THE STANDING SENATE COMMITTEE ON FOREIGN AFFAIRS AND INTERNATIONAL TRADE
EVIDENCE
OTTAWA, Wednesday, May 17, 2023
The Standing Senate Committee on Foreign Affairs and International Trade met with videoconference this day at 4:01 p.m. [ET] to study the subject matter of those elements contained in Divisions 4, 5, 10 and 11 of Part 4, and in Subdivision A of Division 3 of Part 4 of Bill C-47, An Act to implement certain provisions of the budget tabled in Parliament on March 28, 2023.
Senator Peter M. Boehm (Chair) in the chair.
[Translation]
The Chair: Honourable senators, my name is Peter Boehm. I am a senator from Ontario and the Chair of the Committee on Foreign Affairs and International Trade.
Before we begin, I wish to invite committee members participating in today’s meeting to introduce themselves, starting on my left.
Senator Gerba: Senator Amina Gerba from Quebec.
[English]
Senator Ravalia: Mohamed Ravalia, Newfoundland and Labrador.
Senator M. Deacon: Marty Deacon, Ontario.
Senator Harder: Peter Harder, Ontario.
Senator Boniface: Gwen Boniface, Ontario.
Senator Richards: Senator David Richards from New Brunswick.
Senator Coyle: Mary Coyle, Antigonish, Nova Scotia.
The Chair: Thank you, senators. I wish to welcome members of the committee, as well as those who may be watching us across the country on Senate ParlVu.
Today, we are completing our study of the subject matter of Bill C-47, An Act to implement certain provisions of the budget tabled in Parliament on March 28, 2023.
The specific elements referred to this committee by the Senate on April 27 are Divisions 4, 5, 10, and 11 of Part 4, and subsection A of Division 3 of Part 4.
Today, we will focus on Division 4 of Part 4, which relates to preferential tariff programs for developing countries, and on Division 5 of Part 4, which concerns removing Most-Favoured-Nation Tariff treatment for Belarus and the Russian Federation.
For our first panel, to discuss Divisions 4 and 5, we are pleased to welcome, from the Department of Finance, Yannick Mondy, Director, Trade and Tariff Policy. Welcome to the committee and thank you for being with us.
Before we hear your remarks and proceed to questions and answers, I wish to ask members and our witnesses in the room to please refrain from leaning in too closely to their microphones or removing your earpiece when doing so. This will avoid any sound feedback that could be problematic for our technical staff and our interpreters in particular.
We are now ready to hear your opening remarks, which will be followed by questions from the senators. Ms. Mondy, you have the floor.
Yannick Mondy, Director, Trade and Tariff Policy, Department of Finance Canada: Thank you. Good afternoon. As you mentioned, my name is Yannick Mondy. I am the Director of Trade and Tariff Policy at the International Trade and Finance Branch at the Department of Finance Canada.
[Translation]
I’m pleased to be here today to support the committee’s study on divisions 4 and 5 of Part 4 of Bill C-47, An Act to implement certain provisions of the budget tabled in Parliament on March 28, 2023.
[English]
I will provide some background information on the divisions, and then I’m happy to take your questions.
Division 4 relates to Canada’s preferential tariff programs for developing countries. Division 5, as was noted, is about the removal of the Most-Favoured-Nation Tariff treatment for Belarus and Russia.
[Translation]
Division 4 of Bill C-47 proposes to renew the preferential tariff programs due to expire on December 31, 2024. In addition, amendments will be proposed to create a new program for the same period and also to simplify the administrative requirements to access the tariff reductions offered by these programs for developing countries that are eligible for both programs.
[English]
Specifically, Division 4 amends the Customs Tariff to renew the General Preferential Tariff, which I will refer to often as the GPT, and the Least Developed Country Tariff, the LDCT program, for the period of January 1, 2025, to December 31, 2034. It also proposes to amend the Customs Tariff to establish a new program, the General Preferential Tariff +, or GPT+, over that same period. And finally, Division 4 includes amendments to simplify the direct shipment requirements. The intent here is to maximize access to the existing program benefits.
To provide a bit of context on the preferential tariff programs provided by Canada, there are three programs in total. These two are set to sunset but there is also a third program called the Commonwealth Caribbean Countries Tariff, or CCCT. This was set up in 1986 to extend something that is equivalent to the GPT to 18 Caribbean countries. Meanwhile, the GPT and the LDCT were set up under the Customs Tariff in 1974 and 1983 respectively and have been renewed in 10-year increments.
All three programs aim to support the export-led economic growth of developing countries and least developed countries by extending preferential market access to imports from eligible countries. The renewal of these programs is to support foreign policy and development goals but also to provide predictability for developing countries and Canadian importers to continue access to those tariff benefits under updated program terms to facilitate and support the use of these programs.
Pending parliamentary approval of Bill C-47, amendments also propose to establish a fourth program, the GPT+ which proposes to build on Canada’s inclusive trade agenda with additional tariff benefits to the GPT program for countries that meet certain international standards on human rights, environment, labour, and gender equality.
[Translation]
This preferential tariff plus program echoes similar programs in other developed countries, including the European Union’s generalized scheme of preferences plus, which has been encouraging developing countries to pursue sustainable development and good governance since 2006 by offering tariff reductions to eight countries.
In addition, the proposed amendments in Division 4 deliver on the public consultations that were held in fall 2022.
[English]
In these consultations that we held last fall, we heard from Canadian importers, business associations, unions and civil society groups. As done in previous renewal for the GPT and LDCT programs, regulations will also be needed in order to supplement these legislative amendments and to establish the terms of the GPT+ program as well.
Regulations on direct shipments will also require Governor-in-Council approval. And we have heard from importers for each renewal, it is important that these details be approved and disseminated well in advance of January 1, 2025, as this information is crucial for importers in preparing for their businesses plans and sourcing plans as well for imports.
[Translation]
Division 5 deals with the removal of the Most-Favoured-Nation tariff treatment for Belarus and Russia.
[English]
Bill C-47 proposes to amend the Customs Tariff to indefinitely withdraw the Most-Favoured-Nation preferential treatment for these two countries.
As you may know, on March 2, 2022, Canada became the first country to revoke Russian and Belarusian eligibility for Most‑Favoured-Nation tariff treatment status. This temporary withdrawal resulted in the application — by default, under the Customs Tariff — of a tariff rate of 35% on virtually all imports from Russia and Belarus, placing them in the same category of beneficiaries as North Korea. In the months following Canada’s action, several like-minded allied countries — such as the U.S., the U.K. and also Japan and Australia — adopted similar tariff increases on imports for these two countries.
Division 5 of Bill C-47 essentially implements indefinitely what the government approved in 2022, and helps set a longer‑term market-based signal to incentivize importers to source their imports away from Russia and Belarus. Moreover, the indefinite withdrawal proposed in Division 5 reflects the enduring nature of the conflict.
[Translation]
This concludes my opening remarks. I will be pleased to answer any questions you may have. Thank you.
The Chair: Thank you very much, Ms. Mondy.
[English]
I want to note that we have been joined by Senator Woo of British Columbia, Senator MacDonald of Nova Scotia and Senator Housakos of Quebec.
[Translation]
Dear colleagues, I wish to inform members that you will each have a maximum of only four minutes for the first round. This includes questions and answers.
[English]
To members of the committee — and indeed to our witnesses — please be as concise as you can possibly be, both with questions and answers. We can always go to a second round if we have the time.
To kick it off today, Senator Deacon will pose her questions.
Senator M. Deacon: Thank you for being here today. I appreciate that.
My question concerns the GPT+ program and, specifically, how countries will qualify for this favoured status. I note that sustainable development is part of the conditions. How will the government measure this? Is it strictly carbon emissions or are other pollutants included in this? I’m thinking water pollutants in the use of microplastics as an example.
Ms. Mondy: Thank you. I believe you are referring to the new GPT+ programs that we are looking to set up. These are decisions that will be made by the Governor-in-Council as to which criteria they wish to use to measure the general framework that we set up.
We’ve been discussing and comparing notes with other countries — especially the European Union — to look at how they are setting up their programs. I believe they use 27 conventions. They look at not only having ratified those conventions but how they comply.
For Canada, it is a similar process. We’ve been engaging with other federal departments to assess what the international norms and conventions are that can serve to guide this. Ultimately, further consultations will take place with these departments as well, and recommendations will be made to the Governor-in-Council following the adoption of Bill C-47 in order to set these up. It is a matter of adherence but also compliance.
Senator M. Deacon: You spoke earlier about how we determine which countries will receive the least developed country status. My understanding is that it was based on the UN’s list. However, on the Finance Department’s page, we noted that it says the Least Developed Country Tariff, or LDCT, program was largely based on the UN list. I’m not trying to split hairs, but I’m trying to understand what other qualifications might be applied to determine our own list.
Ms. Mondy: There are two, in fact. The first one is that you have to be a member of the General Preferential Tariff, or GPT, so the broader program. There are 106 developing countries that are members of this program, and 49 of them are members of the LDCT. That is a reflection of the UN list. The UN list of least developed countries gets updated from time to time. I believe the next meeting is in 2024, to explore graduations out of the UN list. Currently, there is no automaticity, if I can use that term, to graduate countries out of the LDCT once they have graduated from the UN list.
Part of the consultations we held last fall was to respond to some of the demands we’ve had, notably with respect to transition periods for least developed countries and their access to the program. The intent is to implement a three-year transition period. That means that in the future, following January 1, 2025, a country graduating from the UN list would need to continue to remain a member of the GPT. They need to meet those criteria. They would still be eligible for an extra three years before they are graduated out of the LDC program. I hope that answers your question.
Senator M. Deacon: Thank you very much.
[Translation]
Senator Gerba: I would like to thank our witness for being with us today.
I’ll also ask a question about the general preferential tariff plus program, or GPTP. Have you looked at other legislatures, other programs, such as the African Growth and Opportunity Act, or AGOA, in the U.S.? Are the criteria the same?
Will there be some way of assessing it?
Ms. Mondy: Actually, I don’t know exactly how AGOA assesses eligibility. I think it’s a program that is, first and foremost, somewhat geographical in nature. In this case, the idea is rather to make — I would say that our only program of a geographic nature is the Commonwealth Caribbean tariff. In order to do that, it’s a permanent program. We have to ask the World Trade Organization, the WTO, for special permission.
In principle, these programs should be exempted. The criteria that are offered should be horizontal, meaning that once a country qualifies under our criteria, all countries should be treated equally. There’s really no geographical interest.
To answer your question, we are drawing on existing programs. The European Union program was particularly interesting. We also looked at the tariff treatments offered by Japan. Generally speaking, Canada is very generous in its coverage, in the tariff elimination and reduction, as well as for the range of imported products.
However, for the GPTP issue, there are eight European countries that have qualified under the criteria. That gives an indication of the number of countries that will probably qualify under the Canadian criteria, depending on the criteria that will be applied in Canada.
In terms of coverage, we’re looking for something that’s more generous than the current GPT program and that will probably fall between it and that offered to least developed countries. There’s something in between the margin of the two programs to create an incentive and leverage, so as not to take away from what’s offered to the countries that need it most under the least developed country tariff, the LDCT.
Senator Gerba: I understand. Will that fit with Canadian feminist policy?
Ms. Mondy: There is indeed a gender equality angle to be explored, but it will be a question of finding the right anchor that can be recommended in terms of an international standard.
Senator Gerba: Okay. Thank you.
[English]
Senator Coyle: Thank you very much for your testimony.
My first question is a fairly simple one. With the removal of Belarus and Russia from the Most-Favoured-Nation Tariff treatment status a little more than a year ago, have we started to see impacts on the importers here in Canada in terms of diverting them to other suppliers?
Ms. Mondy: Thank you for your question. Indeed, we have. I would say we track the imports from these two countries diligently, with the help of our colleagues at the Canada Border Services Agency. Over 90% of the imports from these two countries have been curbed since March 2, 2022. It’s been pretty effective. The 35% has played its role, in large part. I should nuance this. It is difficult to isolate this entirely from the effects of the Special Economic Measures Act, or SEMA, provisions, which have a cumulative effect with the increase in tariff rates. But overall, the point is to make them less competitive and that seems to have worked into a lot of imports that we still see in volumes that are now sourced from other countries.
Senator Coyle: Do you have any idea of where they are now importing from? Is there any general trend there at all?
Ms. Mondy: We haven’t looked at all the products coming in, so I can’t really say, for example, oil imports and how things have been diverted to other countries. I think they would probably go to some obvious candidates, but we can take a look at that.
We have taken a particular look at fertilizer, which has been a big issue in the past year, and that the main imports now come from the U.S., but also from Morocco, Germany and from different places around the planet. It has been pretty diverse in terms of diversification.
Senator Coyle: The renewals, which are a big part of what we are looking at here, how have they normally been done? Is it normal that they come within a budget bill, or is this something that could be done in another way?
Ms. Mondy: It is probably the most straightforward way, because the renewal itself is really just changing date in the Customs Tariff itself. It needs to be a legislative amendment. That’s why at Finance, we like to group our requests in the same big vehicle we use every year. It is a revenue bill that kind of aligns with what Bill C-47 is about.
Senator Ravalia: Thank you very much for being here today. What impact, if any, do Canada’s tariff preference programs for developing countries have on groups such racialized individuals, women, the LGBTQ community and Indigenous people in Canada and on marginalized groups in countries benefitting from these programs? Are these analyses that you conduct?
Ms. Mondy: Not for the purpose of the tariff reduction, no. I can’t say that this is something we have measured in a dedicated fashion. The creation of the GPT+ program builds on certain presumptions that it would be a benefit to some of these marginalized groups in the future by creating an incentive for these countries exporting to Canada — especially in the apparel sector — to abide by certain international norms. That’s the hope. The apparel sector itself has been, perhaps, more of a central feature for some of the marginalized groups in certain developing countries.
Senator Ravalia: If there appears to be obvious evidence in some of these preferred countries of actions that we would consider outside of the norm, is there an opportunity to respond to this in a way that would clearly state that Canada was unhappy with certain practices?
Ms. Mondy: Yes. Withdrawing tariff preference is never the first manœuvre, I would say, but the way the program is set up for the GPT+, like the other existing programs, allow the Governor-in-Council to withdraw preferences based on an order-in-council.
Senator Ravalia: As a final extension, in countries that have aligned themselves with the Russia-Belarus axis and are current recipients for programs, have we decided to maybe reconsider some of our support in these situations, or is this an ongoing discussion?
Ms. Mondy: For the purpose of the beneficiaries of these programs, no, this has not been something that we’ve focused on. The idea here is to ensure that there is predictability for the importers, but also respect for what the World Trade Organization, or WTO, requires us to do, which is to ensure consistent treatment for all the WTO members, so that it would not necessarily be a criterion. However, the Governor-in-Council has the powers to withdraw, and we have in the past for certain countries with human rights-related records, but this was usually done with other countries as a concerted effort.
Senator Ravalia: Okay. In concert with key allies.
Ms. Mondy: Yes.
Senator Ravalia: Thank you very much.
The Chair: We’re coming to the end of round one, so that’s usually when I ask a question. I’ll go back to the question that Senator Deacon asked at the beginning of your answer on graduations.
There has always been a data gap in terms of how a country is faring, whether it’s a least developed country or not, or moving forward. Many have graduated, which means they then receive other benefits and not as much direct official development assistance as they may have had. In the past couple of years, of course, we have seen the impact of the pandemic, which has hit countries particularly hard. I am thinking of certain African countries that were graduating. Yet there is still a data lag, whether it’s the OECD that is collecting it or the development banks, for example.
In your circles and in the discussions that you are having, is there any concern about the data gap that is there, particularly about how it would affect countries that may have been on the cusp of graduation but are now moving backward because of the economic impact of the pandemic?
Ms. Mondy: This is a little bit outside of my area. On the data gap, our sources for determining eligibility is renewed annually based on what we get from the World Bank data, which may be imperfect, but I am not an expert who can speak on this issue. The other one is the WTO data.
Your point about the pandemic is a good one. We are looking for figures to be updated this summer to help us determine the next step after the budget implementation act to establish eligibility for next year. Overall, I can speak to our import data, which shows a significant increase in 2022 in the use of the program. In my line of work, after 2020, we started using averages between 2019 and 2021 to try to get a sense of what might be a good benchmark. In 2022, we are seeing a significant increase in the use of the program in terms of numbers. I suppose that’s encouraging to a degree. It means that these countries are exporting to us.
The Chair: Thank you for that.
Senator Coyle: This is probably related to some of the questions that have already been asked. As I understand it, with the LDCT, a goal of granting this favourable tariff preference for imports from developing nations is aimed at supporting export‑oriented and sustainable industrialization and development in those countries. Does Finance or someone else evaluate or monitor the impact of these tariffs on the outcomes that are outlined in the goals? Could you tell us how that happens, if it happens, and who does it?
Ms. Mondy: There is no formal annual reporting on such things, but we are consistently in touch with Global Affairs. We get representation from countries that come through geographic desks at Global Affairs, for example. We will get requests for reinstatement in certain programs as well.
In the context of the consultations that we held last fall, we certainly held extensive interdepartmental consultations. I can tell you that there is a lot of tracking from those who work on anything relating to the big exporters of apparel that benefit from these programs, such as Bangladesh and Cambodia, for example. There is a certain measurement. We also hear from stakeholders who made investments in some of these countries. Without saying that we are tracking and measuring specifically what the impacts are, which can sometimes be hard to decipher as to whether or not it is technically related to a tariff reduction for exports to Canada, we do have a bit of a sense of who is benefitting from these programs and who is paying attention from day-to-day activities and outreach to colleagues and stakeholders.
The Chair: I’d like to thank our witness. Yannick Mondy, from the Department of Finance for her testimony. You have demystified a number of aspects for us in what is a rather esoteric area for many of us; we appreciate that and thank you for all you do, your service as well as your team who is with you today.
Colleagues, for our second panel to discuss Division 4, we are pleased to welcome from the Canadian Centre for Policy Alternatives, Stuart Trew, Researcher; and from the Trade Facilitation Office Canada, Steve Tipman, Executive Director. Welcome to the committee. Thank you for being with us. You will each have five minutes for statements, and then we’ll move to questions.
Stuart Trew, Researcher, Canadian Centre for Policy Alternatives: The Canadian Centre for Policy Alternatives, for those who don’t know who we are, is one of Canada’s leading progressive research institutes. We are dedicated to public policy reforms in the pursuit of social, economic and environmental justice. There, I direct the Trade and Investment Research Project, which pools expertise and researchers from institutions and academics that are interested in Canada’s trade policy and the international trade regime more broadly.
I am prepared to talk about the measures in the budget that are at issue here with respect to the General Preferential Tariffs. The previous guest did a good job of going over those. I will hit the major reforms as I can see them in the budget implementation act.
It appears as though Finance Canada is working on a plan to upgrade Canada’s system of general preferences, for example, amending the Customs Tariff to renew Canada’s General Preferential Tariff and Least Developed Country Tariff until the end of 2034, and update both programs — including eligibility requirements for tariff preferences — to align with Canada’s trade agenda, and simplify administrative requirements for Canadian importers.
For example, the Finance Canada consultation document envisions a five-year review for all existing developing country beneficiary countries to determine if they need to be pulled from the list. The administrative simplifications proposed by Finance Canada include removing limitations on the amount of non‑originating inputs, like yarn or fabric in garments, for example, that can be included in goods entering Canada under these programs.
There are also plans — and, again, these are plans based on the consultation documents we have seen — to introduce a new GPT+ program for developing countries that meet certain international standards or human rights, labour conditions, gender and equality, climate change and there may be other criteria as well.
The proposal seems to entail giving these countries LDC-type zero tariff rates or, as was mentioned by the previous speaker, in between the zero-tariff coverage and the regular GPT scheme, and maybe expanding the number of products that would be covered.
Then there are periods of transition envisioned for countries graduating out of the LDC program, such as Bangladesh, Laos and Nepal in 2026.
There is also a one-year transition period that was proposed for developing countries that are removed from the GPT for reasons of economic indicators, for example, as mentioned at the World Bank.
I will make three general comments on the proposals.
First, these systems as they were envisioned in the 1970s are there to facilitate industrialization, promote export diversity and lower poverty in developing and least-developed countries.
Reforms to Canada’s trade preferences should prioritize what is best for developing countries and LDCs first and foremost, not primarily or what is best for multinational companies, Canadian companies operating there, or importers, in the case of apparel and retailers here in Canada.
The inclusion in 2003 of footwear and apparel on the zero‑tariff list of LDCs contributed to a jump in imports of these products in Canada. Bangladesh has significantly grown its proportion of trade versus official development assistance as a share of its GDP under these regimes.
However, as the 2013 Rana Plaza fire demonstrated, this economic development has come with a high cost for workers who still face atrocious health and safety conditions, and harassment, when they try to organize into unions, for example.
Canada’s GPT reforms should seek to find a better balance between market access and worker rights. I sense that is what the government is getting at in some of these conditions.
Second, and related to the last point, the government should carefully study the effectiveness of its trade preferences programs, as the European Union did a few years ago and as the United States does on an annual basis, to find out if or how they are affecting trade diversification and sustainable development in LDCs in developing countries. What I’m saying here is we need a big picture of the problems in the current trade preferences regime, and how the reforms might help fix those problems, which is how the EU framed it in 2018–2019.
Third, new conditions on the GPT+ program envisioned by the government should insist on countries meeting core labour rights, including the right to organize; core environmental obligations and core gender-based criteria — absolutely. However, they should not be so onerous as to be unworkable or unaffordable for these countries. A strengthened and improved trade preferences regime should include provision of technical and financial assistance from Canada for beneficiary countries to develop export strategies, climate adaptation measures and trade and trade-related infrastructure improvements and to support customs process modernization — these kinds of things. It’s not a matter of just creating rules. You have to help countries apply those rules at home as well.
I think it would make sense for Canada to consider harmonization with the EU policy as a whole. There is a benefit to least developed countries, or LDCs, in the sense that one set of rules — one set of conditions — would apply to both markets at the same time. It’s less onerous and less complicated for developing countries to meet one set of rules versus two.
Finally, I just think we need to be clear and transparent in how decisions are made to remove or add countries to the list. If it is just an order-in-council measure, that’s fine. However, you don’t want it to be a matter of lobbying from a company to get a country added. There should be some transparency in how that happens.
Generally, I think we have to think about the benefit of the exporting countries first.
I’m happy to answer any questions later. Thank you very much.
The Chair: Thank you very much for your statement.
Mr. Tipman, you have the floor.
[Translation]
Steve Tipman, Executive Director, Trade Facilitation Office Canada: The Trade Facilitation Office Canada, or TFO Canada, is a non-profit organization with a mandate to improve living conditions by creating sustainable business partnerships between small- and medium-sized enterprises, or SMEs, that export to developing countries and buyers in Canada and abroad. Since 1980, TFO Canada has provided trade promotion and skills development services to tens of thousands of SMEs and hundreds of trade support organizations, or TSOs, in Latin America, the Caribbean, Africa, the Middle East, Asia and Eastern Europe, including Ukraine.
Over the course of its history, TFO has become Canada’s leading provider of export readiness training and import market intelligence in Canada, as well as for other foreign markets for TSOs and exporters in developing countries.
TFO Canada’s programs are designed to strengthen skills and competencies in export competitiveness, market development and trade promotion.
Looking at the United Nations sustainable development goals, TFO Canada’s work aligns with goal No. 5, “achieve gender equality and empower all women and girls”; goal No. 8, “promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all”; and goal No. 10, “reduce inequality within and among countries.”
[English]
Trade Facilitation Office Canada’s focus is on supporting small and medium-sized enterprises, or SMEs, located in developing and least developed countries, given the role that these enterprises play in most economies. SMEs account for the majority of businesses worldwide and are important contributors to job creation and global economic development. They represent about 90% of businesses and more than 50% of employment worldwide. Formal SMEs contribute up to 40% of a country’s national income in emerging economies. These numbers are significantly higher when informal SMEs are included.
According to World Bank estimates, 600 million jobs will be needed by 2030 to absorb the growing global workforce, which makes SME development a high priority for many governments around the world. In emerging markets, most formal jobs are generated by SMEs, which account for 7 out of 10 jobs. Preferential tariff treatments are effective policy tools to create incentives for SMEs in developing and least developed countries to improve their market access opportunities in Canada and internationally. For SMEs in developing countries, tariff reductions increase their competitiveness in the destination market. This preferential tariff treatment facilitates market access opportunities, particularly for women-led SMEs, leading to higher income growth rates and employment creation.
Another aspect to be considered are the circumstances under which goods are produced in developing countries and the opportunity to apply a broader perspective that is not just based on economic development factors. Canada has been advancing more ambitious outcomes to promote inclusive trade with its trading partners under free trade agreements, or FTAs, including with rigorous and enforceable FTA obligations on labour and environmental standards complementing preferential market access. This implies expanding the General Preferential Tariff, or GPT, preferences under a new GPT+ category for developing countries that meet international standards on labour rights and environmental protection. The GPT and the LDCT, also provide important benefits to Canadian businesses, given that tariff reductions allow Canadian companies and importers to have access to a broader supply of cost-competitive inputs. Therefore, Canadian companies could increase their competitiveness in local and international markets, generating subsequent effects in terms of employment and economic growth in Canada.
In summary, we believe that creating a new General Preferential Tariff+ regime that includes conforming with international norms relating to sustainable development, labour and human rights is a positive enhancement to Bill C-47. Furthermore, extending the expiry date for the GPT and LDCT by 10 years to December 31, 2034, is another positive development.
Thank you.
The Chair: Thank you, Mr. Tipman. We will go to questions, and the same rules apply as always — four minutes. Hopefully, we’ll have time for a round two if it is required.
Senator M. Deacon: Thank you to both of you for being here today. I can imagine it is quite a discussion you have around the table in both your organizations. You may not love my question, but I would like to put it out there.
My question concerns the LDCT program. I appreciate and understand the aim of the program, but I do wonder or worry about its effect specifically concerning the environmental and societal effects of fast fashion — be it underpaid labour, water pollution or the ever-growing plague of microplastics in our ecosystem.
Between 2019 and 2021, Canada imported goods worth $2.9 billion under the LDCT, with apparel accounting for $2.4 billion, which is really 83% of the imports on apparel alone. To put it a different way, the LDCT tariffs saved the importers approximately $408 million over those three years.
My concern is that this program has become a possible vehicle to ensure fashion importers have access to cheap, disposable goods with all the downsides this brings.
I would like to get your thoughts on this from your perspective.
Mr. Trew: Actually, I like your question. I agree. It’s a huge problem, and it’s one that, despite 10 years of unions working internationally with companies, it has been quite difficult to get increased standards on environmental protection, labour conditions, labour rights, working conditions and safety in the factories.
Looking into some of the suggestions the Canadian Labour Congress has made toward the reforms, yes, we have to do it very carefully, and there has to be more oversight of the activities of Canadian and multinational firms in these countries.
It’s not like you apply these conditions as part of the preferential systems and you’re going to get results. It’s not a matter of rules. I think we have to focus on enforcement, and that requires monitoring and harder penalties than simply voluntary due diligence requirements on these companies. We need something more mandatory. We need to be holding the companies accountable — maybe more so than the country. That is what I would say there.
I think the Canadian Labour Congress had some pretty good recommendations in their proposal.
Senator M. Deacon: Thank you.
Mr. Tipman: Thank you for your question, senator. Also, I don’t find it that uncomfortable of a question because, frankly, it is a concern. It’s a concern for many Canadians.
In his opening remarks, Mr. Trew spoke about technical assistance and being able to help, in our case, small and medium enterprises from least developed countries to be able to meet Canadian standards, to have good environmental practices and to observe the norms. This is an important step forward. I think that a reformed GPT and LDCT would be a step in the right direction to be able to have not just a new tariff regime but to also have the technical assistance that comes with it.
Senator M. Deacon: Thank you.
Senator Woo: Thank you to the witnesses. I have two questions. The first is a bit conceptual. I wonder if you see a contradiction or tension between the recent fashion for reshoring and, on the other hand, the expansion of preferences to least developed countries. I don’t expect a lot of garment factories to reshore to North America, but you never know. If enough incentives are given — subsidies, in other words — we could see that happening.
Can you talk a bit about whether you see troubling trends in this regard?
Mr. Trew: I do have some thoughts about this. Thank you for the question.
I don’t know where it comes in, but there are tensions, in my mind, specifically in the sense of where U.S. geopolitics is going in terms of isolating certain countries — namely, China. A lot of these countries that benefit from the general tariff preferences would have supply chains that would overlap with some of these countries. There is the potential that this could be overly politicized in the future.
That’s why, in my presentation, I spoke about the need for clear guidelines on how a country is added to or taken off the list. I do think there is the risk that pressure from countries like the United States — or other pressures — might flow into these programs. They should not. In my view, they should be separate.
Mr. Tipman: I wouldn’t have anything to add on that particular issue.
Senator Woo: If I could comment on your response and then ask a second question.
I’ve just come back from D.C., where there is a lot of discussion about looking at the provenance of the ownership of companies in LDCs and targeting them because of ownership rather than domicile, if you know what I mean. If a Chinese company is in Bangladesh, that company might be seen not to be entitled to benefits that Bangladesh would otherwise be entitled to because of the Chinese ownership. You may or may not want to comment on that, but I’ll put it out there.
The next question — and it feeds nicely into your point, Mr. Trew — is whether we should be concerned about rules of origin as well, particularly in the areas where LDCs are dominant. Are there some cumulation rules that we should be worried about that might exclude some LDCs from benefitting from the preferential treatment? Either of you, please.
Mr. Tipman: Thank you for your question, senator. In terms of the ownership issue, I can tell you that a lot of the work that TFO Canada does — thanks to support from donors such as Global Affairs Canada — is to look at supporting SMEs that have greater than 50% ownership in the country. That’s a way to make sure the development impact is felt in the community and that it’s not just profits going back to another country. The example you gave is one where we do our best to make sure that the actual local enterprise company, the small or medium enterprise, is the one that benefits from the tariff treatment and, of course, the support that we provide.
Senator Boniface: Thank you both for being here.
Mr. Trew, I wanted to understand a bit more the notion of harmonization with the EU. If I understood correctly, you said that you think that would be better from the country’s perspective. What is the downside from Canada’s perspective, or is there one that you see?
Mr. Trew: Thank you for the question. I haven’t thought too much about the downside. I was mainly thinking that, in the past, LDCs have looked to the WTO, for example, for a more global application of some of these rules. There is a handful of countries that do this — richer countries and developed countries. But the rules are subtly different and it does create complexity for exporters in those countries.
Maybe a global solution is the best solution. In the absence of that, with what is happening at the WTO, it might make sense. If Canada is inspired by the European reforms — which I think it clearly is, based on the Finance Canada documents — and where Canada doesn’t do the data collection, from what I can tell, that the European Union does to look at the effect of these measures, and if the European Union has done all this work and it’s better for the developing countries to meet one set of rules in both markets, I think there is something to be considered there in terms of taking that policy that’s readily available.
Senator Boniface: Mr. Tipman, do you have anything to add?
Mr. Tipman: I would echo my colleague’s comments. When we look at the types of supports that we provide to developing countries, we often have to make the distinction between what are the Canadian regulations versus other countries. Greater harmonization in that regard would certainly make it easier and less confusing, perhaps, for the LDCs.
Senator Coyle: My question was going to be about harmonization, so I will quickly adjust my question.
Both of you spoke about technical and financial assistance. Assistance is what your organization does, Mr. Tipman. I am curious what you have seen in terms of any kinds of shifts in the types of technical or other supports that are required in order to have a successful impact of the kinds of tariff concessions that we’re talking about here.
Mr. Tipman: Thank you for your question. One of the things that I’ve noticed in my time with TFO Canada is that the type of technical assistance has evolved as the development agenda has changed over time. Years ago, organizations — we called them trade support institutions — would be helping small and medium enterprises to provide more services to the SMEs to better understand how to take advantage of preferential tariffs and how to take advantage of the Canadian market in that regard.
We’ve now evolved to greater development impact, thinking about vulnerable populations, gender equality, social inclusion, diversity — not just providing technical assistance for those who live in the capital cities but going into the rural regions. It’s not just measuring the currency of export sales but also the development impact that results from the activities that we conduct.
Senator Coyle: Did you want to add anything, Mr. Trew?
Mr. Trew: I have some notes about the EU midterm evaluation that they did in 2018 around their own program. They do much more data analysis of this than we do in Canada. They said that they identified modest overall improvements in export diversification generally for the program but in a lot of cases could not establish a clear link with the Generalized System of Preferences, or GSP, regulation. They said that any positive impact largely depended on whether the beneficiary countries had policies and administrative capacity in place to effectively channel any extra resources from export performance to social and distribution-improving policy.
This is the big picture. You can’t simply drop the tariffs and hope that the exports will lead to development in that country. You need to be monitoring. It does tie together with climate financing and with cooperation on areas of public policy — social services and that kind of thing.
[Translation]
Senator Gerba: Welcome to our guests. Thank you for your answer. My question is about sustainable development. I’m wondering about the advantages that could be granted to companies that implement social responsibility as part of GPTP.
Mr. Tipman, as someone who supports companies, is it possible or is it planned that certain companies that are, for example, fair trade certified will be better off or will have more support under this tariff program?
Mr. Tipman: Thank you for your question, senator. I agree that the support and training we provide in terms of corporate social responsibility are part of our job. You’re right that often, if you’re looking for certifications, whether it’s fair trade or even organic, you can look at that not only as good for society, but also as what buyers and importers are looking for. We play the role of monitoring the social impact while making the link with the economic impact and what importers are looking for.
Senator Gerba: Okay. How do we achieve that balance in this bill? Are there any examples or best practices in terms of corporate social responsibility?
Mr. Tipman: In our case, we try to set objectives with our partners and achieve them.
A perfect example of this is when Canada’s new Feminist International Assistance Policy was launched in 2017. From one day to the next, we had set various objectives applicable to one of our projects that was already in effect.
Our partners resisted at first because they said that they worked in information and communications technology; they said that it wasn’t possible, that there weren’t enough women entrepreneurs in that sector. We said that we’d work together to achieve the objective.
Ultimately, thanks to this very successful project, women entrepreneurs in particular benefited greatly from the work we had done with our partners. This was thanks to a change in government policy at Global Affairs Canada.
Senator Gerba: Thank you.
[English]
Senator Ravalia: Thank you very much to both of you. I’m going to take a bit of a philosophical approach to my question. In an increasingly polarized world, how do you see the intrusion of geopolitics into trade impacting the coherence of a trading system that is already buffeted by crises, sanctions, a new world order, the Russian invasion of Ukraine? Can all of these factors eventually impact our ability to continue to do what we’re doing for developing nations and the global south?
The Chair: You have three minutes between you.
Senator Ravalia: Sorry.
Mr. Trew: It is obviously an important question, maybe the most important question in trade right now. I don’t know how much a single program like this can do; it can only do so much. For the GSP, internationally, whether it’s in the EU or the U.S., there are impacts on working standards, impacts on exports in other countries, and they are kind of uncertain.
There are some big winners like Bangladesh, Indonesia, Vietnam, and then there is everyone else who really does not benefit in the slightest from these programs, and they barely export anything to Canada. The geopolitics of “us versus them,” democracies versus autocracies, whatever you call it, the friendshoring, trying to trade and deal with people you like and exclude everyone else — I don’t think that’s necessarily helpful or the most helpful approach when we’re talking about extreme poverty in a lot of countries and trying to rebalance economic industrialization in other parts of the world. But I don’t have an answer on the best route.
I think there are just limits to this program. We need to be thinking bigger picture. What else can Canada do outside of that?
Mr. Tipman: I think my colleague did a very good job of answering. From our perspective, honestly, trade can lead to job creation which can lead to economic development in a least developed country and in a developing country as well. The geopolitics aside, we do make that connection and we look at how preferential tariff regimes can help, although there is still a lot of work that needs to be done.
Senator Ravalia: Thank you, and just to emphasize that my preface was philosophical. Thank you.
The Chair: Thank you, senator. It’s an important question and obviously a big one in today’s global environment.
Senator Richards: Senator Ravalia asked my question. I will ask it in a little different way. It may be a slightly different question, actually, but who decides which emerging countries have the moral quorum to be helped, and how do you identify that? Because very few emerging nations have the quality of life and often not the moral views of Canada. If you don’t help them, you are leaving thousands, maybe millions, of people in destitution. I am wondering how you decide the moral quorum and who has it and who doesn’t? Because you spoke a lot about bringing these moral views into the Third World. I would like to get your idea on how you facilitate that.
Mr. Tipman: That is a very philosophical question. For us, there are a couple of cues that we look at. Certainly, in the case of projects that are funded by Global Affairs Canada, we work very closely with the funder and the donor in terms of the types of supports and which countries we’re looking to support through our programming. We will look at the United Nations and the World Trade Organization. Our role, as an implementer, is to do our best to follow the guidance of these types of institutions and make those assessments.
Mr. Trew: Again, it’s a big question. I don’t know how to answer it exactly. There is a way that you don’t do it, I think. You do it carefully, and you do it with as many levers as you have. I don’t think you do it by cutting funding to Global Affairs Canada or other government departments that deal with international assistance and foreign affairs and this kind of thing and redirecting that money, as I think the budget kind of did, toward more North American-focused or U.S.-focused priorities, whether it’s responding to the Inflation Reduction Act — I know I am getting off on a tangent here, but you need to fund cultural exchanges. You need to fund things beyond simply setting new rules. You need to fund things like monitoring and enforcement and international cooperation in these areas. That’s important, but it’s not easy. It’s not an easy question that you asked.
Senator Richards: Thank you.
The Chair: I have a question before we go to round two. Mr. Trew, in your comments, you referenced the Rana Plaza fire. That tragedy in Bangladesh created a lot of discussion — at least in my memory it did because I served as sherpa both for Mr. Harper and Mr. Trudeau, and that issue continued all the way through the discussions that the G7 was having, in terms of looking at International Labour Organization conventions, pressuring the private sector. There were a number of Canadian companies that were also implicated, textile importers; I won’t mention them.
Do you feel that in the intervening years — and it has been years, obviously — enough progress has been made or whether these programs can actually ensure that progress would take place in terms of safeguarding workers and being fair to these countries for the products they produce?
Mr. Trew: I will answer quickly that I have not followed up as much as have some of our union associates with the Trade and Investment Research Project. But just looking at some of the statements that came out on the tenth anniversary, whether from Unifor, the Canadian Labour Congress or international unions, they were all consistently saying that there was some great progress at the beginning with respect to building standards, fire standards, this kind of thing. Some companies did sign on, but what they’re looking for is much more progress on inspections and on having these things be binding on companies. There’s no legally binding way to hold these companies accountable, and that’s what is needed.
Yes, I think groups are right to start to look to Canada for more, maybe. How do we enforce some of those things in Canada and not rely simply on voluntary due diligence measures, as we seem to be heading in that direction?
The Chair: Mr. Tipman, do you have a comment?
Mr. Tipman: Maybe not specifically on the 10-year anniversary of the Rana Plaza tragedy, but certainly we’re noticing more due diligence, I suppose, from Canadian importers and more of an awakening around the traceability of their supply chain and having more information in terms of the sources, where the goods are being produced.
The Chair: Thank you.
[Translation]
Let’s now move on to the second round of questions.
Senator Gerba: My question is for Mr. Tipman. As you know, Africa is the continent where women’s entrepreneurship is developing most; 27% of women are entrepreneurs. It’s one of the highest rates in the world.
How does your organization help women in less developed countries, where internet access is difficult? How do you educate and support them so that they can benefit from these pricing opportunities?
Mr. Tipman: Thank you for the question, Senator Gerba. TFO Canada does a lot of work on women’s economic empowerment, in particular. We currently have a project funded by Global Affairs Canada called women in trade for sustainable and inclusive growth. It’s a program targeted, but not exclusively, at women entrepreneurs. It’s about supporting them, as well as trade institutions, to better serve populations and women entrepreneurs.
We’re also doing a lot of work in sub-Saharan Africa right now, offering not only tools and capacity building for export, but also support for fairs or exhibitions. Last week, we were at SIAL Canada — the Salon international de l’alimentation, an international food show — in Toronto. We were there with a majority of women entrepreneurs from Haiti and Morocco, who were able to showcase their products.
Senator Gerba: How do you give them these tools?
Mr. Tipman: There’s a lot of training. We work with institutions and organizations that are already in place in different countries.
You’re absolutely right that one of the areas that we’re working on the most is increasing their skills and their digital capacity to be able to participate in the economy, whether it’s through social media, e-commerce, or helping them develop a website.
Senator Gerba: Thank you.
[English]
The Chair: There are no more senators who wish to ask questions, so I thank our witnesses, Steve Tipman and Stuart Trew, for your testimony today. I think we benefitted from what you had to tell us, and we appreciate your candour in answering our questions.
Colleagues, before we adjourn, I remind members of the committee that this was our last meeting with witnesses for our pre-study of Bill C-47. You can expect to see a draft report by May 26, which will be considered in camera during our meeting on May 31, so that the committee can meet the reporting deadline of June 2.
I also remind you that there will be no committee meeting tomorrow because our steering committee will be meeting at that time to take a few decisions. We will get back to you on those matters. Some of them will be difficult.
(The committee adjourned.)