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I call to order meeting number 16 of the Standing Committee on International Trade.
The committee is meeting today pursuant to Standing Order 108(2) to discuss the impact of COVID-19 on Canadian international trade relationships, especially with the United States and the United Kingdom.
Today's meeting is taking place in person, and the proceedings will be made available via the House of Commons website. This meeting is being televised.
To ensure an orderly meeting, I have to outline a few rules to follow.
Occupational health and safety have requested that we limit our movement in the room and wear a mask unless seated. Floor markings indicate the path of travel for all people in the room. Individuals should respect physical distancing and remain two metres from one another, particularly when unmasked. Seats and microphones have been placed in a manner that respects physical distancing, and therefore we ask that they remain in the same location.
To minimize health risks, you will note that limited personnel has been permitted to attend today. Staff have received a phone number where they can also listen in to the proceedings in real time.
Please note that we will suspend in between panels in order to allow the first group of witnesses to disconnect and the next panel to join the meeting. You will also note that we have no paper documents to be distributed. All documents have been distributed electronically to all members. Should you require a copy of a document, please advise the clerk of the committee by emailing the committee, and that will be provided.
Our first group of witnesses today is from Global Affairs Canada. With us we have Steve Verheul, somebody who's been seen with our committee many times. He is the assistant deputy minister of trade policy and negotiations, and chief trade negotiator of the Canada-United States-Mexico Agreement. As well, we have Eric Walsh, director general, North America bureau; and Robert Fry, director general, bureau of European affairs.
Welcome to all of the committee members, and welcome especially to our witnesses. Thank you for making time to appear before the committee today.
Mr. Verheul, I'll turn it over to you.
:
Thank you very much, Madam Chair and members of the committee.
We are certainly pleased to be here today to discuss the impact of COVID-19 on Canada’s trade relationships, particularly with regard to the United States and United Kingdom. I will open with some brief remarks. Then we will look forward to taking your questions.
Canada is a trading nation. With the world’s tenth-largest economy, trade is the backbone of our economy. In fact, about two-thirds of our GDP comes from trade. Nearly 3.5 million Canadian jobs are trade related. The COVID-19 pandemic has placed global supply chains under significant pressure. It has shown us that overreliance on a single country or supplier is a critical risk for businesses and governments. A number of countries have taken measures to restrict exports and to encourage more domestic production, in particular for essential goods.
From our perspective, Canada cannot meet its needs simply by producing more at home. Our best risk mitigation strategy involves securing and reinforcing Canada’s integration into global supply chains and working to better leverage our preferential trade agreements—for example, CUSMA in North America, CETA in Europe and CPTPP in Asia-Pacific. We must continue to enhance Canada’s reputation as a source for high-quality and dependable exports and also maintain an attractive investment environment, with appropriate screening mechanisms.
COVID-19 presents significant challenges but also opportunities for export promotion. Canada’s trade commissioner service will continue to assist Canadian businesses in navigating these unprecedented circumstances. This includes troubleshooting with Canadian companies experiencing supply chain disruptions, supporting priority sectors for pandemic response and building out contact-free service models.
Using existing mechanisms, including international organizations, Canada has moved quickly to work with like-minded countries to take actions that seek to stabilize trade and lessen uncertainty. Throughout this pandemic, we have continued to advocate against protectionism and ensure that transit of cargo and essential goods is not unnecessarily impeded. However, in response to the pandemic, as mentioned, many countries have put in place export restrictions designed to ensure adequate domestic supply of goods. We will continue to advocate for dismantling such measures to minimize disruptions to global supply chains. In light of our new global reality, Canada will need to respond to changing dynamics while continuing to diversify our trade relationships, seek predictable markets for our exporters, and strengthen the rules-based system. We will continue to work with our international partners to support resilient supply chains and strong trade relationships now and into the future.
With respect to the World Trade Organization, as a medium-sized economy Canada benefits from an open, transparent and rules-based multilateral trading system. Stable and predictable global trade rules help open up new markets for Canadians and create new opportunities at home and abroad. At the core of the multilateral trading system is the World Trade Organization. The WTO has played an indispensable role in facilitating and safeguarding rules-based international trade and delivering economic gains for Canadians.
Canada is at the forefront of WTO reform through its leadership of the Ottawa Group, a group of 13 like-minded WTO member countries initially convened by Canada in October 2018, committed to strengthening and modernizing the WTO. The Ottawa Group is continuing to work toward meaningful reforms, with efforts that complement other reform initiatives undertaken by the broader WTO membership. Canada has also worked closely with partners in the Ottawa Group on WTO reform and COVID-19, engaging in discussion on the role the WTO can play in keeping supply chains open and ensuring sustainable and inclusive recovery. In fact, on June 15 chaired a virtual meeting of Ottawa Group ministers, which resulted in the endorsement of a joint statement identifying concrete action items in the areas of transparency at the WTO, agriculture, e-commerce, trade in medical supplies and business engagement in response to COVID-19.
With respect to the United States, Canada and the United States are each other's most important trading partners. Canada is working very closely with the U.S. on this crisis, including by putting in place co-operative border measures. The United States and Canada also share supply chains for essential medical equipment such as gloves, ventilators, testing kits and masks. Canada continues to work with U.S. partners to ensure that needed supplies are available to us, and to reassure Americans that what they need from Canada will also be available to them. The U.S.-Canada trade relationship is balanced, fair and supports growth and innovation in both of our countries.
On July 1, as you are aware, the Canada-United States-Mexico Agreement, or the new NAFTA, entered into force. The new agreement modernizes the North American economic partnership for 21st century trade, reduces red tape at the border and provides enhanced predictability and stability for workers and businesses. Most importantly, the new NAFTA preserves Canada's tariff-free access to the United States and to Mexico.
Reinforcing our strong economic relationships with the U.S. and Mexico is important for the continued integration of the North American production platform and for Canada's economic prosperity, particularly in the context of post-pandemic economic recovery.
The commercial relationship is large and complex, and we will continue to work with our North American partners while always advocating for Canadian interests. That includes with respect to recent reports suggesting that the United States may be considering reimposing section 232 tariffs on Canadian aluminum. Ensuring continued free and open trade between Canada and the U.S. is essential to both countries' economic prosperity and the continued integration of the North American production platform. The reimposition of section 232 tariffs would undermine the implementation of the new agreement. The government has been consistent in its commitment to protect Canadian workers and companies from such unfair and unjust tariffs.
With respect to the United Kingdom, Canada and the U.K. enjoy a unique historical relationship founded on deep people-to-people ties, common values and vibrant economic relations. This relationship is bolstered by collaboration on key global issues, including at multilateral forums. Canada and the U.K. enjoy a long-standing, strong trade and investment relationship. The U.K. is Canada's most important commercial partner in Europe and our fifth largest globally.
At this time, the Canada-European Union Comprehensive Economic and Trade Agreement, CETA, continues to apply to the U.K. while the latter remains in a post-Brexit transition period with the EU. The U.K. and EU are currently engaged in the negotiation of their future trade relationship. Any future trade arrangement between Canada and the U.K. would be influenced by the terms of the agreement between the U.K. and the EU, as well as any unilateral U.K. approaches for the period after the transition period. This includes the recently announced U.K. global tariff. Whatever the outcome of Brexit, the U.K. will remain a significant market for Canadian companies. Canada and the U.K. were staunch allies long before the U.K. joined the EU. Our strong relationship will continue long after it has left the EU.
Canadian and U.K. trade officials are in contact to prepare for our post-transition trade relationship. Beyond the transition, Canada would be interested in discussing a new agreement that is more tailored to our bilateral trade relationship and that would be of mutual benefit to stakeholders on both sides.
I would also like to note the U.K.'s recently expressed interest in joining the CPTPP. We look forward to welcoming new members that are able to meet the CPTPP's ambitious and high-standard commitments.
In conclusion, Madam Chair, we recognize that stable and dependable access to international markets is key for Canadian firms, and we are well aware of the pressures this pandemic has put on global supply chains. We are committed to continuing to work with our international partners to support the free flow of goods and services, and predictable and stable markets for Canadian businesses.
Thank you. We would be happy to take your questions from here.
:
Thank you, Madam Chair.
Hello to all my colleagues. I'm happy to see you in person after all these months of distancing and virtual House sittings, not to mention all the technical difficulties we've had as a result.
Mr. Verheul, thank you for joining us. First, I would like you to tell me whether my perception of the situation is correct. Primary aluminum producers in the United States have been waving the red flag for a long time. They have been saying loud and clear, rightly or wrongly, that there is a serious problem and that unfair practices are occurring. In this case, however, I really do not understand where it's coming from.
We're being criticized for increasing our exports, but if you look at the situation, you see that, since this Parliament began, there have been two crises where the railways were blocked and delays piled up. I think our aluminum producers merely decided to deliver the aluminum that was late. It seems to me it's as simple as that. I don't think there is any basis for the U.S.'s claim, as proven by the fact that primary aluminum producers in the U.S. could have taken the normal route and sought a bailout, but they didn't.
Doesn't that show this is a tempest in a teapot?
Have we lost Mr. Verheul?
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Well, yes. Over the past number of months, in particular since all of us have been dealing with the COVID-19 crisis, we have seen some developments in our trade in aluminum with the U.S. We've seen patterns that we expected to see and that we have seen during previous economic pressures, particularly the 2008-09 financial crisis.
We agreed with the U.S. to look at unwrought aluminum, which is a product category. That's what we indicated we should look at, consistent with that agreement. What the U.S. has done is looked at unwrought non-alloyed aluminum, not unwrought alloyed aluminum.
In any kind of economic downturn or crisis where demand starts to dry up, the traditional approach is that aluminum producers, not just in Canada but also in the U.S., will shift much of their production from alloyed aluminum to non-alloyed aluminum. If you look at the stats in more detail, you can see that there has been somewhat of an increase in non-alloyed aluminum and a decrease in exports of alloyed aluminum. If you consider those two and look at unwrought aluminum, which includes both of those categories overall, there is no increase and no surge. We see no justification for the U.S. to be contemplating this kind of action, because we have had no surge. In this situation, the aluminum sector has simply made some adjustments, as aluminum industries in the U.S. have done, to accommodate the market demands during this particular period.
We do anticipate that things will return to normal as markets start to reopen, but we feel that the U.S. allegation that aluminum exports from Canada have surged is fundamentally wrong. It does not reflect the stats and does not reflect the commitment we made to look at this on a product basis.
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We do have the benefit of the experience we had the last we confronted this, but I think there are some differences with respect to what we're facing now.
The bottom line in all of this is that the U.S. cannot meet its domestic demand with its own domestic production. The U.S. produces less than two million tonnes on an annual basis but consumes more than five million tonnes, so it simply does not produce enough domestically to satisfy its domestic market. That means they have to import. We have been, we would argue, the most reliable, the most long-term and the most consistent supplier of aluminum to the U.S. for dozens and dozens of years.
If the U.S. were to consider imposing this additional tariff on exports of Canadian aluminum to the U.S., that would obviously put a further penalty on our exports to the U.S. At the same time, it would mean that in the context of what they say is a national security investigation, with a national security rationale for imposing these tariffs, the impact would be that our exports to the U.S. of aluminum would face competition, primarily from Russia and China. Russia and China would gain a greater market share in the U.S. of aluminum at the expense of Canadian exports.
We have a hard time understanding how that relates to national security considerations, given the kinds of exports we have been providing on a consistent basis. Since, as I mentioned, the U.S. does need to import aluminum because of their insufficient domestic production, we feel that the kind of action they're contemplating is entirely unjustified.
:
With respect to the side letters we agreed to with the U.S. on the removal of the aluminum and steel tariffs, they were actually statements; they weren't even side letters, so they are not part of the formal legal agreement we have reached with the U.S. on the new NAFTA. That means they do not have the same kind of legal standing that any measures that are inside the agreement will have.
We will have to look at what action, if any, the U.S. takes against us with respect to aluminum, and we will have to determine whether that is consistent with the statements we made on the lifting of the aluminum and steel tariffs, but we'll also have to look at whether it goes beyond that. There will be an assessment of that as we move forward.
Our conclusion is that, at the end of the day, as you mentioned, if the U.S. were to impose these tariffs on aluminum coming from Canada, the impact on users, manufacturers and business prospects generally would be felt more on the U.S. side than on the Canadian side. We don't think it's a wise policy decision to move in this direction, if they're to do that, but obviously we have a lot of concern that, particularly in the context of trying to recover our economies, in the context of COVID-19, this is entirely the wrong direction to be considering.
:
It's not a lot of time.
Thank you very much to the witnesses for being here.
It's great to see colleagues.
I wanted to talk a little bit about the economic impact. I know that with the original CUSMA we begged and pleaded to get these economic impact studies. The didn't make them available until after the deal was done. One of the disturbing things I saw in them was on page 61. It basically said that automotive would be taking a $1.5-billion hit compared to the old NAFTA.
Mr. Verheul, you said in your opening statement that it's so important that Canada maintain its ability to be “an attractive investment environment”. Two-thirds of our income comes from trade, and 3.5 million jobs come from trade. I'm really concerned about the uncertainty we have on the implementation of CUSMA and the effects of COVID on the supply chains.
I'm not an MP from Quebec, but I think everybody knows that the federal government sole-sourced and ordered two jets from Bombardier Aerospace recently. Immediately after CUSMA came into effect, Bombardier Recreational Products announced they'll be opening a brand new plant. But, Steve, it's not in Canada; it's in Mexico. They're investing $185 million and creating up to 1,000 jobs, but not in Canada, not in Quebec. It's in Mexico.
I was wondering what the Liberal government has done and what kinds of resources it has given you, as we move through this implementation, to make sure that the message gets out that Canada is an attractive place to do business. What have they done to decrease the uncertainty with these supply chains? With any new investment, manufacturers are going to be looking at how they're going to get these products back and forth across the border. What has the government asked you to do immediately, as CUSMA is coming into effect, to allow that to happen?
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Thank you, Madam Chair.
Thank you, Mr. Verheul.
As the member of Parliament for Surrey Centre, along with my colleague, the member of Parliament for Surrey-Newton, I know that Surrey is a big trading hub, whether it's ports or borders. Logistics companies have headquarters here and have a huge impact on our local economy.
I first want to thank you for having concluded CUSMA prior to the pandemic and having it ratified. I think it would be a much more difficult task with protectionist views heightened during a pandemic, so we are fortunate to have it in place. However, due to the pandemic, we've still had over one-third drop in trade between the two countries. I think it's roughly 35% respectively either way, along with toughening the borders in terms of crossing times and limited border crossings.
How difficult do you think it will be to restart supply chains and restart that trade generator that we were before? Would CUSMA be beneficial in that, considering the problems the U.S. is having, particularly with some of its Asian partners?
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Sure, I'm happy to do that.
As you know, Canada is the leading, most secure, reliable, sustainable and competitive supplier of energy to the United States, and that includes crude oil and refined petroleum products, natural gas, electricity, hydro power and uranium. In our fight against climate change, we are taking action to move to a more carbon-free economy, but every projection indicates that economies will need significant quantities of fossil fuels up to 2040.
Canada strongly supports the completion of new and expanded cross-border energy infrastructure, and that includes Keystone XL, which the member mentioned, as well as Line 3 replacement and Line 5 projects. We believe this will benefit both Canada and the U.S., and we are working closely with provinces and other Canadian stakeholders on these projects.
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I call the meeting back to order.
Again, we're doing hearings on the impact of COVID-19 on international trade relationships, especially with the United States and the United Kingdom.
I want to welcome our witnesses and thank them very much for coming back to appear before the committee. You're a very familiar group when it comes to international trade.
Here we have, from the Burney Investment Group, Derek Burney, chairman; from the Canadian Chamber of Commerce, Mark Agnew, senior director of international policy; from the Canadian Manufacturers & Exporters, Mathew Wilson, senior vice-president of policy and government relations; and from the United Steelworkers, Ken Neumann, national director for Canada at the national office, and Mark Rowlinson, assistant to the national director.
Thank you all for participating today.
We'll start with Mr. Burney.
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Thank you, Madam Chair and honourable committee members.
Good afternoon and thank you for the invitation. If I may, in my remarks I will go a bit beyond the specific topics and offer a little more of a global perspective.
First of all, I believe that the most serious problem on trade for Canada in the wake of the COVID-19 pandemic is that the world is turning inwards and becoming a hotbed for protectionism. The U.S., unfortunately, is as reluctant to lead globally on trade as it has been on the pandemic. The major powers are competing for power, leaving middle powers like Canada dependent on multilateral institutions like the WTO, which have been weakened by a lack of clear leadership and any real will to work together. By refusing to name panellists to the WTO’s dispute settlement mechanism, the United States has severely restricted the institution’s ability to safeguard the rule of law on trade.
Due to the pandemic, self-reliance and self-interest are in the ascendency. Global trade has already seen employment, production, prices and supply chains sharply disrupted, and there is now a new public health rationale for constraints on trade, under the guise of national security. A “might is right” trend is taking hold as countries are compelled to fend more for themselves.
What should Canada do in this environment? First of all, now that the USMCA is operational, we need to defend vigorously and, where possible, advance access to the U.S., our most vital market, invoking the dispute settlement mechanism retained from NAFTA without hesitation and using selective retaliation when necessary. For Canada, the USMCA is a respectful salvage more than a platform for economic growth, but it should help check lunges into protectionism. Because bilateral trade is roughly in balance, there is no reason for Canada to become a passive punching bag for U.S. protectionists and mercantilists.
Arbitrary tariffs once again on Canadian aluminum exports will hurt American producers and American consumers more than anybody. This is a message that should be delivered fervently to Congress and at various state levels in the United States. We should not hesitate to retaliate.
Similarly, chronic complaints from Senator Schumer, the majority Democrat leader in the Senate, about Canadian dairy policy should be rebuffed. Canada made modest concessions on dairy in the NAFTA renegotiation and should abide by them, but nothing more. Nonetheless, these attacks are a harbinger of what to expect should the administration change in November. We should stand firm. The best antidote to American protectionism, in my view, would be a robust, V-shaped economic recovery—the sooner, the better.
Second, because 75% of our trade is with the United States, diversification has always been desirable. Now it's essential. For it to become real, however, we first need complete free trade within Canada, a quest over many decades that has delivered more solemn communiques than substantive results. Most popular in western Canada, this effort will only succeed with firm leadership from Ottawa and if economic common sense prevails over narrow provincialism, notably in Quebec and Ontario. According to the IMF, liberating Canadian internal markets would yield a 4% increase in GDP. That's much more than is expected from the USMCA.
Third, free trade across Canada would also give us greater leverage and better access from other preferential trade agreements, which are the best immediate prospects for diversification: CETA with the EU, the Canada–Korea Free Trade Agreement, and the mini-TPP, which affords significant new potential in Japan, Malaysia, Indonesia and Vietnam, among others.
Fourth, we should move deliberately to conclude a bilateral trade deal with a post-Brexit Britain, complementing, where possible, the terms negotiated in CETA, but mindful as well of the terms being negotiated by Britain with the United States. Canada enjoys more than a 2:1 trade balance with Britain. I suspect that their negotiators will seek to make up what they may lose from the European Union by gaining enhanced access specifically from the U.S., Canada and Australia. Our negotiators should be determined to get at least as much in terms of increased access as we are prepared to give. That is the goal for any trade negotiation.
Fifth, Canada should actively explore the prospects for broader trade with India, despite the difficulties posed by the high degree of regulations and protectionism in the Indian economy. This initiative can best be conducted on the basis of careful preparation and consultations, not by high-level junkets.
Sixth, even more daunting are the prospects with China, where relations are completely hamstrung today by the deadlock over Madame Meng and the two Michaels. There is much not to like about China's behaviour these days on trade and many other issues. The way supplies needed for the pandemic were hoarded before China released initial data on the virus and were then sold for huge profits should elicit worldwide scorn, if not harsh penalties.
Today, we are unwilling to counter discriminatory trade actions against Canadian agricultural exports, even though China has a 3:1 trade advantage over us, lest it harm those in detention. We should not be reluctant to retaliate. We must also be more deliberate in joining sanctions against China for its repressive moves against Hong Kong. Canada should, like Britain, extend a welcome hand to Hong Kong refugees. We should also nimbly expand relations with Taiwan.
Most importantly, we need to find a way out of the corner we have painted ourselves in, if not by an exchange of detainees, then by other means. We have become a hapless pawn caught in a dispute between two giants. Asserting self-righteous points of principle may make us feel better, but they will not break the current stalemate. We must deal with the world as it is and not as we would naively like it to be.
We cannot isolate or immunize ourselves from what will soon be the world's largest economy. Mutual self-interest obliges us to gauge prudently and cautiously the prospects for pragmatic, albeit limited, relationship, proceeding, as the adage about how porcupines mate stipulates, very carefully.
Finally, if the U.S. is reluctant to take up the mantle of leadership on trade, Canada should strive creatively to fill the void, working with countries like Britain, Japan, Australia, South Korea, Singapore and others to reinvigorate the WTO's capacity to uphold the rule of law on global trade.
Thank you.
:
Thank you very much, Madam Chair and members, for the invitation to speak here at committee today.
Although it's quite common for stakeholders to reference the critical or timely nature of a given study, I think this one really is. International trade is critical to Canada, and our relationships with both the U.S. and U.K. are critical as well.
I want to touch on three issues in my opening remarks this afternoon. The first point is that COVID-19’s impact on international trade has been substantial, and it certainly has brought into focus the need to strengthen supply chain resiliency. I think we all know and accept this. I think most commentary has missed the point that supply chain resiliency is not monolithic—each sector of the economy, and maybe each company, has different needs in regard to what that looks like for their supply chain circumstances.
Also quite importantly, we are a market-oriented economy. Governments generally don't own supply chains; instead, they incentivize private sector behaviour and create the conditions within which businesses operate. Our approach to supply chains needs to ensure that we have the interests of consumers and businesses in mind, in terms not only of their being able to supply inputs and products that we need both in the country and into the country, but also supporting exporters. It goes both ways.
It's also much more than just the production of physical goods. Services across different modes of supply play a critical role in supply chains, whether you're talking about the upstream parts, such as research and development, and engineering and design, or about after-sales servicing of equipment, or transportation and logistics.
This week the chamber released our position statement on supply chain resiliency, which I have shared with committee staff. Hopefully, members have had a chance to look at it in advance. In short, we think governments need to take a holistic approach in how domestic and international policy is used to support supply chain resiliency.
The document is quite long, so I'll just draw your attention to a few of the international tools we think need to be a critical part of the effort.
The first we're calling “security of supply agreements”. We've seen that export controls on medical equipment have proven to be a major problem during the early days of the pandemic. We're asking the government to take a positive approach with our most trusted allies and look at a way to circumscribe and tighten up how countries are allowed to use export restrictions.
We're not naive and certainly realize that there would only be a very small subset of countries that we'd be able to do this with. We commend the work that the government has done through the Ottawa Group and think that this might be a way to take that work, talking about transparency and time-limited and being proportionate, and take that to the next level in a tangible way.
Second, there also needs to be a much greater focus on the issue of industrial subsidies. This has been a long-standing problem since before the pandemic, but it's going to get worse as governments around the world throw huge sums of cash at their domestic industries. This is going to tilt the field against Canadian companies even more so than is already the case, and we certainly need to reign in the excesses of other countries by using multilateral or bilateral tools to do that.
The third aspect of supply chain resiliency is digital trade and e-commerce. As more activities head online, we need to make sure that our trade rules are relevant to the economy of 2020, whether that's cross-border data flows or trade facilitation measures that will support e-commerce.
The second point I want to talk about briefly is the United States. We very much welcome the entry into force of CUSMA and thank negotiators like Steve and his team who have done phenomenal work to get that deal over the finish line. However, our main message here is that it's too early to get out the proverbial mission accomplished banner, given that we have a number of other outstanding trade issues with the United States. The spectre of so-called national security tariffs on both metals and electrical coils looms large once again. We are steadfastly opposed to the United States using them and are working closely with our U.S. official counterparts and are calling on the government to be active on that issue. Additionally, we are without a softwood lumber agreement at the moment. We hope that the resolution of CUSMA will create bandwidth to be able to pick up this issue again and bring it to a resolution.
The last piece I want to touch on in my opening remarks is our relationship with the United Kingdom. In the absence of further developments, Canadian companies are generally now operating on the assumption that the U.K. will leave its current transition status with the EU as of the end of 2020, and that it will enact its so-called global tariff regime in January 2021, which was announced earlier this year.
This means fundamentally that the clock is ticking. Given that discussions have been happening for some time between the U.K. and Canada, our view is that we need to conclude the efforts to transpose the CETA into a bilateral agreement at the earliest possible opportunity and begin the necessary implementation processes, especially here in Canada.
Being fully self-aware, I know this view puts the Canadian Chamber of Commerce in a slightly different spot from some others, but our position is informed by several factors.
One, companies have already faced more than enough supply chain disruptions in the last number of months. Let's give companies the certainty they need and ensure that they won't face tariffs on their exports to the U.K., potentially as of January next year.
The second piece is that, based on the media reporting we're seeing on what the European Commission has said about the status of the U.K.-EU discussions, they might not be finalized until October. That certainly cuts very close to the end of the year, and given our own parliamentary timings, if we decide to wait until we have complete certainty about the outcome of the U.K.-EU discussions, that doesn't leave much time for businesses to plan, especially in the COVID-19 context.
The third factor is that landing a bilateral agreement with the U.K. based on the CETA positions us quite well to take the trade relationship to the next level. Out of the 28 countries in the EU, the U.K. is the one where we can probably have the most advanced trade relationship possible. This includes, for example, deepening services, regulatory work and digital trade rules. It also sends an important signal for Canada to maintain that we are the only G7 country to have comprehensive FTAs with all other G7 countries.
The Canadian Chamber of Commerce represents Canada at a number of global business forums, and that's a point we're always very proud to make when we are speaking to our global counterparts when representing Canada abroad.
I'll stop there, but I'm certainly happy to take any questions from committee members in the Q and A rounds.
:
Good afternoon. Thank you, Madam Chair and members of the committee, for inviting me to participate in today's discussion.
It is my pleasure to be here on behalf of Canada's 90,000 manufacturers and exporters, and our association's 2,500 direct members, to discuss COVID-19 and Canada's manufacturing and exporting sector. Our members cover all sizes of companies from all regions of the country and all industrial sectors. We represent the majority of Canada's manufacturing output as well as value-added exports.
I'll keep my commentary short so there can be more discussion at the end. However, it is important to make a few critical comments to provide context and background.
First, manufacturers have been critical in the country's response to COVID-19. Not only have domestic manufacturers made many of the goods necessary for the response; they have also continued to operate and employ millions of Canadians. Despite this, the sector has been very hard hit from the crisis. Output declined roughly 30% over March and April. We are not expecting a full recovery until well into 2022. While the impacts have been bad, it could have been much worse without strong actions by government. The wage subsidy and other liquidity measures were literally lifesavers for our members. With the crisis far from over, it is critical that these measures continue to exist and be adjusted based on economic conditions for the foreseeable future.
Second, while manufacturing continued to operate and global supply chains were maintained with only minor disruptions, the lower output meant a corresponding decline in Canada's trade activity. The 30% decline in output led to a decline in merchandise export activity of roughly 33%, and imports of 27%. The most impacted sectors, however, were among the largest in the country—automotive and aerospace in particular. The decline in imports and exports was widespread amongst our trading partners, but obviously of higher value with the U.S., given our volume of trade with that country. Notably, however, Canada did witness a massive spike of 35% of imports from China as consumers increased spending on electronics in particular.
Third, it is critically important to create a plan to move the country from recovery to growth and prosperity by harnessing the strength of Canada's manufacturing sector through a comprehensive strategy. The focus of the strategy must be on driving investment to improve global competitiveness for long-term economic growth. Canada faced structural economic problems of underinvestment, soaring trade deficits and poor productivity before COVID-19 hit that must be addressed now.
For the purpose of this committee, there are several concrete actions that we believe the government should take on to help Canada's exporters. One, work to implement all aspects of the new CUSMA, especially the chapter on competitiveness, which aims to increase co-operation between the countries to deal with global trade cheats and unfair trading practices of third countries. Two, launch a made-in-Canada branding exercise at home and in international markets to boost awareness of Canadian capabilities and technologies with the goal of boosting sales and exports of Canadian-made products. Three, support SME export potential by expanding investment in government export concierge programs and private peer mentoring networks, which are critical to getting companies going internationally.
Finally, before making a few remarks about Canada-U.K. trade, I would like to note that we believe there will be some shifting in global supply chains moving forward and increased opportunity for Canada. This shift will be to protect supply chains and to meet increasing demands for consumers to buy local. However, these opportunities will flow to the locations that provide the greatest returns. Canada has a huge advantage in access to many foreign markets through FTAs, as well as a skilled labour pool that is world class. However, as a small and trade-exposed country, if our domestic business environment is not world class, investment will continue to flow to other markets and Canada will miss out on these current opportunities. Manufacturing investment in particular has been drifting downward since the early 2000s, which has stalled overall exports in the country and seen ballooning trade deficits. This trend must be reversed.
The possibility of a Canada-U.K. FTA is fully supported by CME. At nearly $20 billion a year in exports, the U.K. was Canada's third-largest export market in 2019, behind only the U.S. and China. While gold accounted for 71% of this total, other exported products totalled over $5.5 billion, including more than $4 billion in manufactured goods. As such, even without gold, the U.K. is Canada's sixth-largest export market.
Given this, extending the terms of the existing CETA agreement to the U.K. would be logical. However, we must ensure through negotiations that Canadian exporters are gaining an actual advantage over other countries who do not sign new FTAs with the U.K. We understand that the U.K. is aggressively pursuing new FTAs with many markets and offering up broad-based tariff concessions to many countries. In some cases, these tariff concessions are being made even before there's a trade deal in place. Trade agreements should be about mutual gain and benefit. If there is no unique benefit to Canada in exchange for opening our market, it undermines the value of the FTA.
Thank you again for inviting me to participate today. I look forward to the discussion.
:
Thank you, Madam Chair and members of the committee.
The United Steelworkers thanks CIIT for the invitation to participate in the committee's study of the impact of COVID-19 on Canadian international trade relationships, with a focus on the United States and the United Kingdom.
The United Steelworkers represents more than 800,000 members across North America, including 225,000 members in Canada, in virtually every sector of the economy. We are the primary private sector union representing workers in trade-exposed sectors and regions. We also have a strong relationship with the trade union movement in the U.K., specifically through our partnership with Unite the Union and our global union, Workers Uniting.
As such, trade policy and trade agreements are of fundamental importance to our union and to our membership. The massive drop in trade between the U.S. and Canada, with exports down by 41% in April alone, has had an immediate impact on our members, particularly those in trade-exposed sectors such as manufacturing. At the height of the economic shutdown, about 15% of our entire membership was on a layoff of some type, including about 20% of members in manufacturing.
The COVID-19 pandemic has highlighted fundamental problems with the international trading system and our reliance on global supply chains for essential products. We must refocus the entire trade system to one that benefits both the workers and the environment, rather than one fixated on obtaining the cheapest possible products regardless of the conditions of production.
However, we are currently focused on the United States' possible reimposition of section 232 tariffs on aluminum, the risk posed by unfair trade on the steel industry, as well as the ongoing softwood lumber dispute. We are disappointed that these issues were not fully resolved prior to the negotiations and the implementation of CUSMA, which came into force on July 1.
While there are positive aspects of CUSMA, specifically the labour provisions demanded by trade unions and the U.S. Democratic Party, the section 232 side letter legitimizes the once-rare national security tariffs and curtails our options for counteractions in the event the United States reimposes the tariffs. The possibility of 10% tariffs on aluminum products threatens the 15,000 direct and 41,000 indirect jobs in Canada's aluminum sector, including 5,000 workers represented by the Steelworkers.
The United Steelworkers emphasizes that Canadian aluminum does not pose a national security threat to the United States, nor has there been any significant surge in exports. This assertion is backed by The Aluminum Association, which represents the majority of producers in the United States. Compared with 2017, exports in the first quarter of 2020 declined by 12%, and are up only about 3% compared with the annual average of 2017, the last full year without any major trade disruptions.
The cancellation of the original section 232 tariffs in May 2019, along with the end of the ABI lockout in the spring of 2019, led to the resumption of more normal trade patterns between our two countries. The drop in the U.S. aluminum prices is largely caused by the significant drop in demand as a result of COVID-related shutdowns, particularly in the auto sector. Massive growth in the Chinese production over the past 20 years remains the biggest threat, increasing from 1.9 million metric tons in 1999 to 31 million metric tons in 2019.
Ultimately, Canada must strongly defend community-sustaining jobs in the aluminum sector. That means that if the U.S. does reimpose section 232 tariffs on Canadian aluminum, Canada must impose retaliatory tariffs on a wide range of U.S. products, not only on aluminum. If the U.S. is not prepared to play by the rules, Canada should not be limited by the agreement signed last May. Canada must also stand up for the 22,000 direct and 100,000 indirect jobs in the steel industry. Since this pandemic, we have seen a 20% overall drop of steel mill exports to the U.S. in May.
This makes it even more important to grow the domestic market for Canadian steel. We could start by making sure that we use only Canadian-made steel products on government infrastructure projects like bridges, energy projects, transit and buildings.
Canada's steel is a very low carbon and global standard, so it is the green alternative to foreign steel. However, we should also implement a carbon border adjustment so that we're not placing our steelmakers at an unfair disadvantage compared with other countries that do not price carbon. Furthermore, workers and unions should also be considered as part of the domestic industry under Canadian trade law. This should allow trade unions to initiate trade cases in order to protect the domestic workers.
Canada's softwood lumber exports remain at risk despite our maintaining NAFTA's chapter 19 dispute settlement mechanism in the CUSMA. These provisions are not enough to prevent future duties on softwood lumber. Steep declines in forest product exports—minus 18% in May—combined with the volatile trade situation with the U.S. adds insult to injury to the Canadian forestry sector beset by declining prices.
Workers in British Columbia have been particularly hard hit by these multiple crises as thousands of workers have lost jobs and communities have been decimated by the effects of trade disputes, low prices and COVID-19.
Looking to the United Kingdom, United Steelworkers contend that any post-Brexit trade agreements must be based on strengthening workers' rights, and trade of products must be made in decent working conditions in both countries. We stand with our U.K. trade union allies in their opposition to the U.K.'s entrance into the CPTPP.
Along with our partner union, Unite, we support a trade policy that includes binding labour rights and strong trade safeguards for vulnerable industries and one that does not include investor-state dispute settlement provisions, or diminish the right to regulate.
Overall, the COVID pandemic has laid bare fundamental problems with the international trade system and our reliance on global trade chains for essential products. We need a broad vision and policies to ensure that Canada has the capacity to produce essential goods domestically in a manner that improves the quantity and quality of employment and allows us to meet our climate obligations.
Most importantly, we need to stand up to protect jobs in the aluminum sector and to ensure that the new CUSMA does not lead to continued erosion of the Canada-U.S. trade relationship.
Thank you for the opportunity. Mark Rowlinson and I are happy to answer any questions you may have.
:
Thank you, witnesses, for being here on a nice July day here in Ontario.
I'm going to start with you, Mr. Burney. I know you're in Colorado, but you should be in Ontario. It's a lot nicer here than Colorado today, I would swear.
In one of your articles you talked about the “economic prosperity network” that was being created. That was the U.S. basically working with Japan, Australia and like-minded countries to develop a system to have each other's back in times of need, for example, like now on personal protective equipment or ventilators and things like that.
In discussions with other people around the world, the members of the Conservative caucus trade members have been talking to groups, associations, and other trade ministers. We're starting to see countries form these groups or cartels where they're not only talking about having each other's back, but actually setting regs. They have the regs set, and if you're going to trade with that bloc, that's the reg, that's the safety standard, that's the item you're going to trade in, which will set the global regs.
What's your comment on that and why do you think Canada should be involved with that?
:
I'll start and then turn to you, Mark, if that's okay.
As I mentioned in my comments, we see this happening and we see a huge opportunity, but companies are going to shift those supply chains to countries where they can produce economically and still supply. Part of the reason my companies went to China in the first place was cost competitiveness, moving out of places like western Europe and North America, or certainly Canada and the United States, and into those markets.
We'll see that swing come back, but whether we'll get it or not is entirely up to us. Companies will shift, but they're not going to come to high-cost jurisdictions in Canada, the United States, western Europe or other places. They still need, to some degree, a lower cost production opportunity.
Some of the earlier surveys we're seeing are looking at places like Vietnam and Mexico as regional hubs for manufacturing products in those supply chains, but as I mentioned, I think there's huge opportunity here for Canada as that realignment happens. It won't happen suddenly; it's going to happen over a period of years. There's a massive opportunity with it and we can take advantage of it, but we need to get our business conditions right.
:
Those American companies are well aware of how it's going to impact them, and they are working with the White House and U.S. trade officials to avoid the impacts.
You mentioned automotive. Most automakers use aluminum castings for engines and other things. Ford's F-150, the bestselling vehicle in North America, has an almost entirely aluminum body. The impacts on the auto sector would be massive, and aerospace would be the next one.
These companies are very well aware of the impacts on their supply chains. They don't have other sources of supply. It comes out of Quebec, Manitoba and British Columbia. Some supply comes out of the U.S., obviously, as well, but a huge chunk of it comes from here. Our intelligence, as well as what they're telling us, is that they're working with the right officials in the U.S. to make them aware of the direct impact on their operations in the United States and on the workers.
We saw this with steel. The same thing happened. These companies were very quiet for a long time and then they started getting vocal. It was companies such as Ford, Harley-Davidson and others that stepped up and started talking about the direct costs of the 232 tariffs on their production, on their employees and, at the end of the day, on their products, which made them less competitive in the marketplace.
We hear that they are talking and we expect them to continue talking. These are political problems that bear no basis in reality a lot of times, and that's part of the problem we're facing.
:
Mark and I fully agree. The fact is that, listening to the discussion and listening to the testimony—as I said at the beginning, our union represents members in trade-exposed sectors and across the regions, be it in softwood, aluminum or steel—I have to tell you that I don't have a warm, fuzzy feeling about what's been happening to our members in the communities where we work.
When we came out of this thing in May of 2019 in regard to lifting the tariffs, I think we unfortunately fumbled very badly. The fact is that we have not looked after the needs and the wants of the aluminum workers, forestry workers or the steelworkers and the steel industry. You can't continue to reward bad behaviour.
I look at this file. Quite frankly, a large percentage of this file is probably 80% political, and the other 20% may be based on some facts. I mean, many of the witnesses have already testified with respect to what's happening to aluminum in the United States. They can't produce what they need to consume. They depend on Canada. It's good aluminum. It's a good product. It sustains good middle-class jobs. The fact is that the only people it's going to benefit is China and Russia, and it's going to be a detriment to workers in the United States, the auto sector and the consumer.
Yes, they should impose the duties, tariffs or the countervailing measures permanently. The fact is that we should not be pushed around. The fact is that the government has to stand up for the citizens of Canada. We maintained that back then, and we maintain that today.
:
Thank you, Madam Chair.
To all my colleagues, it sure is good to be sitting back here in Ottawa with you. It's great to see you all.
Thank you to all the witnesses today as well.
I listened with a very keen ear today. My riding of Essex is very close to the busiest international land border crossing in North America, so it's certainly good to be here.
I have a few questions. I guess we'll open this one up to any of our witnesses who may have an answer for this.
Due to COVID-19, notwithstanding the fact that we do have to be very, very careful with our borders with regard to personal travel, but specific to economic impact, do you have any idea of the economic impact, what it looks like as the land borders remain closed perhaps month to month or perhaps quarterly? What kind of economic impact does it have on industry and trade?
:
Perhaps I can take a stab at that one, Madam Chair.
I think the first priority has to be Britain achieving an agreement with the European Union. There's very little that we can negotiate with Britain until we know what the terms of their agreement with the EU are going to be. We also know, secondly, that their top priority is the United States. We might like to think we're up there, but actually their top priority is a bilateral agreement with the United States. It gives them the biggest bang for the buck.
I think time is on our side. We're going to know by the end of the year, by October maybe, but by the end of the year for sure, what sorts of terms Britain extracts or the EU extracts from Britain, and then we have a fundamental choice to make, in my view. We decide to roll over the terms of CETA into a bilateral agreement with Britain, or we start from scratch with a fresh bilateral one.
However, they will give priority to the United States because that's their most important market. We should stand back, watch what the Americans get and make sure we get no less.
:
It's nice to be here today. Hello to everyone.
I'll keep my remarks brief, to five minutes, and focus primarily on the United States and the United Kingdom.
First, broadly, the primary impact of COVID-19 on international trade is the continued rise of the sentiment “my country first”. We've obviously heard it being voiced south of the border as “America first”, but it's the concept that we're putting our country and its interests, at least as the politicians see them, ahead of the multilateral agreements that are in place. I feel that has the potential to be quite problematic.
The principal reason I feel it could be problematic is that there are arguments for some self-sufficiency given what's transpired. However, this can quite easily morph into a wider and more unjustified form of protectionism, notably in the form of technical barriers to trade—that is, putting up barriers based on the fact that it's not safe enough, their approvals are not robust enough, etc.
There are also some other issues. The nationalization of industries could run afoul of international trade commitments. Massive government expenditures could undercut things like state aid rules, which we may see play out in the negotiations between the U.K. and the EU, given the massive spending that Germany is making now in their stimulus program and the money that's going to specific industries.
When we look at our relations with the United States, I think our trade relations are generally under control. It's been a bumpy ride since Mr. Trump was elected as president. I think the government has generally done a pretty good job there, but we have to constantly be keeping an eye on things because protectionism pops up, as it has with aluminum, with the border at times, with bans on exporting protective equipment into Canada, etc.
The approval of the CUSMA is good news. Closing the border as a result of COVID was a more impactful development than the approval of the CUSMA, which has largely been factored into business decision-making since it's an agreement from some time ago. However, it's obviously important that we maintain a strong trading relationship with the U.S., the obvious reason for this being national prosperity and maybe the less obvious reason being that we will need U.S. support in dealing with difficult third party issues, such as the diplomatic dispute with China, including in Ms. Meng's extradition hearings.
Turning to the U.K., I think the real question for Canada is this: What will be the outcome of negotiations on a future relationship between the U.K. and the EU? In my view, the highest probability outcome at present is a hard Brexit, which would take place at the end of the year. That is, the U.K. would leave the customs union and the single market and would revert to WTO rules. There is a bit of good news there in the sense that the British have unilaterally decided that they are going to remove import tariffs for countries with which they have MFN status, so that would take some of the sting of a hard Brexit off Canadian exporters.
The problems with a hard Brexit, as I see them, are twofold. First, we would be unable to conclude a Canada-U.K. agreement to replace the CETA. The U.K. is currently a party to the CETA, the Canada-EU trade deal. Obviously, if they leave the single market and the customs union, they will no longer be a party to it. Frankly, once they leave the EU, they are no longer a party to it after the transition period. We won't be able to conclude a Canada-U.K. trade agreement until we know the outcome of U.K.-EU talks. The second problem is that if the U.K. leaves the single union, they'll no longer be covered by the CETA.
We're going to have to do some work to get an alternate arrangement in place. It would not make sense, in my view, to move forward with a trade agreement with the U.K. right now, because we do not know where there will be import tariffs in the EU, how we would deal with rules of origin and how we would deal with financial services and a whole host of other issues.
I'll end my remarks there. Thank you.
:
Thank you for having me today.
As you know, CAFTA is the voice of Canadian agri-food exporters, representing the 90% of farmers who depend on trade and the ranchers, producers, processors and agri-food exporters who want to grow the economy through better access to international markets.
Thank you for the opportunity to speak today with you about the state of global trade and what the road ahead may look like. The year 2020 was supposed to be a big year for trade for us with the ratification of CUSMA, the need to address CETA issues, non-tariff trade barriers and the lack of respect for international trade rules, the necessity to modernize the WTO, opportunities to diversify in Asia and the creation of a new post-Brexit trade relationship with the U.K.
Yet, in an instant, COVID-19 upended the predictability and stability businesses and exporters need. The last few months have shown us just how foundational agri-food trade is for our economy and way of life. While we’re proud of the role our members have played in feeding Canadians and the world while also protecting jobs in a time of crisis, clear worries remain.
Chief among them is the fear that this crisis will bring about new trade barriers and other forms of protectionism and that trade commitments will be undermined and not followed. Given the topics today, I will focus my remarks on, first, the need to continue to strengthen and improve existing trade relationships, the need to support WTO modernization and the rules-based global trading system, and the need to continue to open new markets, enforce free trade and put agri-food trade at the centre of the recovery.
Canada has no more important trading partner than the U.S. Our members are very pleased that CUSMA is now in force. It will help ensure a continued strong foundation for uninterrupted trade with our closest neighbour and trading partner. Restoring stability and predictability to North American trade is essential for Canadian agri-food exporters that have developed highly integrated supply chains for the past generation across the continent, and especially so in the U.S.
CUSMA will help restore the competitiveness in the North American free trade platform; normalize trade, not just for commodities but also for value-added food products; and enable a globally competitive sector that drives the economy forward in all three countries.
It will be important to monitor the proper implementation of the agreement to realize its full benefits. I will point to two sectors in particular. The food processing sector is concerned with the implications of the front-of-pack labelling regulation—a trade irritant with the U.S.—and, in the sugar industry, a key driver of food exports to the U.S., discussions on the administration of TRQs create a level of uncertainty of access.
It's very clear that the implementation of trade agreements is just as important as negotiating trade agreements and perhaps even more so. Take CETA, our comprehensive agreement with the European Union. It will turn three this September, yet despite holding so much promise for agri-food exporters, it continues to fall short. This is because the EU is not abiding by commitments to remove technical barriers.
We know there are solutions to these persisting barriers. Such work includes achieving mutual recognition of meat processing systems, developing protocols to verify livestock production practices, addressing misaligned regulation of crop protection products, more predictable and timely review of seed technologies, ensuring that Italy’s country-of-origin labelling requirements are not applied in a trade-restrictive manner and addressing production and trade-distorting EU sugar subsidies that make our exports uneconomical.
Italy provides an example where Canada needs to be assertive in defending our trade interests. Quiet conversations to date have not resolved the issues. It’s important that Canada challenges these so that Italy's protectionist measures do not spill over into other countries and products. We’ve asked the Canadian government to take up these issues with EU political leaders in order to secure commitments and timelines to remove and address the barriers that persist. As the world is moving toward the enforcement of rules, Canada, too, should step up its response and push for enforcement.
Vietnam, Peru, India and others—the list goes on of countries that do not follow internationally agreed-upon protocol, that do not live up to their bilateral and WTO commitments and that maintain unwarranted SPS measures. All of these create significant risks and uncertainty for exporters. Canada needs to be proactive and nimble in its response to the growing use of non-tariff barriers to block agriculture and food exports.
The current crisis has also shown us why we need a rules-based global trading system. CAFTA is pleased that the federal government has been at the forefront of efforts to safeguard the WTO and the rules-based trading system. This was done in large part through the Ottawa Group. The Ottawa Group, led by Canada, initially created to find ways to reform the WTO, has played a major role in keeping supply chains open to agri-food trade during the crisis and in seeking commitments from WTO members to limit and unwind the 200-plus trade restrictions adopted by 93 countries as a result of the crisis. It is imperative that this work continue.
In parallel, the Ottawa Group needs to drive forward WTO reforms to fix the dispute resolution processes to ensure their ongoing functionality, to revitalize the multilateral negotiation process and to restructure the overall governance of the WTO.
Amidst the crisis created by the pandemic, we must recognize that it's absolutely vital to get WTO reform right. We should fully expect that many countries will be tempted to use the current crisis to restrict trade and introduce non-tariff barriers disguised as excuses with protectionist motives. This is precisely why we need a solid, functioning WTO that can deliver on stable, predictable, open, rules-based trade as recovery begins to take root.
Now is the time to step on the gas—
:
Good afternoon. Thank you for having me today. I am director of the Centre d'études sur l'intégration et la mondialisation. We are currently reflecting on the aftermath of COVID-19 and the pandemic's impact on Canada's international trade, but more broadly on the economic system.
First of all, I want to say I totally agree with Ms. Citeau on the importance of looking at multilateralism and the interface with the agreements that Canada signs. It is very important for maintaining consistent trade policy over the long term, but it is particularly important for the future of the international community to ensure that bilateral or regional trade agreements do not jeopardize co-operation at the multilateral level.
I know it is always taken a bit for granted that bilateral agreements are aligned with multilateralism. However, at the centre, we have mostly focused on the potential divergence between a multilateral system built on bilateral agreements and the risk of system fragmentation.
Our approach is to try to understand how COVID-19 revealed the flaws in our societies, in our international community and in the institutions that are there to enforce rule of law and stabilize the system.
We believe that our societies and the international community were not equipped to deal with the current pandemic and that, to deal with future catastrophes like this one, it's very important not only to consider short-term responses and challenges, but also to have a medium- and a long–term vision of them. This health crisis has revealed the pitfalls of collective action, which we also believe will be a catalyst for change and transformation.
The COVID-19 pandemic is forcing us to rethink economic policies [Technical difficulty—Editor] and trade. In fact, our colleague addressed the issue of the labels "made in Quebec", "made in Canada" and "made in America". That means the potential for relocation is there and could be very dangerous.
Globalization and trade are forcing us to thoroughly rethink the role of institutions. We anticipate a pre-COVID-19 era and a post-COVID-19 era. This is a historic time that will determine the path forward in the face of multiple social and economic trajectories, while opening up new avenues for economic governance.
We have organized a series of workshops that will continue until December. The worst-case scenario, which we have discussed, is border closure and the emergence of highly intrusive surveillance and monitoring systems. A number of our colleagues have written that deglobalization is not necessarily desirable or even possible in many industries. We are in the process of documenting such a deglobalization scenario, and we are adding a number of nuances.
We agree completely with Canada's approach, which we feel is to secure supply chains by showing flexibility and finding ways to secure those value chains so that Canada's supply is protected. The primary risks are therefore fragmentation, countries looking inward and deglobalization, but also trade warfare. These risks should not be underestimated. We also see as key risks rising inequality, economic concentration and challenges to the legitimacy of the international trading system. I believe all these issues must be taken very seriously.
Our approach is to look at institutions in the context of globalization, as well as state policy and actions. We are interested in how such actions can be aligned with more regulated globalization, while preserving economies that are open to trade and investment. The big picture for all this is to work toward a more stable trade system, one that could be more inclusive and progressive. It is in line with the approach Canada has been using in recent years.
:
Thank you so much. I won't be that long, and I do want to thank the committee for this opportunity to speak today. It's nice to meet everybody.
It would have been very useful if I had heard some of the earlier comments, because I could probably have added to or supported some of the statements I agree with. Everybody has very valid points.
First, I'd like to take the opportunity to introduce what PTI Transformers is.
We probably aren't well known out there. We're not a brand name as such, but we are the largest privately owned Canadian manufacturer of transformers. We were established in January 1989 and started manufacturing in 1990. Currently, we are now building up to 500 MVA transformers, which are similar to 500,000 horsepower, if you want to equate them with something you're more familiar with. We have over 300,000 square feet and employ over 300 skilled personnel in Canada. In 2015, we purchased CG Power Systems Canada, which was owned by India, and we brought that technology back to Canada. We are continuing to reinvest in the technology and support the Canadian industry.
We're bringing back a lot of the stuff that was lost over the last 40 years. For example, in North America there's not a whole lot made here that you can buy at Costco right now in Canada, or the United States for that matter. Most of it is brought in from Asia, so my concern has more to do with Asia. We've been seeing a lot of penetration of our market from Asia, and we have some concerns.
We've performed very well, both financially and technically, since our inception, and despite the most recent impacts from COVID-19, we have remained open throughout the pandemic period without layoffs and without support. We have continued our business uninterrupted with all of our Canadian and U.S. customers. We do not export to Europe.
The business market demand for our product has decreased recently due to the economic slowdown and COVID-19 and the resulting decreases in new construction projects, along with the corresponding impacts on North American supply chains.
PTI Transformers has also been impacted by recent steel tariffs imposed by the U.S., and dumping by foreign competition. In response to this, we undertook an initiative by twice filing and winning dumping complaints against Korean manufacturers, who are my major concern right now. This in itself was a costly and time-consuming venture, but the resulting anti-dumping tariffs are of benefit to Canada.
Our relationships with other countries and the U.S., and all of our customers, continue to be amicable. However, there is noticeably more and more focus by many customers on buying local. Jason, to your point, there's obviously a lot of interest now in buying local for various reasons, whether for good security in our case or more dependable sources of supply and service. There's definitely a move afoot all over the place, and in North America especially, to buy local.
Also, I would like to take this opportunity to commend the politicians in our provincial jurisdictions for their unified stance with public health authorities, along with their positive approach to addressing the COVID-19 pandemic. Frequent and positive communication apprising the public of the current ongoing health status and plans for reopening the economy was, in my opinion, paramount to reaching the success we have achieved thus far in battling this virus. Although concerns may still be apparent regarding a potential second wave in the fall, we can all take solace in the fact that this proven-to-be successful approach can once again be followed and potentially even be improved.
PTI Transformers' strategy was to follow recommendations by public health authorities. Although there were times when it was tempting to consider deviating to more stringent but difficult to manage alternatives in addressing this virus, this ultimately garnered the good results we have today. Their unified approach and good communication helped stave off our temptation to move to a little more difficult to manage alternative. We have learned a lot these past few months, and although there are still many Canadian casualties, I am very proud of their efforts and what we all have been able to accomplish together.
I offer my commendation to all the politicians. It's been difficult yet, in my opinion, they have come through.
In addition to the COVID-19 pandemic and the steel tariffs imposed by the U.S., PTI's business opportunity has most recently been impacted, and if not addressed or corrected will have dire consequences going forward, regardless of a pandemic, or even be further compromised by the pandemic, if it reoccurs.
One particular circumstance I would like to bring forward to the committee is the Wataynikaneyap project in northern Ontario. This project connects Hydro One's electrical grid to many first nation communities that are currently running on undependable diesel, which is economically not viable. It's dirty and environmentally not warranted, currently. It's a big project and unfortunately the project, although it represents about 27% of our annual capacity for next year, has been given to the Koreans who twice were charged for dumping into Canada—the same company.
It's a federally funded project, and I'm just voicing my concern now because I find it's a surprise event for me. It represents over 100 person-years of direct employment, 20 person-years of engineering and professional employment, and it's come at a time when the work should be direly needed in Canada, and our company is here to do that.
:
On policies, I guess one thing I found out off the record was that some of the tariffs were not being collected. The reason for this was that they were not being reported properly.
Further to that, I believe Michèle's point was that there has to be better regulations put in place so that clarifications on what type of product is being imported and from where are better regulated and supported through CBSA. I think CBSA is very busy, and perhaps there are some issues they have with paperwork and in trying to get these products identified. As a result, there may be some erratic reporting that goes on that doesn't help identify the products, so tariffs cannot be collected. Regulations have to be improved. I believe CBSA has to be better supported.
There's obviously some better control on pricing from procurement fields. I believe there are some policies, but right now, with the world open globally, it's very difficult to control where prices are coming from and whether those standards are being met. We do a lot of investments to make sure we comply with standards. We test in accordance with standards, but I believe there is probably some flexibility going on out there that I'm not aware of. Perhaps CSA standards have to be strengthened a little more.
I'm pretty aware that the Canadian Welding Bureau does not go to Asia and approve plants for the welding, whether it's good for -50°C or -40°C. I can't vouch for that, but I'm pretty sure CWB doesn't go there and make sure of that.
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Generally speaking, I agree with Claire's remarks with regard to having an ambitious agreement. I think we need to have something there. In my opening remarks, I said that I thought there was going to be a hard Brexit. In fact, if I'm being blunt, I think that the U.K. political leadership believes that the economic fallout can, to a degree, be pinned on COVID. I think they see a bit of an out here. I mean, if you look at the way the negotiations are going between the U.K. and the EU, it's not very good. The best that they're going to be able to achieve by the end of the year, if they do get an agreement, is a very skinny, tariff-only agreement.
Starting with that point, we had a rollover agreement, a CETA-like agreement, that was in place and basically ready to go and replace and cover the U.K.-Canada relationship; however, the British government came along and surprised everyone by saying they were going to remove import tariffs. That was a big piece of the agreement that they were giving away for free. I think the negotiators in the department in Canada are a bit unsure about exactly what the U.K. may put on the table next. I just don't know that we're going to be able to have an agreement in place prior to knowing the resolution between the U.K. and the EU.
For example, how would you treat rules of origin if they're outside of the EU Customs Union? For instance, typically you need at least 50% to 60% of content in your goods to qualify for duty-free status. A U.K. that is outside of the European single market, will they be able to meet those provisions? We won't know if we even need to negotiate rules of origin until we know what they have agreed upon, so I think realistically we probably will not have an agreement in place until 2021.
I think we can take quite a high level of ambition into these negotiations. Where I would like to see better progress.... We still do not have conformity assessment in place two years on in the CETA. Basically what that means is, if a product is certified in Canada and exported over to, say, Germany, it doesn't have to be retested and recertified again. It's seen as being equivalent. We agreed to this in CETA, but the problem is that it still has not been implemented.
We also see continuing problems with technical barriers to trade. Claire has raised this on the agricultural front. I think we need a more robust process for preventing technical barriers to trade. There's also been some confusion around the regulatory co-operation provisions. The regulatory co-operation committee within CETA is for going after future regulatory barriers; however, I think most people, certainly in the private sector, believe it's a forum for dealing with existing regulatory barriers. I think there needs to be more clarity around this in a future agreement.
I think that—
I would like to thank all the witnesses for their presentations.
Ms. Rioux, your presentation emphasized the need for trade in supply chains, but also the exemptions that must be maintained. In other words, not everything is a commodity, and we will have to be able to clearly draw the line in future agreement negotiations.
In anticipation of an agreement with the United Kingdom, you said we could base it on CETA. In fact, rumour has it that the new agreement will probably be very much like CETA. We may simply take CETA and turn it into a bilateral agreement this time.
However, how can we ensure that your concerns about exemptions, which have been more or less honoured in CETA, will be addressed this time around?
When the signing of CETA was being debated, people said the government ended up sacrificing cheese for beef. In the end, neither of the two industries really managed to break into the much-touted big market. We were told that the market would be huge, but it turned out to be harder to break into.
What do you feel we could correct in CETA, now that the time has come to plan for a new agreement with the United Kingdom, which is no longer bound by European Union agreements?
I'm going to start with your last point, about deregulation and the need to break into the European market despite the many technical barriers.
Last month, we took part in a meeting with the Belgians. It was hosted by Global Affairs Canada. We talked a lot about the impact of CETA. The enthusiasm or flow of trade didn't necessarily materialize. A point that came up repeatedly was that negotiating an agreement wasn't enough; ensuring oversight, implementing business strategies and delivering support were also needed. Mr. Langrish mentioned regulatory co-operation, and we stressed the importance of that aspect in our efforts.
Today, we don't focus solely on trade barriers, tariffs and the opening of borders to trade. We are actually looking at which rules can constitute restrictions, as well as which ones are necessary for protection. That's what the COVID-19 pandemic has caused us to think about. It's making us take a serious look at the current rules designed to eliminate barriers and improve access to foreign markets and exports, on both sides of the Atlantic. At the same time, it's making us think about the standards we want to put in place with the Europeans. I think we can go very far, even with the United Kingdom.
As far as e-commerce and social media rules go, I would say they're a bit more resistant to the approach taken by the Americans, which is naturally a defensive one. All of that highlights just how important regulatory co-operation will be going forward, not only to clear the way for trade, but also to build the institutional foundation for clear rules and consideration of the broader public interest. I do a lot of work with cultural industries. That's very important as we speak. As you know, Canada's legislation is going to be amended. We don't want to end up with problems because of trade policies and disputes.
I'm not sure whether I missed anything, but when it comes to exceptions, whether for trade in cultural products or cheese, it's quite a specific area with underlying social issues at play.
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Thank you to all the guests for appearing before the committee. I will build on what my colleague was getting at.
My question is for Madame Citeau and Madame Rioux.
I think we all understand the benefits of trade, especially in the agricultural sector. No one disputes that. Having access and growing markets are key. However, often within these very large multilateral agreements, we're pitting one sector against another. Within the agricultural sector, we saw a key loss under CETA, the CPTPP and the new NAFTA in our supply-managed sectors of about 10%, so even within one industry there was quite a lot of division.
As for how we look at future trade, there have been discussions today that we can't lose sight of multilateral negotiations. However, we're seeing so much conflict within that.
Have you thought about potentially looking at sectoral trade and the benefits it would have, so that we're not pitting one industry against another?
Thank you, witnesses, for being here this nice day.
Five minutes isn't enough, Chair, and I think you know that, but I'll go to Ms. Citeau first.
One of the concerns I have post-COVID is that countries are using non-tariff trade barriers to restrict access in order to protect domestic sectors as they try to recover economically in their country. On the agriculture side of things, of course, they use all sorts of items as we've seen in Italy and in China, for example, in canola. We've seen it in India and a few other countries that you mentioned.
Do you think the government has put in place enough people, for example, CFIA inspectors? Do you think our trade commissioners are positioned properly? Do you think we have the mechanisms in place for this turmoil that's coming in front of us? Do you think they have properly prepared, or are you aware of any changes they have made in regard to making sure we can represent Canadian companies in these countries when this turmoil erupts?
I'll start with you, Ms. Citeau.
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I'm a big fan of the trade commissioners and, in fact, I want to compliment them. I know that, when this crisis erupted, a lot of them shifted to finding the PPE supplies that we got into Canada, and they were trying to help in the logistics in regard to that. A lot of them stayed in countries when probably they would have preferred to come back to Canada.
That's one of my concerns now. We've had a lot of our bureaucracy who have been around the world, stationed in countries that are important to us, come back to Canada. What's the process of getting them back to the countries moving forward post-COVID and reflecting on making sure our Canadian companies have proper representation and that Canadian travellers in the future are properly represented and taken care of, too? That is one concern I have.
I'm going to shift a little bit to the U.K. One of the things I'm hearing from agriculture producers.... Here is a classic example. Last night I was on a conference call with some agriculture producers out of southern Ontario. They grow lots of beans, and they sell a lot of those beans into the U.K. They're very nervous that they don't know what the price of those beans is going to be on January 1, because they don't know what possible tariffs could be in place or not in place.
The other concern they have is, when they see other countries, such as the U.S., that compete with them, that the U.S. may have first-mover opportunity, which is what we had in Japan with TPP that really gave us good market access and a great advantage.
Are you concerned that we haven't entered into a negotiation with the U.K. and that we haven't even done the simple stuff as far as the easy, low-hanging fruit and at least get that out of the way?
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It is worth remembering that this is largely on the U.K. The U.K. made the decision to leave the European Union, so the U.K. is the demander in all of these things, including their discussions with the EU and discussions with third parties like Canada.
In my view, the U.K. hasn't done a very good job in outlining its priorities. They're poorly defined, and it's a difficult party to negotiate with. It doesn't have a lot of capacity. The trade negotiations have been conducted by Brussels for the last 40-plus years. They have been doing their best to build up their capacity, but it's not there.
There are a couple things. First is that I think there was a remark that we aren't doing anything while the U.S. and other countries are negotiating, but we have been doing things with them. We have been discussing a rollover agreement, a CETA-like agreement that would be put in place in the event of a no-deal scenario. However, as I mentioned, the U.K. government unilaterally said they're going to remove all import tariffs. That's a huge piece of what would have been negotiated, which was negotiating away those tariffs, so we could get it for free. We don't even need to negotiate an agreement to get that tariff reduction. That changes the dynamics.
Also, the idea that the U.K. is going to strike a deal with the U.S. this year is not very realistic, with an election campaign and the difficulties of getting the deal through Congress.
I think we need to keep the lines of discussion open with the British. We should be having concurrent discussions with them, but we're going to have to face the reality that there are going to be some chapters of a potential Canada-U.K. deal, which will look like a CETA deal, that we won't be able to close before we know what the U.K. and the EU are going to agree on. First and foremost on that is how much a regulatory approach is going to diverge—