I am not fussed by it. I saw it, and I know some people are troubled by it. I think it was much less about Canada and Mexico than it was about internal politics in the United States and the Trump administration wanting to demonstrate to their base that they could do this. So I think, for the reasons Larry has outlined and as I have discussed with Gary Hufbauer, that, for the practical effect on Canada, the question is — and you can be Clintonesque here in semantics — when do you actually start an agreement? Some could argue that Mr. Harper and Mr. Trudeau had, in fact, already started to improve the economic relations with China. But as we know, they are in the deep-freeze for now, so I just don’t think it will have practical effect. It’s much more likely that the United States will have to be consulting us and Mexico as they move toward some kind of a closer agreement with China, which is certainly not what Mr. Trump had in mind when he insisted Mr. Lighthizer put this in the agreement.
Mr. Ciuriak: I concur with those who commented on the measure as being unusual. I have never seen something like this. It signals something. As we mentioned before, any agreement is subject to a six-month withdrawal notice, so in practical effect, it doesn’t change matters. What is important is the signal. This is part of a multifaceted, American strategy to contain the further rise of China, and it essentially sends a signal that countries that wish to have trade agreements with the United States will not be able to have trade agreements with China.
This is much more important geopolitically, I think, than it is for practical purposes, but it does signal a future constraint on Canadian trade flexibility as we pursue trade diversification.
Senator MacDonald: Thank you.
Senator Cordy: Thank you very much to the three of you for being here today. As somebody said earlier, it’s a great start to our study on the free trade agreement.
Mr. Ciuriak, you said in your opening comments that CUSMA is not data-ready in a data-driven economy. You spoke a little about it. I wonder if you could expand on what you mean by that.
Mr. Ciuriak: Certainly. So we’re just at the very dawn of this new economy. It has a lot of interesting features, which differentiates it from what we have been used to. It’s an economy that features very steep economies of scale and economies of scope. If you think about the scale economies, think of Google’s gleaming server banks. Those are hard for competitors to replicate. For economies of scope, think about Facebook getting information on clients from various sources. Now they want to add financial information because when you cross-reference different types of information, that information becomes more powerful. The more types of information you have, the more difficult it is for anyone to compete with you.
It also features network externalities, so the more users you have, the more useful it is to the users, and that leads to what is called a “tipping point,” whereby one firm becomes the dominant provider, and perhaps most importantly, it features information asymmetry. The real story about big data is that the information it provides is not something which is accessible to the normal human mind or normal types of extractability. You need really large data sets, and you need very powerful computers to extract the pattern information that then gives you an advantage. Think about having a sixth sense at an industrial scale. That gives you an advantage in competing in the market economy, which will lead to dominance.
So this particular economy, which is emerging, is market failure central. It will require regulation on competition policy. It will require regulation to deal with the use of information that the major companies have accumulated in ways that we can’t really anticipate. No treaty at the moment that we could write down would be data-ready, because we don’t even know what we will need to do in the future.
I already commented on the issue of cybersecurity. The Internet of Things will be a very vulnerable thing. How do we devise the regulatory framework for that, the checks and balances, to ensure that the internet system is not going to be used to hold us hostage, as ransomware is being used for now, not necessarily by criminals but by states? How do we regulate that? How do we put in place all those measures? There is an awful lot of work to be done. Unfortunately, the business model of the United States is to entrench the first-move advantage that their major internet corporations have. They, along with China, are the only country that has got these internet giants, and they are moving to lock in basically the wild west situation for regulation which currently exists.
So, that is what I mean by the treaty not being data-ready because it simply locks in the current situation, or attempts to, and then leaves us working within those constraints to deal with all these regulatory issues that we will face.
Canada, for example, is an active participant in the International Grand Committee. They have met here in Ottawa, and they have invited people like Mark Zuckerberg to appear, and he declined, basically establishing or portraying himself as a peer of government regulators declining to appear. This is the power that these corporations have; how is that to be reined in?
I hope that helps to provide some background to my comments there.
Senator Cordy: You have provided background, but you scare the daylights out of me when I hear these things.
This is a trade agreement in 2020, and we know that companies can be behind the data economy in a month, two months, six months or two years. How do we devise a regulatory framework? How do we have regulations in place but at the same time leave it open enough so that we can make changes? Changes are happening so rapidly. I remember, when my kids were little, everybody said to parents that you have to have the computer in the family room or the kitchen so that you can monitor everything that they are doing. Now the kids are carrying their computers in their pockets, so times have changed. This is an example of how outdated it will be in a year’s or two years’ time. How do we move along with it?
Mr. Ciuriak: I can say that the Centre for International Governance Innovation, where I’m a senior fellow, has got a very wide-ranging program in precisely this area and is coming forward with various recommendations. I can tell you also that the European Union is very active in that area. They don’t have the leading superstar firms of the internet age, and their interest is primarily, therefore, defensive and regulatory, so we can learn a lot from what they are doing to protect themselves in this particular world. Also, for example, in dealing with antitrust, the Europeans have been the first ones out of the gate to attempt to rein in the anti-competitive actions of these firms.
There is a lot of activity right now. I download large papers all the time that I haven’t had a chance to read. But I do think that Canada needs a national data strategy that comes complete with a regulatory framework that addresses the issues related to how this economy behaves in terms of concentration and the exercise of economic power and, above all, gives us a strategy to build up the intangible assets that lead to prosperity in this age.
In the S&P 500, over 90% of its assets are intangibles. A lot of that is intellectual property; a lot of that is data. Intangible assets as a share of the Canadian equities have been falling. That is a remarkable statistic for us, and a damning one for us in terms of our ability to forge a knowledge-based, data-driven economy that can compete in this world. We are doing quite well in terms of some innovation elements, but certainly we haven’t translated that into the acquisition of intangible assets that will be the source of prosperity in this age.
Senator Dean: Supply management was a major issue going into these talks, and it was a major and highly public expectation of U.S. negotiators to the highest level. We know what came out of it: some limited access to some limited products with a phase-in period.
I wonder if you have any reactions about where we started with this, what the expectations of U.S. counterparts were and where this ended up.
Mr. Ciuriak: In terms of the supply management areas, when we started out this negotiation, Canada and the U.S. had remarkably balanced trade over the previous five years of data that I had at the time. We had almost identical amounts of total receipts and payments, so I thought that we were not going to be in the crosshairs of the Trump administration on this bilateral trade balance issue. But he found something, and he found it on dairy. In dairy, the United States has a surplus. It was about $500 million or $600 million in exports to us versus $100 million going the other way. Nonetheless, he picked on at out-of-quota tariff of 270% and made that the big issue. He even made up numbers about trade in speeches. He picked on something that he could use for leverage.
The Americans got a tidy expansion of their market access in Canada, which will be essentially used to reduce the surplus that America has internally because they have been promoting the development of dairy beyond their own requirements and now basically have a stock of cheese that they could build a wall in Mexico with. That’s going to be coming to Canada.
Does that improve welfare or not? With the way that the quotas are managed, it will probably not lead to any real significant economic welfare gain. It’s not free trade; it’s managed trade. And the Americans also have something in poultry. These are minor effects. We have quantified those in our own estimates, and for Canada, it leads to a negative impact on the agricultural sector overall — not a huge one, but a modest one — and it contributes to the negative welfare impacts in Canada.
Senator Dean: I wonder if Mr. Robertson or Mr. Herman have anything to add.
Mr. Robertson: Mine is perhaps not a conventional view on supply management. My view is we look at this through the wrong end of the telescope. Just as we compete extraordinarily well with agri-food, meat and pork or our grains, for example — and I think we could do the same with dairy — for whatever reason, we have decided to adopt a highly protectionist approach to what I think could be a great export for Canada. The better model for us would be New Zealand and Australia, which also had a kind of constrained market with high tariff walls. New Zealand now provides something like almost a third of that which is exported throughout Asia. There is big demand for protein in Asia now. It will grow. I think we could be a piece of this, but we have constrained ourselves.
Anybody who eats our cheese — I used to serve our artisanal cheeses from Quebec when I was on posting — would say, “Give us more of it. We simply can’t get it.” I think we should look at this as a way of 15 years ago or 20 years ago, as we opened up the grain market, at one point we had some constraints on our beef and pork. We compete extraordinarily well.
With dairy, for whatever reason, we have chosen not to. We have protected it. We protected it again. We have opened the market up, but still 90% of that market is highly protected for the 5,000 or 6,000 dairy farmers across Canada. It means we pay higher prices as consumers, and I think it also constrains an industry that could do very well, but there are some additional constraints in this with the Americans so that we will not be competing.
My view on this is not conventional. I think in terms of the negotiation tactics, the government did extremely well. They did what they said they were going to do. They managed to save it with very little opening to the United States. A couple of percentage points is what we basically gave through CETA and through the TPP as well.
Senator Dean: Mr. Herman, any comments?
Mr. Herman: Were you asking me? The audio was unintelligible. Was a question directed to me?
The Deputy Chair: The question was addressed to all of you, and Senator Dean was asking whether you had any comments on his question.
Mr. Herman: First of all, just one brief comment on digital trade. Going back to the last series of questions, there is a digital trade chapter uniquely in this agreement that is pretty good in terms of allowing Canada a lot of room to apply national policy when it comes to digital trade. There are some restrictions because we’re talking about free trade in digital products, but there is room for Canada to develop its own policies within the framework of the digital trade chapter in this agreement.
On supply management, I have been a critic of it for years. I think it’s an outmoded, Soviet-style system that is highly protectionist, and there is every disadvantage to us in not competing in global markets, particularly on dairy. We could be a world power when it comes to exports of dairy, but we don’t do that. We can’t do that because of our protectionist dairy policies.
Remarkably, as Colin has said, the Canadian government managed to maintain the supply management system in this agreement, in return for which we gave the U.S. dairy industry rather modest enhanced access to our market. So we have managed under this agreement to maintain an outmoded, Soviet-style system of protectionism, in return for which the Americans got some increased access to our market, but in the scheme of things, very modest indeed.
Senator MacDonald: I have a quick question about what Senator Dean was asking. I share a lot of people’s thoughts about supply management in principle. I’m not a big fan of it.
However, I always said I agree with it in practice when it came to the U.S. because the U.S. subsidizes their agriculture in a way that we do not, to tens of billions of dollars a year. Were you familiar with any effort of the Canadian government where they put U.S. subsidies of agriculture on the table? Or did we ask them to put them on the table as a counter to what they were asking us to do?
The Deputy Chair: Your question is addressed to whom?
Senator MacDonald: To all three of them.
The Deputy Chair: Just pick one. We don’t have time for all three.
Senator MacDonald: What have you heard, Colin?
Mr. Robertson: I can certainly tell you, when we did the Canada-U.S. agreement and the NAFTA, we made a list of U.S. subsidies, and you’re absolutely correct. The agricultural subsidies in the United States make us look like pikers. I do not know for sure, but I would think that we would have done that kind of homework again as we went into this agreement because we weren’t sure where the Americans were coming from.
Senator MacDonald: They have an oversupply problem. Wisconsin produces almost the same amount of dairy as Canada does.
Mr. Robertson: Part of the reason this was a big deal is because not only was Senate minority leader Chuck Schumer from New York pushing this one, but the then-Speaker at the time, Paul Ryan, was a Wisconsin cheese farmer.
Senator MacDonald: Yes. Thank you.
The Deputy Chair: Thank you very much, Mr. Herman, Mr. Ciuriak and Mr. Robertson. I think you have set the table for our debate, which will last several weeks. You have informed and educated us a lot on the issues, and it’s a very good start. Thank you for your time and thank you for being with us.
We are continuing our study of Bill C-4, the Canada-U.S.-Mexico Agreement Implementation Act. In this second hour, we will focus on national economic considerations with our three witnesses. We now have Mark Agnew, Senior Director, International Policy, Canadian Chamber of Commerce; Chad Swance, Board Member of the Canadian Association of Importers and Exporters; and Sujata Dey, International Trade Campaign Manager for the Council of Canadians. Welcome to all three.
Thank you for being with us. We look forward to your comments, followed by the question period.
I would ask Mr. Agnew to make his presentation, so that we can understand his point of view.
Mark Agnew, Senior Director, International Policy, Canadian Chamber of Commerce: Thank you for the invitation to appear before this committee today regarding the CUSMA implementing legislation. Given the critical nature of this agreement for our members, I am delighted to be here.
Many of you will be familiar with the Chambers of Commerce in your local areas across the country, but for those who aren’t, the Canadian Chamber of Commerce represents over 200,000 businesses across the country. That includes companies — everything from an SME through to multinationals — as well as sector associations and provincial and local chambers. The Chamber of Commerce was actively engaged throughout the CUSMA negotiations, attending negotiating rounds and mobilizing our membership network to partake in our Coalition to Keep Trade Free.
With respect to the legislation currently before this committee, the trade agreement is critical for the members of the Canadian Chamber. North America is and will remain our country’s largest trade partner. Businesses across the country have suffered from significant disruptive uncertainties since President Trump came to office. Although the CUSMA is not a cure-all for this White House’s erratic trade policies, it is crucial that we turn the page and lock in this new arrangement. It is in that spirit that we urge the expeditious passage of Bill C-4.
Every trade agreement involves trade-offs, and no trade agreement is perfect. However, our trade negotiators did an extremely commendable job against a very difficult set of circumstances with this White House. Allow me to highlight some of CUSMA’s particular benefits for Canadian companies.
Foremost is maintaining the original NAFTA’s benefits with respect to tariff-free market access for goods, given the volume of cross-border trade between our countries. The importance this certainty has provided has been underscored in media reports last month that the U.S. is considering raising its WTO bound tariff rates. The CUSMA’s goods market access provisions have been complemented by the Customs Administration and Trade Facilitation chapter to help ensure that goods can also move more easily across borders.
Shifting to the services sector, the retention of the labour mobility provisions from the original NAFTA will help to ensure companies are able to attract the best talent across North American borders. While we had certainly hoped to expand the list of covered sectors during the negotiations, enhanced labour mobility was realistically a bridge too far with this administration.
We also welcome the inclusion of digital trade provisions that will help set global standards on issues such as cross-border data flows. More specifically, what I mean by this are the standards that the USMCA will set for the ongoing WTO e-commerce negotiations that are currently happening in Geneva.
Crucially, for many of our members, CUSMA maintains the original dispute settlement provisions for anti-dumping and countervailing duty cases and also strengthens the dispute settlement provisions in the instances of state-to-state disputes.
Lastly, the side letters on section 232 measures provide a degree of protection for Canadian exporters. Certainly, however, as we heard from previous witnesses, we cannot afford to be complacent under this or a future U.S. administration.
As I noted at the start of my remarks, the chamber gives its full endorsement to the passage of Bill C-4 in a timely manner. However, we do not want to see this bill as the end of the process when it comes to ensuring Canadian businesses remain competitive.
The first point to raise is to ensure that our dairy sector receives full and fair compensation for the additional TRQs and export charges that are implemented as part of this agreement.
Looking outside the direct confines of Bill C-4, Buy America is a perennial concern of Canadian businesses and our members. As many of you will be aware, this considerably limits the ability of Canadian firms to participate in many U.S. infrastructure projects and, more specifically, limits the ability of Canadian companies to use Canadian-based operations to access those procurement contracts.
Unlike the NAFTA, CUSMA does not cover U.S.-Canada procurement, and we are concerned by media reports that the U.S. administration is also considering a withdrawal from the WTO GPA.
Another concern for a large segment of our members is softwood lumber. Canada’s softwood lumber industry remains in a challenging period due to a variety of factors, but top of mind is market access issues into the United States. We encourage the government to continue discussions to find a resolution in this ongoing dispute.
Finally, regulatory and border frictions continue to create problems for Canadian companies looking to leverage the CUSMA to its full potential. With the negotiations now concluded, we encourage the government to re-engage initiatives such as the Regulatory Cooperation Council and partner with industry-led initiatives such as the Beyond Preclearance Coalition. Many of these regulatory cooperation initiatives might not be friendly photo opportunities, but they are absolutely critical for businesses that are on the front line of trade day in and day out.
Although these issues were not ones that we necessarily expected to be resolved in the CUSMA negotiations, they are priorities for our members, and we hope that now that the CUSMA negotiations are concluded, we can refocus our attention on some of these more perennial trade matters.
As I mentioned at the outset, we urge the committee to move ahead with its study as expeditiously as possible so that we can complete our domestic ratification processes.
Thank you once again for the opportunity to be here today. I look forward to taking your questions.
Chad Swance, Member of the Board of Directors, Canadian Association of Importers and Exporters: Thank you, Mr. Chair and members of the committee, for giving the Canadian Association of Importers and Exporters the opportunity to appear here today. My name is Chad Swance, and I am a director on the board of directors of I.E. Canada, and it is a privilege to appear before this committee to testify with respect to the Canada-U.S.-Mexico agreement.
I.E. Canada is a national trade association that has been speaking on behalf of the Canadian trade community for almost 90 years. We represent some of the largest importers and exporters in Canada, as well as small– and medium-sized businesses. Our members import and export across all commodities and product lines.
The implementation of Bill C-4 represents a unique challenge for businesses in Canada. When a net new FTA is introduced, businesses move from high duty rates to low or near zero duty rates. Under CUSMA, businesses are shifting from lower duty rates to a new status quo of zero rates with an opportunity to fail out if their paperwork is not in order. This represents a new risk to implementation.
Further, there is no transition period from NAFTA to CUSMA. When CUSMA is implemented, NAFTA will no longer be applicable for businesses.
In Canada, FTAs are negotiated by Global Affairs Canada, but they are implemented by the CBSA. In 2018, the CBSA cleared almost 100 million commercial shipments into Canada, and we know that the vast majority of those are U.S.– and Mexican-origin goods.
Should an importer not have the proper paperwork in order, the business would need to pay the higher level of duty and then apply to the CBSA to recover the amount paid. Although the CBSA is undergoing a much-anticipated modernization, today’s reality is that the process for recovering duty paid in error is entirely paper-based. You can’t even send a fax in. Should only a small percentage of those 100 million shipments be caught in the process, CBSA will have a difficult time keeping their service commitments and businesses will suffer with cash flow issues.
In the immediate term, here are our recommendations for the Government of Canada: instruct the CBSA to undertake a period of administrative tolerance as the agreement is introduced; launch an education program for both CBSA officers and Canadian business; instruct the CBSA to issue bulletins of interpretation well in advance of implementation and never enforce a policy directive before it is published to the trade community; and, finally, temporarily increase staffing to the CBSA refund team to serve businesses better.
Over the past several years, the Canadian government has implemented TPP and CETA and is now, rightly, in the process of ratifying CUSMA. The Government of Canada has built a strong foundation for Canadian engagement in the global economy. In 2019, however, Politico announced that, in fact, only 37% of eligible shipments from the EU to Canada used CETA. From this evidence, we know that although the agreement is almost completely ratified, there is much work left to do on the implementation to reap the intended benefits.
After the completion of Bill C-4 hearings, I.E. Canada and our members would request this esteemed committee to undertake a study of the current international trade framework in Canada, with a focus on the strategic efficiency and direction of our borders and the government structures that support them. The study should consider international best practices like the American Border Interagency Executive Council that was initiated by President Obama and is still active under this current American administration.
I.E. Canada looks forward to continued dialogue with this committee, and I welcome any questions you should have.
The Deputy Chair: Thank you.
Sujata Dey, International Trade Campaign Manager, Council of Canadians: Good afternoon. I’m Sujata Dey, head of the international trade campaign at the Council of Canadians. Thank you for letting me make my presentation from Montreal.
With over 150,000 members, the Council of Canadians was founded in the wake of the debate over the first Canada-U.S. free trade agreement. It was the major topic of debate in the 1988 election.
Decades later, many of our concerns from 1988 are very similar: the downward pressure on our social protections and regulations, privatization, deregulation of the public sphere and the way that free trade agreements contribute to lowering conditions for workers and the environment.
Often, when trade agreements are conceived, they are framed very strictly: winners and losers, industries and markets. And yet, these agreements reshape our democratic rules and our societies, and not just our global markets.
With Trump’s NAFTA negotiations, we at the Council of Canadians knew that we were not going to change the model of how NAFTA worked. With that in mind, we proposed changes to NAFTA which would get rid of some of its worst aspects. Maude Barlow, who is our honorary chairperson, wrote A people’s guide to renegotiating NAFTA on the principles that we would be looking for in a new deal.
Over 35,000 of our members wrote their MPs asking for those changes. I’m happy to note that some things actually did change; others didn’t.
ISDS, or the investor-state dispute mechanism, has been taken out of the agreement, at least for Canada and the U.S., which is great news. This investment chapter gave corporations the right to sue governments over their policies. From now on, Canada must be vigilant to not accept this clause in any of its agreements, whether it’s in CETA, where it’s highly contested, or at any other forum.
As well, the mandatory energy proportionality provisions mandating Canada to export a quota of energy to the U.S. have been removed from the new NAFTA. This will give us more policy space to meet our G8 and Paris commitments.
The cultural exemption has been enhanced and now applies to the entire cultural and digital industry. Together with the Réseau québécois sur l’intégration continentale, we presented an open letter to defend this principle. This letter was supported by Margaret Atwood, Susan Swan, Jane Urquhart, Dominic Champagne, Philippe Falardeau, Pierre Curzi and Michel Tremblay, among others.
Also, biological provisions that would have made drugs more expensive are gone from the deal.
But there are other parts of the deal that are still problematic. It is those parts of the deal that the Senate can and should address in the implementing legislation.
For example, the chapter on regulatory cooperation might seem innocuous, but it is not. The chapter allows private interests to participate in a parallel process in Parliament. It is an undemocratic process and places new demands on legislators when developing new policies. If this process is not compliant, states can challenge regulatory measures using the state-to-state dispute resolution process.
We have seen that in CETA this regulatory cooperation process has been dangerous. In CETA, there is a similar voluntary regulatory cooperation chapter which is less stringent than in CUSMA. What we showed together with foodwatch, which is a European advocacy group, we got the documents from this committee, and we revealed the dangers of how these committees could affect public interest regulations. We showed that Canadian regulators were using the committee to weaken European Union legislation on animals and plants, pesticides and herbicides and getting it to walk away from the precautionary principle.
We need for this committee to establish checks and balances, including parliamentary oversight of the CUSMA regulatory cooperation committee. After our report came out in the Netherlands, the Netherlands Parliament passed a resolution asking for parliamentary oversight of these committees in CETA. I would be happy to provide you with that report on the regulatory cooperation committee in CETA.
On farming, much has been said about supply management and its effects on farmers, but not much has been said about consumers. In the 1990s, the Council of Canadians successfully campaigned to end the licensing of bovine growth hormone here in Canada. This hormone makes cows produce 25% more milk but at the expense of cow health. BGH is used in the U.S. and is not labelled.
We can ensure here in Canada that either it is labelled or there are restrictions on milk produced using BGH in its production.
As well, I wanted to draw attention to something this committee and the Council have both argued for, which is a trade process that is more accountable to Parliament and to citizens, with economic assessments and with a transparent negotiation mandate. This committee has advocated for it and has written a report asking for a more transparent policy, and our members sent about 2,000 letters within 48 hours also asking for this. As of now, Canada’s Deputy Prime Minister, Chrystia Freeland, has agreed to changes in the trade policy. The Senate, too, must revise how it incorporates public debate into its processes in light of these changes.
Already, with some of our agreements, such as South Korea and for CETA, for example, our exports have actually declined since the agreements have come into place. Going forward, a proper public process would ensure that the voices of all, not just the voices of industry, are incorporated into a trade deal and that trade actually benefits all of us. Thank you very much.
The Deputy Chair: Thank you very much, Ms. Dey. We’ll go to questions.
Senator MacDonald: I have a specific question related to the aluminum issue. As we are aware, under the terms of the agreement, 70% of all steel, aluminum and glass used in the production of an automobile must also originate in North America. The 70% steel requirement must be met by steel that is melted and poured by North American steelmakers. There is no similar provision for aluminum. This means that recycled Chinese aluminum can continue to be used in the manufacture of cheaper Mexican aluminum products. Mexico relies on imported aluminum scrap and billets, which it then melts and recasts into parts for the auto sector.
Jean Simard, the President of the Aluminum Association of Canada, has said Canadian negotiators fought but they lost. How concerned are you about this gap in the agreement? I guess my follow-up question to that would be: Why would the Americans treat steel and aluminum differently in this regard?
Mr. Agnew: To answer the second part first, I can’t speak to what was in the mindset of the US negotiators for why they sought a bifurcated outcome in steel and aluminum.
Some of the initial feedback we’ve had from people in the aluminum sector is that, yes, they would have perhaps liked to have a standard to bring them up to where the steel folks are. I would say two things in response. One, there is an ability to review that provision in a number of years in the future to see if we can have that discussion again. But I think what’s done is done. What we’re thinking about now and encouraging the government to do is get to the real root cause of the problem, which is ultimately overproduction in China. What is it we can do on a global scale to tackle the root issue?
There are a number of specific recommendations as well that the aluminum sector and Jean Simard have tabled around monitoring and alignment of HS codes. There are other things that can be done outside the confines of the agreement to look at minimizing any potential negative impacts.
Mr. Swance: I think Mark has covered it very well. It comes down to the regulatory interpretation of some of those clauses that are negotiated today. What comes out after the legislation is the regulatory framework, as published by the many implementing government departments. How some of those departments will interpret some of these regulations and what will happen in the regulatory harmonization process is yet to be seen, and hopefully we can address those issues there.
Senator MacDonald: I have a question for Ms. Dey. Your organization is, I would assume, clearly opposed to the agreement, or fundamentally opposed. However, would you be prepared to acknowledge that if Canada were not to ratify the agreement or were to amend the agreement, there would likely be serious consequences for the Canadian economy and for Canadian jobs? Wouldn’t you agree that would be the case and that you would prefer to avoid an outcome like that?
Ms. Dey: Well, I love these “won’t you agree?” and “do you agree?” and “what is my position?” Let’s go back here. First of all, our point of view, as the Council of Canadians, is that we need a different model of trade agreements and a different way to approach agreements. We do not want to be held hostage to the idea that, for example, NAFTA is absolutely important or our economy will go to smithereens. In fact, there is a study by the CCPA saying that, if there was enough, there would still be WTO and that would result in about a 1.5% difference. That is somewhat significant but still not the end of the world.
So the idea that we would be held hostage to NAFTA was something we saw as problematic. What we are looking for — and I phrased it again in my remarks — is how we could get into the negotiations so we could change certain parts of NAFTA. Ideally, we would have wanted a completely different type of agreement where there were more enforceable labour standards, more rights for workers and where there was a parallel process. We didn’t get that.
However, within the process we did say that we got a much better NAFTA than the other one. For example, we got rid of ISDS and the energy proportionality clause. We kept in some of the good things, for example, the exemption on cultural industries within the agreement.
This is still an agreement within the context of the global environment where we have an environmental crisis — and this agreement doesn’t recognize Paris — where there are extreme problems of inequality, of corporations subtracting themselves from legislation or avoiding taxes. This is not the type of agreement that we need, one that’s balanced.
However, we do acknowledge that there has been improvement to this agreement. My participation in this committee is to mention to you where we can make this agreement better. I mentioned in my statement how we can look at the regulatory cooperation councils. For us, they’re definitely one-sided. They’re one-sided in the sense that they want to get rid of regulations or they want to make it harder to regulate, and not in a democratic sense.
As the Senate committee, how are you going to put in checks and balances so that our worst fears are not realized in this agreement?
Ideally, I would have liked a different agreement. I’m in the situation now where we have what we have. We have a Trump government. We have a situation where we’re not going to get this agreement. In that case, how do we make it so there’s more balance to this agreement?
Senator MacDonald: Gentlemen, what’s your opinion? What would the consequences be for the Canadian economy?
Mr. Swance: I think the big issue, Senator MacDonald, is that Canadian businesses need confidence in the market. The vast majority of our imports and exports go to the United States and Mexico. Reverting to WTO or some other level of agreement would not be preferential for our businesses. A difference of 5% means being able to sell a purchase order to a U.S. company or not being able to sell. Even 1.5% would make that difference as well. Given no agreement or an agreement, I’m very confident that any business in Canada would be quite happy to have an agreement.
Mr. Agnew: The impact varies by sector, obviously. I’m not going to pretend there’s a one-size-fits-all answer. If you go to the auto sector, it would be calamitous to have to unwind supply chains that are based on the current arrangement. We would lose things like labour mobility preferences. In areas like digital trade, it’s more about standard-setting than new rule making, at least in the North American context. It does vary by area, depending on what you’re talking about. Certainly, if it were to go poof tomorrow, then we would feel that, absolutely.
Senator MacDonald: The Conservative Party is going to support the agreement.
The Deputy Chair: May I take this opportunity to clarify something? Both of you, when you made your initial presentations, seemed to indicate that the agreement needs repair. Both of you mentioned significant concerns — your words — about how it should be improved. If I understand correctly, these are all for the record, but the bottom line is that you recommend we approve the agreement as it is. Am I correct in saying that, Mr. Agnew and Mr. Swance?
Mr. Agnew: Yes, that is correct; approval as is. Just to be clear, the issues I raised are things that sit outside the agreement. With the agreement as it is, we need to refocus our attention on what I would call “business as usual” trade areas.
The Deputy Chair: Mr. Swance?
Mr. Swance: I.E. Canada also definitely supports the passage of Bill C-4 as it is. However, let’s look at responsible implementation to ensure we’re able to fully and successfully implement the legislation.
Senator Dean: This question is predominantly to Mr. Swance, but Mr. Agnew might have comments on this as well. It’s about customs administration. You touched on border services and the importance of getting information way out in advance.
We read in government materials that chapter 2, I think, would standardize the administration of customs procedures throughout North America. Your members, I presume, would be key beneficiaries of that standardization.
Can you give examples of how that would help and how the new customs provisions compare with other trade agreements — the Canada Pacific Trade Agreement, CETA, and WTO? Predominantly, how does this translate in the everyday lives of people who are importing and exporting in Canada?
Mr. Swance: That’s a very good question, Senator Dean. One of the main issues that Canadian and global businesses have is the administrative burden of customs declarations. For every shipment, there is an export and a set of regulations around that export. Then there is the corresponding import in the other market and the set of regulations around that import. Could we consider that the set of regulations surrounding the export from Canada could be harmonized with the set of regulations that would cover the import into the U.S.? I think we are very far away from seeing that happen.
In that same chapter, there is a clause that states that every customs administration will work toward a single platform, a single digital platform. I’m unaware of efforts today at the CBSA to work toward a single platform. The same can be said of the other customs administrations within the agreement. That may be a healthy starting point in working toward what would be considered a customs union of harmonized agreements.
The key benefit is market access and stability. If you know exactly that your shipment is going to enter into that other customs area freely — or even with duty, but you know that in advance, prior to packaging your goods and shipping it as a company — there’s a whole lot of administration and the risk of uncertainty that goes out of that, and you’re able to serve your customers better, which, at the end of the day, is what all businesses hope to do.
I don’t know if that addresses your questions in full.
Senator Dean: Does this agreement go some way toward providing some of that certainty to your members?
Mr. Swance: Over not having an agreement? Absolutely.
Mr. Agnew: The only piece I would add is the changes that this agreement has introduced to the so-called de minimis threshold primarily for things that are bought through online retailers. Currently there is one threshold that applies to both express couriers and postal routes, and it’s the same threshold for customs duties as well as domestic sales tax. As you may have seen in your briefings, the threshold has been raised but it’s now being split for customs duties and sales tax and then also being split in terms of applying to express shippers but not the postal courier route. So certainly that will be a new thing for companies to work toward, particularly the splitting between the express couriers having one treatment and the postal couriers having a different one.
The Deputy Chair: Do you have any comments on this issue?
Ms. Dey: In international trade, there are many elements of uncertainty. For example, one of those elements right now is the coronavirus crisis, which has nothing to do with an international trade treaty.
The idea of having international trade regulations is a good thing that I support. However, we must ask ourselves whether these regulations will serve democracy, whether there will be a balance between the environment and workers’ rights and whether these regulations will ensure that everyone will have a chance to benefit from the wealth associated with this agreement. That is what we are questioning. As I said earlier, there have been improvements in this negotiation with respect to workers, for example.
As well, people who are part of civil society have more power compared to what happened under the old NAFTA. We need regulations to control international trade, but will these regulations always put more emphasis on the rights of companies, or will they add to the weight of the problems we already have?
The very idea of reducing tariffs is not only a problematic situation, it is also a social project. In an agreement, it is not just trade that has to be taken into account.
The Deputy Chair: Thank you.
Senator Cordy: Thank you very much to our witnesses. Mr. Robertson, who was here earlier, spoke about the need for continuing work once the deal is signed. I know the Canada-U.S. group goes down several times a year to meet with — I was going to say parliamentarians — members of Congress and senators in the U.S. so that it’s not a one-shot deal and you actually become familiar with people and can phone them and have discussions. I think that’s really important.
He also spoke about the need to improve our ports and our borders. Both of you made reference to this.
Mr. Agnew, you spoke about regulatory border frictions for your people who are importing and exporting.
Mr. Swance, you spoke about paying duty using paper, which is beyond our imagination in this day and age. Mr. Swance, you also spoke about the need to increase the staffing of CBSA so that goods are flowing more freely across but in a safe way. In reading and listening to people, I believe there are 14 ministerial departments that deal with the borders in Canada. That’s a lot, so you basically are left to say who is in charge.
Once the deal is signed — and we’ll assume that it is going to be signed — what do we do beyond that in looking at our borders so that the movement is indeed safe, but it’s done in an efficient manner so that you’re not dealing with paperwork and trying to recover duty through paper. It could take a long time, and if that’s happening, particularly in the first little while when people aren’t sure of exactly what the rules are, that could be a significant amount of money for our Canadian businesses.
What about the frictions that you see at the borders, Mr. Agnew? What do we do about that?
Mr. Agnew: My advice is always to be quite specific and quite targeted. I think there is a risk that if we try to boil the whole ocean of border frictions, it’s just overwhelming, frankly. So we at the Chamber of Commerce are big proponents of the pilot project approach. Many of the things that we would like to see changed either could involve massive changes to the processes of how things are operated at points of entry and massive overhauls to IT systems. As we have seen from Phoenix and others, if you try to do it all at once, the whole thing risks collapsing.
When I mentioned the Beyond Preclearance Coalition, there are three pilot projects that I would use as examples. One would be the remote screening of goods away from the border, another would be the elimination of re-screening for passengers who are connecting from a regional Canadian airport to a Canadian airport that has U.S. preclearance, if you were connecting through Toronto to the United States, as an example. The last example is a single window for the Canadian ETA and the U.S. ESTA. Using the last one as an example, that’s a fairly substantial IT overhaul to get the U.S. CBP and IRCC to talk to each other and be integrated. A pilot approach is quite a prudent way of dealing with these sorts of things.
Mr. Swance: I would like to pick up on your comment around nobody being in charge of the border. CBSA is an enforcement agency and they do everything that they were set out to do underneath their foundation post 9/11 and they do a good job of doing that, but they are an enforcement agency, not a policy directive agency. They have their limits in deciding what regulations should be enforced.
Should Canada take up a process like the Border Interagency Executive Council, or BIEC, in the U.S. underneath President Obama and now underneath President Trump, where somebody is responsible for looking at new regulations coming to the border and also responsible for the strategic outlook of the border? Can we turn Canada’s border into a strategic advantage instead of a regulatory burden? I believe we can and it would be advantageous for the government to look at that. I think the Government of Canada has done a very good job over the past number of years signing agreements like TPP, CETA and the agreement that is before you today, setting a foundation for Canadian businesses to be active on the global scale.
We have an economy and a geography that requires us to trade. Let’s make sure that businesses and the Canadian economy can be successful at that. Let’s look at a Canadian approach like a BIEC, or the Canadian version of that, that allows the next phase. We have built the foundation, so let’s start to build the structure around that to allow Canada to be more successful on the international stage, to uptake and implement the free trade agreements and to allow goods to flow freely across the border in either direction.
Senator Cordy: Mr. Agnew, you spoke of a pilot project so you can try it on a smaller scale and see whether it works. Are there many pilot projects going on now at the border crossings in Canada?
Mr. Agnew: I can’t speak to the exact numbers. Some of the ones I mentioned as part of the Beyond Preclearance Coalition are starting to make some early work. I believe there are 14 in total and I’m not familiar on all the details, but I think it’s fair to say they are at an earlier stage rather than nearing conclusion at this point.
Senator Cordy: Are you finding that if a pilot project is working, governments do in fact implement it as permanent policy?
Mr. Agnew: That would certainly be the hope. Whenever you have these pilot projects having both the kinds of industries that are the users as well as government as implementers, it is important to make sure that they are talking to each other right from the get-go and helping to iron out any difficulties rather than waiting until the end of the process.
Senator Cordy: Thank you.
The Deputy Chair: Since there are no further questions for our experts, I thank Ms. Dey, Mr. Agnew and Mr. Swance for their participation and expertise. They helped us better understand the bill. I would remind committee members that we will continue our study of Bill C-4 tomorrow at 4:15 p.m.
This is a good start, but there is still a lot of work to be done. Thank you very much.