Good afternoon, everyone, and welcome back to Ottawa. As everybody around this table knows, we had a change of plans. We were hoping to be in Mexico this morning, but due to the major difficulties down there, we switched channels. Out of a disaster, we have a great opportunity, and that is we have with us today the U.S. Chamber of Commerce.
Many of you around the table here, and many MPs have had a chance to travel to the United States the last few months, and we found the chamber always welcoming, Mr. Murphy. We had a great evening with the chamber in Washington. We also had a great experience in California with your chamber. We had a luncheon with them. Thank you very much for coming to our committee.
You have a very distinguished group that has come to Ottawa with you. There are over 37 members from many of the big companies and producers in the United States. This is a very important time, as you know, for our countries, and especially these next few days, so it's great to see everyone here.
There are a few things we probably run a little differently than committees in the United States. First of all, there are no pictures allowed to be taken now that we're in a formal setting.
We're going to split this up. We're going to do something a little different, Mr. Murphy. We're going to have you make a presentation, of course. Presentations are usually around five minutes, but you can take whatever amount of time you need. Then we'll have dialogue with the members of Parliament.
We're going to do that for about an hour, and then we'll have a more informal meeting. Again, there will be no cameras. Anytime during this first hour, if you have some members who want to sit in, they're welcome to sit with you. You can ask them to come up to the table now. If there's a particular question, let's say about milk or something, and you have somebody you want to bring to the table, let them come forward. There's no structure. You can bring anybody to the table to help you answer questions or give us some information.
As you know, our country is bilingual, so anybody who needs translation, there are headphones. There are three channels. English is one, and the second is French.
Without further ado, you have the floor, sir, and then we'll open it up for dialogue with the MPs.
Thank you very much for that warm welcome, Chairman Eyking, and vice-chairs Allison and Ramsey.
It's an honour to appear here today in Canada's Parliament, representing the U.S. Chamber of Commerce.
The U.S. Chamber of Commerce is the largest business organization in the United States. We represent the interests of more than three million companies of every size, sector, and state—big companies, little companies, manufacturers, service providers, agricultural firms. We also represent more than 2,000 state and local chambers of commerce, nearly 1,000 sectoral associations, and a network of American chambers of commerce abroad, including one here in Canada. I should also add that we include in our membership U.S. affiliates of a number of Canadian companies.
On the topic of the day, the North American Free Trade Agreement, as we've affirmed since the beginning of the year, we support the initiative to modernize this agreement, taking into account the technological, economic, and other changes in the North American economy and the global economy in recent years. But in our view, since the agreement went into force in 1994, the NAFTA has been a major success for the three member countries, for the United States, for Canada, and for Mexico. We have seen a substantial increase in continental trade and cross-border investment. It has stimulated economic growth. It has raised living standards and improved the global competitiveness of all three of our economies. You know the statistics very well. It's more than $3 billion of trade every day. In the United States, as my boss Tom Donohue, the president and CEO of the U.S. Chamber, often says, trade with Canada and Mexico supports 14 million American jobs. I believe that breaks down as nine million in trade with Canada and five million in trade with Mexico. So we see every day the benefits of this agreement. Much of this commerce depends on the NAFTA, though, in ways that are not even widely appreciated, and the negotiations that are now under way, we believe, should be conducted in a manner that does not put these current trade relationships at risk. We believe this goal is eminently achievable.
Over recent months we have offered the following general principles for NAFTA modernization.
First, do no harm. Interrupting the $1.3 trillion in annual trade across our borders or reverting to the high tariffs that were in place prior to the agreement could endanger many of the millions of jobs that depend on trade in our three countries.
Second, we need to work to keep the agreement trilateral. Maintaining the NAFTA's three-party framework is critical as transitioning to entirely new bilateral agreements presents real risks of trade disruption. Such a transition might also introduce divergent rules, one set for U.S.-Canada trade, one set for U.S.-Mexico trade, a third for Canada-Mexico trade, and that would mean higher costs for industries in a number of sectors.
Third, we need to ensure a seamless transition. Chairman Kevin Brady, of the House ways and means committee, whom I believe you've met with in the past, has emphasized this point repeatedly: the importance as we move from the agreement we have now to one in the future that there should not be a sharp break of any kind that could interrupt trade.
Finally, throughout this modernization process I should comment that we have heard a number of threats to withdraw from the agreement. We take these threats very seriously. In the view of the U.S. Chamber of Commerce, this move, quitting the NAFTA, would be an economic, political, and national security disaster for the United States. On this issue, my boss Tom Donohue issued a column today in The Wall Street Journal which some of you may have seen, and I'll quote briefly from it.
Undermining Nafta would be a grave and costly mistake that would hurt the very farmers, manufacturers, workers and families this White House purports to protect. Americans should do everything necessary to avert this grievous self-inflicted wound.
How might withdrawal happen? At this stage, we think the risk of it simply happening suddenly through a self-initiated act is somewhat lessened. What we're seeing at this moment, though, is concern among a number of our member companies about the direction of the negotiations in a number of areas, including proposals from the U.S. administration relating to investment protections, strict domestic content rules, or a sunset provision. That causes significant concern. The alarm is that those kinds of heterodox proposals, not seen in past trade agreements, could lead to a breakdown in the negotiations and a withdrawal.
We are pressing the U.S. negotiators, asking them to bear in mind every day the 14 million American jobs that depend on Canada and Mexico, as well as the millions more in Canada and Mexico.
We believe we can move forward and positively modernize this agreement and make it work for the 21st century economy, and we look forward to working with you to make that happen.
Thank you. I look forward to our discussion.
Before we go ahead, I'm going to introduce you to my colleagues. We have three of the major parties of our Parliament here: from the NDP, Ms. Ramsey; from the Conservative Party, Mr. Dreeshen, Mr. Carrie, and Mr. Allison; and from the Liberal Party, Mr. Fonseca, Ms. Ludwig, Madame Lapointe, Mr. Peterson, and Mr. Dhaliwal. They represent different parties, from all across the country, from British Columbia right to the Atlantic coast, so we have quite the representation on our committee.
Our committee has also been active in the last few years. Of course, as you're all well aware, we've just finished the European agreement. It has been in effect for the past few days. That agreement is a really big one for us.
We also did a lot of work on the TPP, which fell to the side, but we did a lot of study on it, which, of course, brought a lot of dialogue with our counterparts in the United States.
Our committee is quite active. We're a trading nation, and we're glad you're here.
We're going to go ahead. Usually a member of Parliament has five minutes for dialogue back and forth, and we move it around.
Without further ado, we're going to go right to the Conservatives. Mr. Allison, you're first up.
Thank you, and to you, Mr. Murphy, thank you very much for that. I know the chambers on both sides of the border are a valuable asset, so we're glad you're here today speaking on behalf of the U.S. Chamber of Commerce.
We certainly read the papers, as you guys do, in terms of what's happening or what's expected, and I know business gets it. We've heard from countless witnesses, and the first thing they say always is “Do no harm.” That was your first point as well.
When you look into your crystal ball, into someone else's mind, what would a win look like? We all agree that modernization should have some importance here. We need a chapter on digital. There are a number of things that the original agreement didn't do.
Obviously, we would like to see it happen quickly, but it takes a while to make these things happen. In your mind, what do you think the administration wants to see in terms of a win? Is it a total blow-up, a total rework, or trying to tweak around the edges? Could that be considered a win for the U.S. administration?
First, let me quickly say what we in the business community see as a win, and then I'll quickly pivot to that question.
We're looking for a modernization that takes a 23-year-old trade agreement and brings it into the 21st century with provisions, for instance, those relating to digital commerce. When NAFTA was negotiated, the worldwide web was invented that same year, I think. So e-commerce, the ability to do business online, not just buying a package and having it shipped to your home, but doing your online banking, selling insurance across borders electronically, downloading software across borders are all evidence that today we don't just trade in goods or services, we trade in digits as well.
We know how to do this. The TPP had language to do that. There are other areas, for instance, in the area of sanitary and phytosanitary standards, where more recent trade agreements do a better job than NAFTA did to ensure that the regulations, potentially the behind the border barriers that can impede international commerce, are based on sound science and therefore are not simply a tricky form of protectionism.
Those are examples of the kinds of modernization we're looking for. In its objectives, the Trump administration has emphasized a number of issues just like those. A few others have raised some questions. For instance, the first objective in their official document relates to the U.S. bilateral trade deficit. We at the U.S. Chamber do not believe that the trade deficit, the trade balance, is an appropriate yardstick for measuring whether or not a trade agreement or a bilateral trade relationship is working. Rather, it reflects macroeconomic realities. It's no more significant than in the case of the Murphy household the fact that I have a trade deficit with my grocery store or my barber or any other retail establishment I go to, but I do have a trade surplus with my employer. There's near universal agreement in the economics profession on that. It raises questions about what exactly are the trade policy implications of that.
To their credit, the U.S. administration has said they want to expand trade, that it's not by limiting imports that they hope to achieve that goal of more trade balance. But we're waiting for details on that.
Another objective that they've laid out is strengthening the rules of origin in NAFTA. We haven't seen specific text on this introduced by the U.S. administration yet. This causes us some concern though, because NAFTA already has some of the strongest rules of origin of any free trade agreement in the world. If you look at the auto sector, which is often at the fore in this, the 62.5% is higher than any other trade agreement. The concern is that if you raise that level substantially, it's a tool that cannot succeed in compelling industry to increase the North American content. After all, the U.S. external MFN tariff that we have on autos is 2.5%.
If complying with the bureaucracy and rules related to rules of origin is too complex, too costly, then companies will simply pay the tariff. There are a number of real world examples like that which we continue to try to impress on a negotiating team and try to push them in a productive manner.
Thank you for the question.
The softwood lumber dispute is one which of course has gone on for decades, and any number of trade lawyers have sent their kids to college in the various iterations of it. From the perspective of the U.S. business community, the U.S. Chamber of Commerce specifically, it's a dispute that at times has been difficult for us to wrestle with, because it pits the interests of producers against those of consumers.
I've been with the U.S. Chamber for about 18 years, and my hope over the years has been that over time we will see greater integration and less conflicts in this aspect of the relationship. That is something we can say, for instance, in the steel sector. There were more trade remedy actions in the steel sector 20 years ago than there are today. Today, the North American steel industry is really quite integrated, and there's less of that kind of tension.
We're not there yet. We're hopeful that negotiators can find a path forward that can address this matter and do so quickly. I think there's a hope out there that doing so in the near term could provide a boost of goodwill at this point in the NAFTA negotiations.
Adding to your comment, Mr. Murphy, about the integrated supply chains, if we look, for example, at softwood lumber, in New Brunswick there's a mill where one part is on the American side and the other half of it, the pulp mill, is on the Canadian side, or vice versa. It's called Twin Rivers. That's a great example of integration.
I'm wondering whether Americans are acutely aware, somewhat aware, or a little bit aware of the possibility that any disruption in trade could mean a loss of jobs on the American side as well as on the Canadian side.
I think that the past year has offered a kind of tutorial for policy-makers in the Congress over the benefits of the NAFTA today and the trade relationship we have with Canada and Mexico.
Last week, I went on a four-day tour of seven Midwestern states. One thing they all have in common is that they voted heavily for Donald Trump. Another thing they have in common is that they're all incredibly dependent on trade, and particularly trade with Canada and Mexico. As I travelled in this area, I visited manufacturers—I visited a large trucking firm, a technology company, a manufacturer of balloons—and I spoke at a number of state and local chambers of commerce. I did not find any reservoir of goodwill for the idea of abandoning the NAFTA.
In fact, at the first event I went to, Congressman Kevin Cramer of North Dakota said he was not aware of a single constituency in North Dakota that is in favour of withdrawing from the NAFTA. North Dakota is about the reddest state in the union, as we say. It's one of the states that voted for President Trump by the largest margin.
I finished my tour down in Kansas, and Senator Pat Roberts was at the event there. He's chairman of the agriculture committee. It's agriculture that sees this perhaps most vividly; it's not just manufacturers. Canada and Mexico buy more U.S. manufactured goods than the next 10 largest markets among our export partners.
In the Congress, I can see that that message has gotten through. I see it getting through with governors. I would have to say that I think Canadian diplomacy has played a positive role here as well. There has been a great deal of outreach, not just from the government, but from our good friends at the Canadian Chamber of Commerce, who have hit the road, as you all have, travelling to a lot of places.
NAFTA has been much maligned over the years, but I think there's a somewhat different perspective on it today. Opinion polling backs that up. The view of NAFTA is more favourable than it has been.
Thank you for being here.
My mother is a Murphy, so we have a lot of Murphys on both sides of the border.
I want to dig a little further into something you just touched on with my colleague, and that's the general understanding about trade that's happening between the U.S. and Canada, and the misinformation.
We saw what came out from Wilbur Ross this week around the rules of origin relating to auto manufacturing. It was quickly refuted by Canadian auto industry executives, and certainly by representatives from the government. We are very concerned about the rules of origin and that there seems to be a thought that there is a wider unfair practice that Canada and Mexico are engaging in around this.
You alluded to the fact that these haven't been tabled yet. The issue is quite concerning to us. I represent a riding in southern Ontario, right on the border, where there is a lot of auto-related industry. Do you have any idea when we can expect this important discussion to begin? What is the chamber's position?
As I said earlier, my riding is north of Montreal, in the suburbs. A lot of aeronautical components in the supply chain are manufactured there.
How should labour mobility be addressed under the upgraded NAFTA?
Should we draw on the Trans-Pacific Partnership or the Canada-European Union Comprehensive Economic and Trade Agreement?
In terms of labour mobility, are there any provisions that you would like included in the agreement?
Thank you, Mr. Murphy. It's great listening to you and your perspective.
We've had the opportunity, as a committee, to travel from coast to coast in the United States, in many of the cities. Actually, we were in Colorado, near your alma mater in Boulder, as well as in Denver. We heard how interwoven the beef industry is, the breeding, the growing, the processing, etc., and how it crosses the border a number of times before it hits somebody's plate.
We've heard from many chambers, and they all seem to be on board that we want to modernize NAFTA, that we want to make NAFTA that much stronger and better, but when we look at the public and we think back to the U.S. presidential election or now, or even during our elections in 2015, and now the upcoming election in Mexico.... We were going to have the opportunity this week....Unfortunately, due to the catastrophic earthquake that took place in Mexico City, we had to change our plans. It would be good to hear from our Mexican counterparts, as well as their chamber.
I know you've done a lot of work in Latin America, so I want to get your take on how this will play out in the Mexican elections. I'm sure they're talking about it already, NAFTA and this trade agreement. How is that playing out today?
Well, it's a good question and I have my view, but I'm sure, along with the process here, you'll hear from representatives of Mexican industry and other Mexican stakeholders.
The recent political developments in the United States have complicated U.S. relations with Mexico in a number of ways. I don't have to point out to this committee some of the rhetoric we heard during the electoral campaign, or even substantive debates now under way relating to deportations and the deferred action for child arrivals, DACA, or for that matter, the proposal for a border wall. All of these proposals, according to public opinion polling in Mexico, have had an undeniable impact on attitudes and it remains to be seen how it will shape the electoral contest taking place in July of next year.
It is my view that within the Trump administration there's an awareness of these political realities. I think that over time there's more and more of a sense that these are negotiations not just with a potential real estate partner, but with nation-states that have their own domestic politics. Going forward, it's going to be increasingly important to understand those and not engage in actions that could have an unintended consequence in terms of impacting the bilateral relationship between the U.S. and Mexico in an enduring fashion.
Thank you, Mr. Murphy, for being here today.
I had the opportunity last week to speak with Karen Harbert, your Global Energy Institute representative, to talk about some of the issues as far as energy is concerned. Coming from Alberta, I know that is extremely critical as we look at some of the issues that have been a challenge for us lately. Seeing the Keystone pipeline finally moving forward is certainly appreciated there.
Of course, the chamber of commerce...certainly a valuable asset. We've had some discussions on small business tax fairness, so we've been relying on our chambers of commerce to get some word out there. It's important in the work that you do, and coming here to talk to us about this is also very important.
You spoke about chapter 19 issues and you said there are some agriculture groups that have an issue with that. Which groups are those?
Mr. Murphy, welcome to you and your team.
You were mentioning that, and even when we were travelling through the U.S., we did not find a single person who is against NAFTA. They're all willing to work together among three nations. You also mentioned that even in one of the states, North Dakota, where they voted for the President in big numbers, they are saying that they are advocates of NAFTA.
The U.S. Chamber of Commerce, local governments, business organizations, private enterprise, all want this to move forward. What is stalling it, from the U.S. perspective?
What's driving it, you mean, if in fact the business and agriculture communities are not expressing serious concerns about the NAFTA?
As I've mentioned, there is a case for modernization of the agreement in a number of areas, and that's sincere and substantial. The U.S. Chamber of Commerce shared in the formal process of the Government of Canada soliciting input. We shared a document that outlines a number of points on that, but beyond that, President Trump was successful as a candidate and won the election by speaking to concerns, particularly across the U.S. Midwestern states, that appear to relate to social and economic change in that region.
To some degree, the concern was about immigration, and to some degree it was about manufacturing job losses, and NAFTA was blamed. It's a tale as old as time that the benefits of trade are spread diffusely and the costs are borne narrowly. That has been true with trade, and also true to the degree there has been manufacturing job loss in the United States, but U.S. manufacturing employment peaked in 1979. It has been on a downward trend since then, even though U.S. manufacturing output has doubled and even tripled since 1979. U.S. manufacturers are just more efficient than ever. They make more and more stuff with fewer and fewer workers.
I think we live in a time when candidates can tap into those legitimate concerns. I think what we in the business community need to do is find a way to channel those concerns into ways that will deliver real and practical solutions, such as apprenticeships and helping people get on a highway that's going to take them through the appropriate kind of schooling into real jobs in the private sector.
Do I see a permanent solution?
Mr. Sukh Dhaliwal: Yes.
Mr. John Murphy: Well, it's not the solution that policy-makers can bring up and impose, but I do think that over time there's going to be more integration in this sector, and that will make these kinds of trade disputes less likely.
I do think it's interesting that we're having this conversation now, in the wake of the hurricanes that hit Texas and Florida. There's a huge amount of rebuilding that has to take place, and it's estimated that steep tariffs on softwood lumber would only add pretty substantially to the cost of those new homes that have to be built. That's an interesting point that I'm sure is being delivered home to U.S. policy-makers right now.
Mr. Murphy, you talked about trade and its economic benefit and how it sprinkles across, and I think you're speaking to the converted here. We are kind of non-partisan, and when we travel, we all believe that.
I think the other thing we find, especially in going to the United States, is that the bonding we have with individuals is important, that connection when you're trading. You're talking back and forth. I think it also bodes well for how we work together when our countries have conflicts in the world. I think it's so key, that trade.
A few years ago I was in Egypt when they were signing a deal with Jordan and Israel, I think. Way back, they were so-called enemies, and somebody said that they wouldn't be doing a lot of trade but would be talking more. I think it's so important that we recognize not just the economic part of trade, but also the bonding between countries, peoples, and individuals. We even have marriages back and forth, and we trade hockey players. There's so much going on. Sometimes when we have a situation like this, when it's all on the table, I think it shows us more how much we have.
That's more of a statement. You can respond to that if you want.
I think it's an excellent point.
For the United States and Canada it's so obvious. We all know NAFTA families. In fact, my middle name is from a French-Canadian ancestor, so it's very common.
Perhaps a better example right now is to think about Mexico's progress in recent decades. I was a student in Mexico in the 1980s. Young people today wouldn't remember this but the United States, let alone Canada, was a very distant place for Mexico at that time. There was a single McDonald's in Mexico City. Middle-class families would take their children there on the weekend and it was a very exotic thing. English wasn't spoken anywhere and America seemed so far away. If you think about the journey Mexico has taken since then, Mexico joined the GATT in 1986. It wasn't even a member of the GATT; it had very high trade barriers. A few years later with NAFTA Mexico made a transition to democracy. Mexico today has a much more robust middle class and has become a major player in the world economy. Mexico back then used to export oil and today Mexico exports manufactured goods. It has much more sustainable economic prospects.
Yes, trade makes big changes in society, doesn't it?
The United States has withdrawn from the TPP and is not participating. When we're talking about this with the U.S. administration, we usually at that point say, “Well, I understand, but what's the strategy, then?” By the year 2022, two-thirds of the world's middle-class consumers will be in Asia. They have rising purchasing power, they love American goods, and yet there are high barriers. If it's not the TPP as a strategy to access those markets, what is it?
As for Canada and whether or not the so-called TPP 11 should proceed, you know, as an American I salute Canada's clear-eyed pursuit of its economic self-interest. The TPP, in our view, as we said loudly and clearly for a long time, as we advocated for it, is a good agreement. Can it be improved? Yes. There are some sectors of the U.S. economy that would have hoped to improve some areas, but it is very clear to us that the Japanese, for instance, want to play a long game with the TPP. They want to see it move forward someday with the United States. I think that's interesting, but for now the United States is going to remain on the sidelines of that conversation.
I don't often get to bat cleanup. I'm usually a number eight or nine batter, so I appreciate this, Mr. Chair.
Thank you, Mr. Murphy, for being here. I think it's appropriate that we're in Parliament itself today for this committee hearing. Long before NAFTA was around, I believe in 1961, President Kennedy, just a couple of hundred feet away, addressed the Canadian House of Commons and said the following:
Geography has made us neighbors. History has made us friends. Economics has made us partners. And necessity has made us allies.
Of course, this was long before NAFTA was around, or the Canadian-American free trade agreement, but I think those sentiments remain true today. I think your testimony certainly highlights some of that partnership that we'd like to see maintained beyond any renegotiating of NAFTA.
“Economics has made us partners”: I think that's the key thing for our purposes here. It's part of the reason that NAFTA is so important. I think President Kennedy was alluding to the partnership between Canada and the United States of America as countries, but there are also partnerships at the local level, and partnerships obviously at the business level. There are subsidiaries of parent companies on both sides of the border. This economic partnership far exceeds anything beyond just two nations and two countries. I think it's key for us keep that in mind. It's important to remember that. I am from an area of the country that relies heavily on auto manufacturing. Magna International is headquartered and has a lot of operations in my riding. Thousands of my constituents have jobs that depend on a robust manufacturing centre. The company is thriving and doing quite well, and of course I would like to see that maintained, so I appreciate your being here today.
I understand that you've been involved with a lot of trade deals through your professional role. I just wonder if you could elaborate a little bit, in the few minutes we have left, on the hallmarks of trade deals that you see as being successful. I agree with you that the trade balance or deficit is not the best barometer. What sort of measuring stick should we be using? What characteristics of trade deals that you see as successful should we strive for if we're striving to improve this trade deal?
Thank you. It's an interesting question.
In some ways, this NAFTA modernization is quite different from other trade negotiations. It's first of all different because we already have an agreement in place, and I think I would have to say it's really quite a good agreement. It's often said that it needs to be modernized, that it's old, but I have been impressed that some of the controversies of the past year have caused sectors and individual companies to come forward and share with us that they didn't even know it, but they were using the NAFTA to do something, and it turns out that it is pretty important to them. It is a peculiar negotiation because of that.
There are a number of areas where we can pursue, through negotiations, enhanced market access to one another's markets, but it's fairly limited because the NAFTA already delivered most of that. That makes it different.
I think about past free trade agreements between the United States and Latin American countries. There was always the enticement of that market access, and for the Latin American country, the promise of permanent access to the giant U.S. market. That made it possible politically to enter into not just the market access, but the rules provisions of the trade agreement, whether they are intellectual property protection, procurement rules, opening up services markets, and for a reform-minded government, the market access, and those other things, it was a chance to enter into a set of economic reforms that might have been difficult to do under other circumstances. That's what makes this a little different here today. I think we need to constantly remind ourselves of what we have right in front of ourselves. As George Orwell said, “To see what is in front of one's nose requires a constant struggle”. I think that is true when it comes to the NAFTA.