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OTTAWA, Wednesday, March 11, 2020

The Standing Senate Committee on Foreign Affairs and International Trade met this day at 4:15 p.m. to 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 senators, I call this meeting of the Standing Senate Committee on Foreign Affairs and International Trade to order.

My name is Leo Housakos, senator from Quebec, and I am the chair of the committee. Welcome to everyone.

The committee has been asked by the Senate to pre-study Bill C-4, An Act to implement the Agreement between Canada, the United States of America and the United Mexican States.


Before we begin, I would ask the senators to introduce themselves, starting from my right.


Senator Ataullahjan: Salma Ataullahjan, Ontario.

Senator Greene: Stephen Greene, Nova Scotia.


Senator Massicotte: Paul Massicotte, Quebec.


Senator MacDonald: Michael MacDonald, Nova Scotia.

Senator Ngo: Thanh Hai Ngo, Ontario.

Senator Boehm: Peter M. Boehm, Ontario.


Senator Dalphond: Pierre J. Dalphond, Quebec (De Lorimier).


Senator Coyle: Mary Coyle, Nova Scotia.

Senator Dean: Tony Dean, Ontario.

Senator Bovey: Patricia Bovey, Manitoba.


Senator Dawson: Dennis Dawson, Quebec.

The Chair: Honourable senators and members of the public, today we welcome government officials, mainly from Global Affairs Canada, to discuss the subject matter of Bill C-4.


From Global Affairs Canada, we have before us Steve Verheul, Chief Negotiator and Assistant Deputy Minister, Trade Policy and Negotiations; Marie-France Paquet, Chief Economist, Global Affairs Canada; Robert Brookfield, Director General and Deputy Legal Advisor, Trade Law; Martin Thornell, Senior Advisor, Tariff and Goods Market Access; Stephanie Chandler, Senior Advisor, Trade Policy and Negotiations; and from Agriculture and Agri-food Canada we have Aaron Fowler, Chief Agriculture Negotiator and Director General.

Welcome to the committee. We have allocated 15 to 20 minutes at the beginning for your presentation, and for the rest of the time my colleagues will be offering some questions to you.

Mr. Verheul, please go ahead.

Steve Verheul, Chief Negotiator and Assistant Deputy Minister, Trade Policy and Negotiations, Global Affairs Canada: Good afternoon, chair and members of the committee. Thank you for the invitation to appear before you today. We look forward to answering questions regarding the outcomes of the Canada-United States-Mexico Agreement, or CUSMA, following my opening remarks.

The signature of the CUSMA on November 30, 2018, followed 13 months of intensive negotiations that brought together a broad range of officials and stakeholders, with a strong partnership between federal and provincial officials.

That agreement achieved several key outcomes that served to reinforce the integrity of the North American market, preserve Canada’s market access into the U.S. and Mexico, and modernize the agreement’s provisions to reflect our modern economy and the evolution of the North American partnership.

On December 10, 2019, following several months of intensive engagement with our U.S. and Mexican counterparts, the three NAFTA parties signed a protocol of amendment to modify certain outcomes in the original agreement. These related to state-to-state dispute settlement, labour, environment, intellectual property and automotive rules of origin.

These modifications were largely the result of domestic discussions in the U.S. However, Canada was closely involved and engaged in substantive negotiations to ensure that any potential modifications to the agreement were aligned with Canadian interests.

Throughout the negotiations, Canadian businesses, business associations, labour unions, civil society and Indigenous groups were also closely consulted and contributed heavily to the final result.

In terms of the context for these negotiations, I would like to recall that the NAFTA modernization discussions were unique in terms of trade negotiations. This was the first large-scale renegotiation of any of Canada’s free trade agreements. Normally, free trade agreement parties are looking to liberalize trade. In this process the stated goal of the U.S. at the outset was to rebalance the agreement in its favour. The president also had repeatedly threatened to withdraw from NAFTA if a satisfactory outcome could not be reached.

The opening U.S. negotiation positions were unconventional, to put it mildly. These included a 50% U.S. domestic content requirement on autos, which would have devastated our auto sector. They also called for the complete dismantlement of supply management. They called for the elimination of the NAFTA chapter 19 binational panel dispute settlement mechanism for anti-dumping and countervailing duties, which we have relied on heavily. They called for the removal of the cultural exception. They wanted to have a state-to-state dispute settlement mechanism that would have rendered the agreement completely unenforceable.

They proposed a government procurement chapter that would have taken away NAFTA market access, leaving Canada worse off than all other U.S. free trade agreement partners, and a five-year automatic termination of the agreement known as the sunset clause.

The U.S. administration also took the unprecedented step of imposing tariffs on imports of Canadian steel and aluminum on purported national security grounds for which there was no basis or legitimate justification. The U.S. administration had also launched an investigation that could have led to the same result for autos and auto parts.

In the face of this situation Canada undertook broad and extensive consultations with Canadians on objectives for the NAFTA modernization process. Based on the views we heard and our internal trade policy expertise, Canada set out a number of key objectives which can broadly be categorized into the following overarching areas: first, preserve important NAFTA provisions and most importantly market access into the U.S. and Mexico, modernize and improve the agreement where possible, and reinforce the security and stability of market access into the U.S. and Mexico for Canadian businesses.

In terms of the first objective of preserving NAFTA, we managed to maintain NAFTA tariff outcomes, ensuring continued duty-free access into the U.S. and Mexican markets for originating goods. The chapter 19 binational panel dispute settlement mechanism for anti-dumping and countervailing duty matters, a key component of the overall goods market access package of the NAFTA and of the original Canada-U.S. Free Trade Agreement, was also preserved. Canada’s preferential access to the U.S. under the Temporary Entry for Business Persons chapter was preserved. Predictability and security of access for services suppliers and investors were preserved. Cultural exception was preserved. State-to-state dispute settlement was not only preserved but improved upon, including through the protocol of amendment, to ensure that Canada could rely on an efficient and effective mechanism to resolve disputes with the U.S. and Mexico, which is something we do not currently have under NAFTA.

In the area of autos, changes were made to the rules of origin regime to encourage the use of more inputs from Canada, in particular by increasing the regional value content requirements for autos and auto parts and by removing incentives to produce in low-cost jurisdictions.

Together with a quota exemption from potential U.S. section 232 tariffs on autos and auto parts secured as part of the final outcome, these new automotive rules of origin will incentivize production and sourcing in North America and represent important outcomes for both our steel and aluminum sectors.

With respect to modernizing NAFTA, we agreed to modernize disciplines for trade in goods and agriculture, including with respect to customs administration and procedures, technical barriers to trade, and sanitary and phytosanitary measures, as well as a new chapter on good regulatory practices that encourages cooperation and protects the government’s right to regulate in the public interest, including for health and safety.

Commitments on trade facilitation and customs procedures have been modernized for the 21st century to better facilitate cross-border trade, including through the use of electronic processes, which will reduce red tape for exporters and save them money. The agreement also includes modernized obligations for cross-border trade in services and investment, including financial services and telecommunications.

On digital trade, the agreement builds on more than three decades of free trade agreement practice supporting data-driven business opportunities for Canadian companies, especially small and medium size enterprises. The outcome is consistent with Canada’s domestic regime. Future flexibility has been retained to enable the government to continue to regulate digital issues in the public interest.

On labour and environment, we have made important steps forward by concluding ambitious chapters that are fully incorporated into the agreement and subject to dispute settlement. These obligations will help ensure that parties maintain high standards for labour and the environment, and that domestic laws will not be deviated from as a means to gain an unfair trading advantage.

The outcome also includes a special enforcement mechanism that will provide Canada with an enhanced process to ensure the effective implementation of labour reforms in Mexico, specifically related to freedom of association and collective bargaining.

Finally, the outcomes advance Canada’s interests toward inclusive trade, including through greater integration of the gender perspective and better reflecting the interests of Indigenous peoples.

With respect to some of the other outcomes on supply management sectors, we should recall that the U.S. made an explicit and public demand for the complete dismantlement of the supply management system. In the end, we preserved the three key pillars of the supply management system, including production controls, import controls and price controls, and granted only limited access to the U.S. The government has been clear in its commitment to provide full and fair compensation to farmers for these measures.

On intellectual property, certain outcomes will require changes to Canada’s current intellectual property, legal and policy framework in certain areas, such as intellectual property rights enforcement to provide ex officio border authority for suspected counterfeit or pirated goods in transit, as well as criminal offences for the unauthorized and wilful misappropriation of trade secrets.

In other areas Canada has transition periods to implement its commitments. For instance, on the obligation to provide a copyright term of life of the author plus 70 years, Canada currently provides a term of life plus 50. We have a 2.5 year transition period to implement this obligation following the entry into force of the agreement.

Under the amending protocol, the parties agreed to remove the obligation to provide 10 years of data protection for biologic drugs, meaning that Canada does not need to change its existing regime in this area which provides a protection term of eight years of data protection.

On a couple of other notable outcomes, faced with a U.S. demand for automatic termination every five years Canada instead proposed a process that would lead to the regular review and modernization of the agreement. The NAFTA partners settled on a 16-year term with a formal review every six years, after which the agreement could be extended for another 16 years.

We also addressed issues of concern to civil society, including with respect to the removal of the energy proportionality clause, carrying forward the declaration on right to water from the original NAFTA into the side letter, introducing new obligations on privacy and access to information and an exception for Indigenous rights.

We have also no longer included trilateral investor-state dispute settlement for Canada. Investor-state dispute settlement under the original NAFTA will have a three-year transition period for investments made under the current NAFTA.

I would like now to turn to my colleague, Marie-France Paquet, who will provide remarks related to the economic impact assessment.


Marie-France Paquet, Chief Economist, Global Affairs Canada: Mr. Chair, honourable senators, thank you for your invitation to appear before the committee today.

In my capacity as the Chief Economist and Director General of the Trade Analysis Bureau of Global Affairs Canada, I am pleased to provide a perspective on the potential economic impact of the Canada-United States-Mexico Agreement, or the new NAFTA.

Our role at the Office of the Chief Economist is to assess to the best of our ability the potential impacts of a trade agreement. We report the results of our findings in a document called The Canada-United States-Mexico Agreement: Economic Impact Assessment. The overall effect of the implementation of the new NAFTA on the Canadian economy is strongly positive when considered against the consequences of a U.S. withdrawal from NAFTA. It would secure GDP gains of $6.8 billion Canadian dollars, or 0.249%.


How do we get to that? Our internal model is a dynamic computable general equilibrium model with 57 sectors and 140 countries and regions of the world. Such models allow impacts to feed into other sectors of the economy and those sectors to adjust over time. We can then evaluate potential impacts on production, exports, imports and, for the first time in a final assessment, on the labour market.

Regardless of the degree of sophistication of our model, it remains a simplification of reality. This means that unfortunately we are not in a position to include all the gains from the negotiators in the model.

We approach every assessment in the same way. We discuss and consult all relevant parties within government to understand the provisions and determine what can be included in the modelling approach. This time is no exception.

The CUSMA negotiations were conducted in a very different context than CETA or CPTPP where the starting point was no free trade agreement and the result was a new free trade agreement. For the task at hand we had to consider what would happen if the United States were to withdraw from NAFTA, as well as the new agreement called CUSMA. The economic impact assessment before you is based on the final negotiated text.

The modelling results represent the potential benefits of NAFTA preserved by CUSMA, the avoidance of section 232 on the Canadian steel and aluminum industries, as well as the incremental impact of the implementation of the CUSMA outcomes.

Some provisions under CUSMA could also help reduce policy uncertainty in certain areas such as services, investment and digital trade, and result in a positive impact on businesses.

Our model at the Office of the Chief Economist takes into account the reduction in policy uncertainty in investments and financial services to reflect the binding commitments of the FTA in this context. However, it has never conducted analysis on data transfers which is assumed to affect every aspect of the economy and is the key contributor to strong GDP gains in the USITC report.

The Office of the Chief Economist attempted to model such commitments using USITC coefficient without concluding results. In fact, the impacts on GDP were as follows: an increase of the GDP $9.3 billion U.S. for Canada, $19.7 billion for Mexico, and $16.7 billion for the United States. These impacts seem way too big for Mexico and way too small for the United States.

The USITC reports an increase for the U.S. economy of $68 billion. Since we could not explain these differences, we have decided not to include reduction in policy uncertainty in this way stemming from data transfer in this study.


Furthermore, many of these obligations have already been implemented by Canada under CETA, and by Canada and Mexico under the CPTPP.

The modelling of quantitative impacts of CUSMA focused on modernized provisions in customs administration, trade facilitation and origin procedures, new market access provisions, automotive rules of origin, and data localization commitments for financial services. These elements were selected for modelling based on the expected magnitude of their economy-wide impact, data availability and analytical feasibility.


The overall effect on the implementation of the new NAFTA on the Canadian economy is strongly positive when considered against the U.S. consequences of a withdrawal from NAFTA.

From a labour perspective, CUSMA secures nearly 38,000 jobs that would otherwise be lost if the United States were to withdraw, of which 18,708 are for men and 18,853 are for women.

I will now turn back to our chief negotiator for his concluding remarks.

Mr. Verheul: In closing, I would like to underline that our objectives for these negotiations were informed by Canadian priorities and interests, close engagement and consultations with provinces and territories, as well as a wide range of stakeholders, and the collective knowledge and experience of trade policy and sector experts across the government. A strong support for the new agreement expressed by industry in key business associations is clear evidence that we listened carefully to their views and advocated strongly for their interests.

This concludes my opening remarks. We would be pleased to answer any questions you may have regarding the agreement.

The Chair: Thank you to all for being with us today. I will exercise my privilege as chair and start off by asking the first couple of questions.

My first question is for the chief negotiator. We have seen throughout the years contrasts in negotiating styles from one government to another. I am old enough to remember the original pioneer of free trade agreements, Mr. Mulroney, and his approach to negotiating. I remember at the time that he was very big on building relationships and making sure that his relationship with the President of the United States was extra solid, which led to historic free trade agreements and even led to an historic acid rain agreement that paid off tremendous dividends from an environmental perspective.

We saw the strained relationship between the Trudeau government and the Trump administration at the G20 summit, and we saw it after Foreign Affairs Minister Freeland made a bunch of disparaging comments at a conference in the United States that led to a cooling off period. Did that strained relationship make your job as a negotiator easier or harder?

Mr. Verheul: With the current administration in the U.S., they had a fundamentally different view with respect to objectives in trade negotiations from the traditional approach. I think that caused most of the strain in the negotiations.

We clearly had wide gaps between us on many issues, but we nevertheless formed personal relationships. I did with my counterpart. We had many honest conversations. Minister Freeland at the time also eventually formed a strong relationship with Ambassador Lighthizer, her counterpart. The negotiations tended to be more detail oriented and the broader relationships faded into the background while we tried to grind through the issues.

The Chair: My second question has to do with the point in time when the Americans offered to bilaterally negotiate. As someone who has been in business, I know I would seize the opportunity when I am in a trilateral negotiation and the one with the largest amount of leverage decides to call me to the table bilaterally beforehand.

Why did Canada strategically decide not to seize the opportunity when invited to bilaterally negotiate with the Americans? Of course we saw later on the Mexicans seized the fact that we didn’t and ran away with the torch.

Mr. Verheul: I wouldn’t characterize it quite that way. When we first started the negotiations, it started out as a traditional negotiation. We had negotiating rounds. It was a professional negotiation, the type that we tend to be used to.

I think the U.S. found that Canada and Mexico were largely opposing many of the U.S. initiatives. The U.S. then decided they would reach out to Canada at one point in time and reach out to Mexico at another point in time to see if they could come up with a different formula for trying to break through the kind of approach that both Canada and Mexico were taking, which was to reject many of their proposals.

There was never a real opportunity for us to negotiate a bilateral agreement with the U.S. Nor did we think that that would be necessarily in our interest. The North American market between Mexico, the U.S. and Canada has developed over the past 25 or more years to a common market where we are very integrated in terms of supply chains and in terms of the way the economies operate. I think all three of us recognized at one point in time that we would be better off having a trilateral agreement than any other option that might be available.

The Chair: Wouldn’t we agree that in the end the Mexicans and the Americans negotiated a bilateral agreement and that in the latter phases we were brought in to participate in?

Mr. Verheul: No, it actually didn’t happen that way. We were in close contact with our Mexican counterparts. We were in close contact with our U.S. counterparts. Throughout that process we knew exactly what the U.S. and Mexico were talking about, and we had our views put into that process.

As they came back they had to have certain issues with the Mexicans dealt with that didn’t involve us all that closely. When they came back to us, we were able to ensure that Canadian objectives were front and centre, even if that meant changing in some cases what the U.S. and Mexico had started to converge on.


Senator Massicotte: Before I go to my questions, I really want to thank you and your team, Mr. Verheul, as well as the minister and the Prime Minister, for the extremely demanding and difficult work you have done. The negotiations were not easy, but I think you did a good job. Of course, it’s not a perfect agreement, but I would like to congratulate you on behalf of Canadians, because I believe that this agreement will be extremely important for our economy and that you have done well. Thank you very much.

I will now ask my two questions; the first is about dairy farmers. I’m sure you are aware that we received a letter from dairy farmers advising us that the agreement refers to a base year where negotiated cutbacks or amendments take effect. As a result, they have implicitly asked us to delay the negotiation and to negotiate the effective date of the agreement to take effect in a few months, because otherwise they will definitely be at a disadvantage.

Can you tell us whether this is really a significant dispute? Do you have a solid grasp of the conflict?


Mr. Verheul: I will make some initial comments and then I will turn it over to Aaron Fowler for more specific comments related to agriculture.

I can tell you that the U.S. has been pressing hard for Canada to ratify this agreement as quickly as possible. They included a provision in their legislation that provides the possibility that if one of the parties is slower in its ratification process than the other two, the other two should move ahead or should have the ability to move ahead without that third party.

We are the third party in this case because the U.S. and Mexico have already completed their processes. The U.S. has made it clear to us, both in their legislation and in various conversations we have had with them, that if we take too long in our ratification they will move ahead with Mexico.

We can talk about whether that is a serious threat or not, but it is in their legislation and they have made that point a number of times. We have to be cautious about what we might try to do with respect to timing on ratification. The U.S. is clearly in a hurry.


Senator Massicotte: Is the information we received from the dairy farmers accurate? Is there a significant impact if the agreement is signed tomorrow rather than three or four months from now?


Mr. Verheul: Yes, the Canadian dairy year begins on August 1. Under the implementation of the agreement, if we were to implement the agreement and have it enter into force before August 1, the first year of the agreement would be put in place and as of August 1 from a dairy perspective they would then begin the second year of implementation.

That would have an impact, particularly when it comes to exports of some particular products.

Aaron Fowler, Chief Agriculture Negotiator and Director General, Agriculture and Agri-Food Canada: Maybe I will speak briefly and summarize the provision we are talking about. As part of the negotiated outcome Canada agreed to establish export monitoring mechanisms for three specific dairy products: skim milk powder, milk protein concentrates and infant formula. We established two export thresholds, one for skim milk powder and milk protein concentrates and a separate volume for infant formula. The issue you are referring to relates only to the first basket of goods, MPC and SMP.

The terms of the export monitoring provision say that for the first year Canada can export up to 55,000 metric tons of these products. In the second year, that export volume will drop to 35,000 metric tons and thereafter it will grow at 1.2% per year infinitely.

The concern of the industry is that we have never before exported more than 11,000 tonnes of SMP and MPC in a month. If the agreement enters into force partway through the dairy year such that they have less than five months to work with, their view is it is unlikely they will fully utilize that year one volume.

The consequence of that will not happen in year one because there will be no restrictions applied to Canadian dairy exports in year one. The consequence will be in year two where with a delayed entry into force they would have access to the year one volume they will instead have access to volumes that are 20,000 tonnes lower and a 35,000-tonne export volume.


Senator Massicotte: I have another question. We also received a letter from the Union nationale des fermiers that talks about problems with the interpretation of CUSMA, that is, the bill that will bring it into force is more demanding and restrictive than the agreement itself. They therefore asked us not to approve the bill as it stands, but rather to amend it and ensure that it is more consistent with CUSMA. They also asked us not to impose unnecessary conditions in the agreement we have reached with the United States and Mexico. Can you enlighten us on that? What is the impact of all this? Who is right?


Mr. Verheul: I am familiar with some of the concerns raised by the NFU. I wasn’t aware they related to the sunset clause. Perhaps Mr. Fowler has some comments with respect to the concerns raised by the NFU.

Mr. Fowler: I am not aware of the connection to the sunset clause either, but I can speak to the concerns of the NFU.

As part of the negotiated outcome Canada agreed to allow U.S.-grown varieties of wheat registered in Canada to receive an official Canadian grain grade. Previously it was not possible for wheat grown outside Canada to receive an official quality certification.

In the context of implementing those obligations contained in the CUSMA, Canada included in Bill C-4 two types of changes. The first types of changes are those that are necessary strictly to implement the obligations Canada agreed to under this agreement in a manner consistent with how the Canada Grain Act is structured.

In that respect I would note that the act doesn’t define wheat. It doesn’t define any particular commodity. It talks only about grain. To implement a commitment with respect to only one type of grain would require significant changes to the structure of the act.

The second set of changes are those to implement measures intended to protect the integrity of Canada’s grain quality assurance system, given the changing treatment that will be afforded to U.S. grain once the agreement enters into force.

The next group of amendments is necessary in our view to ensure that Canadian and U.S.-grown grain is treated in the same manner while putting in place appropriate oversight for the entry of grain grown in a different regulatory environment because U.S. farmers are growing grain according to rules slightly different from those in place in Canada.

The amendments included in Bill C-4 will not affect the overall quality of Canadian grain exports or weaken the ability of the Canadian Grain Commission to act in the interests of producers. The consequential changes proposed to the CGA are intended to ensure that all U.S.-grown grain included in shipments from Canada meet the same rigorous quality standards applied to Canadian grain. The intent is to ensure U.S. grain is treated in a manner that is extending national treatment, not better than national treatment, to the treatment received by Canadian farmers and to protect the overall integrity of the grain assurance system.


Senator Massicotte: So they are wrong. You are saying that it’s not true, that there are no major consequences?


Mr. Fowler: They are not wrong that the changes to the act go beyond what is negotiated with the United States. Our view is that the impact of those amendments that go beyond what is strictly in the agreement will not be negative for the Canadian grain handling system or for grain producers in Canada.

Senator MacDonald: Before I ask my first question I want to clarify something that you both brought up. We were faced with a situation where we had to deal with the president’s threat to cancel NAFTA and bring in a new one.

The president is in a powerful position, but he does not have the authority to cancel NAFTA. He can negotiate a new deal, but only Congress can cancel NAFTA and Congress is necessary to approve the new deal. I think we should put that on the record.

Second, it is important to keep in mind that we have no control over any president. President Obama proved that with the Keystone XL Pipeline. The only thing we control is how we conduct ourselves. We have to put that on the record as well.

Like a lot of Canadians I was disappointed to see the terms of the agreement with steel and aluminum in the agreement. Some 70% of steel, aluminum and glass used in the production of automobiles must also originate in North America. However the 70% steel requirement must be met by steel melted and poured by North American steelmakers. There are no similar provisions for aluminum, which means a recycled Chinese aluminum can continue to be used in the manufacture of cheaper Mexican aluminum products.

The president of the Aluminum Association of Canada said that we lost on this. I am just curious. Why couldn’t we achieve the same result for aluminum that we achieved for steel? Why didn’t the Americans support us on that?

Mr. Verheul: We did a lot of research and consulted a lot of lawyers, and it is not clear cut that the president is unable to initiate the process of withdrawal from NAFTA. He could certainly take the first step of initiating the six-month period to withdraw from NAFTA.

Whether or not he could ensure that is implemented is another question, but if we did have an initiation of that six-month process we would already be into significant difficulties. There are some legal differences about the issue.

With respect to aluminum, we clearly tried to get the same provision as is provided for steel. In the case of steel it would be melted and poured within North America.

We tried to get the same approach on aluminum that would be smelted and poured within North America. We were unable to do that at the time largely because of Mexico’s objections to that. Mexico does not produce aluminum.

When we look at it from the perspective of the current provisions, there are currently no provisions in NAFTA requiring any percentage of either steel or aluminum to be used in the manufacture of automotive vehicles. We now have a provision that says 70% of the purchases by manufacturers of steel and aluminum have to be from North America.

This puts a significant constraint on automakers in all three regions. Coupled with the other more rigorous requirements for domestic content, such as the 75% regional value content that didn’t exist before, the 75% requirement on core parts that didn’t exist before on engines, transmissions, bodies and those kinds of things, and the 40% labour value content requirement, all of that squeezes the amount of foreign products automakers use in the manufacture of automobiles. They just don’t have that much room anymore. There is a very strong likelihood they will have to use as much North American aluminum as they can.

We have an agreement that after 10 years we can revisit the issue. Beyond that we have already had conversations with the U.S. and Mexico about the clear expectation on our part that if we start to see aluminum coming in from countries outside of North America and undermining our markets, we would expect to have the same treatment for aluminum as we will have for steel after seven years.

Senator MacDonald: I will go back to another sector. I would like to put on the record that I have been on the Canada-U.S. IPG for 11 years. As vice chair and co-chair I spent a lot of time with Congress. Unless they had a proper trade agreement to replace NAFTA, particularly with the Republican Congress free traders, the odds of getting the old trade agreement thrown out would have been very long under the other circumstances.

Anyway, I was in Washington to speak about a trade alliance on the Sunday they announced the agreement. Needless to say, I had to change all my notes and speak off the cuff for about an hour. I spoke to them then about supply management. In principle, I am not a big supporter of supply management. I am more a supporter of the free flow of goods.

I said to the Americans at that time, even though I don’t support supply management in principle, that when it comes to the U.S. I support it in practice. The reason I do is that Americans subsidize agriculture to the tune of over $70 billion a year.

Did we put that on the table? Did we push that? What was the response? They have an overproduction problem when it comes to dairy. The state of Wisconsin practically produces as much as our entire country. Even though I know the Canadian consumer is a big loser under supply management, I don’t understand why we couldn’t make more hay with the fact that they subsidize their industry so greatly.

Mr. Verheul: I can start by saying that we had many heated discussions over that issue. We take some offence at the fact that the U.S. heavily subsidizes its agriculture sector. They have a $1 trillion farm bill in place now. With the standards of subsidization around the world, I think it is fair to call close to obscene.

In the dairy sector they have surpluses. They have a surplus problem consistently. They have gone so far as to store skim milk powder in caves in Pennsylvania because they don’t know what to do with it. This was one of the more difficult aspects of the negotiations on those issues.

We pushed very hard on U.S. domestic subsidies, but the reality is that getting the U.S. to move on domestic subsidies when we are talking about a world environment where all kinds of countries subsidize their producers, the U.S. was always unlikely to agree to something that would be particularly stringent on a bilateral or trilateral basis.

I can tell you this was a long and difficult fight, and Mr. Fowler knows this better than anyone.

Mr. Fowler: I will chime in to say that I agree. We are well aware of the impact domestic support provided by the U.S. to its agricultural producers can have on Canadian producers, global prices and the marketplace. In our experience, not just in the context of this particular free trade agreement but generally speaking that issue is very difficult to discipline on a bilateral or even a regional basis.

The framework of rules that exist with respect to the provision of domestic support to the agriculture sector exists under the WTO agreement on agriculture. Part of the WTO Doha round of negotiations has taken up that very challenging issue since 2000 with limited progress.

By the end of this decade the EU, China and India, none of which is the United States, will have more than half of global entitlements to provide trade-distorting domestic support to their agricultural sector. In that kind of global context it was difficult, as you could imagine, to persuade the United States that it should discipline itself in a trade agreement with Canada and Mexico, without having any assurance that other major global subsidizers, particularly the countries I just mentioned, would ever agree in the short term to similar discipline.

That backdrop made any sort of meaningful discipline with respect to domestic support quite challenging in the CUSMA context.

Senator Ataullahjan: Witnesses yesterday were asked about the significance of article 32.10 of the CUSMA which requires all three parties to give three-month notice to the other two countries before it begins negotiating a free trade deal with any non-market country.

Some have described this provision as unprecedented. Others argue that it is really no big deal because our relations with China, the principal non-market economy that appears to be the target here, are in deep freeze anyway. Dan Ciuriak of the C.D. Howe Institute essentially told us yesterday that the U.S. is in effect signalling that any free trade deal with China is off the table.

Is that an accurate assessment in your view?

Mr. Verheul: No, I wouldn’t share that assessment. When we negotiated this specific provision, it was clear that the U.S. wanted to send a signal with respect to negotiations with non-market economies. We had long discussions about this, but at the end of the day there is nothing in that article and that provision that is any different from what would happen ordinarily.

If we were intending to initiate a negotiation with China at this point in time, we would certainly give our trading partners a heads-up that we were intending to do that. We would provide the U.S. with an indication that we were initiating negotiations with China, if that were the case.

The recourse the U.S. would have is the same recourse they have under the agreement as it stands now. They can indicate that they would be prepared to withdraw with a six-month notice.

The U.S. certainly wanted some kind of optical presentation of this issue, given their views with respect to China; but it doesn’t fundamentally change any of the rights or obligations we have under the agreement. As some people have pointed out, the U.S. has spent much more time negotiating with China than we have over the past number of months.

Senator Ataullahjan: Would we have to inform the Americans if we were negotiating a trade deal before we informed the Canadian Parliament that we were negotiating a trade deal?

Mr. Verheul: Absolutely not. I cannot imagine any government informing the U.S. of our intention to begin negotiation before informing the Canadian Parliament. That would be fundamentally at odds with every practice we would follow.

Senator Ataullahjan: On August 14, 2017, Minister Freeland outlined some core objectives of the government in the negotiation. These included chapters on gender and Indigenous rights.

These provisions were not incorporated, and with respect to the provisions in the agreement on gender non-discrimination, the Conference Board of Canada has stated:

. . . the impact of the gender non-discrimination provision will likely be limited. In particular, the “non-discrimination” statement included in Chapter 23 of the original deal reached at the end of September had been watered down by the time the agreement was signed on November 30. This watered-down version suggests that each party can choose whatever policies it considers appropriate. . . .

Would you say that this analysis is correct and given the orientation of the U.S. administration on such issues, could American resistance on this matter had not been reasonably foreseen?

Mr. Verheul: It is fair to say we knew when we first started pursuing both of those issues that we would encounter resistance on the part of the U.S. We put forward comprehensive chapters on gender issues and a comprehensive chapter on Indigenous peoples as well. It is certainly true that we did not achieve those chapters at the end of the day.

We had long discussions over those. The U.S. and Mexico engaged in those discussions. We were not able to secure a chapter in either of those cases. In the case of gender we have specific references in the labour chapter, the investment chapter and small and medium size enterprises.

On Indigenous rights we have a new general exception that has never been negotiated in a free trade agreement in the past. We have the flexibility to provide preferential treatment for Indigenous peoples in a number of chapters, including services, investment, government procurement and a number of other state-owned enterprises.

Despite a clear resistance on the part of the U.S. in particular, and to some extent from Mexico, we managed to achieve much more than we had achieved in previous agreements on both gender issues and Indigenous rights. It wasn’t the ideal environment but I think we certainly achieved most of what we were hoping to.

Senator Ngo: I would like to continue my questions on aluminum. We all know that almost 90% of aluminum is produced in Canada, and it comes from Quebec. In CUSMA, the provision regarding steel requires that it be melted and poured in North America, but there’s no such similar provision for aluminum.

We have learned this Monday in a The Hill Times article that Bloc Leader Yves-François Blanchet had a talk with Deputy Prime Minister Chrystia Freeland about protection of aluminum, a talk that led to the Bloc securing two commitments from the government on aluminum. In the article I mentioned, they say:

First, we will have real-time data on aluminum imports into Mexico, or so-called traceability measures.

Second, if Mexico is found to be supplying itself with foreign aluminum, the government is committed to raising the issue so that the “melted and poured” in North America clause applies to aluminum as well, as is the case for steel.

We haven’t heard from the Deputy Prime Minister, but in the meantime I would like to know if these two commitments will better protect our aluminum sector than a similar provision like the one for steel. Will these two commitments be more effective or not? Could you comment on that?

How about some commitment that could be secured for our dairy and forestry sectors to protect them as well?

Mr. Verheul: I am afraid I can’t speak to the discussions in any letters that may have been exchanged between the Deputy Prime Minister and the Leader of the Bloc. I wasn’t part of those discussions.

I can tell you with respect to aluminum that we have had discussions with the U.S. and Mexico. We made it very clear that if we start to see aluminum coming into Mexico from foreign sources that is displacing Canadian aluminum, we need to set up a monitoring system to track what aluminum is coming in.

All of that has been the subject of discussion between us, the U.S. and Mexico. The U.S. has also set aside significant funds to monitor aluminum coming into North America. If we start to see aluminum is coming in from offshore, we have made it clear that we would intend to press very hard for aluminum to be treated in the same way as steel has been treated.

We need to keep in mind that these are purchases by automakers, so they can be traced fairly easily. We also have to keep in mind that the steel provision does not come into effect until seven years after the agreement has been in force. We will have a significant body of evidence with respect to what is happening with aluminum during that period. I think we will have a very strong case that aluminum should be treated the same way if we are seeing aluminum coming in from offshore and displacing Canadian aluminum.

Senator Ngo: When you testified at the House of Commons Standing Committee on International Trade you mentioned that CUSMA provided important stability and predictability for Canadian businesses and workers.

I would like to know how that applies to our dairy sector, our forestry sector and other sectors negatively impacted by this agreement.

Mr. Verheul: I will start with the forestry sector and I will ask Mr. Fowler to respond on the dairy sector.

Both NAFTA and the new agreement provide that there shall be duty-free trade between Canada, the U.S. and Mexico on softwood lumber. That is a clear provision in those agreements. However, the U.S. also has the right to pursue anti-dumping and countervailing duty investigations against imports into the U.S., as we do and as Mexico does.

They exercise those rights. Most importantly, we have managed to preserve the former Chapter 19 mechanism for pursuing disputes on anti-dumping and countervailing duty actions which actually reviews U.S. actions and considers whether or not they are consistent with U.S. law.

When it comes to softwood lumber, we have won many of those cases. We recently won a case that relates to injury, which is probably the most important element of this process. The U.S. will be bound by those decisions. On softwood lumber, we have preserved the most important elements, but I will not pretend it is not an ongoing irritant between Canada and the U.S. It is and will continue to be, but we have mechanisms to challenge that which leads to the return of duties paid, unlike any dispute settlement system such as in the WTO.

Mr. Fowler: I will start by providing a bit of context. The Canadian agriculture and agri-food sectors produce roughly $120 billion worth of product every year and exports 50% of that. Of the amount exported, more than half goes to our NAFTA partners.

The preservation of the preferential market that existed for those two markets under NAFTA was incredibly important. In every case we preserved the market access that existed under NAFTA. In some cases we obtained incremental access for products of interest to Canadian exporters.

Overall the outcome is positive from an agricultural perspective, even when compared to the agreement in place today and not to a scenario where we don’t have an agreement which would have been devastating to the sector.

I understand the concerns the dairy sector has expressed with respect to these outcomes. I would note, however, that they fall far short of the initial negotiating position of the United States, and indeed the negotiating position that the United States maintained throughout the entire negotiation. In September 2018 the U.S. continued to put forward proposals that would have had the effect of making it impossible to maintain a supply management system for dairy in this country.

We ultimately agreed to provisions that could be classified into three baskets. Incremental market access for certain dairy products, which is largely commensurate with the approach we have taken under our commitments at the WTO and in our FTAs with the CPTPP partners and the European Union. While not insignificant, certainly from the sector’s standpoint the vast majority of the domestic Canadian market for dairy products continues to be served exclusively by Canadian producers and processors.

The other two categories of commitments that were taken on with respect to dairy were pricing commitments and export monitoring commitments. Those commitments largely apply to the three specific products I referred to before: skim milk powder, milk protein concentrate and infant formula.

I would never minimize the impact of these commitments on the sector. I understand where they are coming from, but it is overall a much more positive outcome than we could have had for dairy and without any hesitation a positive outcome for the agriculture sector more broadly.

Senator Ngo: Do you think that those sectors were not neglected in the agreement?

Mr. Fowler: I do not believe those sectors were neglected in the agreement.

Senator Bovey: I would like to compliment the chief negotiator and all the negotiating team. I appreciate the tremendous amount of work they did and their dedication to Canada, Canadians and trade. Also, I am very pleased with your consultations with the First Nations, which I believe included Inuit peoples in the Arctic.

I have two questions. One has to do with the extension of copyright. I was pleased to learn early on that the copyright 50-year extension was going to be increased to 70 years after death. I also presume 2.5 years to get that in place allows for the time to change Canadian intellectual property and copyright law to enact that.

However, is that retroactive or does the 70 years come into effect on the day the agreement comes into effect? Will people who are dealing with this have to go back since 1950 and suddenly increase 20 years of copyright provisions that may have expired 50 years after death?

Mr. Verheul: I have our lead negotiator on intellectual property here, and he will respond to that question.

Loris Mirella, Director, Intellectual Property Trade Policy, Global Affairs Canada: On the first part of your question, the 2.5 years will allow the government to study the implications of the obligation thoroughly and come up with a plan for that.

As to the second part of your question, anything in the public domain when the obligation kicks in for Canada will remain in the public domain. It will not come out of the public domain.

Senator Bovey: I know this question will be asked by the arts and culture sector, artists and artist estates. I can see myriad issues going down the path, so I am pleased to know that.

In summary of the CUSMA outcomes on the Government of Canada website it states:

The modernized agreement preserves Canada’s cultural exception, which gives Canada flexibility to adopt and maintain programs and policies that support the creation, distribution and development of Canadian artistic expression or content, including in the digital environment.

Obviously that was important in NAFTA which has done much to protect Canada’s unique identity and provide greater security for the over 660,000 Canadians who work in industries such as publications, broadcasting, books, magazines and all.

On behalf of those over 660,000 Canadians who work in the cultural industry, what else has changed or improved under CUSMA as compared to NAFTA?

Mr. Verheul: On the cultural exception our biggest fight was to preserve the exception we had in NAFTA. The initial position of the U.S. was to get rid of it entirely. We then had long discussions over elements the U.S. wanted to carve out of the cultural exception that would then be exposed to actions by the U.S. We went through that for a very long period of time but managed in the end to protect the cultural exception as it was in NAFTA. We also added some elements of modernization to the cultural exception to reflect digital media and those kinds of issues in a way that brings them more up to date.

Senator Bovey: Not only will this provide opportunities for those working in film and digital industries, but it will allow for cross-border and freedom of trade for visual artists using digital industries and new technologies in their work.

Mr. Verheul: The cultural exception applies to those practices as well.

Senator Cordy: Thank you, Mr. Verheul and your negotiating team for being patient for days and days, but it will certainly involve more and more months of negotiating to get the job done.

The briefing note that came from Global Affairs is very good. I am not sure who sent it to us, but it was helpful for me.

This new deal increases and enhances opportunities for small and medium size enterprises. A few years ago this committee studied small and medium enterprises. We recognize what a bonus it is for Canada to have small and medium size enterprises in our country.

It specifically speaks about women and Indigenous peoples engaging in small and medium size enterprises. Could you explain to us how this is enhanced within the particular agreement as compared to NAFTA?

Mr. Verheul: There is nothing of this kind within NAFTA at all. There is no chapter on small and medium size enterprises. There are no references to gender or to Indigenous peoples with respect to the small and medium size enterprises. This is all brand new.

This was a Canadian initiative. This was not a chapter that was particularly welcomed by the U.S. or Mexico, but we thought it was particularly important that we have this chapter in the agreement. It was also important for us to ensure that we had the specific references on gender and on Indigenous peoples.

The chapter is intended to promote participation of small and medium size enterprises in trade within the NAFTA region, to assist them in that participation in trade, to make things easier for them to enter those kinds of activities, and to bring more profile to them and greater cooperation between Canada, the U.S. and Mexico on promoting their interests.

At the end of the day the other two parties agreed to it, and we consider that a significant victory in this agreement.

Senator Cordy: The kinds of things you are saying it will do are the kinds of things that our report recommended: assistance for people in small and medium size enterprises who do not necessarily know how to go about facilitating trade. I think you have made a very important point.

Mr. Verheul: That was exactly our target, yes.

Senator Cordy: I have read that it will minimize or reduce red tape at the border and facilitate trade. Yet yesterday we heard from the exporters and importers a little concerned about the implementation at the border. They say that it is one day it is NAFTA and the next day CUSMA. There is no period for everyone to get used to it.

CBSA was not part of the negotiation. I am not sure and could be corrected on that. they don’t develop the laws; they enforce them. Their recommendation was for an increase in the number of CBSA officials at the border for the first few months at least to get things working and we have that flow. The worst thing that could happen is to have a lot of red tape after being told there would be less.

I wonder what is being done to ensure that CBSA is ready for the deal on the day it is to be started.

Mr. Verheul: We consulted with CBSA even before the negotiations started. We had representatives from CBSA that were actually part of our negotiating team, including leading on negotiations related to border issues and some of the ones you mentioned with respect to simplifying the process at the border.

The example I often use is the process for claiming preferential tariff treatment under the agreement. As it stands now, this is a fairly complicated process. Paperwork is involved and many exporters simply don’t bother following it because of the work involved.

With the process we have established now under this new agreement, none of that work has to be done. It’s all electronic, and origin can be conferred on the basis of any kind of documentation. It is much simpler than it has been in the past.

We have come a long way. CBSA has certainly been actively engaged in preparations for this agreement coming into force, as have the rest of us. We will be getting information out to exporters and the business community on an ongoing basis. We have already done that to some extent. We will be doing it with more precision as we get closer to entry into force. We do not anticipate difficulties in moving to this.

With respect to what CBSA needs to do as far as treating products at the border, probably the majority of goods will not be treated all that differently than they are currently under NAFTA. There are specific provisions related to autos, to textiles and apparel, and a couple of other products. Aside from that, the treatment is really pretty much the same as it exists now, with the added elements of facilitating the process of getting goods back and forth across the border and reducing and eliminating paperwork in doing so.

We are not anticipating that we will have big challenges at the border, with the possible exception of some time it will take with the auto sector, and perhaps to some extent with the textiles and apparel sectors.

Senator Coyle: This is the second time I have heard your explanation and it is sinking in now. Thank you all for being with us and for your remarks.

In our previous briefing, Mr. Verheul, you spoke about the steps after ratification. Could you speak now formally before this committee about the several steps to come after ratification, as well as any concerns you may have that we should be aware of regarding those steps post ratification?

Mr. Verheul: As you are very much aware, we are now in the process of trying to get this bill through the Senate. After that there is typically a period of about 12 days where we have to get Royal Assent. We have to have from the justice department the blue stamp regulations and orders. We have a regulatory package that needs to be signed by ministers processed by the Privy Council Office and considered by the Treasury Board.

Once the legislation is done there is a regulatory process that has to happen afterward. It will take a period of time as well. The Governor General will need to eventually sign that.

Following approval of the bill by the Senate, which we hopefully will achieve, we are probably looking at 12 to 14 days of process.

Beyond our own process a number of elements have to be completed trilaterally before we reach entry into force. The U.S. and Mexico have not yet provided to us their notification that they have ratified the agreement. That is a requirement before we can move to entry into force.

We have to deal with a process that the U.S. has to complete on certification. Under their Trade Promotion Authority, the U.S. has to certify that both Canada and Mexico in their view have taken the actions necessary to live up to their obligations under the agreement. That has to be completed. We are in the fairly early stages of that.

Martin Thornell, our chief negotiator around the rules of origin side, is working with the U.S. and Mexico to reach agreement on what is called uniform regulations, which are further details on how rules of origin will actually be administered and applied.

We have dispute settlement elements that my colleague Robert Brookfield, our legal counsel, is working on with his U.S. and Mexican counterparts. We have to establish a roster for dispute settlement. We have to establish rules of procedure and a code of conduct. In our view all of that has to be completed before entry into force.

All of that work is going on, and it is also going on in many other areas in terms of U.S. certification. There is quite a bit of work to do outside of our own ratification process.

Senator Coyle: Ms. Paquet, what we have heard from you has been positive. You compared what it would look like if NAFTA had disappeared. Yesterday we heard from somebody else, Mr. Ciuriak. I recognize we are not talking apples to apples here, but I want to get your feedback on what he had to say. He said:

On the economic impact, relative to the status quo of an in-force NAFTA we have estimated that the CUSMA provides a negative impact on the Canadian economy of about 0.4% in terms of real GDP.

I know this is not something you were talking about, but could you comment on that?

Ms. Paquet: You are right to point out that the way we presented it is quite different. It is not apples to apples. In our view the C.D. Howe study is overstating the negative impacts for two main reasons. One is the rules of origin and how they are treated in the model for autos and auto parts, and the second one is on chemical products.

The way to implement in the modelling approach the new rules of origin on autos and parts is simply to impose a reduction in terms of imports on the parts side to force the sourcing in North America to meet the new threshold for the rules of origin. However, they do that a bit artificially, which means that the costs will go up a lot more than what we have chosen to do in our approach.

In our approach we looked at a model base. We looked at 213 models and used data from the American Fair Packaging and Labeling Act. We went deep down. Yes, it’s true that North American producers will enhance sourcing from North America to meet the new threshold. In part that is what we were hoping to see in that sense, but they will do so until they reach the 2.5% tariff. There is no point in going above that in terms of increasing costs. Otherwise you will just pay 2.5% one way and 6.1% the other way.

We let the model increase the sourcing in North America up to those two thresholds. That is not the case in the C.D. Howe study. It overestimates an agreement in fact and we think that businesses will quite quickly clue into what is better for them to do. It is one thing that is quite different in terms of approach.

The second thing is the way they have interpreted the changes in the rules of origin on chemicals. We think they have a wrong interpretation of it. We have experts on rules of origin here, but they see this as a restrictive change in rules of origin. Because chemicals are an important sector it has a negative impact that we do not see in our model.

There are other more technical reasons, but those are the two main ones that would explain why, even if he had compared apples to apples, we would not get to the same number because of an overestimate in cost.

Senator Massicotte: Pretty simple stuff.

Senator Coyle: Right.

The Chair: Perhaps I could ask a supplementary question to a very simple question that got a very complicated answer because Senator Coyle’s question is important, Ms. Paquet.

In the economic report that Global Affairs presented, and I believe you presented it to the House committee on February 26 or somewhere around that time, you make the claim that CUSMA will improve GDP gains by $6.8 billion and that the implementation of the CUSMA outcome was basically done on a base analysis of U.S. withdrawal from NAFTA.

Essentially in your analysis you are comparing the agreement to no agreement, correct?

Ms. Paquet: Yes.

The Chair: When you make that kind of comparison, it certainly skews the numbers considerably. My understanding of the C.D. Howe analysis is that it is actually analyzing the current agreement with the past NAFTA agreement.

I am a bit troubled by two things. I am trying to figure out why Global Affairs would not provide the Parliament of Canada with an adequate economic analysis of this study, this negotiation or this deal with what is in place right now?

What is really troubling is: Why did Global Affairs present this economic analysis, which I encourage my colleagues to analyze carefully, to the House of Commons Foreign Affairs Committee a month after the agreement was tabled and the review on the part of the House began?

It would only be appropriate that this study, with all due respect, be provided by Global Affairs right at the outset to the House committee on January 29 when it was tabled. Why did Global Affairs not do a straight-up analysis of the current deal versus what we had in place under NAFTA?

Ms. Paquet: We see the situation exactly this way. NAFTA was never a status when it was viable. It was simply not. Therefore, the real comparison is either CUSMA, the new NAFTA, compared to no NAFTA. This is what you have before you. That is the one thing. This is what we strongly believe. This is exactly what the negotiators were facing.

Plus, we had in position the section 232 tariff-free on steel and aluminum. That was reality, so that is also in the base scenario. We also managed with the new NAFTA to eliminate those section 232 tariffs. These are positive things. For us, the real situation we were facing is CUSMA compared to no NAFTA. This is what you have before you.

On the second point in terms of timing I understand it is not optimal. Believe me, I would have liked to have provided you with an earlier document. We have decided, and that is why I alluded to it in my remarks, to revisit this idea of policy uncertainty. Many economists and business people you have probably seen and talked to will tell you the same thing. A reduction in policy uncertainty is a good thing. You have heard our chief negotiator mention a few of the good areas they have achieved in terms of positive outcomes. As I said, it is unfortunate we were not able to take that into account.

We revisited this idea of reduction in policy uncertainty. We tried to do it the way the USITC has done it. If you look at the USITC report, you will see that it is the first time they have three scenarios in such a report. They normally only have one number out.

This time they have three numbers: $2 billion added to the $235 billion, with $68 billion right in the middle. What drives everything here is how they treat policy uncertainty reduction. If you don’t do anything in the model, if you don’t force anything there, you have a negative impact on the U.S. economy. If you have a bit of reduction in policy uncertainty, you have a positive $68 billion. If you have a lot of reduction policy uncertainty, you have plus $235 billion.

We were not able to completely replicate what the U.S. had done for different reasons such as lack of data and lack of knowledge because they included extra modelling beforehand. We tried our best; we just couldn’t do it. We decided to revisit the issue. We imported the coefficient from the USITC in terms of how to include the model. We will try it, and I alluded to that. As a result there was a very bizarre huge impact on the Mexican economy of close to $20 billion and a smaller impact on the U.S. economy of $17 billion or so when the U.S. report states $68 billion. We were so far away that we just couldn’t stick to that. We can’t.

We understand they have put other interventions in the model based on their interpretation of the agreement that we are not aware of. There is something else going on that we can’t explain. We have done it but we have decided not to report, not to treat it the same way in the model. That is in part why we were so last minute.

The Chair: I appreciate that answer and I appreciate the comparison vis-à-vis the U.S. report, which again I invite my colleagues to look at because they are two very different types of documents and approaches.

Wouldn’t Global Affairs have thought it would be helpful, in addition to having an analysis of this agreement versus no agreement, to have this agreement versus the NAFTA agreement so that we could actually compare the most current agreement? Wouldn’t Global Affairs think that would have been a useful exercise and document to provide parliamentarians?

Ms. Paquet: Again I can say the same thing. We believe strongly that this is the situation we are facing. If NAFTA had been a status quo option, I doubt that we would have embarked on such long and painful negotiations.

Senator Dean: I have no questions about coefficients, so that is my lead-in. I thank all of you and congratulate you for the hard work and significant achievements in the face of considerable adversity. I noted the highly diplomatic and very Canadian mention of unconventional approaches by your partners.

I have known for some time that Canada’s federal public servants are among the best in the world, if not the best in the world. I have learned from this exercise that our trade negotiators are among the best in the world as well. I congratulate all of you for that.

I have two questions. The first is on implementation. I know it is early days and you can probably only talk about this generally, but I am particularly interested in the labour provisions as they relate to Mexico.

Could you give us a very general sense of the nuts and bolts of implementation and enforcement, again bearing in mind that this is new and there will be considerable work to be done?

While you are pondering that, my second question relates to the very successful approach Canada took in reaching out to what I will call a thousand points of contact, both in this country and outside of it, and bringing to bear the influence of a broad range of actors.

I wonder if you could give us a sense of how important organizations and individuals in the United States were in applying internal pressure on their own administration as you went through this process. Some of that will be confidential, I know, but just a general sense. We know how important it was within this country, but I would be interested in your perspective on that from the other side of the border as well.

Perhaps you could start with labour provisions in Mexico.

Mr. Verheul: I will make a couple of preliminary comments and then I will ask my colleague Pierre Bouchard, our lead negotiator on the labour side, to add further comments.

With respect to labour under the current NAFTA, there is no labour chapter. There is a side agreement on labour and environment. With this agreement we have a full labour chapter subject to dispute settlement. It is far more ambitious than previous labour chapters we have done.

We also have a completely new mechanism to address breaches of labour obligations with respect to specific facilities, which has never been done in any free trade agreement that I am aware of. We have gone further than we ever have in the past.

Pierre Bouchard, Director, Bilateral and Regional Labour Affairs, Employment and Social Development Canada: Yes, labour might be the area of agreement that had the biggest jump from the original extremely weak and ineffective side agreement, to unprecedented provisions in the labour chapter and the bilateral mechanisms on the scope of obligation and the enforcement available to them.

Improvements in the labour chapters were discussed and provisions on violence against workers and clarifying prohibition, which is something that has not been mentioned much, the implementation of goods made by forced labour were included and will come into effect subject to the regular enforcement dispute settlement and bilateral mechanisms.

To your question about what we are doing, for some time we have been heavily involved with Mexico in quite unprecedented labour reform. The administration in Mexico is fully committed. A bilateral working group on labour was established by our former Minister of Labour last August, and we meet quarterly to go over each of the reforms. We are helping them with existing and potential future resources to implement that. There is an emphasis on technical cooperation to help them both at the federal and state levels.

A lot of work is ongoing on the technical assistance side and on what was negotiated in the bilateral mechanism agreement. We are developing and expecting to be able to publish guidelines for filing complaints under the bilateral mechanism in the same way as the existing guidelines on filing complaints. We call them public communications under all of our labour chapters or free trade agreements. These are published. We expect to have something equivalent to them.

We are also working with CBSA and the Department of Finance, which have responsibility for the Customs Act, on preparing ourselves for the ban on the importation of goods made from forced labour. Canada already has a ban in place for several decades on the importation of goods made from prison labour. In addition we will now have that ban.

These are some of the steps. We are very busy and there is probably much more work to be done by us right now and in the coming months.

Senator Dean: I will tell you that you are further ahead than I expected, so congratulations.

Moving south of the border to the third country now involved in this deal, how important was the pressure from within in support of Canada’s objectives?

Mr. Verheul: We had different relationships and occasionally shifting relationships with both the U.S. and Mexico. On many issues we were on exactly the same page as Mexico and were putting pressure on the U.S. The Mexican industry was very closely engaged in negotiations with respect to Mexican positions, so we worked closely with them as well.

It was a bit different in the U.S. from what we had been used to with respect to the private sector. The U.S. did not closely consult with their private sector through much of the negotiations.

In fact, my team and I met with the U.S. Chamber of Commerce at virtually every negotiating round. They wanted to meet with us to hear what was ongoing in the negotiations. We talked to them about the various proposals and various issues, and we received quite a bit of support from the U.S. business community.

It was an environment where we had close relationships with the U.S. business community, with the Mexican business community, the Mexican government, and the U.S. government, but those relations were occasionally strained depending on the issues to be discussed.

Senator Griffin: My question is basically a follow-up to Senator Massicotte’s. Mr. Fowler agreed with his view on the changes in Bill C-4 regarding the Canada Grain Act that indeed go beyond what is necessary for CUSMA but will not be negative.

I am not so sure I have such a sunny view of it. The National Farmers Union is very concerned, and I can see why they are because there is to be a review of the Canada Grain Act. This review process was supposed to start some time this month, yet policy-related things are occurring now prior to that review of the Canada Grain Act.

I am puzzled as to why this would have happened if they weren’t needed for CUSMA. Are you not pre-empting the Department of Agriculture process?

Mr. Fowler: The process to review the operation of the Canada Grain Act will proceed as scheduled and can consider changes including changes that relate to the aspects touched on in the implementation bill, to the extent that they don’t affect Canada’s ability to comply with the obligations we have agreed with the United States under the CUSMA.

Bill C-4, as I said, contains two types of changes to the Canada Grain Act with respect to the treatment of U.S.-grown varieties of grain. Substantive changes are necessary to bring Canada’s grain handling and grading system into compliance with the commitments we have accepted. Consequential amendments are needed in our view to ensure that once the Canadian grain handling system is able to accept deliveries of U.S. grain, the U.S. grain is not treated in a manner that disadvantages Canadian grain growers who produce grain according to the Canadian regulatory system as opposed to the regulatory system in place in the United States.

The current Canada Grain Act does not contemplate the possibility of that happening because U.S. grain is not regularly delivered into the grain handling system, which was what gave rise to the obligations in the first place.

One aspect that is neither consequential from a regulatory perspective nor strictly necessary to fulfil the obligations in the agreement is the change or the decision to make the change with respect to grain rather than with respect to wheat, the product for which the commitment was taken.

That reflects the structure of the Canada Grain Act, which deals with and defines only grains, not individual commodities. It is not possible, with the act as it is currently structured, to make a change that would apply exclusively to wheat.

In our view the economic realities are such that the impact of these changes are limited. American producers have access to the Canadian market. They sell their grain to Canadian grain handlers at a negotiated price today. What the CUSMA does and what this implementing legislation will do is allow them to receive an official grade under the grain grading system rather than selling by specification, which is what they do today.

Small volumes of U.S.-grown grain regularly move through the Canadian elevator system on this basis. The changes being introduced through this piece of legislation are not expected to significantly influence that trend.

Senator Griffin: Twice you have used three words: “in our view.” Does this include the Agriculture and Agri-Food Canada view?

Mr. Fowler: I believe I am here on behalf of Agriculture and Agri-Food Canada. As far as I know that is the only view I am presenting right now.

Senator Griffin: I am hoping so. We will find out tomorrow.


Senator Saint-Germain: I want to acknowledge your contribution from a different perspective than that of my colleagues. It is important for Canada to have a strong team that specializes in economic, trade and international negotiations. This is an extremely complex area, with many divisions that play a coordinating government role and have an institutional memory through governments, negotiations and treaties. Above all, there is a network of international contacts that are extremely valuable to us as parliamentarians and to the industry. I very much appreciate that we could rely on your expertise.

Having said that, I know that time is ticking away and that we have a final version of this free trade agreement that will have to be passed and then receive Royal Assent. Of course, we will not see it today. We have read it over the months and through previous presentations.

My question is about what happens next, that is after Royal Assent and after regulations have been prepared and passed and all trilateral obligations have been verified by the partners. So my question is about what appears to me to be a gain that is not spectacular, but really important to me. Contrary to what the United States wanted, that is, automatic termination every five years, and with all the impacts that can be observed, Canada has proposed and won the right to monitor a process that will regularly lead to the review and modernization of the agreement. Over a period of 16 years, we anticipate that there will be a review and reassessment approximately every six years.

In this context, I would like to know whether this could be an opportunity, given the rapid and unpredictable development of the North American economy, to examine the impact of the agreement with respect to certain particularly shifting sectors, such as the whole digital economy.

What options would we have in some cases, or is it possible to update the agreement, which is already ratified? What do you have in mind as perspectives to watch for?

I’m also going to ask my second question right away. It kind of follows from the first one. When it comes to supply management issues, we should not put our heads in the sand; these are industries in transition that will need to convert, not only within the North American market, but also in relation to other markets. This is not an issue of international trade negotiations, it is one of economic policy, conversion and economic transition.

If you are in a position to do so, can you tell us who we should invite to appear as a representative of the Canadian government, which has more responsibilities for these conversion and transition issues in supply-managed industries, particularly in the poultry, egg and milk sectors?

It is a long question; I hope that it is clear.


Mr. Verheul: Thank you for that, and in particular thank you for your opening comments.

If I can take a moment, the team we have for this negotiation has been built up over many years. We went through CETA and CPTPP negotiations and through this negotiation. Those are more intense and larger negotiations than I think any other country in the world has gone through.

I think the team we have for trade negotiations is second to none in the world. We have more expertise, experience and capability than any other negotiating team. I wanted to take the opportunity to say that. I am very proud of the people I work with.

With respect to your comment about the sunset, part of what we were trying to achieve when we moved the U.S. off its initial position of having an absolute sunset to the agreement was to have a built-in mechanism that would allow us to make updates on a regular basis.

The NAFTA is still in place, but it has been more than 25 years. It has been modernized to some extent in small ways some 11 times over the course of those years. Obviously the world changes and we have to keep up to it in our trade agreements. They should be constantly evolving. They should not be static and stay the same.

You mentioned digital. That is certainly an area we want to continue to modernize as the years go by to ensure the agreement is consistent with what is happening in the economy and what is happening with technology.

Another good example is the auto sector. As we all know, the auto sector is going through a fundamental change. It is moving and will move beyond the kinds of cars being produced today. We started to talk to the U.S. and Mexico about cars of the future.

How can we start to put in place rules, regulations and practices with respect to the cars we expect to see on roads in the future? What kinds of disciplines and mechanisms should we have for the production of those kinds of cars?

We want to get in front of any place where technology is modernizing and not only products but processes are changing. We are actively thinking about not just the agreement we want to have in place right now but about what we need 10 or 15 years from now and beyond. That is clearly something we will factor into regular reviews of the agreement going forward.

With respect to the supply management issues, I will turn to Mr. Fowler to provide comments on that.

Mr. Fowler: I always like to provide the broader context from an agricultural perspective when I talk about the specific outcomes for dairy. I understand the commentary around those and the concerns expressed by the sector.

I don’t want to minimize the impact these obligations will have on supply managed sectors and particularly the dairy sector. The government has acknowledged that impact. In the fall of 2018, the government announced the formation of three working groups with dairy, poultry and egg farmers. Two working groups were focused on mitigation and addressing the impact. In the dairy sector, a strategic working group was established to talk about and create a vision for the future long-term sustained competitiveness of the dairy sector in Canada under supply management.

Work related to the strategic working group for dairy is ongoing. The government is engaged with Dairy Farmers of Canada, Dairy Processors Association of Canada, Canadian Dairy Commission, as well as AAFC at the table. A lot of thought is going into the question of the long-term strategic future of dairy in Canada.

I know you have asked for the name of an official that can appear. I hope you will forgive me if I decline to provide one right this second, but I am confident that we can follow up with an appropriate person to discuss these issues further.

Senator Saint-Germain: Please do that. Thank you.

The Chair: My question is again for Mr. Verheul and it has to do with government procurement issues. It is something of concern to all Canadians now for a very long time. On the one hand, the Americans are practising rigid rules when it comes to government procurement. On the other hand, American companies are privy to an open competitive market here when they are bidding on large public works projects, building bridges or accessing procurement contracts of Crown corporations.

All of us were quite disappointed that we didn’t get much movement on this particular aspect of the deal. Canada now relies heavily on WTO rules to resolve some of this. As you well know, the Americans are now threatening to pull out of the WTO agreement when it comes to government procurement.

Did we fail at it? Was it just non-negotiable? What do you suggest going forward? It is a major impediment for us and Canadian corporations.

Mr. Verheul: I would certainly not disagree with that. The Buy America and Buy American programs have both been considerable irritants for Canada, Canadian businesses and exporters for a very long time.

The discussions on government procurement were particularly contentious in this negotiation. The U.S. proposal they put on the table would have given us worse access to the U.S. market than the country of Bahrain has to the U.S. market. In other words, we would have been worse off than any other free trade agreement partner the U.S. has at this point in time. That was not an agreement we could contemplate.

We put the most ambitious proposal on government procurement that we have ever put on the table in a free trade negotiation, but that indicates to you just how far apart our positions were.

There was no question that we could agree to what the U.S. was talking about on government procurement. Instead, rather than agree to anything in NAFTA or in the new NAFTA which would put us at a disadvantage, we would be better off to agree that the government procurement agreement at the WTO prevail. They would give us much better access than we have under NAFTA at the moment, including access with respect to some 37 states where there is no state level coverage under the existing NAFTA.

You mentioned the rumour that the U.S. was considering withdrawing from the GPA. So far from all of our investigations that remains a rumour. They may be contemplating it, but at this point in time we are not seeing any strong evidence that they are prepared to do that, at least in the short term.

We have given the message to the U.S. very clearly that if they were to withdraw from the Government Procurement Agreement at the WTO, it would upset the balance of concessions we agreed to in this agreement. We would expect that the imbalance created by the U.S. withdrawing from GPA would have to be corrected. We would expect that we would have to negotiate a bilateral agreement to give us that level of access under this agreement.

I had a discussion with my counterparts as recently as last week. It has taken place at other levels as well. I would also remark that the U.S. business community has approached us and is strongly opposed to the U.S. withdrawing. The U.S. clearly understands that if they were to contemplate such a move it would not be an easy process to go through.

It is something we are going to keep our eye on for sure. We don’t think the U.S. will simply withdraw from that agreement and leave us with very little in the new NAFTA going forward.

The Chair: Could we have done more as a government in terms of having a buy Canada process or having an extra weighted system in favour of Canadian enterprises?

Would that have been something that would have given you more leverage in the negotiations? Or, is it just that the U.S. is on an economy of scale basis so much more powerful than we are that we just have to live with the consequences?

Mr. Verheul: Are you referring to the government procurement negotiations in particular?

The Chair: Right.

Mr. Verheul: Yes. The attitudes are very different in the U.S. They have these programs at the state level as well as at the national level. They have two of them at the national level in particular. The U.S. is very strongly attached to them. It is very politically popular in some quarters.

You may be aware from seeing the press coverage that some of our provinces are reaching out to some U.S. states to try to reach agreement on some elements, but I think the U.S. remains highly protectionist on this issue.

When we negotiated the agreement with the European Union, we went much further into the whole government procurement area. We have access that is greater than any other country outside of the EU to the EU procurement market, which is a very large market with 27 member states. We are already starting to see some gains from that.

The U.S. has a different attitude. We still have avenues where we are participating in U.S. government procurement contracts, but in terms of locking in those rights it is an ongoing battle, not just for us but for virtually every country in the world.


Senator Massicotte: I have two quick questions.

I would like to talk about dairy farmers again. They are claiming that the Canada-United States-Mexico Agreement will limit their exports outside the United States and Mexico. Is that true?


Mr. Fowler: The export provisions apply to global exports to all countries. Whether those provisions will be restricting remains to be seen, but they apply to exports to all countries.

Senator Massicotte: Therefore, if it is a global test and given that they are already exporting significantly locally and so on, it will probably diminish their ability to export elsewhere, correct?

Mr. Fowler: It is a difficult question to answer, and I don’t want to speculate about how market dynamics will evolve over the next several years. I can say that in 2019 global exports of skim milk powder and milk protein concentrates were below the 55,000 metric ton export threshold that will apply in year one.

If the agreement had applied last year, Canadian exports of those products would not have triggered the export charges under the threshold.

Mr. Verheul: If I could just add briefly to that, one important clarification is that those export limits apply to three products: skim milk powder, milk protein concentrate and infant formula. There are no restrictions on any other exports of dairy products in this agreement, including full milk powder, for example, which is not that much different from skim milk powder. This is a very narrow provision that relates only to those specific products.


Senator Massicotte: Mr. Verheul, you said in your testimony that a lot of negotiations are still going on with our partners, so there will be delays in terms of signing all these agreements. Does that mean that the effective date for CUSMA will be delayed to finalize these documents? Or will the effective date remain fixed in the days following approval of the implementation bill? If there is a delay, could this indirectly satisfy dairy producers with respect to the effective date of their measures?


Mr. Verheul: The agreement we reached with the U.S. and Mexico when the negotiations were concluded was that the agreement would enter into force on the first day of the third month following the last notice of ratification.

None of the three members have issued their notice of ratification so far. It depends on when we see those notices of ratification. Ours cannot be completed until we complete this process, Royal Assent and the regulatory issues I have mentioned before.

That is one element. I have also mentioned before that we have trilateral work that needs to be completed. The U.S. has to complete its certification process to advise Congress that they view what Canada and Mexico are doing as bringing both of them into compliance with the obligations under the agreement.

There is quite a bit of work to do. Predicting how long that will take is difficult to do. I will not guess at a date, but I will say there is still quite a bit of work in front of us.


Senator Massicotte: So it is possible that the dairy farmers’ concerns will actually result in our meeting the deadline they were asking for?


Mr. Verheul: The only thing I would add is that the U.S. has been very clear with us on many occasions that they wanted to have the agreement in force as quickly as possible and would be pushing for that to happen.

I also mentioned that within their own legislation they have a provision where they would be able to move ahead with parties that have ratified the agreement. In this case it would only be the U.S. and Mexico. They may well push that issue harder if we end up taking longer than they might expect.

It is a delicate issue as to when this will eventually enter into force. A lot of work needs to be done before we can get a clear sense of exactly when that would be.


Senator Massicotte: Thank you very much.


Senator MacDonald: I want to go back to the nature of these studies that Senator Housakos touched upon earlier.

Ms. Paquet, I confess I find the rationale for the nature of this study fairly unconvincing. The U.S. Congress received a 400-page study which they had time to analyze, amend and bring back for ratification. That study compared the old NAFTA to the new NAFTA. They did not have a study which compared the new NAFTA to no NAFTA at all.

I find it very difficult to think we would take a different type of approach, so I will ask you this question: The study that we put together, was it an independent initiative of Global Affairs, or did the ministry or the government instruct Global Affairs to do a study of this nature as opposed to a comparison of the old NAFTA and the new NAFTA?

Ms. Paquet: Yes, it was independent. It is actually our proposal to present it this way because, as I said, this is what we believed we were facing.

Senator MacDonald: I don’t believe we were facing that. If you look at the American study, that is not what they put on the table. The American study compared the old NAFTA to the new NAFTA. Why would we not do the same?

Ms. Paquet: The U.S. also decided to put forward three different scenarios. As I said before that was the first time. If you do it one way, you have a negative. If you do it another way, you have a positive.

It is a different approach, yes, and we believe this one is much more in line with what we were facing.

Mr. Verheul: Perhaps I can add to that. When we were approaching the beginning of this negotiation before the government made the decision to enter into the negotiation, we had a number of discussions with the U.S. We were given a fairly stark choice: NAFTA would end or we would negotiate a new NAFTA. We were not given the choice of either continuing with the existing NAFTA or negotiating a new one. It was one or the other.

Senator MacDonald: Who said NAFTA would end? Was it the Office of the President of the United States or Congress?

Mr. Verheul: It was certainly the administration that gave us that message.

As I mentioned earlier there was some differing legal views about whether or not the president could take action to terminate NAFTA. Certainly some legal advice we have received suggests that the U.S. president is able to do that. He can certainly initiate the six-month process and it is quite possible that he can complete that process.

Over the years Congress has given an increasing amount of power to the administration over these issues.

Robert Brookfield, Director General and Deputy Legal Advisor, Trade Law, Global Affairs Canada: It is a very complex domestic legal situation in the United States. The simplified view is that Congress has constitutional jurisdiction over international trade. They have delegated that power in many acts, including the original NAFTA Implementation Act and section 232, to give the president power to impose tariffs on steel and aluminum.

The conventional wisdom of most trade analysts in the United States is that the president alone has the power to withdraw from NAFTA because the power is in the United States NAFTA Implementation Act that gives the president power to change tariffs and to withdraw the definition of what constitutes NAFTA in that country.

Senator MacDonald: None of that precludes us from doing a comparative study in the same way they did. That’s all.

The Chair: I want to reiterate that point as I did earlier. I agree with Senator MacDonald that the decision certainly in itself was flawed not to do a comparative analysis of what we had in place to be able to judge the new deal.

The thing that I find more egregious than that, quite frankly, is still the fact that Global Affairs did not present an economic analysis at the tabling of this agreement on January 29.

The time was adequate because certainly the government had precluded the deal and the negotiations were done pretty much. There was quite a lapse of time before Parliament was recalled and before the agreement was brought to the House of Commons.

Again, we will have the minister answer that particular question because at the end of the day it is the government that presents these reports to the House committee. It is a serious omission not to be giving members of the House of Commons all their information to draw their conclusions.

Senator Ataullahjan: Minister Freeland outlined some core objectives of the government in negotiations. She said that referencing climate change in the agreement was “an absolutely Canadian goal going into these talks.”

However, just a few months prior the United States said that it would not implement the Paris agreements and signalled that it would withdraw. The agreement we have does not include measurable targets for pollution or greenhouse gases.

Was it wise for the government to spend negotiating capital on unachievable objectives? Did negotiators provide advice on this matter, and would you be able to tell us what the advice was?

Mr. Verheul: The issue of climate change was one that we tried to bring into the negotiations. We had that as part of our objectives in trying to address those issues.

It was difficult to advance in the face of U.S. resistance on anything to do with the Paris Agreement or climate change in other configurations. At the end of the day we achieved a fair amount of success in ensuring the inclusion of articles on environmental goods and services, sustainable forest management and air quality. Particularly with respect to the Agreement on Environmental Cooperation, we have included obligations to cooperate in areas like energy efficiency, alternative and renewable energy, and low emission technologies.

All of these kinds of issues were our way of getting as many tangible issues related to the environment and climate change into the agreement without actually having something that would be very upfront in terms of speaking to climate change and in particular the Paris Agreement with the U.S. which they never would have agreed to.

With what we have achieved, we have managed to work around some of the U.S. objectives and come up with a number of priorities that we were looking to achieve.

Senator Ataullahjan: Would we be able to get a list of those priorities? I would like to know what we did achieve.

Mr. Verheul: Absolutely. We can provide that.

The Chair: I have another question with regard to digital provisions. As you know, some analysts have expressed concerns about the security of Canadian data under the terms of this agreement.

Recently in The Washington Post Professor Michael Geist of the University of Ottawa who has been before the Senate committees on a number of occasions said that these provisions:

. . .hamstring online policies . . .by restricting privacy safeguards in hampering efforts to establish new regulations in the digital environment.

Would you agree with Professor Geist’s perspective?

Mr. Verheul: No, I think we would have a different view.

We certainly protected privacy quite extensively with respect to the provisions we have agreed to. We have to remember that some of the elements in the agreement, including incorporating the General Agreement on Trades in Services obligations directly into the agreement, includes the privacy exception as part of it.

We also have more specific obligations in relation to privacy, and we do not see any restrictions on our ability to have further provisions or further actions on our side with respect to the issue of privacy.

The Chair: Mr. Verheul and members of the panel, with the agreement of my colleagues, do you have some closing statement or closing remarks you want to share with the committee?

Mr. Verheul: No. We are pleased to have had the opportunity to speak to you this afternoon and to respond to your questions. I wish you success in your further studies.

The Chair: On behalf of the committee, I thank you for the gargantuan work you have done. We know that negotiating an $800 billion deal is not an easy task and that you have done it while protecting the interests of Canadians.

You have worked very hard, and we thank you and your team for that. We also appreciate very much Global Affairs coming here to spend time with us and answer our questions.

Colleagues, with that, this meeting is adjourned.

(The committee adjourned.)