THE STANDING SENATE COMMITTEE ON FOREIGN AFFAIRS AND INTERNATIONAL TRADE
EVIDENCE
OTTAWA, Wednesday, May 27, 2026
The Standing Senate Committee on Foreign Affairs and International Trade met this day with videoconference at 4:14 p.m. [ET] to examine and report on such issues as may arise from time to time relating to foreign relations and international trade generally.
Senator Peter M. Boehm (Chair) in the chair.
[Translation]
The Chair: Honourable senators, welcome. My name is Peter Boehm. I am a senator from Ontario and chair of the Standing Senate Committee on Foreign Affairs and International Trade. I will now invite committee members participating in today’s meeting to introduce themselves.
[English]
Senator Ravalia: Good afternoon and welcome. Mohamed Ravalia from Newfoundland and Labrador.
Senator Ataullahjan: Good afternoon and welcome. Salma Ataullahjan from Ontario.
Senator Robinson: Good afternoon. I’m Mary Robinson, representing Prince Edward Island.
Senator Woo: Yuen Pau Woo, British Columbia.
Senator Harder: Peter Harder, Ontario.
Senator Wilson: Duncan Wilson, British Columbia.
Senator Coyle: Mary Coyle, Antigonish, Nova Scotia.
[Translation]
Senator Hébert: I am Martine Hébert from Quebec.
[English]
The Chair: Welcome, senators. I would like to welcome anyone who is watching us today from across the country on Senate ParlVU.
Colleagues, we are meeting today to again discuss the Canada-United States-Mexico Agreement, or CUSMA — the North American trade agreement — and Canada’s trade relationships with the United States and Mexico.
Today, we have the pleasure of welcoming to the committee, as an individual, Steve Verheul, Co-Chair of the Coalition for North American Trade and Principal with GT and Company Executive Advisors and — more importantly, from my perspective, because that’s when I knew him — Canada’s former chief trade negotiator, who was responsible for negotiating both CUSMA and the agreement with Europe known as the Canada-European Union Comprehensive Economic and Trade Agreement, or CETA.
By video conference, from the Future Borders Coalition, we welcome Laura Dawson, Executive Director.
Welcome to both of you. Thank you for taking the time to be with us today.
Before we hear your opening statements and proceed to questions and answers, I would ask everyone present to please mute notifications on your devices, and please observe the instructions on the card in terms of best practices for use of the microphone and the earpiece.
We are ready to hear your opening remarks, which will be followed by questions from senators and the answers of our witnesses.
Ms. Dawson, you have the floor, followed by Mr. Verheul.
Laura Dawson, Executive Director, Future Borders Coalition: Good afternoon, Mr. Chair and members of the committee. Thank you for the opportunity to appear before you today. My name is Laura Dawson, and I am the Executive Director of the Future Borders Coalition, a Canada-U.S. business organization co-located in both countries and staunchly non‑partisan.
Our members include companies and organizations that depend on the secure and efficient movement of goods, people and data across North America. We have approximately 70 business members — most of them Canadian — and through our industry association members, our network reaches thousands of companies large and small.
The first point I would make is that current tensions between Canada and the United States are not fundamentally about Canada. They reflect deeper structural changes in American politics, economic strategy and geopolitical thinking. The United States is reassessing many of its economic relationships — including with allies — through the lenses of national security, industrial resilience and political leverage.
The central question facing Canada is not whether North American integration is over — it is not. In sectors such as energy, manufacturing, aerospace, agriculture and digital services, the degree of integration is simply too deep and economically valuable for businesses in either country to unwind.
What is changing is the operating environment. Businesses now function in a trade environment that is more political, more strategic and less predictable than the one Canada became accustomed to over several decades. This reality will shape the upcoming CUSMA review.
In my opinion, the United States is unlikely to abandon CUSMA, but it may also be reluctant to fully stabilize the agreement through a straightforward, long-term renewal. From a U.S. perspective, maintaining flexibility and negotiating leverage has become the priority. That means that Canada should prepare for a prolonged period of strategic uncertainty.
The question, therefore, is not whether Canada can eliminate uncertainty; it is whether we can remain competitive within it.
Canada’s greatest economic risk is not North American integration itself. It is competitiveness. Canada cannot control U.S. domestic politics, but we can control how costly, slow, fragmented and administratively difficult it is to do business with Canada.
In a high-cost country, friction matters. Every unnecessary delay, redundant approval or incompatible system functions as a hidden tax on Canadian productivity and investment.
Competitiveness increasingly depends on interoperability — systems that allow goods, services and data to move efficiently across borders while maintaining strong security and public confidence.
Interoperability should not be viewed as a loss of sovereignty. “Onshore everything” may be a compelling bumper sticker, but it is a poor business model.
I would also caution against approaches that prioritize symbolic retaliation over practical competitiveness outcomes. In highly integrated supply chains, retaliatory measures often increase costs for Canadians while creating additional uncertainty for investment.
Similarly, diversification should be pursued realistically and strategically. Diversification is important, but diversification should be additive, not subtractive. Canada cannot diversify by disengaging from the North American production system that sustains millions of jobs, supports investment and drives innovation across the continent. Governments need to be cautious about substituting political priorities for sound commercial decisions.
The role of government should be to build a competitive operating environment for Canadian businesses — wherever in the world they choose to operate — not to attempt to micromanage investment flows or designate “winners” and “losers.” History shows that substituting political logic for business risk assessment rarely produces durable economic success.
Canada’s competitiveness challenges did not begin with the current trade tensions. For years, business leaders and public policy institutions have warned about declining productivity, weak investment and the cumulative impact of regulatory and administrative friction. In today’s environment of geopolitical competition and industrial realignment, those weaknesses become far more significant.
The real contest we face is not Canada versus the United States; it is whether North America can compete against faster, lower-cost and increasingly coordinated economic blocs around the world.
In that environment, Canada’s strongest response is not performative nationalism; it is becoming the most efficient, reliable, innovative and competitive partner in North America.
Thank you. I look forward to your questions.
The Chair: Thank you, Ms. Dawson. I’d like to acknowledge that we have been joined by Senator Adler of Manitoba, Senator Deacon of Ontario and Senator MacDonald of Nova Scotia.
We will now go to Mr. Verheul. You have the floor, sir.
Steve Verheul, Co-Chair, Coalition for North American Trade; Principal, GT and Company Executive Advisors, as an individual: Thank you, Mr. Chair.
As the chair mentioned, my name is Steve Verheul. I am the former chief trade negotiator for Canada, including for the Canada-U.S.-Mexico negotiations.
Good afternoon and thank you for the invitation to appear before you today.
The outcome of the CUSMA review and Canada-U.S. trade relations this year will have a profound impact on Canada’s economic future.
At this point, the outcome of the review is particularly uncertain, with the U.S. and Mexico formally launching their discussions on the review this week in Mexico and with no apparent traction in Canada-U.S. discussions. The U.S. is blaming Canada for the lack of movement, but the U.S. is putting Canada in a position where it has little room to move.
Issues like U.S. concerns over dairy and provincial bans on U.S. liquor sales will be able to be resolved at the end of the negotiation but not as a down payment to get to the table.
At the same time, the U.S. is showing no flexibility on issues like tariffs on steel, aluminum and autos — fundamental breaches of the agreement.
If discussions can get to trilateral issues, the path should be easier. On key U.S. objectives — including strengthening rules of origin on manufactured products, enhancing economic security through greater alignment among Canada, the U.S. and Mexico on some tariffs, investment restrictions and export controls and enhanced cooperation on critical minerals — there are openings to pursue approaches that would strengthen the North American market in the interests of all three parties. Until we get there, though, in my view, as uncomfortable as it may be, Canada needs to hold its ground.
Over time, I believe pressures on the U.S. to come to a resolution will increase. U.S. efforts to have companies reshore production to the U.S. have had limited success so far. U.S. manufacturing starts were down last year, not up. U.S. manufacturing jobs were down last year, not up. And the trade deficit in goods increased; it didn’t decrease.
Reshoring production to the U.S. on a large scale would take years to achieve, be highly expensive, create manufacturing jobs for which there is limited interest in the U.S. and leave the U.S. much less competitive in world markets.
With the chaotic U.S. approach to tariffs over the past year, including the Supreme Court ruling against the International Emergency Economic Powers Act, the court ruling against section 122 of the Trade Act of 1974 and the imminent introduction of section 301 tariffs, uncertainty is leading many businesses to be cautious about investment commitments.
Most Americans, including the general public, most members of the business community and most Republicans in Congress, support the renewal of CUSMA.
Pressures for greater certainty for long-term planning and investment will continue to grow, and just as the Trump administration faced in its first term, there will be pressures to moderate positions. Canada needs to stay at the table and continue to search for ways to move forward, including by broadening discussions, but Canada needs to withstand pressures for short-term fixes and one-sided outcomes.
Thank you for your attention.
The Chair: Thank you very much. Colleagues, we will move to questions and answers. As usual, we will have three-minute segments, so please keep your questions concise and your preambles short. If there is time, we will have a second round.
Senator Coyle: I have a question for both of our witnesses. Thank you both for being here today.
We’re hearing about the importance of competitiveness with or without this current situation. We’re hearing from you, Mr. Verheul, to hold the line, keep going and don’t cave, basically.
I’m interested in either of your thoughts or rather both of your thoughts on particular industries and sectors of our economy where things might look different this time around from last time. Are there any vulnerabilities that you see that might not have been there in the last round?
Mr. Verheul: Thank you for the question. I think the big difference I’m seeing this round compared to the last is Canada is being forced to react to what the U.S. has done.
If you look at sectors like steel, autos and aluminum in particular and others, that’s where we face the biggest pressures, and those are the industries most closely integrated with the U.S., which makes it more difficult.
Our efforts on diversification make it more difficult because we are not pursuing diversification that is going to lead to meaningful changes in the manufacturing sector. I’d say the manufacturing sector is by far the most vulnerable with respect to our relationship with the U.S. at this point.
Ms. Dawson: I would say some of the things that are different this time around have to do with the sectors that the U.S. has clearly flagged they are interested in, which are outside our traditional trade negotiating channels.
We know critical minerals, security and defence, energy, food security and health security are all part of the picture that the U.S. is going into these negotiations with. This is not a strict trade conversation but rather this is a big picture.
So it is forcing negotiators and businesses to think about negotiations in a very different way than we have done previously.
Similarly, we see that while the manufacturing sectors are very vulnerable right now, there is consistent demand for Canada’s natural resource products, energy products, et cetera, and that continues to be one of the strengths, as viewed by the United States.
The Chair: Thank you.
Senator MacDonald: Thank you for being here, Mr. Verheul. There are so many questions to ask. I want to go back to section 232. We’ve had a substantial car industry in this country really since the auto industry began in North America. You can go back to the creation of General Motors and then General Motors of Canada back in 1918.
We’ve always had a strong car industry. It has been reduced somewhat in terms of numbers over the past decade. I would like your feedback on this. What would you do to enable us to protect this industry?
Mr. Verheul: That is one of the biggest challenges the government has in front of it right now because the U.S. has been taking a much more aggressive position on cars this time than they did in their first term, although in their first term, too, they wanted a rule of origin which would mean virtually all auto production would take place in the U.S. We rejected that position and managed to sort that out, but they are coming after our auto production again.
This is something on which Canada has to push back hard. As you say, there has been a very long history of car production that has worked between Canada, the U.S. and Mexico. It was very closely integrated; it was collaborative. Canada produces about as many cars as it buys. If the U.S. is really thinking they are not going to accept auto production in Canada, what will Canadians buy?
We have already seen a movement among buyers in Canada toward non-North American autos. That is an important early signal that if we are not producing autos, we’ll see a reaction of people wondering why we should buy U.S. cars.
Ms. Dawson: What Steve describes is exactly what should happen in a rational world. Holding the line, giving market signals, et cetera, would make good logical sense if this economic relationship made sense. But we have a White House and a President who retaliate without giving consideration to the economic logic, the impact on his own country and the impact on his own economy.
We do see action when business comes to the President and says, “We have a concerted, aligned position on this. Can we go ahead — Canada, U.S. and Mexico business — and move ahead with a position on autos?” Banging them over the head on sections 301 and 232 has not worked, and I don’t think it will work in the future.
The Chair: Thank you very much.
[Translation]
Senator Hébert: I’d like to hear your thoughts, both of you, on the current state of negotiations. We know the first round of negotiations with Mexico began this week and that two other rounds are scheduled over the summer.
Mr. Carney is set to appear before the prestigious Economic Club of New York this week. This may irritate the White House, because Mr. Carney will be going after the same target as Mr. Trump on his own territory.
Where do you think we are in our negotiations and relations with the U.S., given Mexico’s head start and the current state of affairs?
[English]
Mr. Verheul: I think, first of all, the state of the discussions between the U.S. and Mexico is not as advanced as the U.S. likes to play it up as being. Certainly, I’m hearing from contacts in Mexico that things are not going quite as quickly as the U.S. is portraying it.
With respect to discussions between Canada and the U.S., we are pretty firmly stuck. The U.S. is wanting movement on fairly sensitive issues and for us to begin discussions, but at the same time, they are saying they don’t even want to talk about section 232 tariffs on steel, aluminum and autos. There is a negotiating table that is not lining up very well in terms of even having a conversation.
Canada has tried to broaden that discussion by drawing in energy issues, critical minerals and some others, but that doesn’t seem to be gaining a lot of traction either. We really are in a position where we could be stuck for a considerable period of time. Canada will not be able to force or entice the U.S. to come to the table. We will have to wait to see where the U.S. will go with this, and we need to wait for a more moderate approach.
Ms. Dawson: I see these negotiations as being very protracted. I call it the “no-no” outcome. It’s been made clear from the United States, from U.S. business and from members of Congress that they are not going to rip up the deal. But there’s no incentive for the White House or the United States Trade Representative, really, to come to a quick resolution on the CUSMA review. “No-no” is no renewal but no abrogation of the deal. In the meantime, the U.S. will be continually looking for leverage, putting an elbow in the door and finding opportunities.
As Steve says, I don’t worry too much about what progress with Mexico looks like versus progress with Canada because they are two very different economies and sets of calculations. I just worry that we leave too much toward the end, expecting that this negotiation will proceed, like others have, where there is a beginning and a middle and an end. I don’t see an end in sight. As I said, I know this is an administration that retaliates when it gets poked.
Again, I’m not partisan, but when I see a speech at Davos or when I see the Prime Minister going up against the President in the U.S. fora, I wonder which of my members will get hit in retaliation as a result of the administration’s unhappiness with something that has been said or done.
The Chair: Thank you very much.
Senator Woo: I’d like to pick up on Laura Dawson’s focus on competitiveness. You seem to have a vision of enhanced Canadian competitiveness within continued integration in North America — a version of CUSMA that would actually strengthen our competitive position. But competitiveness, fundamentally, is based on openness to markets and competition. It’s not clear to me that the direction of the United States, even one in which that can accommodate Canada as part of a continental strategy, would enhance Canadian competitiveness. It seems to me that we would be reduced to being a supplier of commodities. Value-added manufacturing would relocate to the United States. We would have the protection, perhaps, of a common external tariff and a large American market but global competitiveness? I don’t see that. Can you respond to that idea?
Ms. Dawson: Sure. It’s not an either-or calculation. It is not the U.S. “or” the world. It is the U.S. “and” the world. There are many industries in Canada that are fundamentally tied into U.S. supply chains. A lot of those are small businesses, and we can’t afford to throw them off the bus. At the same time, we are seeing increasingly new and innovative relationships between Canada and the rest of the world, and I think that is very positive. Whether it is new relationships with Asia or any other partner, if it takes too many months to get a permit, too many months to get investment or too many months to actually do business in Canada, it serves no one.
Senator Woo: Thank you.
The Chair: Did you want to comment on that, Mr. Verheul?
Mr. Verheul: The U.S. tariff policy is clearly pushing the U.S. in a far less competitive direction at the end of the day, and they will suffer from that, maybe not in the short term, but it won’t take too long. At the end of this process, they will be far less competitive than their competitors, in particular China, which should be a broader concern for us.
We have a very difficult path in front of us because if we choose to go down the track and try to get as close as possible to where we were with the U.S., then we will become less competitive in the world just as they are. If we do not go down that track, we would be more competitive, but we have a fundamental challenge in trying to extract elements of our economy from the U.S.
The Chair: Thank you very much.
Senator Ravalia: Thank you, once again, to both of our witnesses.
Given recent statements from the U.S. administration questioning the longevity of CUSMA, what is your assessment of the risk that the U.S. might, under the review, demand unilateral concessions rather than a standard extension? And if so, what alternative strategies would we have to employ if trilateral negotiations fracture into bilateral paths?
Mr. Verheul: We have seen and we will continue to see many different tactics from the U.S. side. I think they will be asking for unilateral concessions. They have done that to some extent in the past. I don’t think we should be entertaining those kinds of requests with any real seriousness because I think, in large part, the U.S. is not seriously going to withdraw from the agreement, in my view. I think that’s the ultimate threat, and I don’t think they’re going to take it.
They’ve gone through many hoops, twists and turns over the past year when they started imposing tariffs, but they have always maintained a CUSMA exemption, which allows most of our trade to continue duty-free. The fact that they are maintaining that exemption sends a signal to me that they recognize starting to apply tariffs against Canada across the board is not going to be good for them and it’s going to raise a lot of complaints among the business community.
Ms. Dawson: I agree with Steve. I don’t think the agreement is going to be dismantled, but I also urge caution for those who say, “Well, if we lose the trilateral agreement, we can go back to the Canada-U.S. agreement.” Yes, there is a Canada-U.S. agreement buried under the levels of that trilateral agreement, but it is an out-of-date agreement that doesn’t cover many of the tradeable areas that are currently part of how we do business globally. It lacks a lot of the problem-solving dispute settlement elements that we rely on. Going back to a bilateral deal is really no good option for Canada.
Senator Ravalia: Do you feel that our 2025 tariff response was a mistake? Were we too aggressive?
Mr. Verheul: I was one of the ones advocating for retaliation at that point in time, but I think that the big problem we had with that was that we very quickly became only one of two countries that were retaliating. I think if there had been a broader effort by the world to send a stronger signal to the U.S. — if the EU, Japan, Korea and others around the world had joined in that kind of retaliation — then I think we would be in a very different place today.
The Chair: Thank you. So it was us and China, right?
Senator Harder: My question kind of flows from your comments; it is for Laura Dawson. I’m intrigued by your criticism of performative nationalism. I wasn’t sure if you were talking about Carney or Trump, frankly. In your comments, you appear to have been talking about Carney. What do you mean by that? If we had performative nationalism in Europe in response to the initial actions, we might be in a different spot.
Ms. Dawson: Sure. There are a couple of things that I’ll point to. Let’s start with Doug Ford’s tariffs and the ban on U.S. liquor in Ontario. It looked great starting out. It was a very strong symbol and sign, but it doesn’t target the people who are ultimately going to impact a decision.
Similarly, in my business, the ban or the Canadian travel boycott doesn’t affect people in the White House as much as it affects small communities on the border in upstate New York and upstate Washington and upstate Vermont. So while it feels good to do these things, it really only hurts our neighbours and doesn’t target the people whom we would like to target.
Senator Harder: It helped galvanize Canadians to the situation they were facing. You’re kind of inviting abuse.
Ms. Dawson: I think that it did help galvanize Canadians initially, but I’m not sure what the continued benefits of prolonging these actions are when they are resulting in backlash against Canadian businesses and Canadian border communities. Similarly, the “Buy Canadian” and “maple washing” initiative felt very good at the time, but it really ended up hurting companies that were creating jobs and employing people in Canada because they seemed to be a U.S. brand.
Senator Harder: Mr. Verheul, your comment about if we get to the trilateral issues intrigued me as to the skepticism or the time frame with which you see that happening. Let me be bold. Do you see that happening while there is still Mr. Trump in the White House?
Mr. Verheul: I certainly think it’s possible because there are elements in the U.S. administration that do want to pursue those trilateral issues. One of the issues of significant importance to them is the economic security issue. They do want to move toward trying to have some kind of common protection at the border for certain products. They want to have investment restrictions against China that are comparable across the three countries.
They are interested in some measures that would come up in the trilateral discussions. I think there is potential to get there, but if the U.S. is going to insist on staying with the bilateral issues having to be done first and then we’ll talk trilaterally, then I think that means things are not going to move quickly at all.
Senator M. Deacon: Thank you both for being here. It doesn’t seem that long ago you were around the table debriefing the last round. Thank you for having the courage to return.
At the same time, around 100 to 150 feet from here across the street, there was a session called the Second Century Commission on Canada-U.S. Relations. In the room were American and Canadian active politicians, academics and business leaders. I want to backtrack and give you some things that were said there and ask you to respond in the context of the conversation that we’re having here.
One was, of course, our relationship is not broken. It’s being tested at this moment in time, and we really need to look at competition being reshaped. This Canada-U.S. relationship cannot be allowed to drift, and we need to build confidence as a neighbour and as a strategic asset.
There were other things said, but I’m just wondering in this space that we’re doing what we want to achieve and what we need to achieve. When you hear those comments made in a room of a group wanting to find ways to move forward on a project over the next year, what are your thoughts from your place in this space on those today?
Ms. Dawson: I’d be happy to step on that one first. I couldn’t agree with you more, Senator Deacon. That is exactly the work that my organization does as well. We cannot fix everything. We cannot fix many of the primary trade irritants that are in play right now, but we know that the relationship is durable and that geography and community relationships are durable. We have to find a way to skate around the things that we cannot change in order to plant seeds for future opportunities.
My organization has been hosting meetings across the country with Canadian and U.S. business communities in mining, critical infrastructure, energy, food security and defence. What I hear from businesses from both countries and the officials who are there is: How do we find ways forward? How do we plan not for two months from now but for 10 years from now?
Senator M. Deacon: Thank you.
Mr. Verheul: In my view, while the relationship is not broken — I would agree with that — it is significantly damaged. That damage is not going to be that easy to repair any time soon. And I think that the fundamental issue we’re going to continue to struggle with is if the U.S. continues to go down a U.S.-first and U.S.-only path, it’s going to be very difficult to make progress because that would mainly mean us giving up unilateral concessions that the U.S. is looking for.
If the U.S. can be shifted to a North American context and a North American perspective, then there is a lot of good work we can do. We can strengthen North America as a whole — including the United States — far more effectively that way, and we can maintain our competitiveness with the rest of the world.
The U.S. going it alone is not in their interest either. So that’s the biggest challenge we have to get through: Demonstrate to the U.S. that having Canada and Mexico as part of this integrated economy puts us all in a much stronger space.
The Chair: Thank you very much.
Senator Wilson: My question is for Mr. Verheul first and then potentially for Ms. Dawson if there is an opportunity.
Given your experience negotiating these agreements, you have the depth of knowledge that few others would have regarding where there are irritants in terms of where we have our own problems that we need to fix in Canada for trade agreements, whether it be with the United States or the agreement you negotiated with Europe or potentially a new agreement with India or wherever that may be.
Are there some things that Canada should be doing to fix our own house to better position ourselves to be able to enter into those discussions from a stronger place? Obviously, there is dairy and some of those very well-known headline ones, but is there anything else that we should be thinking about?
Mr. Verheul: There are a lot of things we should be thinking about, and I don’t think we should be overly concerned with fixing dairy or fixing the handful of issues on the table because the U.S. is always going to have something to go after us with, and if it’s not dairy, it will be something else. It’s not productive to go down that track, but we have to do more to get our own house in order. Some of that work has been started over the past year, in particular, positioning Canadian businesses to be able to access other markets outside of the U.S. and take full advantage of that. We need to get away from the extent of our reliance on the U.S. and try to protect ourselves better through building up that infrastructure to export to others.
Ms. Dawson: If I have a minute, with the trade agreements that we have in North America and also our trade agreements around the world, the negotiators do a great job of negotiating market access on paper, but how much effective market access will we then have in Canada in order to actually make deals and move products from here to there?
I hear from my members every day about issues related to organized labour: We can’t load grain in the rain in Vancouver. There are issues related to paperwork obligations and paperwork that just doesn’t match up about why we can’t have containers on Great Lakes ships. There are so many things we can do domestically in order to make Canada more competitive and more contestable and to increase effective market access no matter who the deal is with.
The Chair: Thank you very much.
Senator Robinson: I wanted to talk a little bit about supply management too. I come from the world of agriculture, and I was just hoping to get a little deeper into your perspective, Mr. Verheul, on the U.S.’s views of supply management and what you think their ambitions are currently. Do you think that Bill C-202 changed any of the sentiments?
Mr. Verheul: I’ll first start by saying what happened in the first Trump term when we started to talk about the dairy issues. I was brought into a private conversation with their lead negotiator at the time, and I was told that we would not finish that negotiation without seeing the end of supply management. That was an early warning I was given that this would be the result at the end of the day. Of course that never happened.
This time around, we’re in a much better place and certainly a much safer place when it comes to dairy. The U.S. is not looking for new market access. They’re not looking for tariff reductions or tariff quota expansion, which would be covered by Bill C-202. So that isn’t relevant in this context.
What they’re looking for is to be better able to use the market access that was granted in the original agreement, and they want to see some U.S. products on retail shelves, with some going to distributors. There are avenues to resolve the dairy issue at the end of the day that won’t be a huge hurdle to get over. There is some meeting of minds that could occur there without having a protracted discussion.
Senator Robinson: Super. To me, supply management also encompasses what we call the four feathers, and we’ve certainly heard from our chicken and egg folks — chicken in particular — about their concerns about things like spent fowl and perhaps all kinds of abuses of the rules. We have seen tariff rate quotas, or TRQs, and we have seen that challenge. And for dairy, I believe Canada has been on the right side of the challenge of the TRQs.
My next question is in regard to Bill C-280, which we saw pass here, and that was to have Canadian producers be able to get reciprocity in the Perishable Agricultural Commodities Act that we see in the U.S. I was wondering if you have any opinions on that and whether that has changed anything in the U.S. We have heard a long-standing grievance from the U.S. that they couldn’t access the Perishable Agricultural Commodities Act here, so they removed it for our producers to be able to access it in the U.S. Do you think that has changed anything?
Mr. Verheul: I haven’t spent a lot of time on that issue lately, but my assessment is that it really hasn’t changed all that much with respect to the U.S. perspective. I don’t think they have shifted. They’re currently very involved in difficult issues on seasonal tariffs with Mexico and the agriculture folks, which are much more between the U.S. and Mexico than between Canada and the U.S. at this point.
Senator Adler: I don’t want to drive this sophisticated conversation off the cliff but I might. In recent weeks, most of the oxygen has been taken up not by CUSMA but by Iran, and the Americans have taken every possible hyperbolic position. Today, Trump even threatened to blow up Oman.
My question is this: If we don’t take what the American President says even close to literally on a minute-by-minute basis, then Iran, of course, doesn’t feel as important to many of us as CUSMA. I’m just wondering if we’re making a big mistake by overreacting to a lot of the hype. If we can start with our guest who is outside the forum.
Ms. Dawson: Sure. Equating Iran and CUSMA is a tall order, senator.
I’m Canadian and I’m married to a retired U.S. foreign service officer, and I spend my time around a lot of U.S. officials. What I see about U.S. officials — as well as Canadian officials — is they are really steering toward peace, stability and long-term solutions. Every one of us, both on the Canadian and American side, wakes up in the morning and looks at the newspaper and says, “OMG, what’s going on here?” However, I am more comforted by the article that I read this morning about how Canadian diplomats were assisting to provide visas for Americans in the U.A.E. when they had no other way to evacuate. That’s what real foreign policy and real diplomacy look like.
Senator Adler: I guess I’m not referencing some of the professionals whom you’re dealing with. I’m just referencing the person who — as I said earlier — seems to take up all the oxygen; that would be the President. I’m just wondering if all of us are overreacting to that President.
Ms. Dawson: That’s not something I could comment on. Perhaps Steve has a view.
Senator Adler: A punt.
Mr. Verheul: I do. If you look back over the past year, President Trump has threatened tariffs against us more often than he has imposed them. He has imposed tariffs and then withdrawn them on more than one occasion, and they’ve shifted up and down in some cases over the course of the year too. So it’s a very chaotic period of making tariff policy on the fly.
The important part for us is to keep our heads down and not pay much attention to all of that noise. One of the things that the Mexicans have done right is they have largely avoided all of that. They’ve been taking a very low-key approach. They are largely having meetings with officials. They are not making big political face-to-face meetings, and they’re building up the relationship that way.
At this point, that’s a better way to go: to do it quietly and try to avoid all of the headlines.
The Chair: Thank you very much.
Senator Ataullahjan: Mr. Verheul, you said something that caught my attention, where you said we have to get our own house in order. Would you like to expand on that?
Mr. Verheul: We have a lot of work to do. We have a lot of work to do with the U.S. But I don’t think that necessarily means we have to change a lot of things on our side. It is more about repositioning a lot of what we do.
We need to get our house in order if we are going to seriously pursue diversification. We have to make sure that if we’re going to try to do that, we can actually succeed because we have had these opportunities. We have had trade agreements with 51 countries for 10 to 12 years. We have not made a huge difference with all of those efforts.
We need to help Canadian businesses be put in a position where they can feel more comfortable accessing those other markets, building those relationships and trying to wean ourselves off the U.S. market much more than we have so far.
Senator Ataullahjan: I couldn’t agree with you more.
As someone who has been on this committee for a long time, we looked at Canadian businesses in the Asia-Pacific, and we consistently heard — my colleagues must have heard me say this — that Canadian businesses are risk averse. We also heard that sometimes they will go to a country for three or four days. If they haven’t signed a deal, they leave. How do we make our businesses understand?
Mr. Verheul: The biggest challenge we have had up until now is the U.S. market has been so comfortable. The values, at least at that point, were quite similar. The practices were similar. The regulations were similar. It was an easy market to get into, and it was right next door.
Looking at other markets that are more complicated — with different languages, regulations and approaches, where consumers are looking for different things — that’s a lot more work. While some companies have done it successfully, it’s not on the scale of anything close to what we do with the U.S.
We need to help companies get into that different frame of mind if we are going to make meaningful inroads in diversification.
The Chair: Thank you. That brings us almost to the end of round one, but I’m going to ask a question. Round two will be short.
My question is more of a political impact question.
Ms. Dawson, I’m asking you because you live in the United States, so you are in the political milieu as the campaigns for the midterms ramp up.
At this point in time, a lot can happen, of course, but the political winds don’t seem to be favouring the Republicans so much. If there are shifts and changes, do you think that this might have an impact in terms of the tariff policy being promulgated by the White House and by the United States Trade Representative?
Ms. Dawson: I think it is going to have an impact, but probably not the impact that Canadians will hope for, at least not in magnitude. We are looking at midterms where we are probably going to see a flip in the U.S. House but not necessarily the Senate.
We are also seeing, though, that the Trump supporters — the Ken Paxtons of the world — are still very much at the forefront. Nobody wants to go against the President. It is political suicide. And the Democrats don’t have the momentum or power.
I think we’ll see people working at the edges, nibbling at the edges toward a sensible trade policy and relationship with Canada, but I don’t think we’ll see anything happening quickly or significantly.
The Chair: Thank you. We’ll go to round two. We are going to have to be economical with our time because we have 10 minutes left for this panel.
Senator Coyle: My question is about China. As we are looking to forge a new trading relationship with China, with the early reigniting of that having already started, what impacts do you see our CUSMA process having on our relationship with China — as we move toward, over the longer term, getting some resolution of CUSMA — and what we can and cannot do and vice versa?
Mr. Verheul: That’s, I think, probably the biggest challenge we face going forward. We have tried to make some progress with China in opening up their market to a greater extent than it has been.
With the CUSMA review with the U.S. and Mexico — the U.S. in particular — due to economic security concerns, the U.S. is going to try to get Canada, the U.S. and Mexico to have common tariffs targeted to China. They are going to look to have common investment restrictions targeted to China and export controls targeted to China. We have a very difficult path. It’s two paths that are diametrically opposed.
If we go down the CUSMA route, we are going to have problems with China because we will be breaching some of the deals that we just made with them, in all likelihood. If we do not go that way, then we will have more problems with the U.S.
At the end of the day, given where we are with the U.S. and given our interest in the North American market, we will have to be pretty tempered in what we do with China. We will not be able to go all that far.
Ms. Dawson: I agree with Steve. I have nothing further to add.
The Chair: Thank you.
Senator MacDonald: I have to go back to automobiles.
When Will Durant created General Motors of Canada in 1918, it was the end of our independent car industry in Canada. It became a branch plant economy, but it was a very successful branch plant business. We maintained it with tariffs. I think we had, at one time, about 35% tariffs on American cars coming into Canada, so the Americans had to build their cars here. That was the way it was done until the Auto Pact in 1965. Is that the solution for us? We are the biggest market for American cars in the world. They are not going to want to lose that market. What is our solution?
Mr. Verheul: I think there are some solutions. But I don’t think going back to that kind of approach of raising tariffs against imports of autos from the U.S. has any chance of working.
It has to do with the manufacturers that are here in Canada now still producing cars. If we were to impose those tariffs, I think we would have a very difficult time maintaining those companies in Canada, as well as Honda and Toyota, because if they are looking at — with a tariff of that size — largely being restricted to serving the Canadian market only, the Canadian market is too small. None of those manufacturers would exist in Canada if they weren’t selling to the U.S. We have a very big challenge on that front, and I don’t think that would be a success.
Senator MacDonald: What do you think the solution might be? They still want access to the market.
Mr. Verheul: They still want access to the market. I think that is a position that we are going to have to put forward fairly forcefully going forward. If they are going to want to go down this track of not having us produce autos at all, we will have to say very clearly that’s unacceptable.
I think the government is supporting its position by having EVs from China allowed to enter up to a specific limit, while talking to China about potential investments in Canada in car production and talking to Korea about potential investments in Canada in car production.
If the U.S. is going to be following this position that they don’t want us manufacturing cars that go to the U.S., we are going to have to go in a different direction. That’s going to be very difficult to do, though.
Senator MacDonald: Thank you.
[Translation]
Senator Hébert: I’d like to talk about forced labour investigations. I’ve heard from experts that Canada hasn’t done a very good job of enforcing regulations around this issue. We know some containers were apparently returned, whereas there were several thousand in the U.S.
Do you think the U.S. will use this as their next excuse to impose tariffs on Canada in other targeted sectors, because they’ve concluded from these investigations that Canada isn’t vigilant on this issue?
[English]
Mr. Verheul: The U.S. has been conducting two section 301 investigations, one on excess production and excess capacity. There are only 16 countries in that, and Canada is not one at this point. There are 60 countries involved in the section 301 investigation on forced labour. For all of us, including all those other countries, I think it’s the forced labour investigation that we all have to worry about. That’s the one that the U.S. is going to use to play with and apply tariffs where they see fit.
The problem with the forced labour investigation is that when you face the question of whether you adequately enforce your laws against imports of goods produced with forced labour, it’s very difficult to prove that forced labour took place. It’s very difficult to prove a product — even though it may have made several other stops on the way to Canada — was produced with forced labour. With all of that ambiguity, the U.S. will have a lot of flexibility to find ways to say that we are not in the right place and then impose tariffs.
Ms. Dawson: I think it’s important not to throw the baby out with the bathwater. The issue itself is very important. And 25 years ago, when I started doing trade policy, you couldn’t tell whether this pen had forced labour content in it. Now we have technologies in tracing that make it very easy to see what the inputs for a product have been.
Being vigilant to identify what companies are on the suspicious list is a good thing that I think we should be moving toward and something that we can do in tandem with the United States and other international organizations, similar to what we have done to minimize trade in products containing endangered species and animal parts.
Senator Woo: This question is for Ms. Dawson.
What can you tell us about Canadian companies that are already preparing to relocate and reorganize their production to the United States even if CUSMA is kept on life-support indefinitely? Is the private sector already making plans for a future where we have a much reduced free trade agreement with the United States?
Ms. Dawson: I think those who are thinking about moving are affected by a variety of push and pull factors. Yes, the free trade agreement with the United States is a pull factor, but things like support for investment and innovation help to develop good ideas domestically and to commercialize them.
That’s what I hear most often. Some companies that are tied into integrated supply chains with the United States — for example, a brake pad that is made in Windsor and goes to Detroit — have been struggling with that decision. But they say to me, “I have 500 Canadian employees. I’m a family business. I’m not in any hurry to leave.”
Thankfully, as Steve mentioned, a lot of those products that have been able to prove CUSMA origination have not been affected by tariffs. I think it’s more complicated than just a deal or no deal.
Senator Woo: Thank you.
The Chair: We have come to the end of this segment.
On behalf of the committee, I would like to thank Steve Verheul and Laura Dawson for joining us today. Your comments were very pertinent and, I think, useful to our deliberations as we go forward. Needless to say, we will be looking at this subject again and again, so thank you very much.
Colleagues, for our second panel, we welcome, as individuals, John Weekes, former chief negotiator for Canada in the original NAFTA negotiations; and Meredith Lilly, Professor and Simon Reisman Chair in International Economic Policy at Carleton University and former foreign policy and trade adviser to Prime Minister Harper.
We are ready to hear your opening remarks. Mr. Weekes, you have the floor first, followed by Professor Lilly.
John M. Weekes, Former NAFTA Chief Negotiator for Canada, as an individual: Thank you, chair and honourable senators, for giving me the opportunity to come to speak to you here today. I must say that I never thought we would see a situation in our relationship with the United States like we have seen in the last few years. This has been a really startling development, but I have tried to structure my initial remarks in a way that they are businesslike. I will try to touch on a few issues a bit differently from what you have already heard.
As we get closer to the July 1 date for the review of CUSMA, the initial positions of the three parties to the agreement are becoming more apparent. It is clear from various public statements from senior officials and political leaders in the three governments that some kind of renegotiation is likely and that formal negotiations would begin sometime after July 1.
Furthermore, statements by senior officials in the three governments can reasonably be interpreted as indicating that all three governments would like to see CUSMA continue in effect, although the United States in particular has identified certain areas in which it would like the agreement to be improved, perhaps through the use of bilateral protocols, particularly where a matter is of a bilateral nature.
An important American priority is to develop a “Fortress North America” approach — or perhaps a “fortress United States” approach — which would deny entry of Chinese goods and components into North American supply chains and could perhaps also be extended to goods from other countries. Canada should approach any such proposals with great caution.
We seem to be watching a bad movie the second time around. In his first term, President Trump made clear he wanted to rebalance NAFTA to make it fairer for the United States. Canada and Mexico would be expected to make concessions, but the United States would make none. The second Trump administration seems to still have the same view.
Canadians need to understand that a “Fortress North America” approach would make it more difficult — or maybe impossible — to diversify Canada’s trade. A fortress approach would require the imposition of trade barriers to third countries and violate Canada’s obligations under the World Trade Organization, or WTO, and bilateral free trade agreements, or FTAs, with other countries such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, or CPTPP, and the Canada-European Union Comprehensive Economic and Trade Agreement, or CETA.
In my view, scrapping our other FTAs to save CUSMA would be too high a price.
Canadians should bear in mind that each time we negotiate an agreement providing for closer integration with the United States, we hand more leverage to the Americans. This impairs Canadian sovereignty and reduces Canada’s independence. This might be an acceptable price if we were dealing with a reasonable partner. But should we trust the current United States government not to use this additional leverage to extort us?
Canadians need a clear understanding of in which sectors our government would be prepared to consider a “Fortress North America” approach and where it would draw the line.
Also, Canada should reject any proposals for rules of origin that bias these rules in favour of pure U.S. content.
One constructive way to address U.S. concerns about China would be to include a clause in CUSMA that would require the three CUSMA partners to work together globally in the WTO and elsewhere to reduce all forms of government support for industry, thereby reducing overcapacity and levelling the playing field. A key target of such a proposal would be Chinese state involvement in the economy.
Many Canadians think that Canada should seek to quickly conclude a deal with the U.S. to eliminate or lessen the burden of so-called section 232 American tariffs on sectors such as automobiles, aluminum, steel and forest products. But Canada has already made a deal with Trump to provide duty-free treatment to almost all trade. It’s called CUSMA. So does it really make sense to enter a new deal with less favourable terms of access than CUSMA in the hope that this time Trump might keep his word?
Another important factor for Canadian officials to take into account is how American trade policy will evolve over the next couple of years. Clearly, Trump’s protectionist trade policy is losing support in the U.S. Is now the best time to lock in a new deal unfavourable to Canada’s interests?
Canada should engage constructively with Trump’s trade team but not be in too much of a hurry until we have a better sense of what American trade policy will look like in the longer term. This should not be difficult. Even Jamieson Greer, Trump’s U.S. Trade Representative, has acknowledged that there is not enough time before the American midterm elections in November to conclude any negotiation resulting from the CUSMA review.
Mexico and the United States have recently initiated what they have publicly called “important technical discussions” — which was mentioned in the earlier panel — dealing with various CUSMA matters, including “. . . strengthened rules of origin for key industrial goods . . . .” Canada is not engaged in these talks, and that poses risks for Canada.
In these discussions, the Mexicans and the Americans are considering what changes might be made to the automobile rules of origin — an area obviously of great importance for Canada. Once formal negotiations are engaged, Canadian negotiators could face an uphill battle to effect any changes that may be necessary to protect the Canadian automobile industry. Canadian negotiators were involved in a very similar situation in the original NAFTA negotiations, and it was a hard slog to salvage the situation. Canada should seek to be involved in any such technical discussions to be better able to defend Canadian interests.
So far, Canada has done a good job in setting out its strategic approach, making clear that we would like to see an extension of CUSMA but also diversifying our trade and economic relations to be less dependent on the United States. Concurrently, the government is taking steps to boost growth by strengthening the domestic economy and establishing a stronger basis for trade diversification by ensuring that Canadian businesses are able to produce what the world wants. But we need to make sure that we engage early in any preliminary discussions at the official level with the Americans to ensure Canadian interests are properly protected.
Thank you, Mr. Chairman.
The Chair: Thank you very much. Professor Lilly, please go ahead.
[Translation]
Meredith Lilly, Professor, Carleton University, As an individual: Good morning, everyone, and thank you for the invitation.
[English]
Let me begin by restating what the honourable members already know: CUSMA is an excellent agreement that all three countries value. This includes American lawmakers who know that Canada is a top customer for U.S. exports. And despite the very real impact of sectoral tariffs on the Canadian auto, steel, aluminum and softwood lumber industries, most of our trade with the U.S. continues tariff-free. Our effective tariff rate is approximately 5%, the lowest in the world.
So as the CUSMA review rolls out, we must not lose sight of the importance of preserving this broader free trading context.
To this end, I know that a successful review is entirely possible. To remain focused on the potential for success, I outline three sets of issues that are likely to emerge and how Canada can address them.
First is a set of bilateral irritants between Canada and the U.S. that are technical in nature and squarely within the scope of the review. For the U.S., they include issues such as Canada’s tariff rate quota, or TRQ, allocation process for dairy; new requirements of U.S. digital giants under the Online Streaming Act; and the U.S. alcohol ban by provincial governments.
For Canada, the most urgent challenge is addressing U.S. sectoral tariffs which violate CUSMA. The full list of irritants is longer, but they are actually all solvable. There are also bilateral opportunities for cooperation with the U.S. that Canada must leverage to our greatest advantage, including cooperation on energy and critical minerals exports.
Second is a set of trilateral issues which can present opportunities for Canada to work with Mexico and the U.S. on greater trilateral integration. This category includes the “Fortress North America” set of proposals the Prime Minister and the Privy Council Office have both mentioned that Canada has tabled to strengthen the North American region and address unfair competition from non-market economies. A condition of any such alignment for Canada must be relief from U.S. sectoral tariffs that are hurting our industries. This trilateral issue set may also include new protocols to address sectors that have evolved since CUSMA’s negotiation, such as digital trade, artificial intelligence, new rules on investment and strengthened customs procedures and enforcement.
A third set of issues comprises the wild card category. We should expect these to be destabilizing to the negotiations, difficult to address and beyond the scope of trade policy. These could include, for example, new demands from the White House for major defence purchases or the right of first refusal on Canadian critical minerals exports. How we respond to these demands should be carefully evaluated but should not overshadow constructive engagement by officials on the first two sets of issues.
Bear in mind that all three countries have wild cards that can disrupt the negotiations. For Canada, it is provincial activism in Washington, which undermines our ability to negotiate as a strong and united country. For Mexico, it is immigration, border enforcement and the rule of law. President Sheinbaum walks a careful line on these matters with the Trump administration that Canadians do not fully appreciate. It is important to be aware of how politically sensitive these wild cards can be in each country and how they may influence the success of the review.
Finally, I want to mention the issue of timing. Some in Canada believe we should be in no rush and that there is strength in waiting, but I think this is based on false assumptions and that Canada’s slow approach has undermined confidence in our commitment to CUSMA at a vital juncture. More importantly, Canada is simply not in control of the timeline. Mexico and the U.S. are moving swiftly. They are actively negotiating now on areas of vital interest to Canada, such as auto rules of origin, and Canada is absent.
As Prime Minister Carney has said, if we’re not at the table, we’re on the menu.
In addition, struggling businesses and workers in our most tariff-impacted sectors cannot wait one or two years for relief; they need help now.
Finally, a different balance of power in the U.S. Congress after the midterms will not change the political calculus for Canada on resolving our bilateral irritants. Recall that the Biden administration opposed Canada’s digital services tax and the Online Streaming Act and launched the case against Canada on our dairy TRQ allocation process. Furthermore, the last softwood lumber agreement expired under President Obama.
In short, our bilateral disputes with the U.S. are long-standing and challenging to resolve, regardless of the composition of Congress.
As all of this plays out in the coming weeks and months, I encourage policy-makers and parliamentarians to focus on what we can control, which is to demonstrate constructive engagement on bilateral issues and shared trilateral goals to build a stronger trading region. This approach can build momentum for all three countries to make meaningful progress together.
Thank you, chair.
The Chair: Thank you very much.
We will start the questioning with the deputy chair, Senator Harder.
Senator Harder: Thank you both for your presentations. I think they were very thought-provoking and informative.
My question is for John Weekes. You’re a long-time negotiator. You were there at the creation of the FTA and NAFTA, both of which had constructive and positive private sector engagement. In fact, we wouldn’t have gotten it across the line without both American and Canadian private sector involvement.
In this round, as in the last, actually, I have been struck by how the private sector on both sides of the border, but in particular in the United States, has been absent from the playing field of advocacy and commentary.
Do you have a reaction to my observation? What is the price we are paying for that?
Mr. Weekes: It’s very important we have the private sector involved. They were involved in the renegotiation of NAFTA, although I was no longer an official at that time during the negotiations that Mr. Verheul conducted. We didn’t have the same structure for consulting the business community that we had during the original free trade negotiations and during the NAFTA negotiations and during the negotiation in the Uruguay Round that led to the creation of the WTO. We set up formal committees and an overall committee as well as various sectoral committees. The government interacted with those committees at a very senior level. I think some ministers, perhaps, thought it might be a bit of a nuisance, but it turned out that it worked very well. First of all, the companies were represented at a very senior level, often by their CEOs. It was not just through trade associations, so you got the specific economic views of individual significant actors in the Canadian economy.
Once these people put the investment in to figure out what the government was trying to achieve in these negotiations, they were able to offer very useful advice and became not only technical advisers but also strong political supporters of what the government was trying to do.
The United States still has this same legislative process in Washington, but I think it’s fair to say that the Trump administration has far less interest in listening to anyone’s advice, except perhaps for a handful of people.
Senator Harder: Is there anything we can do about that?
Mr. Weekes: I have recommended this in the past: I would like to see us go back and create a more formal structure. There are certain advantages to that. It’s knowing who these people are. They’re on lists. The meetings would not be in public, so the advice could still be confidential and protected. I think it would give some confidence to others in the country to know who the government is consulting. It wasn’t just business, of course. Representatives of non-governmental organizations, academics and other experts could be on these committees as well. I think it showed a dimension of competence in terms of management of the process.
Senator Ravalia: Thank you once again to both of you for being here.
Mr. Weekes, do you envisage the midterm elections and the potential predicted outcomes impacting the CUSMA negotiations?
Mr. Weekes: Yes. While it may sound like what Meredith Lilly said a few minutes ago was different than what I was saying, I told her before we came here that I don’t actually think it’s that different. When you’re structuring an opening statement, you have to make some judgment about what you need to fit into five minutes. You want to make certain points that you consider to be important, but it’s obvious the government needs to be working to try to get out from under these section 232 tariffs because, as Meredith Lilly said, some of these businesses aren’t going to be able to wait for a longer-term resolution; they may disappear.
On the other hand, these midterm elections are very important in terms of changing the landscape. If the unthinkable at this moment happened and the Republicans strengthened their grip on Congress, then it would be clear we’re dealing with a very dangerous situation. If, however, the Democrats take control of the House and perhaps even the Senate, then it starts to put President Trump in more of a lame duck situation. We may see efforts by some of the congressional committees to try and reassert their power over tariff policy. We have already seen a few indications of that.
I wouldn’t expect we would have a miracle, but we could well be in a situation where Congress would say that this is their responsibility under the constitutional trade policy. They want to be consulted in terms of what is happening in the way that Ambassador Lighthizer did consult very carefully with Congress during the renegotiation of NAFTA that led to CUSMA.
There are a number of things that could significantly change the dynamic, depending on what happens in the midterm elections. Perhaps most important, it might become apparent that we might not need to move quite as quickly to agree to something because the United States may no longer be quite clear about what their position is.
Senator Hébert: Professor Lilly, you talked about engaging in a constructive way while working on what is irritating and what has been identified as irritating the U.S. administration. We have made some efforts in the past. As you know, we levied the retaliation measures that we had. We abolished the Netflix tax. What we saw is that we had a boomerang later on other topics and on other things that President Trump considered to be bad from Canada. The results that we’ve been receiving from that are not conclusive at this moment.
What would be different this time, especially given that maybe it’s not to our advantage to conclude a deal rapidly, knowing what’s to come?
Ms. Lilly: Thank you for the question, senator.
A few things are different this time. One is that Mexico and the United States are discussing these issues, so there is a real danger that if Canada is not present, we will just be handed a list of previously negotiated items and we’ll be told to sign or don’t. That’s a real danger.
It is certainly very difficult and challenging to work with this administration, in part for the reasons that John Weekes and others have said. We don’t know if we can trust and rely on the negotiations that we have had, so that is difficult.
One of the challenges that I have seen in my travels — and I travel to the United States quite a bit, and I share the senator’s concern that U.S. business has not spoken out on behalf of Canada — is that for some of the signals that Canada sends domestically, once they reach the United States, they are just too subtle of a signal. All they hear is that Canada is not interested and we’re not there and we don’t want to be there.
On the Netflix tax specifically, we haven’t rescinded it. The Online Streaming Act has been strengthened by the Canadian Radio-television and Telecommunications Commission, or CRTC, so all of the requirements around that have actually been strengthened in the last week at a rather inopportune time for the Canada-United States-Mexico Agreement, or CUSMA, discussions. That’s a specific item that I fully expect will be on the table.
Senator Coyle: Our Prime Minister has established the new Advisory Committee on Canada-U.S. Economic Relations. It’s been around for maybe a month or so now.
How helpful do you think that body is going to be in guiding our government in directions that are going to help us with this matter before us?
Mr. Weekes: I’m no longer in the midst of all of these things, but I think it’s a good advisory committee. It, obviously, has people who can bring a very broad perspective of views to the table.
But in a trade negotiation, where it’s highly technical, I think it’s important to be able to get a more sectoral perspective as well with people who can talk about how we should respond to the other parties in the negotiation in various sectors and with respect to specific instruments.
Frankly, I don’t think the Prime Minister is going to wind up having discussions with President Trump about these matters for various reasons, including that Trump wouldn’t know what he was talking about.
Senator Coyle: Just to build a little bit on where you’re heading, in terms of getting into the nitty-gritty, this will be helpful at a certain level, but what you’re talking about is needing expertise at that sectoral level. When does that come in?
Mr. Weekes: Well, I would imagine the government is already consulting with the sectoral people.
But going back to what I was saying in my exchange with Senator Harder, I think it’s important for the public to know generally who the government is talking to. That, among other things, can then give some people in the industry the thought, “Well, perhaps, I should phone up Meredith or Joe or whoever it is and have a chat with them about whether he or she thinks they are focusing enough on this or whatever.”
Ms. Lilly: If I could speak to this briefly, I would agree that one of the purposes that an advisory body like that forms is that it allows the broader public to recognize names and contact those people, and they can provide another view into government.
It’s great that they are there. One of the things that one could do is look carefully at who is present and who is not, so you can see some of the interests that — it is clear to me — the government intends to protect just by the list of sectors that are present because, presumably, if you don’t want to protect those sectors, you wouldn’t invite them to sit on your advisory board.
Then, more broadly, it’s really important to have a much more in-depth stakeholder outreach program. Steve Verheul did this very well under CUSMA. He also did it under the Canada-European Union Comprehensive Economic and Trade Agreement, or CETA, and Kirsten Hillman led this under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, or CPTPP.
Literally, hundreds and hundreds of private sector organizations were consulted by Canadian negotiators in a very systematic way, and that enabled negotiators to present the technical proposals that they needed to know what they’re doing at the table.
The Chair: Thank you very much.
Senator Coyle: Thank you. That’s very helpful.
Senator M. Deacon: Thank you for being here today. It’s certainly a moving target.
My question is about looking at what Canadians talk and think about and wanting to branch away from the U.S. We’ve talked about diversification quite a bit.
I think about the geography, our destiny and our border. My question is: Is the comparative advantage of sharing a border with the world’s economic engine so great that any move away from this continental trade would bring with it a significant drop in our Canadian standards of living and what people can afford to do that we’re perhaps not anticipating?
Ms. Lilly: The short answer, senator, is yes.
In trade, one of the most robust models that we have is called the gravity model, and it states that the larger an economy and the closer it is to you, the more likely you are to trade with it.
It is natural and normal that Canada trades with the United States. It will always be our largest trading partner if we continue to be a trading nation.
While trade diversification is very important, Canadian businesses have been very clear that their goal is to build on their trading relationship with the United States into other markets. We also know that, traditionally, the behaviour by Canadian private sector firms has been first to learn how to trade with the United States — a very similar kind of country to our own — and then to branch into other markets.
We will never replace the U.S. market with foreign markets. Yes, we should do it for a variety of reasons. We should seek to diversify trade, but we should not seek to replace our trade with the United States because it is a shrinking pie. It will result in a lower standard of living overall and a smaller economy.
Senator M. Deacon: Thank you for that.
Did you want to add anything, Mr. Weekes?
Mr. Weekes: I agree that our relationship with the Americans in trade is probably always going to be our largest trade relationship in the world, but by diversifying our exports, we give ourselves some more negotiating leverage with the United States. We’re not a total captive of theirs.
What worries me in the current situation is that we see the United States continually changing the playing field either through negotiation or just by fiat, and that creates a situation in which it’s going to be very hard for us to compete and very difficult to improve our competitiveness and our prosperity.
The automobile industry is a case in point. I don’t think the automobile industry can survive in Canada if there is a 25% tariff into the United States. If we lose the automobile industry in Canada, what do we replace that with?
I do think that the government is on the right track of looking at trade diversification but in a way where it’s a more fundamental approach. The first step in trade diversification in my mind — and the basic agreements are already out there — has to be making sure that Canada really is producing what the world wants. I think we’re starting to see —
The Chair: I’m sorry. I have to interrupt. We are well over time on that segment.
Senator Woo: Thank you to the witnesses.
I have a technical question to start off. My understanding is that July 1 is the date by which all three parties have to declare if they want to stay with the agreement. If they do, then it goes for 16 more years, and there’s a review at the end of that period.
If at least one of the parties doesn’t agree to continue, then there is a 10-year countdown for the expiry of the agreement, and that is, of course, as damaging as leaving the agreement right away because everyone will plan for the eventual demise of the agreement.
Can either of you clarify what happens on July 1?
Ms. Lilly: You’re correct: On July 1, all three countries must state their intention to renew the agreement. If all three countries do not, then we go to a period of 10 annual reviews. So every year, all three countries again have the opportunity to renew. The 16-year piece that you mentioned is correct. If, after 10 years, all three countries don’t, then the agreement expires.
In the meantime, the United States-Mexico-Canada Agreement, or USMCA, remains in place. At any time, any of the three countries can trigger withdrawal, but they withdraw themselves from the agreement. They don’t boot somebody out.
I don’t anticipate that happening for all of the reasons that were mentioned in the previous session. I think that all three countries will remain in USMCA, but that’s the process.
Senator Woo: A 10-year clock would be as disruptive as leaving right away because it would send all the wrong signals to the business community.
Ms. Lilly: It sends very destabilizing signals and signals of uncertainty. Also, with respect to all three countries’ goals to attract investment to North America, if businesses don’t know what the future of USMCA — or CUSMA — looks like, then it will be very hard to attract that investment.
Senator Woo: I want to pick up on your thoughts. Perhaps you overstated it, but you made it sound like it was a technical problem in terms of getting to a deal with the Americans. You mentioned a few technical fixes that could be made. You mentioned the alcohol ban, the TRQs on dairy and some digital services types of things. We, of course, did rescind the digital services tax. It didn’t get us anything. We got no benefit from it. I’d like to think that if, in fact, we could solve the problem by buying American booze and giving them more shelf space in supermarkets for their dairy products, we would have done it already.
Can you elaborate more on why you think it’s simply a technical issue? Surely it’s something much deeper than that.
Ms. Lilly: I don’t think it is simply a technical issue. However, I do think that the bilateral issues are primarily technical in nature. While Canada has rescinded the digital services tax, I believe that the act still exists on the books, and it is separate from the complaints by the U.S. about the Online Streaming Act.
I do think that there is something more fundamental happening. I talked about some of the trilateral issues. I think it will be challenging. Certainly, as mentioned in the previous session, autos are going to be very difficult and challenging for us.
I do think there are broader and deeper challenges. However, I also think that there is a lot of goodwill to be purchased by engaging in a constructive way on issues that are fair game for the review, and the list of technical issues that I listed is entirely fair game. They are the reason that we’re supposed to have this review.
Senator Ataullahjan: We keep hearing about trade diversification. Mr. Weekes, as a former negotiator, are you happy with the way we’re going about diversification? How soon do you think we will start seeing the results?
Mr. Weekes: I don’t think the trade negotiators need to do anything about diversification right now. This is a process which has to play out at the economic level. What’s needed are the sorts of things we saw today, where a German company has decided to contract for two decades to buy liquefied natural gas out of British Columbia. That’s going to create a lot of employment and a lot of jobs and bring a lot of benefits. To make that happen requires doing a number of things domestically, which are perhaps more important than talking to foreign countries and foreign businesses about what to do.
It’s an encouraging sign to me, at least, that the government is starting to tackle these economic problems at home to put our own house in order, to use a phrase used earlier today.
Ms. Lilly: I would add that it’s important to look at what we’re trading, not just where we’re trading. We spend a lot of time talking about trade diversification to new markets, and we talk about the markets rather than what the world wants from Canada.
What the world wants from Canada, which John Weekes mentioned in even the example he just used, is largely Canada’s natural resources. So it’s about ensuring that we are offering a competitive climate to trade those goods, where we are exporting oil and gas. These are the things that the world wants from Canada: natural resources, food and critical minerals. The diversification piece has to look at all of that and not just the countries that we’re sending it to.
Senator MacDonald: You were here earlier, but I’m going to come back to automobiles because I’m fascinated with this topic. I mentioned our relationship with the Americans with the development of the North American automobile industry, but the two largest automobile producers in Canada right now are Toyota and Honda. We don’t want to lose those plants. I’m curious how you think we should be approaching this so that we can ensure that those plants don’t leave here and be forced to move to the United States.
Mr. Weekes: I stand by the points that were made in the first discussion, but I point out a further complication on this, too. I think about 70% of passenger vehicles produced in Canada today are made by Toyota and Honda, and of those, over three quarters are exported to the United States. If we get in a slogging match on auto tariffs with the United States, Toyota and Honda will have no market for selling three quarters of the cars they’re producing in Canada.
Senator MacDonald: Unless they move.
Mr. Weekes: Unless they move. I watched an interview with Ambassador Greer on YouTube this morning where he was talking about the importance of these big new investments Toyota is making in the United States.
Senator MacDonald: Also, a lot of the cars that Toyota and Honda make in Canada are hybrids. We have to be careful about what sorts of regulations we put on in the production of vehicles because if we put on regulations that make it more difficult to produce hybrids, that’s going to be another incentive for them to move.
Ms. Lilly: Yes. Ensuring continuing regulatory harmonization around those kinds of issues will be important.
It’s important, though, to remember the figures involved. We’re talking about over 100,000 jobs in southern Ontario and over 400,000 indirect jobs, so we do have to fight for this sector.
We have to do more than just look at a future auto pact based on domestic production and consumption because most of the cars that are produced in Canada are exported, and there is a very real danger that if USMCA is not secure, foreign-headquartered firms in Canada will make a new decision about where they’re going to be in the long term.
Senator MacDonald: Thank you.
Senator Wilson: Mr. Weekes, I really enjoyed your presentation, and I have come to have the same world view as you articulated in that presentation.
I was quite surprised when we got to talking about the midterms that you seemed quite optimistic about what could happen. It seems to me that we used to, as you know, have a fairly reliable Republican Party that was pro-trade, and whatever the new Republican Party is, the old party is long gone. The Democrats have always been much harder on Canada, and the new Democrats seem to be not looking as if they’re going to change that approach at all.
I’m not particularly optimistic, and I’m interested to hear why you think even a switch in the midterms will change anything other than making it a more civil discourse.
Mr. Weekes: I don’t disagree with the analysis you’ve just set out. I think the problem is that we’ll have a better indication of where U.S. trade policy is headed after the midterm elections. I don’t think Trump’s current erratic trade policy is going to survive. We may be in a new world where the Americans are going to say they want tariffs on goods coming from everywhere. That is possible, but we don’t know. It is quite clear that the person who calls those shots, ultimately, is not going to be Donald Trump because he will no longer be President.
The question is: Do we want to start negotiating now to respond to the American interests stated by Trump and Jamieson Greer and others that they want to produce all their cars in the United States? They don’t want us to be manufacturing cars in Canada. That’s their objective. They have been very clear about it. Let’s not make a deal too early because I think the deal could be a very bad one for Canada. Do we want to say we can get rid of the section 232 tariffs in certain sectors if we say we give up on the auto sector and they can put 100% tariffs on Canadian automobiles?
Let’s have a better sense of where the United States is really headed on trade policy in the medium term before we make a new deal that is binding. Maybe we’ll be forced to do so earlier than that, but I think there is scope for playing this out a little bit, especially if we engage constructively on a whole range of issues with them in these negotiations early on. Then there will be issues that cannot be resolved right away. A big negotiation takes on a dynamic all of its own, so having it stretch on for a few more months is not that big a deal. As I said, if we get through the midterm elections and the negotiations are still going on, which is highly likely, I think the United States Congress will want to exercise a more critical role in the management of those negotiations. It is interesting that, even in the last couple of weeks, there has been a letter from the key committees in both the House and the Senate to the administration setting out a number of views of Congress in terms of what they would like to see, which are not identical to the views of the administration. That is looking now at a House which is Republican and a Senate which is Republican.
The Chair: Thank you.
Mr. Weekes: Trade policies are too damn complex.
The Chair: I have two questions, one for each witness.
The first is for Mr. Weekes. In your opening remarks, you referred to the World Trade Organization, or WTO, and a hypothetical scenario where we’d have to react. I neglected to mention in my introduction that you are a former ambassador to the WTO. Has the U.S. written off the WTO completely? That’s my first question.
My second question is for Professor Lilly. Mexico is our third‑largest merchandise trading partner. Of course, certainly, the greatest portion of that is through CUSMA. But in the past year, there has been a tremendous, shall we say, friendship that has developed between different actors politically. We have had a huge trade mission to Mexico. The Mexicans have returned the favour. They have just been here. They are looking at things like intermodal trade between our ports, bypassing the United States, and, of course, we have the Canadian Pacific Kansas City, which is the network through the United States. I wonder if you have a comment about this rise in the bilateral trading and investment relationship between Canada and Mexico in the context of what is going on now.
Mr. Weekes: To be brief, I think the United States doesn’t see the WTO as an important vehicle for advancing their international trade interests, to put it mildly, but I don’t think they are about to walk away from it. I think they do question how effective it is.
My own personal view is we will probably need the WTO very much in the long term, and, therefore, we should be spending time now thinking about what it is we need to do to make the organization more effective in the longer term, recognizing that given the current forces that are arranged, nothing is going to happen quickly on that front.
One other point is that American business is very interested in the WTO and in global markets. After I left the Canadian government, I worked for 10 years for firms that were helping American businesses in the multilateral context. I can tell you that they looked at the world and they saw that future growth was going to be in the developing world and outside the United States and they wanted to be part of it. I think that is still there latently. When the United States starts thinking about what kind of trade policy they want for the long term, they are going to have to accept more input from their business community in terms of developing that.
The Chair: Thank you. Colleagues, I realize I’m abusing my own timing rules, but I want Professor Lilly to respond on Mexico.
Ms. Lilly: I will be brief, but I am passionate about this because I’m a huge fan of broadening and strengthening Canada-Mexico relations. While it is one of our major trading partners, only 1% of our goods exports go to Mexico — that is something for us to reflect on — and 9% of our imports come from Mexico. There is potential to do more and to do it directly to increase and improve our port infrastructure so that we can trade directly with Mexico. We can bypass the United States, which will have an impact on logistics hubs in the U.S. in a way that I think would be good and would demonstrate strength for both countries.
I have been very pleased to see Prime Minister Carney and President Sheinbaum work constructively together and send positive signals. The one caution I would have is I think things are going to get bumpy in the CUSMA discussions. Both countries, at times, have found it convenient to throw the other under the bus. I don’t think that is helpful. If there were one thing we could do, it is to bear in mind that countries act in their own interest and rarely is Mexico acting to damage Canada’s interest and vice versa. There is lots of goodwill behind the scenes and good discussions, and I would like to see more of that continue.
The Chair: Thank you very much. The second round will have to be a quick one because of my lengthy questions.
Senator Ravalia: Just briefly, Professor Lilly, you earlier alluded to wild card issues and, in particular, on the defence side of things, there’s the recent suspension of the defence board, F-35 jet delays and talks of a Golden Dome. How critical could those issues become in the CUSMA negotiations?
Ms. Lilly: Very. One of the differences we have seen from CUSMA version 1.0 to this one is that trade issues remained trade issues in that previous negotiation. This time, everything is on the table, and everything is linked. The President does not hesitate to use any tools that he has available, so I fully expect there to be further demands from Canada in this area. We have to watch carefully what those are and evaluate them at the time.
[Translation]
Senator Hébert: Earlier, one of you said — and Mr. Greer reaffirmed it this morning, in fact — the tariffs are here to stay. Notwithstanding what we have on the table in terms of the CUSMA review for July 1, are we moving in the medium term toward a permanent U.S. tariff policy with basic tariffs of 10% or 15% on all products? Do you think that’s a risk we face right now, regardless of the government in power?
Mr. Weekes: Yes, I think it’s a risk. I certainly think that’s the position of the Trump administration. If this continues, we’ll have a better idea after the U.S. mid-term elections.
[English]
There is a sentiment in the United States that perhaps they have been too open and that they need to look at re-establishing some measure of protection on a broad basis. I think that goes well beyond the current administration and the MAGA movement and includes a much broader swath of the United States.
Senator Hébert: You said with the present government, but it’s the colour of the government also?
Mr. Weekes: Yes. Well, I think the Democrats too have moved a bit on this. They might take a different view in terms of — the need for predictability in trade is very important if it is going to work properly. More important than the actual level of the tariff is knowing that whatever it is that is there, if it is 5%, it’s about knowing it is going to be 5% for the next 30 years. That’s the kind of predictability you need for it to work for anybody.
Ms. Lilly: I don’t anticipate an across-the-board tariff, not at that level, but I do fully anticipate section 301 and section 232 tariffs across a number of sectors — all of the ones that currently exist, plus pharmaceuticals, medical devices and some others.
One of the things to watch very carefully is that the section 122 global tariff of 10% expires on July 24. In some ways, July 24 is almost a more important date than July 1. On July 2, when it comes to CUSMA, the agreement continues. On July 25, we don’t know what that is going to look like. There is a real danger that if Canada is not engaging in a constructive way, we could see differential treatment between Mexico and Canada when it comes to those tariff levels.
The Chair: Thank you.
Senator Coyle: I have so many questions. I would like to focus on predictability, which is an important issue. Everybody we have heard from says, “Don’t jump the gun. Let’s be patient. Let’s get to the midterms and probably beyond.” How patient can industry be? For those who are investing in the critical industries here in Canada, how patient can they be? What are the risks there? How long can they tolerate this uncertainty?
Mr. Weekes: You have put your finger on one of the real problems the government is facing. Clearly, some firms can’t survive very long under the current circumstances. Others might be able to go a bit longer. Clearly, it is a situation which reveals the problems we have got, but the solution is much less apparent.
Senator Coyle: Sorry to end on that note.
Mr. Weekes: No. We are in a very difficult situation, and we have to be honest with each other in terms of examining the nature of the problem and thinking about the various options. Anyway, I’ll stop there.
The Chair: Professor Lilly, you have a minute if you want to weigh in on this one.
Ms. Lilly: We already know that some sectors are under water, literally, and they need relief and solutions now. The government is aware of this, and they are working to try to find solutions. But we can’t be endlessly patient on CUSMA discussions because the solutions to tariffs are going to come from engaging on those issues, like softwood lumber as well as autos. I was at a meeting not long ago where the representative from the Canadian auto sector indicated that they have already paid $34 billion in tariffs on Canadian-made cars, and they project another $188 billion over the next three years. That is just not sustainable.
The Chair: On that optimistic note, thank you very much. On behalf of the committee, I would like to thank Meredith Lilly and John Weekes for being with us and for your comments. We will probably come back to you later on as things develop.
Colleagues, we will reconvene tomorrow morning at 10:30 a.m. in this room to discuss the situation in Sudan.
(The committee adjourned.)