THE STANDING SENATE COMMITTEE ON FOREIGN AFFAIRS AND INTERNATIONAL TRADE
OTTAWA, Thursday, March 12, 2020
The Standing Senate Committee on Foreign Affairs and International Trade met this day at 10:30 a.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 Senator Leo Housakos from Quebec and I am the chair of the committee.
Welcome to all. The committee has been asked by the Senate to do a pre-study on Bill C-4, An Act to implement the Agreement between Canada, the United States of America and the United Mexican States.
I would first like to ask the senators to introduce themselves, starting on my right.
Senator Dawson: Dennis Dawson, a senator from Quebec.
Senator Massicotte: Paul J. Massicotte, a senator from Lanaudière, Quebec.
Senator Ataullahjan: Salma Ataullahjan, Ontario.
Senator Cordy: Jane Cordy, Nova Scotia.
Senator MacDonald: Michael MacDonald, Nova Scotia.
Senator Dean: Tony Dean, Ontario.
Senator Bovey: Patricia Bovey, Manitoba.
Senator Saint-Germain: Raymonde Saint-Germain, from Quebec. Welcome.
Senator Coyle: Mary Coyle, Antigonish, Nova Scotia.
Senator Boehm: Peter M. Boehm, Ontario.
The Chair: For our first panel of witnesses this morning, we welcome two organizations from the very important agricultural sector. First, from the Canadian Agri-Food Trade Alliance we have Claire Citeau, Executive Director, Canadian Agri-Food Trade Alliance and Erin Gowriluk, Executive Director, Grain Growers of Canada, Canadian Agri-Food Trade Alliance.
From the Canadian Cattlemen’s Association, Doug Sawyer, Vice Chair, Foreign Affairs Committee, Canadian Cattlemen’s Association, and Fawn Jackson, Senior Manager, Government and International Relations, Canadian Cattlemen’s Association. Welcome to the panel. We’ve just launched our study this week. You will have a few minutes to make your presentation and then my colleagues will dive right in and start asking you questions.
Claire Citeau, Executive Director, Canadian Agri-Food Trade Alliance: Thank you for inviting us to talk about the free trade agreement between Canada, the United States and the United Mexican States on behalf of the Canadian Agri-Food Trade Alliance.
I’m pleased to be joined by Erin Gowriluk with the Grain Growers of Canada and a member of CAFTA.
Our members have a very simple message: CAFTA calls for the swift ratification of CUSMA to ensure continued stability in the North American market and strongly urges parliamentarians in both houses to pass Bill C-4 quickly. CAFTA represents the 90% of farmers in Canada who depend on trade, as well as producers, manufacturers and agri-food exporters who want to grow the economy through better access to international markets. This includes beef, pork, meat, grains, cereals, pulses, soybeans and canola, as well as the malt, sugar and processed food industries. Our members represent more than 90% of Canada’s agri-food exports, which in 2019 reached over $60 billion in exports and supported about a million jobs across the country.
A significant portion of these sales and jobs would not exist without competitive access to the world’s markets. Despite this incredible success, we are facing unprecedented uncertainty. Predictability has been eroded by governments putting in place tariffs and other measures that blatantly contradict trade rules. This has happened here in North America, as well as abroad.
Last spring, CAFTA released a prescription of what is required from trade agreements in this new reality. The document, which I believe has been distributed to you, is entitled: Realizing Canada’s Export Potential in an Unpredictable and Fiercely Competitive World. It outlines what is required for Canadian agri-food exports to continue setting records.
Our first recommendation in that document is to preserve and enhance access to key export markets. With that, ratifying and bringing CUSMA into force as quickly as possible is an essential piece of that mandate. We understand the nationalist noise swirling around. We saw it first-hand when we attended all negotiating rounds for the new CUSMA. It’s why we applauded when CAFTA concluded talks last fall. It’s why CAFTA welcomed the end of aluminum and steel tariffs. We appreciate the value of tariff-free markets because free trade has been incredible for the North American agri-food industry. Over the last 25 years, Canadian food exports to the U.S. and Mexico have nearly quadrupled under NAFTA, going from nearly $9 billion in 1993 to $34 billion in 2019. Today, the U.S. and Mexico are the first- and fourth-largest export markets for Canadian agri-food products, making up about 55% of our total exports last year.
We support CUSMA because it builds on the success of the NAFTA agreement. It preserves the duty-free access our North American agricultural and food sector has been built upon over the past quarter century. Our members — the hundreds of thousands of farmers, ranchers, food producers and agricultural exporters who rely on trade for their livelihood — are pleased that the Canadian government is taking steps to ensure that CUSMA is brought into force.
Our members emphasize the following outcomes as key benefits of the new CUSMA. The agreement contains no new tariff or trade restricting measures, so all agriculture products that have zero tariffs under NAFTA will remain at zero under CUSMA. Maintaining predictable duty-free access through the North American market is a major win for Canadian agriculture and agri-food exporters, and this will help strengthen the supply chains that have been developed for the past generation. The new agreement includes meaningful progress on regulatory alignment and cooperation. In particular, the establishment of the Working Group for Cooperation on Agricultural Biotechnology and the creation of a new Sanitary and Phytosanitary Committee, which will help ensure regulations are transparent and based on science, and that trade in North America flows freely, fairly and abundantly.
Another key benefit for our members is the preservation of dispute resolution provisions that are vital to ensuring that fair and transparent processes are in place for when disagreements arise. Preserving Chapter 19 in its entirety and much of Chapter 20 from the previous NAFTA are also important wins. Market access improvements for Canadian agri-food exporters include increased quotas for refined sugar and sugar-containing products, as well as gains for some processed oilseeds products like margarine; all welcome wins.
All of these advances will help consolidate the gains of the original NAFTA and provide certainty in the North American market, which is essential to the success of Canadian agriculture and food manufacturers and exporters.
In closing, CUSMA represents a meaningful upgrade to NAFTA for our members by keeping our trade tariff-free, establishing processes that help remove remaining technical barriers to trade, and maintaining vital provisions to deal with disputes. We look forward to working with the government to bring CUSMA into force so that our members can realize its benefits as quickly as possible.
Doug Sawyer, Vice Chair, Foreign Affairs Committee, Canadian Cattlemen’s Association: Good morning. Thank you for having us here today, it’s very important to us. My name is Doug Sawyer, I am a rancher from central Alberta; Pine Lake. We’re famous for our tornado incident a few years ago, unfortunately. I am also a member of the Canadian Cattlemen’s Association, which is the national voice that speaks for 60,000 beef farmers and ranchers throughout this country from coast to coast. My supervisor is Fawn Jackson, Senior Manager of Government and International Relations with the Canadian Cattlemen’s Association. The CCA has long been an advocate for free trade, and today I am here to encourage all parliamentarians to swiftly ratify CUSMA.
Under both NAFTA and CUSMA, the beef industries of Canada, the U.S. and Mexico have, and will continue to enjoy, reciprocal duty-free trade between all of our countries. North America is the largest market for Canadian beef and the integration of our markets help make us a strong competitor throughout the whole world.
My daughter and son are the fifth generation that has bought into cattle on our farm, and I’m pretty excited about their future.
Last year, following the implementation of CPTPP, Canadian beef saw a very impressive demand bump, and our exports grew by 19% in value. Specifically, the Japanese market grew 68% in value. I bring that up because, similarly, the demand increase happened following the implementation of the original NAFTA. Those are the kinds of things where the trade we do really boosts our businesses.
Under NAFTA, Canadian beef exports to the U.S. grew 340% total value, from $532 million to a whopping $2.3 billion in 2019. Similarly, beef exports to Mexico grew over 30 times in value, from $3.7 million in 1995, to a huge $127 million in 2019.
All of this is to say that trade agreements are not only fundamental to the viability of our farming and ranching operations from coast to coast, but are the foundation for growth of the Canadian agriculture sector. For my cattle operation, having American buyers in the Canadian marketplace for live cattle means I can rest assured that I have a competitive market to sell my cattle into. Even when I sell to Canadian buyers, having additional competitors in the marketplace certainly keeps things going strong for us.
Today, we are seeing Eastern Canadian cattle producers struggle financially as the technical issue has essentially removed American cattle buyers from their marketplace. This has resulted in significantly depressed prices in Eastern Canada, and it is a very unfortunate example of how important having an open and transparent marketplace in North America really is to us. Having North American buyers participate actively in the Canadian marketplace is imperative to the financial well-being of Canadian farmers.
As a personal note, I’ve shipped cattle into Washington many times. They have been bought right at my local auction mart, and have been fed and finished down there when the market is set.
It is not just reciprocal duty-free trade that is important, but also the progress on regulatory alignment, cooperation and avoidance of factors disrupting our trade. We are relieved that the negotiators thwarted efforts to bring the mandatory country-of-origin labelling back. That cost us billions of dollars between 2008 and 2015. Additionally, the new agreement includes a section that highlights the commitment to not disrupt trade through labelling issues. We were very pleased to see this shared priority emphasized in CUSMA.
We are gratified to see the creation of a new Sanitary and Phytosanitary Committee within the agreement, as well as the preservation of the trade resolution provisions. That’s very vital to us.
I would also like to add that economic outcomes are not the only highlight of a growing Canadian beef export demand; there are also many environmental benefits that go along with the vibrant beef sector. I think they are becoming more and more prevalent in the discussions as we move forward. The per-kilo production of Canadian beef has less than half the average global carbon footprint. That’s very significant. Here in Canada, we know that a strong, viable beef industry is absolutely tied to the conservation of Canada’s native grasslands in an at-risk ecosystem, and is capable of storing 1.5 billion tonnes of carbon. I think that’s at the forefront of everybody’s mind these days.
In closing, we encourage the swift ratification of Bill C-4. Growth is on the horizon for export-focused Canadian agriculture industries, and a strong, stable North American market is absolutely fundamental to our ability to optimize on this growth.
Thank you. We look forward to your questions, which I’ll probably steer to Fawn or Claire.
The Chair: Thank you very much.
Senator Massicotte: Thank you very much. It is much appreciated.
Ms. Citeau, you clearly support the agreement, and you recommend we approve it as soon as possible. From your presentation, it seems to be a perfect agreement in your eyes. I’m glad to see they succeeded that well.
However, we have had witnesses in the past who have talked about border delays and that, in fact, the border people are not the most skilled at determining what category. Is that the case? Are there significant delays at the border? Is there a problem that we need to deal with more specifically, in spite of the fact you have a great free trade agreement?
Fawn Jackson, Senior Manager, Government and International Relations, Canadian Cattlemen’s Association: Of course, there’s always regulatory cooperation and areas where we want to see movement. One of the areas that we have, for example, is when we ship beef down into the U.S., we have to do another set of inspections. That is really redundant to us and isn’t perhaps in the spirit of the open and free trade that we want to see. But do you deal with that within CUSMA, or do you deal with that within the Canada-United States Regulatory Cooperation Council that has been officially formed? Through the good regulatory practices chapter, the RCC is going to be there now forever.
There are opportunities to continue to work on supporting free trade between our countries on the regulatory front. We would like to say that we think the RCC could see some improvements, perhaps identifying how to incorporate benchmarks with respect to stakeholder input, processes, timing and reporting requirements. At times, it can be a frustrating framework to work within, so are there some more parameters that would help build that?
Going back, though, I think the regulatory side could be dealt with once it’s been ratified.
Senator Massicotte: Ms. Citeau, what do you think?
Ms. Citeau: I wanted to add that in trying to make the agreement — I briefly touched on it in my presentation — are those committees that are to address SPS and TBT issues, regulatory cooperation, as well as biotechnology, to make sure those barriers to trade, whether at the border or through the approvals of products and so forth, are addressed in a timely manner and that we have fewer red tape issues in the future.
Having those as part of the agreement is an important signal.
Senator Massicotte: Ms. Gowriluk, some of your members have made comments that, in their eyes, the legislative act we’ve been asked to approve goes beyond the exact agreement we have with the other two countries and is not consistent, whereby the act would limit some of the grain growers’ own position regarding the quantity and quality of the grain, which is not required in CUSMA. Do you have any comments? Do you share that opinion seemingly held by some of your members?
Erin Gowriluk, Executive Director Grain Growers of Canada, Canadian Agri-Food Trade Alliance: Are you speaking specifically to the issue around grain grading?
Senator Massicotte: Yes.
Ms. Gowriluk: Our members share a collective view and position on that issue, so I’m not sure if perhaps other stakeholders have shared different positions on this issue. However, our members are in agreement that the grain grading issue has been a long-standing concern for U.S. wheat producers.
The issue in the U.S. has been raised at the highest levels. We’ve seen, for example, a motion passed by the U.S. Senate on this issue, as well as an investigation by the U.S. Trade Representative. The issue seems to persist regardless of which party controls the White House or the Congress. We are of the view, collectively, our entire membership, that if this issue remains unresolved, that Canadian farmers could be at significant risk of retaliation as a result.
I should mention that a similar change was also proposed by the previous government in Bill C-48, prior to the 2015 election, but it wasn’t able to pass due to the dissolution of Parliament. We, collectively, all members of Grain Growers of Canada, supported that change in 2015. We are pleased to see that the change is being proposed once again, and we hope it will soon be in place with the swift ratification of CUSMA through the passage of Bill C-4.
Senator Ataullahjan: Thank you for your presentation this morning.
My question is for the Canadian Agri-Food Trade Alliance. Your association represents a range of food exporters that include beef, pork, meat, grains, cereals, pulses and other sectors. I understand your strong support for certainty in Canada’s food exports, but as you know, certain of Canada’s agricultural sectors will face challenges under this agreement. Do any of the exporters you represent face challenges under this agreement? What are the most significant challenges? What might be your recommendations for the government to assist in addressing those challenges?
Ms. Citeau: We represent all Canadian agri-food exporters. The way I summarize it is all of the ag sector but the supply-managed commodities. CAFTA is the voice of Canadian agriculture and food exporters. We represent about 95% of what Canada exports in terms of ag and food. When it comes to the views of Canadian agri-food exporters, whether it’s beef, pork, wheat, pulses, malt, sugar, processed food products — the gamut — they are all in support of the agreement and seeing it ratified quickly to preserve stability and predictability across the North American supply chains.
As I mentioned, we’ve been through a few years of unprecedented uncertainty, and we need to make sure that we lock in the gains that we’re able to achieve through the renegotiation of the NAFTA agreement, and to maintain our access to some of our largest export markets.
Senator Ataullahjan: You have no recommendations for the government?
Ms. Citeau: Ratify it quickly. I have heard from the chief negotiator who appeared before the House a couple of weeks ago that parties maintain the right to proceed on a bilateral basis if Canada does not ratify or starts dragging its feet. That’s something noted across the sector. We certainly don’t want to go down this road again. So ratify it quickly; lock in the gains and move on to other issues. Perhaps you can look closely at the implementation, not only of this agreement, but of the implementation of the agreements that Canada has ratified in recent years, namely the CPTPP and the CETA.
A lot of emphasis has been put on not only the negotiations and the ratification of these agreements, but perhaps we need to look more closely at the implementation. There are some issues. For the most part, things are going well on the CPTPP front. There are some issues with respect to grains in Vietnam. With CETA, things are not going well at all. Access remains elusive for a large portion of our membership. Perhaps we need to start looking at that. Lock in the gains with the CUSMA and move on to address other issues.
Senator MacDonald: Thank you all for your testimony this morning.
Mr. Sawyer, you may not want to respond but I have to ask you one question. You’re a cattleman. Have you ever turned a calf?
Mr. Sawyer: I don’t think I’ve ever turned a calf. I probably have, but I don’t know what that is.
Senator MacDonald: Maybe it’s a Cape Breton thing.
Senator R. Black: Tell us what it is.
Senator MacDonald: You know what it is.
In my experience over the years on the Canada-United States Inter-Parliamentary Group, I spent a lot of time in Washington dealing with arbitrary measures. One such measure in the past was the country-of-origin labelling, the so-called COOL regulations. We eventually got rid of those but it took a lot of work. I’m curious; are you concerned, when you look at the particulars of this agreement, that these types of challenges may re-emerge? Do you see an opening where that could perhaps occur?
Ms. Jackson: Within the new agreement, there is a section that highlights the commitment to not disrupt trade through labelling. We were pleased to see that shared commitment between the U.S., Mexico and Canada. It is absolutely integral that our markets are integrated. Mandatory country-of-origin labelling stops the beef industries from being so integrated. It cost our industry about $50 to $90 per head when mandatory country-of-origin labelling was in place.
That is one step to help avoid such measures from coming forward. Of course, there may always be some interest in how to further communicate where food products come from. Every once in a while, we see these conversations on mandatory COOL raising its head, for example, in Washington state just recently.
This is one important step to making sure that our markets do stay integrated and that we do keep that conversation at bay. That would allow our beef industries to stay as integrated as they are, which really is important for farmers and ranchers in Mexico, the United States and Canada.
Senator MacDonald: Does anybody want to add anything?
Mr. Sawyer: There are always risks to non-tariff trade barriers of some sort, for political or other reasons, whatever happens there. We’re seeing that with CETA, as Claire pointed out. That’s the message there: It’s important to get these deals done. Written into this deal is COOL, as Fawn said.
Ms. Jackson: It’s not written in. It’s opposite.
Mr. Sawyer: Yes, but it’s been addressed there. There’s always the risk of others coming up. That’s why it’s so important, as Claire said. Not only do we have to negotiate the deals, but then we have to follow through with the support of government to ensure that we have the access. That’s been our problem with the CETA deal. Elusive is the word that you used. It’s very difficult for us.
Senator MacDonald: One of the theoretical advantages of free trade deals is a free trade zone where everybody has a level playing field. In some respects, we don’t have a level playing field. The agriculture producers of Saskatchewan recently estimated that the federal carbon tax cost farmers up to 12% of their net income by 2022. That’s a $17,000 impact on a farm family that owns a 5,000-acre farm.
How much of an impact or how serious of a problem is it for your members to compete with American producers when you’re carrying that tax burden?
Ms. Gowriluk: There’s been a significant impact. We’re just pulling numbers together now, but we’ve been looking at some of the studies done in Manitoba, for example by the Canadian Association of Petroleum Producers, and in Saskatchewan by the Agricultural Producers Association of Saskatchewan. We’re seeing that the impact has been quite significant. That is coming on in addition to a number of other costs, including our inability to access key markets and some of the market access challenges that we’ve been talking about here as well.
It’s for that reason that our members have been seeking some relief, specifically on our operations and on grain drying, specifically for the carbon tax.
Ms. Jackson: It’s really important for policy to work in coordination, in some ways, with the agricultural community on the environmental commitments. It is something that our farmers and ranchers take so seriously. They’re so proud of it. We talked about the 50% greenhouse gas footprint in comparison to worldwide numbers on the beef side. That’s the beef story. There’s a similar canola story, a similar wheat story, a similar greenhouse story. It’s really about having appropriate measures. It’s not something that we take lightly. If we’re not careful, we’ll push agriculture production to other parts of the world that don’t have the same leadership that we have in that commitment. I just wanted to make that point.
Senator MacDonald: I want to leave you with the assurance that I’m sure the Senate will pass this bill fairly quickly.
Senator Griffin: My question is a follow up to yesterday’s panel, where I asked the government representative of Agricultural and Agri-Food Canada if his department supported the changes made to Bill C-4 that did not arise as a result of CUSMA, but were extra changes brought to my attention by the National Farmers Union. His response was that, yes, his department supported that. He was obviously there representing the department. So, yes, obviously they supported that. My concern was that the department has made a commitment to do a review of the act, but yet it has all of a sudden pre-empted it by making these changes through another bill, as consequential amendments.
Were you consulted?
Ms. Gowriluk: Yes, our members were consulted, and I’ll make reference again to the fact that collectively, as an industry, we’ve been having this conversation — specifically around the issue of grain grading — for a long time now. I referenced before that this was introduced as part of Bill C-48 in 2015. That received broad support from our membership and our industry partners at that time, and it’s something that we continue to support.
We look forward to the comprehensive review of the Canadian Grain Act. That’s something we’re looking forward to, but this in our view is a separate issue. This relates to a trade irritant that we have long wanted to address with one of our largest and most important trading partners, the United States. We’re happy to see its inclusion in CUSMA, it’s something we support. We support the bill as written, including the provisions around the Canadian Grain Act and the equal treatment of American grain, as long as it is a registered Canadian variety.
Senator Griffin: Are you aware of the fact that the National Farmers Union does have some concerns about this? They have concern that this happened. They obviously weren’t consulted.
Ms. Gowriluk: I understand that they have concerns. I talked to our members, but also our industry partners writ large, because this is an issue that collectively we’ve been working on for a number of years now. We felt the consultations in this space, in our view, have been comprehensive. On a number of occasions over the past seven years we’ve had an opportunity to talk about the importance of addressing this trade irritant.
I can’t speak specifically to their participation in, or knowledge of, related consultations, but it’s something that we collectively feel, as a national association that represents grain farmers from coast to coast, that it’s a conversation that we felt we’ve been a part of with government for over seven years.
Senator Griffin: Thank you.
Senator Coyle: Thank you very much to our presenters today. I first want to just confirm what I heard from all of you and then I have a question.
In your presentation Ms. Citeau, you said that the Canadian Agri-Food Trade Alliance’s first recommendation is to preserve and enhance access to key export markets, and that is what ratifying and bringing CUSMA into force as quickly as possible will do. This swift ratification of CUSMA that everybody here is asking for — and we are now studying as a committee — is because of the predictability factors.
I just want to run through them so I have them all correctly: the keeping and maintaining the tariff-free access to markets of Mexico and the U.S.; the regulatory alignment issues; and also it’s helpful, as I understood in our overall trade relationships with both the U.S. and Mexico — because we haven’t heard a lot about Mexico up to this point — Mr. Sawyer, you said it’s good for business and it’s good for the environment. Is that a fair representation of what you collectively are telling us here today?
Ms. Citeau: Yes. I would add to your points some of the market access gains. For example —
Senator Coyle: Improved gains?
Ms. Citeau: Absolutely. Sugar was for the most part excluded from the original NAFTA. It is now in the agreement, so that’s a starting point. There were also some gains for the canola sector on margarine specifically, which face tariffs today. These will be removed when the agreement does come into force. And then I would add the provisions on dispute resolution processes.
Senator Coyle: Yes, of course.
Ms. Citeau: So today, essentially the farmers wake up and look at the weather and wonder, but also look at the news because trade and geopolitics are worrying factors for them. This addresses the uncertainty and unpredictability.
Senator Coyle: Thank you. My question is not about that. It’s about a statement that you made, Ms. Citeau. I just want to understand it a little bit. You said we understand the nationalist noise swirling around. We saw it first-hand when we attended negotiating rounds for the new CUSMA. Could you unpack that a little bit for us, please?
Ms. Citeau: This is true for CUSMA, but also trade in general around the world. This makes specific references to the protectionist sentiment that we experience. You heard about non-tariff barriers. Foreign governments around the world over the past decades, but perhaps most in recent years, have introduced a number of measures for, at times, legitimate reasons that address health and safety concerns, but unfortunately too often for less legitimate reasons. At times we are at the centre of geopolitical concerns and that’s not right.
In our experience in free trade agreements, tariffs go down, non-tariff barriers come up. Unfortunately today, non-tariff barriers have become more problematic than tariffs themselves. It’s really about addressing tariffs in free trade agreements, but also non-tariff barriers. I will say that is true with any trading partner that we deal with.
Senator Coyle: Thank you.
The Chair: I have a supplementary question to the panel from Senator Coyle’s question that has to do with the way we approach this trade agreement, meaning the government. Do you feel they spent too much time engaging in issues like gender issues, environmental issues, issues that clearly the country we were negotiating with, the United States, wanted no part of in the agenda? Do you think those particular elements we brought to the table in this period of growing populism, and particularly given the view of the administration of the United States, made it more challenging in getting what we needed to get done?
Mr. Sawyer: Do you want me to answer that so I’m the only bad guy?
Ms. Citeau: Sure.
The Chair: We just want honest guys. Bad guys, good guys.
Mr. Sawyer: There are always these fringe things in any trade negotiation. This isn’t the first one I’ve been around for. There are always these irritant issues that pop up that don’t have meaning for me, but have meaning for other Canadians. I’m going to tell you my view, not the Canadian Cattlemen’s view, but yes, there are always those issues. Any trade negotiation we’ve been in, there are issues that just aren’t important to me and hold the discussion back, but that’s part of the deal we live in unfortunately. I know that’s not a very politically correct answer. That’s why I answered it instead of my colleagues.
Ms. Citeau: CAFTA has not commented on those new issues that are now brought into those free trade agreement discussions. Our focus remains on addressing tariff and non-tariff barriers. What the government does to negotiate and to get to a deal; how they do it is, if they feel they need to do it, then they do it. But really, our concerns are on addressing tariffs and non-tariff barriers, and eliminating those to make sure we have competitive access to the world’s largest markets.
Senator R. Black: On Senator Griffin’s question about the NFU concerns, if you’re aware of their concerns and what you’ve talked about, will those issues be dealt with in the subsequent Canada Grain Act review that is soon taking place? Are you confident those things will be dealt with accordingly?
Ms. Gowriluk: That’s a good question. I think that they’re two separate conversations. I’m aware of some of what we as an organization hope to address through the more comprehensive review. This, in our view, is a separate issue because it deals specifically with a trade irritant that we have long wanted to see resolved. We are of the view that there is tremendous benefit to addressing this irritant with one of our largest and most important trading partners.
Senator R. Black: In the review?
Ms. Gowriluk: No, as part of this agreement. We’re happy to see it included because we think it is a trade irritant and this is the place to address trade irritants such as that.
If they hold a different view, I have not had a conversation with them directly to better understand why they hold that view. However, in conversations that we’ve had for the last five years-plus with our members and industry partners — I can’t speak for the trade associations — this is something that I think, quite collectively, the industry, with respect to addressing this long-standing trade irritant, has been in support of, including in this agreement, and we’re happy to see it here.
Senator R. Black: Thanks very much.
Senator Bovey: I want to thank you all for your presentations. I was particularly interested, Mr. Sawyer, about your comments about the carbon footprint and the natural grasslands. As a Manitoban, we’ve been doing a lot of work on natural grasslands, as you know, and returning prairie grasses to prairie sites, so it was very encouraging to hear that.
Ms. Jackson, you talked a bit about the regulatory council, and my question is short and simple. Have you been working with the regulatory council to determine regulations? How do you secure the access to international markets that you feel you haven’t had under CETA? How are you working to make sure that doesn’t happen with CUSMA?
Ms. Jackson: We have worked with the Regulatory Cooperation Council and made some progress, I suppose, in some areas, and there are still some areas we want to see further progress. The North American market has been integrated for such a long time, and there’s a lot of experience here. It’s the largest two-way trade in beef in the world.
I think what we really want to do is get CUSMA ratified, continue to work on Regulatory Cooperation Council, and then apply the lessons that we have between the United States, Mexico, and Canada in how well we do trade, and then take that experience into other markets so that we can do it just as well there.
An example that I would have right now is we’re using e-certification to transfer both meat and beef across the Canada-U.S. border. This is new and exciting because it could hopefully avoid trade disruptions, such as what happened with China earlier this year, and meat. I think one could argue that if we had had e-certification in place at that point, that incident wouldn’t have happened. I’m excited to get that project further underway so that then we can take it into other markets such as Japan.
I think we have a lot to share in the world. We’re leaders in how trade is done, and can be done, and so looking forward to moving that forward.
Senator Bovey: Thank you.
Senator Dean: Thanks to all our panellists today. As a former public servant, I’m always delighted to hear stories of government working well, and the government seems to have done its work well here I think. We heard yesterday, some sense of how broad the consultation process was and the involvement of the negotiators and government broadly in reaching out to major stakeholders and players and partners, both in Canada and in other countries.
Ms. Gowriluk, you have talked about that consultation process and how you feel it worked well. Others have alluded to it. Ms. Citeau, Mr. Sawyer, Ms. Jackson, could you give us some examples of how you felt it worked well, and what that means when you talk about successful consultation — I think we’ve heard over the last seven years at one point. What made it successful from your point of view? I think we need to learn from these things and equip the public service to extend those approaches to other sectors that are important to our economy and society.
Ms. Citeau: On the consultations, I did mention in my remarks that we have attended all rounds of negotiations, and I think that’s true for the CETA, CPTPP and other free trade agreements. I would say, overall, it’s a two-way dialogue. We’re never in the negotiating room with negotiators, of course, but are there to provide information that the government and that trade negotiators don’t necessarily have, and that’s the views of industries: the markets, the exporters, the farmers, the ranchers. It’s important to provide that information for the trade policy discussions that our negotiators are having, so that they know what possible impacts they could have.
I will say, overall, it’s a two-way dialogue. It goes both ways. At the end of the day, we see the result in the final product: the text that was agreed to and our comments supporting what was achieved.
Senator Dean: Okay, thanks.
Ms. Citeau: That speaks for itself.
Senator Dean: And two-way discussions are important as long as both ends of that discussion are listening, and it sounds in this case that they were.
Anything to add, Ms. Jackson, Mr. Sawyer?
Mr. Sawyer: I don’t think so. To me as a board member, I think the success in terms of these consultations is about exactly what Claire said. First, you have to have a relationship and an open and honest one. So for us it’s about building strong relationships with the folks that we need to build relationships with here. And then be honest and open. We’ve seen that and it’s working well for us.
Senator Dean: Thank you.
The Chair: I have another question. It has less to do with this agreement than with generally trade agreements. Canada, as you well know, has dozens of trade agreements around the world, none as important as the one with the United States, of course, or NAFTA, or the USMCA, or whatever we want to call it. What are your views on how Global Affairs goes about evaluating the long-term impact of our trade agreements — doesn’t matter if it’s with South Korea or some other smaller or larger trading partners.
Does Global Affairs do a good enough job benchmarking and evaluating the long-term impact of these agreements? Do they ever come back throughout the process of time and talk to stakeholders like yourselves and say, okay, three years down the line, six years down the line, where are we at? How can we improve future negotiations? And are all trade agreements good trade agreements for your sector?
We as Canadians seem to look at free trade as an automatic positive. We’ve never seen a trade deal we don’t want to run to negotiate and sign. I’m of the view that some deals have been very excellent in terms of their results; some not so much. But we still do the victory lap and put them in our trophy case.
I’m curious, are we doing enough as parliamentarians to hold Global Affairs to account on the benchmarking and evaluating agreements down the line when they get implemented, and do you as stakeholders feel there are other things we can be doing?
Ms. Citeau: Perhaps I will start. Global Affairs has put out, I believe, an annual report, which is called State of Trade. That outlines how Canada is doing with respect to its trading position and exports of various products. The report — I think I looked at the last two years — does touch on the free trade agreements that have recently been implemented, namely the CETA and CPTPP. Perhaps more can be added to that specific portion of the free trade agreements. I would like to build on the implementation piece. We have an excellent team of negotiators that do very good work, and that’s what I touched on earlier.
There is a lot of emphasis on the negotiation and the ratification of the agreements, but the legislation is as good as the implementation. It’s really important that we put more emphasis on the implementation and addressing the issues. Our negotiators are aware. We are in contact with them very regularly about the outstanding issues. None of them are new, whether it’s the green issues in Vietnam or the outstanding CETA issues that I mentioned earlier. What is negotiated is good. Perhaps we need to do more on the implementation.
With respect to the implementation of the new CUSMA, some of our members have flagged possible irritants already, so it’s very important that we continue the two-way dialogue that has been established to ensure these are addressed and removed.
For example, the sugar sector has flagged to the negotiators some possible issues with respect to the TRQs in the administration of some of the sugar and sugar-containing products. That could create issues and uncertainty when it comes to implementation. The sector flagged that to the House committee when the bill was before the Trade Committee in the House and also flagged those issues for the negotiators, who are working on addressing those.
The food processing sector has also flagged that there could be possible misalignment between some of their trade obligations and front-of-pack labelling regulations that are in the minister’s mandate. Overall, we can do a better job of working on the implementation side. I think that really needs to be the focus now.
The Chair: But my question at the end remains. We have over 40 free trade agreements with various countries. Do you feel Global Affairs evaluates the effectiveness of each one — for example, in relation to your industry — in a proper way and reports it either to Parliament or reviews it with your sector, with your industry, effectively?
Ms. Citeau: I have not personally seen a report about the —
The Chair: Would that be something that your industry would find helpful, for example, looking at the 41 or so agreements we have and the impact they have in each sector, or globally, and evaluate them after a long period of time?
Ms. Citeau: Absolutely, but I think our members would do their own evaluations as well.
Ms. Jackson: I would like to add to your question of the number of free trade agreements. I think we all recognize that our internal resources for negotiating trade agreements is an important thing to take stock of. Then where do we put our priority? Speaking for the beef industry, we’re very interested in Asia. Not only perhaps accession through CPTPP would be a high priority for us and other countries to join, but as Claire has mentioned, ensuring that we have the resources to tackle the technical and implementation side of things. I think it is attractive to focus on the big free trade agreements.
We are very fortunate. We have the CPTPP, the Canada-Korea Free Trade Agreement, CUSMA and CETA. There has been a lot of work on that. Let’s make sure we put just as much energy and strategy into ensuring we have real access through the technical side of things.
Senator Massicotte: Given we’re having a discussion about the big picture and so on, when you negotiate agreements, you obviously trust your partner, and you think everybody will respect it and this will last forever, but as you know, our existing agreement has a six-month termination clause. Any party at any point in time, if it so wishes, can threaten the other party to tear up the agreement with six months’ notice.
Without naming names, do you consider that a high risk relative to your certainty, where we hope from these agreements your members will invest and plan for the future? Do you think there is a significant risk that the agreement may be torn up or threatened to be torn up whenever there is a small disagreement that negatively affects the United States?
Ms. Jackson: There is a much bigger risk if we don’t ratify CUSMA.
Senator Massicotte: It certainly has to be helpful in causing momentum anyway.
Mr. Sawyer: We live with that uncertainty all the time in my business. It doesn’t have to be the entire agreement gone; all it has to be is the elusive access or non-tariff trade barrier that locks my product out.
Certainly from a national perspective, losing the entire agreement would be devastating, I’m sure. However, these non-tariff trade barriers show up now and then. We live with that uncertainty all the time. Unfortunately, it’s part of our business planning.
Senator Massicotte: Any other comments?
Ms. Citeau: I think I’ll use what our membership has said when there was the threat of NAFTA being terminated: that would be devastating. That’s why we need to lock in what we have today and move on.
Senator Massicotte: Thank you.
The Chair: I would like to thank our panel for being with us today. Thank you for your interesting insight and for answering our questions.
In this second hour, we will focus specifically on the impact of Bill C-4, An Act to implement the Agreement between Canada, the United States of America and the United Mexican States, on the automotive sector.
We have with us, from the Automotive Parts Manufacturers’ Association, Mr. Flavio Volpe, President; and from the Canadian Vehicle Manufacturers’ Association, Jennifer Steeves, Director, Industry and Consumer Affairs.
Welcome to the committee. Thank you for coming before us and sharing your thoughts on the free trade agreement and Bill C-4. We’ll give you the opportunity to make a brief presentation, and after that my colleagues will ask some questions. I turn the floor over to you.
Flavio Volpe, President, Automotive Parts Manufacturers’ Association: Thanks for having me. I appreciate the opportunity.
Where are we and how did we get here? We’re discussing the attributes of the news NAFTA, having negotiated at an unprecedented speed and with a heretofore unseen, bellicose and belligerent trading partner. This partner — our usually celebrated best friend in the U.S. — was bent on disrupting the global trading order with little regard for precedent or consequence.
It’s important to understand that context. We’re not debating an academic study written into a vacuum, here to be picked apart by subject matter experts. We’re here to discuss what happened in the real world from 2015 to 2019, to get us to where we are today.
Members of this committee will be amongst the privileged few who will be tasked with ratifying that new agreement or not. There is no vehicle for renegotiation, adjustment or request for discussions with the other two trading partners. We’re all faced with an up or down vote, through no fault of our own or the government that negotiated it. It is what it is, and there are no surprises in it.
The text of the agreement, signed in October 2018, has been available online since November 2018. The text of the revisions negotiated between parties as a condition of U.S. congressional support was signed in November 2019, and available online since December 2019.
From August 2017 through September 2018 parties met in Washington, Ottawa, Montreal and Mexico City repeatedly, and I was present at every single round, including the December 2017 — this isn’t really a round round. I met the officials before, during and after every single round, and I did over 600 on-the-record media hits on what I was looking for and what the industry needed to see.
No surprises. So for the fourth time in the lifespan of this negotiation I’m here in front of a parliamentary committee to share candid thoughts and positions every one of you probably know that I hold.
In June 2015, in the infamous Trump Tower escalator speech, where he announced his candidacy for Republican nominee for President of the United States, Donald Trump said this about Ford Motor Company investments in Mexico:
. . . Every car and every truck and every part manufactured in this plant that comes across the border, we’re going to charge you a 35-percent tax, and that tax is going to be paid simultaneously with the transaction, and that’s it.
We were in the middle of exhausting TPP negotiations that resulted in a flood document later that year, in October. In a New York Times piece that described the TPP as “the subject of future political battles in the U.S. and elsewhere,” I was quoted as saying that anybody who is championing gains or who is forecasting losses is way ahead of themselves.
In February 2016, Donald Trump had declared that if he’d win, he would extract the U.S. from the TPP, and its status as the de facto NAFTA update was put into question. In July 2016, when challenged that his tariff plans would not pass WTO muster and that his TPP withdrawal threat would be costly, candidate Trump said, “then we’re going to renegotiate or we’re going to pull out.” Lumping in NAFTA, he said, “those trade deals are a disaster; you know, the World Trade Organization is a disaster.”
We were warned, in plain sight, what a President Trump would do and mean for our trading relationship. Still no one thought he’d win at that point, and that he was at best an ill-informed, and soon to be former candidate.
I took his election threat seriously. In September of that year I led a delegation of Canadian automotive suppliers to Capitol Hill in Washington, D.C., to speak to senior senators and staffers about the implications of a Trumpian reset on trade. I met with the USTR on his threat to pull out of TPP, which I had hoped for, because it reduced the regional value content on automotive supplies to as low as 35%, from NAFTA’s 60%.
At a global business dialogue event at the prestigious press club in September 2016, I delivered an address that described Canada as the smallest of the three NAFTA partners and that it needed to clearly target large, new, advanced manufacturing commitments from foreign automakers to keep pace with Mexican and U.S. growth. All the tariff threats and angst were clearly on the minds of the industry and the central focus of our pre-election activity that year.
In September 2016, right before the election, an Automotive News profile piece on the tariff threat said that Canada and other countries look to the U.S. to set an example and that “[r]ecklessness on the part of the U.S. would encourage other countries to disregard world trade rules.” My quote conceded there was some merit to the Trumpian complaints but cautioned that a U.S. over-response would be even more harmful. I said:
Some of the rest of the world does cheat on those obligations. But the solution isn’t for the global trading leader to drop its standards in response.
It’s a tough spot to be in. But you’re there for a reason. It’s like Superman getting into a bar fight. Why?
Canada, its largest trading partner, the United States, and Mexico, have agreed to the CUSMA, to replace the existing NAFTA. This is the first trade deal between major auto-producing nations since the original NAFTA that sees the regional value content for automotive production go up in that region.
A higher RVC in vehicles means that if an automaker wants to sell it to a consumer in any of those three countries, it needs to source more of its content from those three countries. Since the original NAFTA moved RVC on vehicles from the Canada-U.S. trade agreement, up from 50% to 62.5%, we’ve seen a succession of trade deals where Canadian governments have progressively negotiated Canadian suppliers’ considerations downward. Canada-Korea RVC is 55%. CETA is 50%. CPTPP is 45%. In the CUSMA, the vehicle RVC level rises from 62.5% to 75%, a 20% notional increase. That means more local activity and jobs.
To get to the NAFTA RVC, an automaker needs to track local content in 29 automotive parts categories. To be eligible, the RVC and those automotive parts must be 60%. The CUSMA expands the list of categories to almost double and raises the automotive parts RVC as high as 75%, a 25% increase from 60, through the supply chain.
The North American automotive market is approximately 21 million units annually, and is the most sought-after consumer market in the automotive world. Raising the thresholds to access it benefits companies that have invested in plants and people throughout North America. While the cost of an automobile may increase marginally if manufacturers are required to source more supplies from within the region, rather than from the cheapest global sources, the benefit will be more investment in places like Ontario and Quebec, and in many U.S. and Mexican states, and less in places that only sell to us but do not buy from us, like members of the CPTPP, CETA and Korea.
In auto, the CUSMA addresses the protectionist needs of the U.S. administration but wraps in its purview Canada and Mexico as its primary partners.
Side agreements for exemptions on tariff threats were a major challenge, but Canada and Mexico achieved an insurance policy on this, which is worth noting. As detractors here at home decried the side agreements, I told The Economist that trade agreements are normally self-enforcing, but this one is being held together with threats. That was the context we were working in; it was not some respectful bargaining between partners with equal leverage. All the vehicles in the CUSMA will now need to meet a minimum threshold of 40% content being made by workers making at least $16 per hour. Canada will benefit; Mexico will suffer.
The provision was created during the final course of the negotiations, in bilateral U.S. and Mexican discussions that caused a stir with Canadian commentators who did not have a role in those talks. Meeting frequently with the U.S. and Mexican negotiators during that period, I did not share that opinion. I told The Wall Street Journal front page report that the LEC proposal disproportionately affects Mexico, and that we were advising Canada not to comment or take a position until the Mexicans did. That’s exactly what Canada’s negotiators did.
The U.S. is committed to raising the cost of importing automotive goods from overseas. In June 2019, I told the House of Commons Trade Committee that the U.S. was using section 32 tariffs on steel and aluminum to bully its partners, and that they intend to use the WTO process to raise the 2.5% MFN tariff dramatically. On February 12 this year, Bloomberg reported from Washington that the Trump administration is mulling a plan to increase its long-standing tariff rates at the WTO, a move aimed at rewriting all its relationships with major trading partners and one that could dismantle the global trading system.
Importantly, Canada negotiated 232 exemptions from the U.S. at production levels that materially outpace growth models to the U.S. over the next 5 to 10 years. Specifically, Canada will be permitted to ship 2.6 million vehicles annually and $32 billion in automotive parts to the United States tariff rate, up 40% from today.
Ending the front negotiation process with a deal that increases investment and more competitive market access for Canada is actually extraordinary. We enjoyed unprecedented access to the Canadian negotiating team. In addition to this, I sought and received in-person access to the White House, USTR, the Mexican president and their negotiating teams. I’ll write a book one day chronicling the behind-the-scenes action. Chapter 1 will be the USTR’s reaction to my November 2017 headline, lampooning their silly materials-tracing proposals with, “Do we need to know where the dinosaurs died?”
Today, I want to give full credit of our success on the CUSMA to Chrystia Freeland, Steve Verheul and the team of tireless officials who constantly consulted with the Canadian automotive industry, all over the continent. They deserve specific credit — Martin Thornell, Karen LaHay, Andrei Marinescu and Aaron Fowler — not parliamentarians. They are doing the work between every round, with the industry, tirelessly. All of Team Canada and the Government of Canada — it was a non-partisan public-private effort. It was amazing, and I was proud to be a footnote in this history’s chapter. Thank you.
The Chair: Thank you very much. Do you have anything to add, Ms. Steeves? I’m sure you do.
Jennifer Steeves, Director, Industry and Consumer Affairs, Canadian Vehicle Manufacturers’ Association: Thank you, chair and honourable members. I am here on behalf of the Canadian Vehicle Manufacturers’ Association, representing FCA Canada, Ford Motor Company Limited and General Motors of Canada Company. CVMA is the industry association that has represented Canada’s leading manufacturers of light- and heavy-duty motor vehicles for more than 90 years. Our members operate four vehicle assembly plants, as well as engine and components plants; invest billions of dollars in zero-emission technologies and advanced vehicle safety technologies; have over 1,300 independent dealerships; and contribute quality employment opportunities for over half a million Canadians.
The CVMA supports the Canada-United States-Mexico Trade Agreement, and we recommend the passage of Bill C-4 without delay. Passage of the CUSMA is essential to provide certainty to North American automotive manufacturers. The automotive provisions as well as side letters that provide protection from U.S. section 232 tariff actions are critical elements to support automotive manufacturing competitiveness within the North American trade bloc.
It is important to remember that for the auto sector in Canada, the alternative to reaching this agreement was cancellation of NAFTA, reimposition of tariffs on finished vehicles and parts, and likely section 232 tariffs on materials. In this scenario, Canada would certainly have been negatively impacted.
Therefore we again say thank you to Canada’s negotiators for working so closely with us and ultimately ensuring we maintained Canada’s auto sector as an integrated part of the North American industry. This agreement was existential for Canada’s largest manufacturing industry. If we are anxious to see ratification, that is why.
The agreement reinforces the long-established integration of the auto industry supply chain necessary for its competitiveness, and the ongoing need for continued regulatory alignment of vehicle technical regulations within the U.S. that are integral to trade and the environment, while ensuring greater consumer product choice and affordability.
The automotive provisions of the new agreement, including higher rules of origin, new labour value content, and the section 232 side letters, are elements our members support and can adjust to over a reasonable time. We will remain compliant, enabling us to continue to enjoy duty-free access to the most important market for Canadian-produced vehicles.
Since the Auto Pact of 1965, Canada’s automotive industry and its supply chains have become deeply integrated with the United States and, over time, with Mexico. Vehicles are built seamlessly on both sides of the border, and the resulting deep integration has led to a more competitive Canadian auto industry, greater consumer choice of affordable vehicles and a strong North American trade bloc.
When the original NAFTA came into force in 1994, it provided a foundation for a strong globally competitive trading bloc. The geographic proximity of the three NAFTA partners facilitates the multi-billion dollar parts sector, and the just-in-time supply chains, critical to the vehicle assembly operations in North America. It also created inherent transportation and supply chain logistics cost advantages.
Today, automotive manufacturing represents the second-largest Canadian export sector, with $54 billion in trade in 2019, of which about 92% of the total value was to the United States. The United States is our number one automotive trade partner and it is absolutely critical that a trade agreement is in place to provide the foundation for Canadian automotive production and exports.
The automotive sector is a long-lead industry. Product and investment planning begin years in advance of the start of production. Through this period, extensive analyses are conducted to ensure success and limit risk. Any level of uncertainty adds risk to investment decisions. CUSMA provides a level of trade security across the region, maintains language around the temporary entry of service providers and professionals, and provides the necessary language for regulatory harmonization. These elements have the effect of reducing the level of risk for investment analyses. Note that regulatory harmonization includes maintaining uniformity with safety, and vehicle GHG criteria emissions with the U.S.
Simply put, we did not work this hard to modernize integrated rules of trade in North America to take our eye off the ball and drift away with unique or different regulatory directions. That could put us back to square one and leave us on the sidelines, so Canada’s officials must also maintain a high degree of engagement with their counterparts in the U.S. and Mexico. We cannot relax our efforts to ensure Canada is sufficiently competitive to win future manufacturing investments that anchor much of the Canada automotive supply chain. Canada must have competitive costs — or more than competitive costs — of auto operations in Canada, including investment incentives, carbon costs, competitive labour agreements, taxes that keep pace with the U.S., competitive electricity prices, and a competitive regulatory burden.
It is important to remember that the auto sector is going through one of the most dramatic periods of change in 100 years, for automotive technology and mobility business models. We must work closely together between Canadian industry and all levels of government to demonstrate that Canada is the best place to invest in the future of this important industry. We fully respect the committee’s need to hear from Canadians and to ask questions. We have worked with all parties for over two years to discuss these very complex issues involved. We appreciate your interest in the open dialogue, and we thank you for that.
In closing, CVMA members have had the opportunity to engage with the government through both the negotiation of CUSMA and currently as part of the implementation of the new provisions. CVMA members support the ratification of CUSMA as it is critical to the continued security of trade for the long-established North American trade bloc, and recommend to the Senate the ratification of Bill C-4 without delay. Thank you for this opportunity.
The Chair: Thank you, Ms. Steeves and Mr. Volpe, for your presentations.
Is the CUSMA agreement that we have before us now a better alternative compared to NAFTA that we had in place for a number of years?
Mr. Volpe: Yes.
The Chair: It’s a better deal for your industry?
Mr. Volpe: We are expecting incremental volumes of $6 billion to $8 billion annually at full transition from a market that ships 32 billion.
Ms. Steeves: Yes. Our members are in full support of this agreement.
Senator Massicotte: This is a very interesting discussion. I must admit, Mr. Volpe, when you started off, and for half of your speech, I didn’t know what you were recommending, or whether you liked this agreement or not. I think I understand now.
Ms. Steeves, I understand you represent GM, Ford, and Fiat Chrysler. You do not represent the Japanese or South Korean manufacturers in Canada, is that correct?
Ms. Steeves: Our members are Ford, FCA and GM.
Senator Massicotte: So while your title is for Canadian manufacturers, it does not include those manufacturers who are owned by non-Canadians and non-Americans.
Ms. Steeves: I do not represent those companies.
Senator Massicotte: Obviously, in your capacity and whom you represent, you would clearly favour this agreement because there is an upper increased limit as to the local content, with local being these three countries. But when you diminish competition and steer through former protectionism, the manufacturers would gain, but probably consumers would lose, because there’s obviously less competition. Is that the case? Are you concerned about the consumers being affected negatively by this agreement?
Ms. Steeves: Without the agreement there would have been a greater risk of impact to the consumers. Canada needs to be a part of integrated North American industry for scale, and to develop the technologies, to develop the vehicles and offer affordable choices for consumers. Under this agreement there is certainly less risk of that.
Mr. Volpe: There are 500,000 people who are employed in the manufacture, the supply of manufacture and the logistics of manufacture in this country, and another 750,000 in the sale and service of vehicles. Absence of CUSMA, a single-market Canadian market is a one that would have greatly diminished prospects for those people’s employment. I never look at any of this in a vacuum. There is no question that having CUSMA, or having a standing agreement with the U.S., is exactly what we need for economic prosperity in this sector.
To correct you, there are no Korean companies that manufacture in North America. The Korean and Japanese domestic markets are very protected through trade agreements and through non-tariff barriers that include consumer taxes on vehicles. That frees up the types of vehicles that Jennifer’s companies build and mine supply to you. The utopian idea that there is this great swath of competitive products that’s going to come in lower when there are trade agreements is not supported by the facts, after those trade agreements come into force.
Senator Massicotte: Do you think this agreement may incite some Japanese manufacturers to increase the number of plants they have in North America?
Mr. Volpe: I think you’ve seen investments from Toyota, publicly, in the last year since the settlement of the terms — both north and south of the forty-ninth parallel — that say they’re voting on the North American market and they’re voting on new terms. I think it’s a great agreement.
Senator Massicotte: When you combine that with the South Asian agreement that we recently signed, is that a win-win for both our country and those manufacturers?
Mr. Volpe: Are you talking about CPTPP?
Senator Massicotte: Yes.
Mr. Volpe: For Japanese manufacturers, especially, who are able to manufacture here for the American consumer, and then have an opportunity to export from Canada to some of the other markets in the CPTPP, there could be an opportunity. This is a proximity business; you build where you sell. Some of that is a peripheral benefit, but it’s definitely a net positive. It might just be a negligible positive.
Senator Massicotte: You don’t see that benefit or motivation for South Korean manufacturers to do the same as the Japanese in creating local manufacturing?
Mr. Volpe: The South Koreans have bet on the U.S. market and have been manufacturing in Georgia. They haven’t bet on Canada. I’m not sure, from a Canadian perspective, that I could weigh in on what the South Koreans think. There is no opportunity for Canadian parts to go in just-in-time volume production to South Korean assembly, regardless of whatever a trade agreement might or might not do. But there are lots of Canadian companies that supply Kia and Hyundai out of the U.S. South.
Senator Massicotte: Any comment on that, Ms. Steeves?
Ms. Steeves: I don’t represent those companies, so I really can’t say. As far as CVMA members, the U.S. is our most important market. So that’s the importance of CUSMA. For other agreements, I think it’s important to ensure that there is free and balanced trade. With the CPTPP, for example, that market remains difficult for our vehicles to penetrate because of non-tariff barriers that Flavio mentioned. Coming back to our members, the North American market is the most important.
Senator MacDonald: Mr. Volpe, my first question will be for you.
You mentioned at the House committee and here today, the vehicle regional value content increasing from 62.5% to 75%. You say the increase means more local activity in jobs.
Now, Global Affairs did an economic impact assessment and they said the new rules under CUSMA would likely increase auto parts production in North America but could also lead to higher production costs. At the same time, non-North American automotive producers would not need to undertake any adjustments to the production methods. As a result, the economic model projects that Canada’s exports of motor vehicles to the U.S. would decline by US$1.5 billion relative to the current trade regime under NAFTA, and imports from the U.S. would decrease by US$1.2 billion.
At the same time, automotive imports from non-North American countries could increase resulting in a decline of Canadian automobile production of 1.7%. Their economic impact assessment suggests that Canadian automobile production will actually decline. I’d like you to respond.
Mr. Volpe: I read the same impact study and they’re talking about the movement of finished vehicles. They’re talking about the influx and —
Senator MacDonald: I’m talking about Global Affairs.
Mr. Volpe: Sure, but what we’re talking about is finished vehicles. What you asked me about and what I represent and the facts that are discussed, including the RVC, are about the content within those vehicles. If you’ve got $54 billion of vehicles that move from Canada into the U.S. market, to use one subset, and if there is a shrink in that potential — whatever number you said from Global Affairs — but say it goes down by $1.2 billion.
Senator MacDonald: I said $1.7 billion.
Mr. Volpe: If the content within those vehicles — 25% more has been to be sourced from inside North America — that means parts suppliers, who are essentially co-located with these facilities, will get more business because they’re the ones that are going to ensure the compliance of the tariff-free movement of those vehicles; parts suppliers from those three countries. If you go through the transcript of what I said, and what I said at the trade committee is, the regional value of parts content rises. It’s not irreconcilable with what Global Affairs has said. Global Affairs is talking about the number of vehicles. I’m saying that within that volume, 25% more of that content would be local.
Senator MacDonald: It would make up for that?
Mr. Volpe: Yes.
Senator MacDonald: All right. What about the cost for consumers as a result of the provisions that restrict where you’re sourcing parts and components? Do you have an estimate of those anticipated costs and how they will be passed onto consumers? I know you’re very familiar with the automobile business. It is very competitive and costs really have to be watched. Do you see a problem here for consumers?
Mr. Volpe: It’s one of these things where we talk about a vacuum. The Center for Automotive Research in Michigan, which is probably one of the most highly regarded automotive think tanks in the business, has said the USMCA, their parlance, might increase the cost of vehicles manufactured in North America as much as 5%. You don’t have to be an economist to know that for every point of rising costs there is a shrinking market. That’s fair enough.
I’m here representing parts manufacturers that employ 100,000 people directly. Every industry that comes in here will tell you about the balance and the impact. Can the regulatory framework assist in expansion of our opportunities in sales? Does the economy enjoy the balance of the taxation on those sales, the corporate tax paid by the companies that are healthy, by the employees that remain employed? If you do an economy-wide balance, if you do a real budget balance on it, I’d say that is a cost that the Canadian economy is willing to bear.
Senator MacDonald: There was also another study. The Government of Canada’s study was based on comparing the new NAFTA with no NAFTA at all, which is not the same as the American study which compared the old NAFTA and the new NAFTA. I want to put on the record that the idea that the American manufacturing and economic community would allow the old NAFTA to collapse without a proper replacement, I think that would be highly unlikely. I’m down in the U.S. a lot. I’ve spoken to a lot of congressmen and senators over the past decade. There are a lot of free traders in that Congress, particularly in the Republican Senate. I think the fact that they would let NAFTA collapse without a proper replacement is highly unrealistic.
I want to go back to the C.D. Howe Institute assessment because they compared NAFTA with the old NAFTA. What they say is, since the higher North American regional value of content requirements served to raise Canadian and Mexican automotive costs more than U.S. costs, since over 80% of U.S. production is destined for its home market and is not affected by CUSMA’s Rules of Origin requirements, U.S. domestic shipments pick up, as well as bilateral exports of Canada and Mexico, but automotive imports from Canada and Mexico decline to help fuel the U.S. gain in the domestic market share. Do you agree with this analysis? How much concern do you have that this could occur over the long term?
Mr. Volpe: The C.D. Howe Institute asked me to weigh in on their analysis. I didn’t support their analysis.
Senator MacDonald: Well, you’re being awfully dismissive. I want some content. I want something specific.
Mr. Volpe: Well, if you want content, you probably should have let me finish then. If we’re talking about C.D. Howe’s assessment of where these vehicles are going to come and go, one of their premises was automotive production in the U.S. destined for U.S. customer doesn’t have to follow the CUSMA rule. But what I said to the C.D. Howe Institute, as well as I’ll say to you, auto makers do not build two different supply chains, one to hit the American consumer from an American plant — saying they’re not going to reach the regional value content — because they lose any advantages of the economies of scale. It doesn’t actually work that way. What the C.D. Howe Institute report put out there was an academic hypothetical that didn’t reflect how companies, like Jennifer’s members, buy parts or source raw materials or the way we ship. That was the flaw in the study. It’s simple.
The Chair: Just to follow up on Senator MacDonald’s comment, what is hypothetical academic is your claim you made here earlier that if we didn’t have CUSMA, we wouldn’t have NAFTA and it would be far worse.
Mr. Volpe: No.
The Chair: If I can finish? At the end of the day, I understand Donald Trump perpetuated his agenda because he’s quite a savvy negotiator — that it’s this or nothing — but what is a fact is that it’s not within the unilateral ability of the President to cancel NAFTA. All of us that are in the business of politics and legislation understand that it’s Congress, at the end of the day, that can cancel NAFTA. I think the point Senator MacDonald was trying to make is that it is highly unlikely in a Congress with a majority of pro-traders right now, that NAFTA would have been cancelled.
Just for the record, the myth that was perpetuated by our negotiating team and our government that somehow Mr. Trump could have unilaterally torn away NAFTA is completely a falsehood.
Mr. Volpe: That runs counter to a lot of analysis in the U.S. as well. There was a great debate on if the President could trigger Article 2205 of the NAFTA , triggering a six-month withdrawal. Does that require Congress to revisit and rescind the NAFTA legislation or not? I don’t think that anybody settled on what the answer was.
The Chair: Mr. Volpe, my comment was not a question. It was a statement. There are a lot of legal authorities and parliamentarians that will certainly not agree with Donald Trump. Our government chose to agree with him. That’s their perspective. Most parliamentarians in the United States did not agree with him.
Mr. Volpe: I met with the Prime Minster of Canada, the Minister of Global Affairs, all the negotiating team; I never once heard anybody say with certainty that they agreed with Donald Trump. What they said was —
The Chair: Did you meet with any of the American congressmen?
Mr. Volpe: — USTR met with congressmen and senators. I met with the USTR, the negotiating team and with the White House. I met with them all.
The Chair: Mr. Volpe, we will dissect this question further with experts, lawyers and parliamentarians.
Senator Bovey: I want to thank you both for your presentations. I’m going to go in a different direction.
The Chair: By all means.
Senator Bovey: Some of us were members in the last session of the Transport and Communications Committee, where we did an in-depth study on autonomous vehicles. As we talk about parts and we’re looking forward to the lifetime of CUSMA, I’m interested to know whether autonomous parts — like the LiDAR, the sensors and the computers — are they included in the parts aspect of CUSMA.
Mr. Volpe: The answer is yes, there’s an expanded parts list. The issue for the U.S. administration, specifically the commerce secretary and the President’s adviser on manufacturing, is that the parts that are included in the current NAFTA are parts lists that were made in 1994, which didn’t include any of these new components.
Senator Bovey: So the new CUSMA includes the new technologies and the engine and battery parts?
Mr. Volpe: It draws the battery parts very importantly into something they call the core parts, which they track; one of the things that automakers can’t get away with making somewhere else. Autonomous connected mobility is going to be facilitated by electric drive and/or fuel cell drive, so including battery capacity in there was important.
Ms. Steeves: Another important aspect when talking about autonomous vehicles is the agreement talks about regulatory alignment, and that is going to be very important as these technologies keep coming forward.
Senator Bovey: You did mention the great change in the automotive industry. Are you going to be keeping an eye on regulatory aspects that come with implementation?
Ms. Steeves: Absolutely. That’s going to be really important.
Senator Bovey: Thank you.
Senator Coyle: Thank you, Mr. Volpe and Ms. Steeves, for your very helpful presentations today.
Mr. Volpe, you spoke about the unprecedentedly difficult and unpredictable trade negotiation context that you and others witnessed. You also spoke about your esteem, I would say, for Team Canada, led by, of course, our now Deputy Prime Minister Chrystia Freeland, our chief negotiator Steve Verheul and that team of professionals you saw in action. We’ve heard from them. We didn’t get to witness them in action. Many Canadians see those people as heroes because I think many Canadians, if not most, were like you, full of fear actually for what could have been.
The outcome that you describe here, where you specifically say Canada will be permitted to ship 2.6 million vehicles annually and $32 billion in automotive parts to the U.S. tariff free, up 40% from today. That’s a big concrete gain that you’re describing. I know it’s hypothetical to ask you this, but you must have been running numbers on what it could have looked like if we did not have the new CUSMA. This is gains from the existing NAFTA. You must have been running some of those fear numbers. I’m curious what those might have been.
Mr. Volpe: That specific allowance is in a side letter negotiated on section 232 on vehicles. The threat at the time was 10% to 25% tariff on any vehicles imported. That’s about 75% of the vehicles that we make in Canada. I described it at a parliamentary committee as a “Carmageddon.” There would be no reason for General Motors, Ford, Chrysler, Toyota or Honda to ship from Canada to the U.S. market at that point. The problem is, it’s not a peripheral market. It’s not 3% of our market; it’s 75% of it.
In negotiating a side agreement that not only allowed for the current number of vehicles that were being exported, but a 40% increase, to bring it to ground, that means three new automotive plants invested in Canada for 100% export to the U.S. would have to happen before we trigger a tariff on the next car. I offered at that committee, that if we got to that point, I would pay the tariff on every single new car.
Senator Coyle: Thank you.
The Chair: If there are no second round of questions, I’d like to thank Mr. Volpe and Ms. Steeves for coming before the committee and exchanging their views. We really appreciate it.
Colleagues, we will see you all at the next meeting.