I call the meeting to order. Pursuant to the order of reference for Thursday, February 6, 2020, we are studying Bill , an act to implement the agreement between Canada, the United States of America and the United Mexican States.
Welcome to our witnesses who are here by teleconference and those with us in the meeting room. By video conference from Niagara Falls, we have CanadaBW Logistics, Kevin Jacobi, executive director; and from Tanzania, Eddy Peréz, international policy analyst with Climate Action Network Canada.
Here with us in Ottawa, from DECAST, we have Jim Tully, executive vice-president. We are expecting Bob Benner, from Hamill Agricultural Processing Solutions, shortly.
We will go with the video conference. Mr. Peréz, you are in Tanzania and I understand that you don't have the best connection in the world, so we will open with your comments, sir.
Please go ahead.
My apologies for the quality of the video. I am in Tanzania, in the traditional land of the Wa-arusha.
On behalf of Client Action Network Canada, we thank you for the invitation to address the Standing Committee on International Trade.
Climate Action Network Canada is the country's largest network of organizations working on climate policy, and the sister organization of the world's largest network of environmental organizations, regrouping more than 1,300 groups around the world.
I'd like to begin these remarks by standing in solidarity with, and highlight and support the work throughout 2018 and 2019, and the comments by member organizations like the Canadian Labour Congress, Unifor, the Assembly of First Nations, the steelworkers, and many other members who participated in the consultations and worked closely on NAFTA 2.0. I also support comments by our allies such as the Council of Canadians.
For over 25 years, NAFTA has contributed to climate change, toxic pollution, economic insecurity, and social inequality and environmental deregulation. This is a result of a trade system that Canada has prioritized in favour of corporations over people.
In the current climate crisis, we can't continue to promote trade models that lock ourselves into multi-decade trade deals that add fuel to a house on fire.
The questions that we have for you are as follows. Is the current CUSMA on the right side of history? Can we seriously use this trade deal to tackle climate change and toxic pollution? How is the new version of NAFTA different from the last one? Will it reassure those who are working inside and outside of this Parliament to ensure Canada upholds its climate obligations and responsibilities?
We therefore recognize, however, that the absence of any energy proportionality provision in NAFTA 2.0 is a clear win in environmental terms. The same applies to the deletion of ISDS. But is this enough?
Democrats in the United States voted against the ratification of the agreement because it does not address climate change, the greatest threat facing our planet.
Now that Canada is contemplating its ratification, we should focus on how to create domestic safeguards to ensure that while Canada implements this agreement, it does so while upholding its environmental and climate obligations.
Let me just remind the committee of the current state of play.
CUSMA fails to address, acknowledge or even mention the climate crisis. Most of the provisions in the environmental chapter are vague and remain largely unenforceable. Chapter 28 provides new avenues for corporations to influence regulation.
Considerable attention was given to fishing subsidies. However, that is clearly not the case for fossil fuel subsidies, which are similarly destructive and tell a sad story of North American's ongoing support for the high-carbon-intensive economy.
CUSMA shows again the deep deprioritization of the environment chapter to a point where specific wins, like the elimination of ISDS, are undermined by the complete lack of reference to environmental governance; and there is no mention of UNDRIP.
This deal hardly mentions pollution, and it does not include specific and binding terms to address documented pollution dumping. There are no independent and binding enforcement systems for environmental terms and it does not create an independent body to investigate and initiate cases against environmental abuses.
How do we move forward?
These are quick recommendations from Climate Action Network.
For us, climate action alone won't stand if it does not ensure that trade deals protect the rights of workers and also recognize the rights of indigenous peoples.
Acknowledging that because of the current political context, Canada was not able to ensure meaningful progress to include climate in the current text is not enough. Canada must ensure that this trade deal does not block our ability to respect our climate obligations and commitments.
How do we move forward?
Canada has committed to increase its climate targets and to reach net-zero emissions by 2050. Canada has committed to provide new nationally determined contributions, and those new NDCs rely heavily on expanding renewable energy, so there may be more disputes to come and we need to be prepared.
Here is what we encourage you to do.
Parliament should request an analysis on how this trade deal can support further climate policy, particularly in three key areas. The first is how CUSMA facilitates, or not, the trade of climate friendly goods and services and further strengthens the promotion of Canada's climate objectives. The second is how trade rules, at the very least, are not a barrier to climate policy goals. The third is how trade deals impact the international transfer of mitigation outcomes under article 6 of the Paris Agreement, particularly in the context of the Quebec-California cap and trade system.
Finally, we are way behind where we need to be. In this climate crisis, achieving climate objectives should be considered to be a legitimate reason for departing from trade rules. Such considerations are being considered in the EU. Weak clauses, even when enforceable, are not a guarantee that a trade deal can be seen as a tool for climate action.
Thank you very much.
Thank you very much. I appreciate being asked to be part of this conversation.
My name is Kevin Jacobi. I'm executive director for CanadaBW Logistics, located in Niagara Falls, Ontario.
To put it in context, my company is an import-export development company. We help local businesses support expansion of their exporting needs, as well as international companies find a home here in Niagara, for them to be part of our community and develop their businesses within the Canadian infrastructure.
I'm here to speak in support of the USMCA and the ratifications that are being done, in the hopes that it's going to give stability to our companies here.
We have a number of companies whose opportunities have been greatly impacted by changes in tariffs subjugating such things as steel and aluminum. Our client base here develop contracts between their suppliers and the people they're selling to that can last more over two to three years. When tariffs come in the middle of a contract, we don't have the opportunity to adapt or to evolve what we're trying to do as businesses. It impacts our margins or it dissolves our company.
Working with our chambers of commerce here, as well as being the executive director for both the Niagara Industrial Association and the World Trade Center Buffalo Niagara chapter, we see there being dramatic impacts from this uncertainty without this deal being ratified.
What we're hoping to see through ratification is stability in the market. We understand that there are going to be pluses and minuses, depending on the sector of business that our companies are in. However, we'll have the rules in place to allow us to make decisions that we can impact and can forecast beyond just the short term. We're firmly in the process of having.... I think we have a very small window for us to ratify, based on the political climate in the United States. If we don't take action soon, we may lose that window of opportunity.
Niagara—and Niagara is one of the largest trade networks across Canada, being a border community—has the busiest border crossing for people coming back and forth from Canada and the U.S., but it is also the second most important border crossing when it comes to total value of freight. We are one of the few areas in Ontario with a trade surplus.
The ratification of the NAFTA 2.0 or USMCA will solidify our ability to impact Canada's economy, as well as attract businesses and investment into our Canadian business cycle. One thing we do with my company—what we try to accomplish here—is to develop a landing point for international companies to develop manufacturing and marketing opportunities within our region to better impact their ability to do business with both Canada and the U.S.
We understand that Canada is a very small market compared to the U.S.. However, we are seen across the world as a stable market, a place of doing business in an environment that respects fair trade and other cultures. We give a landing point that allows them to have fair access to both Canada and the U.S. and, of course, Mexico, to a limited extent. We don't really have as much going here for Niagara in that respect.
We hope that the committee will take the advice of the people who are presenting to move forward with ratification and give Canadian businesses a stable platform for us to grow our communities.
Good afternoon. Thank you for allowing me to present before this committee.
My name is Jim Tully. I'm the executive vice-president of DECAST Limited.
DECAST is a manufacturer of precast concrete infrastructure products and is located just outside of Toronto. We directly employ over 500 people, and our supply chain affects another 3,000 people.
While NAFTA and now CUSMA should provide open markets to both sides of the border, history has shown us that this is not the case. There are several existing U.S. policies that have affected small to mid-sized companies like DECAST: buy America; buy American; the American Recovery and Reinvestment Act; and President Trump's executive orders on U.S. content. We've been affected over the last few years in the following ways.
Under buy American, for construction projects, contractors must use construction materials that are 100% manufactured in the U.S., with greater than 50% of materials coming from the U.S. Canada is exempt for contracts greater than $10 million; however, most of the projects that we bid on fall under this amount. Many states and municipalities also use similar geographic production requirements.
Under President Trump's executive orders, President Trump has clearly stated that he wants to buy American first and has incorporated this concept into three executive orders affecting buy America and buy American policies. These executive orders create more uncertainty for companies like DECAST.
The direct result of these policies has been that the Canadian market for infrastructure products is wide open to U.S. companies, allowing for predatory pricing and dumping. In 2018, DECAST lost the equivalent of 41 full-time jobs on projects lost to imports of U.S. steel pipe. Our understanding of the pricing by U.S. manufacturers is that it was at or below the cost to manufacture. Just last week in Winnipeg, a U.S. pipe manufacturer from Texas undercut local pipe producers. Given the distance they had to ship, they are selling at or below their cost.
In conclusion, to help manufacturers like DECAST Limited, Canada should impose domestic content preference on its infrastructure funding to provinces and municipalities, as recommended by the Canadian Manufacturers & Exporters. This type of domestic content preference could be implemented under the concept of reciprocity to account for true and open free trade.
Thank you for your time.
Thank you, Madam Chair, and I thank my colleague Chris Lewis for allowing me this time today.
As a former mayor and a deputy warden and warden of the County of Simcoe, I've had the opportunity through the years to work with the organization that is here to present today.
I want to thank you, Mr. Tully, for being here. I know you're a very busy man.
As you said at the beginning, yours is a company that's grown quite a bit through the years. We had expansions in 2011, 2012 and 2016, and in 2019, I believe it was a $12-million expansion and 35,000 square feet as well. It is a growing company.
It has done very well and in fact celebrated its 35th anniversary. It is incredible in today's economy to have that length of time. It's a large employer and, as well, during its 30-year anniversary, presented cheques of $15,000 to two local charities, the Women's and Children's Shelter of Barrie and, in Alliston, My Sister's Place. Through the years, this organization has donated much time and energy and is one of the key cogs, quite frankly, in Simcoe—Grey.
I had the opportunity through the Federation of Canadian Municipalities to help with that growth you were having in the industry to build upon what you have, and I know that through the years there sometimes has been a lot of red tape from organization. As well, we had the steel policy for a while and, at the end, the buy American policy.
Certainly our party believes in free trade, and ideally with less government involvement. I just wondered if you could speak a little more on how free trade affects you and, if we could make the playing field even, how that would work.
I have another question. I know that there's a $186-billion rollout for municipalities for infrastructure projects that, from what I gather, aren't getting out there in time. Could you speak also to the amount of business you get through the cities and the municipalities, how important this is for the municipalities that need that infrastructure and how important it is for you and for your organization to grow and expand once again?
From our perspective, the real effect on us has been that we have no ability to bid on U.S. jobs. We have no ability because of the uncertainty that's caused by buy America and buy American policies and by these executive orders that have come out. By the time the local proponent who's asked us to give them a price figures out whether they can use us as a supplier, the bids are closed. It's too late. So, we're blocked on bidding on pretty well any project.
How this affects us is that our U.S. competition—and I'm all for open and free competition when it's equal—has the ability to come into Canada to bid on jobs, and they use predatory pricing when they come up here. They use pricing that covers maybe their overheads, and they don't look at profit. They're just dumping. If I told you the prices that went in to Winnipeg last week, it's ridiculous. They're coming out of Texas, and they're 25% below the local guy. It's unacceptable.
They do this freely, knowing that we have no ability to retaliate. That's our real problem. Like I said, from my perspective, reciprocity is the answer: If you put this kind of policy on us, we do the same back. That's the only clear answer.
It worked about a decade ago when the FCM canvassed the federal government and was able to put a reciprocity clause into force. Right away, the U.S. took off the limitations on Canada. If we can do that again, especially in this climate that we're sitting in today, that would have a great effect and help companies like ours.
It's fair to say, as I mentioned in my statement, first of all, the approach of Canada and the U.S. on trade does require some type of enforceability—for example, for the environment chapter and other chapters. That said, enforceability does not mean that the clauses that countries agree to respect are ambitious enough to ensure that trade between two or three partners continues to negatively impact climate change.
Let me just give you a couple of examples of things that are not in CUSMA, and while this deal in some ways brings some key, important elements of progress, it does not allow for greater climate protection.
First, there are no binding climate standards within the text. Key Democratic leaders, such as the head of the Senate for the Democrats, voted against this deal. He said it did not address or mention the climate crisis.
The current NAFTA 2.0, far from including any climate standards, fails to even mention climate change. It is a glaring omission, with in fact NAFTA's incentive for corporations to dodge the hard-fought clean energy policies of the U.S. by moving to Mexico, for example, and eliminating jobs and perpetrating climate pollution.
You mentioned marine protection, and that is great. As I said in my statement, the three countries that are partners for the CUSMA actually address subsidies for fisheries, but there is no mention, for example, of how fossil fuel subsidies are going to be tackled by countries and reduced in order to encourage, and actually stop distortion in, the markets on renewables.
On clean air, water and land standards, the deal barely mentions pollution and it fails to include specific and binding terms to actually address documented dumping of pollutants.
For example, the text recognizes that air pollution is a serious threat to public health, and in that sense, you and I agree. However, it fails to include a single binding rule to reduce the air pollution that NAFTA has exacerbated.
From the 2018 version of the text to the 2019 revision, this revision actually repeats these failures and omits essential limits on air, water or land pollution. These are just some examples for you.
A lot of what we've done in the past is that we've been focusing on the FCM and trying to deal at that level and saying push for reciprocity as you did a decade ago when you were able to get around these policies and Canadian products were accepted.
We're not a massive exporter. We make concrete. Concrete's big and heavy. It's a tough thing to export, so our focus would be in the northeastern U.S. when we would sell stuff. We've gone as far south as Myrtle Beach.
When we talk about reciprocity, we just want to have the ability to go if we can. Right now we don't. Our market's being taken away from us in Canada by predatory pricing because it's open. I'm a strong believer in free trade. I've worked in 50 different countries in the world in my career, and I'm a strong, strong believer in it, but if you want to put some caveats on what you're considering as free trade, as the U.S. often does, then we should reciprocate and say that as soon as they drop theirs, ours are dropped. To me, it's a simple and effective way of ensuring that free trade is free trade.
I sat in front of Peel Regional Council back a number of years ago, and Hazel McCallion got up and she said, you know, there is no such thing as free trade and there never has been. That happens a lot of times because of these little side agreements that pop up, and they affect different businesses in Canada.
If there's any way within the new Canada-U.S.-Mexico agreement that some kind of understanding could be put in that, if you start putting these side agreements in, then we're going to reciprocate....
Madam Chair, I'll be splitting my time with Mr. Lewis.
I want to put something on the record as well. The parliamentary secretary continues to put on the record that the Democrats and the Republicans voted for this deal in the United States and, of course, they would. When the United States did their economic impact study, CUSMA was a net positive for the United States, a $68 billion net improvement.
The last time I checked, we're Canadian MPs whose job it is to analyze this agreement for Canada, and I don't know if the witnesses watched earlier, but we just got the economic impact study today from the government
The C.D. Howe organization last week was quite clear that this deal, compared to the deal we already have, is a net negative of $10 billion U.S., which is $14 billion Canadian. What we're trying to do on this side.... Mr. Jacobi, I want you to know that the deal will pass. It's going to pass this week and move into the Senate, so we are going to be moving this along, but unfortunately we have to... Well, I'm not saying “unfortunately”, but fortunately we are going to do our due diligence and make sure that for the families and businesses negatively affected by the deal, at least we'll hold the government's feet to the fire in making sure that programs and supports are there for them.
As far as Mr. Tully is concerned, you are right. Ten years ago Mr. Harper did negotiate an exemption for Canadian companies from buy American, and there was an opportunity in this agreement to do the same and, unfortunately, because of the weak leadership of our Prime Minister, he didn't do that.
I want to make that clear because I hear over and over that the Democrats and the Republicans supported this and that's why we should do. No. We're Canadian MPs. We're here to do the job for Canadians, to make sure Canadians' interests are looked after in this agreement.
There's no climate reference in the current text, so at this moment we can't have any kind of analysis on how this trade deal impacts climate and Canada's objectives related to the Paris Agreement, for example, or other multilateral environmental agreements that are not mentioned in the revised text.
We can compare it to many things, not necessarily in relation to NAFTA, but for the past two years, the Liberal government and Mr. Trudeau have been travelling around the world to sign new trade deals that are called progressive by including some kinds of provisions, for example, on the environment, labour rights, gender, indigenous rights and so on. If you do that kind of comparison between how Canada signs these trade deals, there is a great discrepancy between what Canada negotiates with the United States and what it does with Mercosur and what it does with the EU, particularly when it comes to the investor-state dispute settlement mechanism.
So at this moment, I think Climate Action Network is asking for a domestic clause so that Canada will have an assessment on how CUSMA either helps renewable energy companies invest in the U.S., or, if there are goods that come from the U.S. to Canada or from Mexico to Canada, that help Canada reduce greenhouse gas emissions. When you start doing that kind of analysis, you already get information that frankly hasn't been there in the past.
And the other element that I would bring to the table is that within the Paris Agreement, Canada has developed a nationally determined contribution, which is the pan-Canadian framework on climate change and the way Canada brings this pan-Canadian framework into force, compared with how other countries implement their climate targets.
So there are many opportunities for Canada to explore and compare how the trade deals it signs with the EU, Mercosur and the U.S. are impacting Canada's objective when it comes to climate change.
Thank you, Madam Chair, and thank you for the opportunity to ask a few questions.
First of all, I have a clarification for the record.
Mr. Dhaliwal suggested that about $125-billion worth of infrastructure investment has gone into our economy. In fact, the most recent report from the PBO, the Parliamentary Budget Officer, says it's less than $14-billion worth. This is a 2018 report, and only $14 billion worth of infrastructure investment had actually gone into our economy. Quite frankly, I don't think the figure is that much higher since then; we would have seen a much more significant economic boost.
I have a question for you, Mr. Tully. Thank you for appearing.
The North American Free Trade Agreement could have addressed buy America provisions. This has been an ongoing problem and friction between our two countries, with the United States imposing restrictions on the opportunity for Canadian companies to participate in large infrastructure projects, while we as Canadians don't reciprocate with those kinds of restrictions on American companies doing business up here. The North American Free Trade Agreement was the perfect opportunity to fix this problem.
Are you disappointed that the agreement didn't address this issue?
It's a great discussion. We've been talking about American politics, Canadian politics and other comparisons. I've been 23 years in politics, with a majority of that time spent at the municipal level, so I understand when Mr. Tully or my friend from Niagara is talking about bidding on contracts and municipal processes and whatnot. One thing that's important to clarify is that a lot of the difference between the American and Canadian systems is when you talk about a buy local program—let's call it a buy local program, namely, buy America versus buy Canada—the vast majority of infrastructure programs are actually under the purview of the provincial and territorial governments where they exist.
In our federated system—I also studied political science at university in Michigan—it's quite different. Our federal government, through our historic infrastructure funding programs, transfers said dollars to the provinces and territories. The provinces then reach agreements with municipalities, etc., and it is implemented locally.
The reason I know this, too, is that I come from Sault Ste. Marie, where we make a whole bunch of steel. I'm always very interested to see the maximum amount of steel in the infrastructure program. In fact, I had a private member's motion I put forward on the floor to do this, and in doing so, I learned a whole bunch more. In fact, a vast majority of infrastructure programs are under provincial or territorial jurisdiction, so we need to work closely with our Ontario or Alberta or Northwest Territories counterparts to enact those provisions to see those local benefits. You would need to see a buy Ontario campaign for Ontario infrastructure programming. I know the previous Liberal government had put forward such a program, but it was undone by this current Ford government.
That is one of the issues at hand here. This is an important discussion to have, but this is a big difference between our governments. Sure, there is still federal programming, including around defence. In fact, Algoma Steel was successful in garnering a federal contract—a buy Canada program, if you will. Around things related to security, certain provisions can be instructed by the minister to said businesses involved in the contract process. They can't influence and say that Algoma Steel or Stelco or this engineering firm gets it, but they can say that special provisions, under national security advice, will be garnered towards a Canadian company.
Algoma Steel was...not lucky, but successful. The definition of luck is when planning meets opportunity. I remember hearing that once. They were successful in garnering the royal shipbuilding program for the current program. That's going to mean jobs. That's going to mean a whole bunch of engineers. Canadian engineers in Sault Ste. Marie are hard at work figuring out the—
I will call the meeting to order. Pursuant to the order of reference from Thursday, February 6, 2020, we are here to study Bill , an act to implement the agreement between Canada, the United States of America and the United Mexican States.
Thank you to the witnesses for coming today.
We have Brian P. McGuire, president and chief executive officer of Associated Equipment Distributors, by video conference from Illinois; and from Toronto, we have Greg Johnston, President of the Songwriters Association of Canada, by video conference as well.
Here with us at the committee are Garry Neil, cultural policy consultant from Neil Craig Associates, and from the Canadian Union of Public Employees, we have Angella MacEwen, senior economist, national services.
We will start with Mr. McGuire via video conference.
The floor is yours, sir. Go ahead, please.
Good evening, Madam Chair, members of the committee and fellow panellists.
I am honoured to bring remarks on behalf of the Associated Equipment Distributors, AED, to the committee this evening.
Madam Chair, I also want to publicly recognize your work on construction and infrastructure policy issues over many years and to, of course, thank you for taking the time to address our association's membership during their visit to Ottawa in the last Parliament. Your leadership is very appreciated by our members on both sides of the border.
AED is the international trade association representing companies that sell, rent, service and manufacture equipment used in construction, mining, forestry, power generation, agriculture and industrial applications—products essential to building and maintaining critical infrastructure, including roads, bridges, pipes and waterways. Additionally, we provide equipment vital to natural resources and agricultural sectors across Canada.
Our member companies operate and have locations in Canada, the United States and Mexico. In Canada, our members have more than 420 locations that employ 27,000 hard-working men and women in rewarding careers. In North America, every year these predominantly small and medium-sized, family-owned businesses generate over $60 billion U.S. in revenue. While based in the United States, AED is truly an international trade association. In fact, in 2021, AED's board chair will be an executive from a Canadian-based company.
AED has been a leading advocate for modernizing a trilateral North American trade agreement both in Canada and the United States. As a pro-free trade organization, we made the accord's ratification a top policy priority in Washington. AED worked closely with congressional leaders in a bipartisan manner, and I was honoured to be present last month at the White House when the President signed the agreement into law.
I'd like to congratulate all parties for their efforts to deliver a trilateral trade agreement that will continue to align Canadian, American and Mexican interests. However, it's now time for Canada to join its partners in the United States and Mexico to complete ratification of the Canada-United States-Mexico agreement by swiftly approving the enabling legislation in the House of Commons, and ultimately the Senate of Canada, to provide much-needed trade certainty for the Canadian equipment sector.
The Canadian equipment sector, which relies on cross-border trade between the United States and Mexico, is particularly susceptible to economic uncertainty because essential goods and commerce flow across the southern Canadian border every day. This makes quick approval vital to our industry's prosperity. Efficient delivery of heavy equipment, machinery parts and services helps keep costs low for our customers—the farmers, the road builders, the contractors—and provincial and local governments across the country. Rising costs result in less capital to invest in businesses, employees and job creation. Delays in product delivery create inefficiencies and postpone major infrastructure projects that benefit Canadian citizens and commerce.
Ratification of CUSMA would be a win for all Canadians, and its prompt ratification is essential to the prosperity of the equipment sector. AED believes that CUSMA strikes the right balance between protecting Canada's interests and ensuring the free flow of commerce and goods in North America.
We have advocated for a quick resolution of these negotiations both in Ottawa and in Washington, D.C., and have promoted the benefits of reaching a deal quickly in both countries to deliver business confidence, which is a key driver of new investment in the construction, energy and agricultural sectors. We have made every effort to ensure that both Canada and the U.S. are aware of the difficulties that would come from a bad deal or a long, drawn-out process.
I am appearing before you today to appeal to your sense of urgency and to underscore the point that we need a resolution quickly. Mexico and the United States have ratified this agreement and are ready to proceed. AED is calling on parliamentarians to ratify the agreement promptly.
If amendments are suggested, the deal will have to be reopened. Businesses operating in natural resources, construction and agricultural sectors will be facing delays.
Stakeholders from across industries have been broadly supportive of concessions made in Canada and the U.S. to arrive at this agreement. It is time to move forward.
In closing, I wish to commend the efforts of Canada's negotiating team for its approach to working with its counterparts in the United States and Mexico. I also wish to express thanks to the members of this committee from all parties who are working to ensure that the agreement receives a comprehensive hearing while also taking measures to ensure that it can come into force quickly. By modernizing and strengthening the trade ties among the three countries, CUSMA will help restore predictability and trade certainty to North American equipment markets, creating an environment for greater investment, well-paying jobs and sustained growth.
I thank the committee for its time.
Thank you, Madam Chair and honourable members. Apologies for not appearing in person today, but Mother Nature obviously had different plans for us. It is a privilege to speak with you this afternoon, and, as always, I congratulate the committee for allowing and welcoming input from creators directly.
I would like to focus my remarks today specifically on copyright term extension and the benefits that immediate and unencumbered ratification would have for the creative community.
It is important to note that term extension is widely supported by the creative community in both French and English Canada, in North America through Music Creators North America, and globally by CIAM—the International Council of Music Creators based in Paris, France, which represents some 500,000 professional music creators globally. Beyond the creator community, ratification is supported by the Canadian collectives SOCAN and CMRRA, and also by our publishing partners Music Publishers Canada in English Canada and APEM in Quebec. This is significant in and of itself, and I urge the committee to recognize this unanimity throughout the remainder of its deliberations.
The importance of copyright: Copyright is not an abstraction for us. It is not merely the work product of policy experts or the musings of law professors. It is also not a mechanism to punish consumers. Copyright is quite simply our currency, our lifeblood, our ability to feed our families and to pay our taxes. It is our survival.
The reality: If I may be direct, Canadian creators are under threat. Digital disruption, safe harbours, and overreaching exemptions have all contributed to an environment that can be described only as precarious. In an increasingly global marketplace, the dominance of American-owned streaming companies further exacerbates the problem due to lack of Canadian discoverability and the absence of investment towards the creation of domestic content. The government's recent Yale report, in addition to the EU copyright directive, provides solutions critical to creator sustainability and a much needed return to a more balanced digital marketplace, one that is sustainable for creators in Canada and globally.
Why term extension? Term extension is only one of many problems creators face, but it is one of vital importance. Over 60 nations, including France and the EU, the U.S., Australia and the U.K., have adopted the “life plus seventy” model. Harmonization with our trading partners eliminates market confusion, promotes international investment, and provides critical leadership on the importance of IP protection. Many creators struggle to achieve long-term financial stability. RRSPs and many other financial mechanisms are simply not possible for some members of our community. Term extension increases the worth of our copyrights, as their valuation is often calculated on the amount of time a catalogue may be monetized into the future, therefore increasing our ability to leave meaningful financial legacies to our heirs. One can simply look to the tragic and premature death of Stan Rogers, who left behind a widow in her twenties and a small child, to grasp the very human and moral implications term extension can have for our music community.
Our publishing partners: For many Canadian creators, music publishers provide important partnerships and sources of career investment. Term extension increases the window of monetization for publishers. This long-term financial predictability for our partners will provide critical support to invest in the careers of creators. This committee has heard arguments that term extension is of benefit to only publishers. This is a serious distortion. It is critical to remember that every dollar a publisher makes is directly tied to a creator's work. We are also beneficiaries. In most cases we music creators receive from 50% to 75% of the revenue generated from the uses of our works. Independent self-published Canadian music creators will often receive 100% of revenues. To omit the creator's involvement from the equation dehumanizes the process, excludes us from the discussion, and minimizes our already undervalued involvement in the value chain.
I'll turn to the burdens of registration. Through our collection societies, our works are already registered accurately and robustly. To add another level of bureaucracy is not only inefficient and wasteful but also onerous and prohibitive to our heirs and publishing partners. Extra layers of registration can only lead to confusion, redundancy and potential abuse.
In conclusion, progressive IP protection is a cornerstone to innovation and creativity. Healthy and fair copyright law promotes stable, sustainable and democratic ecosystems for creators. Currently, Canadian creators are better treated in many other territories than here in our own. Countries that have adopted the life plus 70 standard enable dynamic, cultural communities that benefit consumers and creators alike—without the dire and hyperbolic negative consequences some would mistakenly predict. I urge this committee to recognize the economic, cultural and moral benefits that unencumbered ratification would bring to our community and to the countless many who enjoy and are inspired by our works.
I'd like to thank you, Madam Chair, and the honourable members again for the opportunity to speak directly to creator concerns. I'd be happy to answer any questions.
Thank you for inviting me here to speak on behalf of the Canadian Union of Public Employees, or CUPE. CUPE is the largest union in Canada. We represent over 700,000 workers across the country in about 2,000 different local unions working in diverse sectors for both public and private sector employers.
CUPE welcomes the improvements to the updated NAFTA, but we believe that some flaws remain, ones that create barriers, for example, to effective climate action and for protection of public services. Furthermore, one that we don't think there's enough information about is the language on regulatory co-operation.
In our view, the agreement falls short of a progressive deal. Instead, it could be better thought of as moderate improvements to an outdated and ineffective model of trade and investment treaties.
We do applaud the changes to the intellectual property chapter that House Democrats in the United States were able to negotiate in December. That will avoid projected cost increases to medicines. Under the initial text, we would have been required to extend data protection periods on biologic medicines from the current eight years to 10 years. Those longer data periods extend the time it takes for cheaper generic versions of biologics to be available. That will be helpful when we introduce a universal national pharmacare program, making it more affordable to do that. The IP chapter also allows for domestic regulation of evergreening now, which was a practice where drug companies made small and medically inconsequential changes to medicines to obtain a new patent. The previous version had not allowed regulations to prevent that, but now we will be able to regulate against that practice, which inflates drug prices at no benefit to patients. We're really glad to see those particular changes, as we think that a national pharmacare program is really important.
Labour rights have been strengthened through the new rapid-response mechanism between Canada and Mexico. As you know, if a specific workplace is suspected of violating freedom of association or collective bargaining rights, which are constitutional labour rights in Canada, an independent panel of labour experts can investigate. One gap in this mechanism is that it's restricted in terms of what work it covers. The facilities that are covered don't include agriculture, forestry and fisheries, which are where a lot of labour rights violations involving migrant workers would occur. This rapid-response mechanism basically leaves out migrant workers, even though migrant workers rights are in the full chapter on labour rights.
We're encouraged that the burden of proof for labour and environmental violations has shifted; all violations are now assumed to impact trade and investment unless proven otherwise. What had been shown in United States history is that in including that little clause, you had to prove it was connected to trade violations. That made it virtually impossible to ever meet that burden of proof. Removing that gives the potential for the labour chapter to be enforceable. We'll have to see how that plays out, but it's definitely encouraging. It's a significant improvement over the original NAFTA labour side deal. It includes clear language that commits each country to implement policies that protect workers against wage and employment discrimination on the basis of sex, including with regard to pregnancy, sexual harassment, sexual orientation, gender identity and caregiving responsibilities, which is really important. This mainstreams a gender lens into the labour chapter.
We're encouraged that the environmental chapter now recognizes the obligations that nations may have from some international environment treaties. We think that what often tends to happen is that we sign these international treaties, but we can't be held to them; they're not as binding as a trade treaty and so a trade treaty always trumps the environmental treaty. If we can include references in our trade treaties to the importance of these environmental treaties or labour treaties that we've signed onto, that would help balance the playing field. It's problematic that the Paris climate agreement is not one of the recognized treaties. That means that NAFTA continues to ignore the threat of climate change and limits government responses to deal with the crisis.
We know that Canada has to act quickly to respond to the climate crisis and that transitioning the economy in a fair and rapid manner will require expanded public services, increased public ownership and revitalized not-for-profit sectors. There would also be benefits to a much stronger role in government regulating the economy and providing direction through green industrial strategies, for example, as Ontario tried to do but was not able to because of trade deal restrictions in procurement.
We definitely think that, for a new generation of trade to transition quickly, we need to look at how trade agreements are putting barriers in place.
The regulatory co-operation chapter locks in Canada's current approach to regulating. It gives multinational industrial interests several entry points into Canada's regulatory system. One of the key issues is the focus on regulating based on scientific evidence. This sounds like it's good but limits your ability to use the precautionary principle, which is what Europe uses in order to regulate health and safety. If you can imagine, make a case for why something could possibly cause harm if you can't regulate it until you've let it out into the marketplace and it has actually caused harm. We think that's problematic.
We think that, overall, our approach toward trade and investment should be to view it as means to enhance our financial and social well-being, not as an end in its own right. We think that proposals for a progressive trade agenda, as we're going forward, should be judged against principles such as human rights—including social, cultural and environmental human rights—and that people's rights and their environmental rights should have primacy over corporate and investor rights. There need to be legally binding obligations on transnational corporations. These treaties should not just be about the rights of transnational corporations; they should also enforce their responsibilities.
Democratic governments need to maintain their policy space to pursue and prioritize acting in the public interest. We're often told that we're able to, but again and again we come up against governments that say they cannot do something because they've signed a trade deal and are restricted. When that is the case, there's a conflict there. A climate friendly approach should be adopted whenever we're pursuing trade and investment. That's absolutely unquestionable from this point forward.
We're also disappointed that there will not be a full and transparent public process of consultations prior to the federal government's ratifying the deal. We recommend that, in the future, the committee's deliberations should be informed by an independent analysis of the deal's impact on our economy. The analysis should look at the critiques of the current CGE model for economic assessment, and it should look at, as was pointed out in the previous section of the panel, what you are comparing it to. Are you comparing it to no NAFTA or to what we had before?
Thank you very much.
Thank you very much, Madam Chair. Thank you, honourable members of the committee.
This is at least the fourth time I've had the pleasure of appearing before this committee, following appearances in April 1999, December 2002 and May 2018. I think I appeared a couple of other times earlier in the 1990s, but I can't find a record. Each time I've been here to talk about the cultural exemption, l'exception culturelle, to discuss why it is essential to preserve Canada's sovereignty to implement the public policies we need to support Canadian artists; film, television and record producers; publishers of books and magazines; musicians; actors; visual artists; and others who are so vital to nation building.
I want to note that each political party that's with us today has played an important role in ensuring that our cultural policies are more or less exempt from the provisions of our international trade obligations. The original exemption in the Canada-U.S. Free Trade Agreement was negotiated by Brian Mulroney's Conservative government. I served on the arts and culture SAGIT when John Crosbie was trade minister and the FTA became NAFTA.
Successive Liberal governments have continued the exemption and supported Canada's lead role in negotiating the 2005 UNESCO Convention on the Protection and Promotion of the Diversity of Cultural Expressions.
Quebec played a critical role in negotiating the UNESCO convention, and the Bloc Québécois has been an outspoken advocate of l'exception culturelle. The NDP has been a strong supporter of Canadian arts and culture, and the cultural exemption. I also want to note that in the room today is the Honourable . When he was trade minister, the Canada-Korea Free Trade Agreement was negotiated, and it includes the a cultural exemption.
I want to leave the committee with three key messages today. One, the committee should endorse the earliest possible ratification of CUSMA. CUSMA's cultural exemption is far stronger than the original NAFTA and, given the weakness of the cultural provisions in the CPTPP, it's critical for Canada to have an exemption in its most contemporary trade agreement.
Two, please understand the limitations of CUSMA's cultural exemption. It's not perfect. It has an antiquated and problematic definition. It comes with obligations to change policies, and it has other limitations.
Three, this committee needs to address the link between CUSMA and other trade agreements, particularly as we continue to deal with our powerful southern neighbour on cultural matters.
Why is it important to ratify CUSMA? While it surprises many people, the reality is there is no cultural exemption in the original NAFTA. Instead, it incorporates the cultural provisions of the Canada-U.S. FTA by reference. Since CUSFTA was a bottom-up agreement, its scope was narrow. NAFTA is a top-down agreement, meaning it covers every economic sector, including those that develop in the future.
Arguably, the cultural exemption, then, related only to the limited number of economic sectors in CUSFTA, putting at risk more contemporary policies related, for example, to online, on-demand services like Netflix. This significant problem is solved in CUSMA, and I congratulate Steve Verheul and his team for understanding this, because the cultural exemption is direct and comprehensive. Measures adopted or maintained by Canada with respect to a cultural industry are exempt. This includes the chapter on digital trade.
While it's important to ratify CUSMA, please do so fully understanding the limitations of its cultural exemption. In all of our important trade agreements concluded since 1987, we've done the same thing. In theory we have a cultural exemption. In practice we trade away some cultural policies and limit our capacity to implement new ones. This is the case with CUSMA.
The definition of “cultural industries” is unchanged from the original NAFTA. This is a 1987 definition that does not cover visual arts, performing arts and crafts. Most of you around the table are too young to even know what the antiquated term “machine readable form” is, but you'll find it in the definition. Such a definition is unlikely to sustain policies and programs Canadians will need for a medium future artists will use to create their works.
The notwithstanding clause is continued. This is a clause authorizing retaliation of equivalent commercial effect against any measure supporting the cultural industries that Canada should implement in future.
There's a new dispute settlement provision. While it's good that Canada could now challenge a retaliatory measure, the powers of the arbitrator include determining if Canada's measure properly falls under the cultural exemption in the first place.
There is incredibly convoluted and obtuse language in article 32.6.3 that would seem to permit the U.S. to retaliate against Canadian cultural industry firms in a greater amount than the standard of equivalent commercial effect.
CUSMA contains a number of specific broadcasting policy changes. These include a requirement to overturn the CRTC's Super Bowl simultaneous substitution decision. I'd love it if somebody asked me about that, because I could tell you the secret story of the simsub ruling. This is a good thing, by the way. It includes expansion of the rights of U.S. border stations under our retransmission rules, and it guarantees U.S. home shopping services will be carried by Canadian cable, satellite and Internet protocol television distributers.
CUSMA also requires Canada to make changes to the Copyright Act, as you've already heard. Some of these are very positive, as my colleague Greg Johnston has pointed out about the increase in the term of copyright protection, but some of them are a little bit more problematic. For example, while the changes respecting technological protection measures and rights management information are minor, the detailed rules concerning civil and criminal remedies for tampering with digital locks and watermarks are likely to put pressure on Canada's system to implement stronger penalties.
The agreement also allows us to maintain our notice and notice system of liability when an Internet service provider is advised of a copyright infringement, but it establishes the U.S. notice and takedown system as the standard. This too will limit Canada's ability to evolve its own laws.
Finally—and I'd urge my colleague Greg to take a look at this one—there is a new provision in the agreement that requires national treatment, a national treatment obligation for all copyright measures. This will overturn our existing ability to distribute royalties only to Canadians unless there is a reciprocal right in the partner country, and this will erode payments to Canadian artists. Although it's not a huge amount of money, it will erode some payments.
Given all of these issues and challenges with CUSMA, why am I still recommending urgent ratification? The answer, quite simply, is CPTPP. Put bluntly, that agreement is by far the worst trade deal for culture that Canada has ever negotiated. CPTPP, of course, started life as the trans-Pacific partnership and most TPP terms are included in CPTPP by reference.
TPP's treatment of culture is atrocious. There is no cultural exemption, and the preamble provision recognizing the importance of cultural diversity is simply factually incorrect when it says “that trade and investment can expand opportunities to enrich cultural identity and diversity at home and abroad”. I tell you that, left unregulated, trade and cross-border investment bring cultural homogenization and not cultural diversity.
Canada tried weakly to protect cultural policy-making space by taking a reservation against commitments in a number of TPP chapters, but it's critical to understand that a reservation is not an exemption. It's one-way. It's not mutual, and in international trade law it's subject to the principles of standstill and rollback. If you change a policy reserved in an agreement, you cannot make it stronger, only weaker, and it is assumed by all parties that the reservation will eventually be eliminated.
Thank you very much, Madam Chair.
I want to thank all of the witnesses for being here.
I'd like to start today with Mr. McGuire. First of all, I want to thank you, sir, for all of your work and support in making sure that there is an agreement. We on this committee travelled down to the United States a few times, and it was really nice to see the support in the American business community for making sure that we got a deal done.
You made a couple of comments—I want to correct the record a bit—that there may be a delay in passing this. There was a bit of a whisper campaign in Washington that the Conservatives were trying to slow this down. If you're talking to any of your friends down there, just so you know, the Conservatives moved this through the House in six sitting days. That's compared with 16 days for the original implementation legislation, which was our Bill C-100. The Conservatives offered to do a prestudy back in the spring, but the Liberal government declined to do that before the election. We also offered to come back in early in December to deal with it, and the Liberal government declined that offer as well. I just want that to be clear. This will eventually pass, but it's not because of anybody on this side of the table slowing things down.
I want your comment on the buy American clause. Our former prime minister, Mr. Harper, was able to get a Canadian exemption from that. My understanding is that with this agreement, Mexico has an exemption and Canada doesn't.
What are your thoughts on that and what do your members think, given that many of them who buy your equipment build infrastructure, bid on infrastructure? Do you have comments on this buy American clause? We had an opportunity to negotiate it out—this is supposed to be a free trade agreement—but unfortunately we weren't successful.
It was extremely disappointing to many of our stakeholders.
On the panel just before you, we had a gentleman involved in building infrastructure. He was very concerned that because the government was unable to negotiate it out of this agreement, it could be problematic for him.
Thank you for your comments on that. It's nice to see there are similar thoughts on both sides of the border. We can maybe do something to move that forward.
Mr. Neil, I want to talk to you. First of all, thank you for coming in.
We had another witness—I think you know Professor Michael Geist—who is a leading expert in the world. He's done work not only in Canada, but in the United States and the U.K. He mentioned challenges with CUSMA as well. He had a more, let's just say, grave comment. He said that we have this cultural exemption, but the cost is that we open ourselves to retaliatory tariffs. I believe he cited CUSMA article 32.6.4, which I think you mentioned in your opening remarks. There are some wording issues in 32.6.3 as well. There is a big concern that it would limit our policy options as the digital field evolves.
I am wondering if you could comment on that. I realize that you want this passed, and I understand the rationale for it. From our standpoint on this side, we are certainly not going to do anything to slow it down, but we want to do our due diligence.
In your opinion, sir, is there a fix to this glaring, I would say, failure in this agreement? Opening ourselves up to these retaliatory tariffs or limiting our policy options in the digital field and how it's evolving so quickly are problematic. Do you have a [Technical difficulty--Editor]?
It's interesting, because I know Michael Geist very well. He and I have been on the opposite side of many issues, but I don't really disagree with him on this one.
The question you have to consider is the degree of threat that any retaliation clause represents. NAFTA had a retaliation clause. There was only one case in our history when the U.S. even threatened to retaliate. They didn't retaliate, but the threat was put on the table. That's the only case.
Yes, if they are still able to retaliate, I'm worried about that. I think we should all be worried about that. I would have felt far, far better had it been removed from the agreement, but it wasn't. I think on balance, when you have the strength of the cultural exemption versus the theoretical risk of additional retaliation, which we have never experienced in our history, I think it's work pursuing.
My greater concern is the limitations we've already agreed to and impose. We're kind of narrowing our cultural policy scope as we go through each of these trade agreements.
Thank you, Madam Chair.
I want to thank all of you, obviously. You all come from a range of different fields and have analyzed this.
My first question is for Ms. MacEwen. I want to say that you're very well-informed on this. On behalf of your membership, you made a very broad analysis in a very concise period of time for us.
You've stated that it helps labour rights much more than ever before. I think on biologic drugs it's much better, as you have stated, which will help with future plans for pharmacare. There was some other stuff, I think. I can't quote you on that exactly, but, in terms of pharmacare, it would help, from what you stated.
Have you, your union or other unions like yours been consulted in this much detail with other trade agreements or is this a first? Has it been ongoing?
Thank you, Chair; and thank you very much to all the witnesses for appearing here today.
Ms. MacEwen, I want to go back to some of your comments about consultation. Granted, we have heard that a number of organizations typically are not satisfied with the level of consultation, more than those that feel they were more included. However, as you say, that depends upon the political culture of the day and the whims of government. It's always nice when winds tend in the right direction, but it's not the same as a guarantee.
It's something that we, in the NDP, have tried to make part of this process of talking about trade. We're happy to get some commitments from the government on making at least their initial negotiating objectives public before entering into negotiation, and having to provide an economic impact assessment—which seems like an odd victory, because you'd think it was common sense. Certainly, in a lot of other jurisdictions with which we trade, it is part of their process. We have that coming now in Canada. It's a good first step.
Could you speak a bit more about the importance of civic engagement and what it means to have, as matter of policy or law, clear expectations about what type of information Canadians can expect to get from their government with respect to trade agreement negotiation, and the difference that can make?
I call the meeting to order. Pursuant to order of reference of Thursday, February 6, 2020, we are studying Bill , an act to implement the agreement between Canada, the United States of America and the United Mexican States.
To our panel of witnesses, welcome to all of you this evening. Thank you for coming. I guess I could ask what the weather's like outside because most of us have been inside, but at least you managed to make it, no matter how much snow is out there. We appreciate your being here.
From the Centre for International Governance Innovation, we have Bob Fay, director, global economy; from Kalesnikoff Lumber Co. Ltd., Ken Kalesnikoff, chief executive officer; from Woodtone Industries, Kevin Young, chief executive officer, and Francis Schiller, adviser.
By video conference from Guelph, Ontario, we have Linda Hasenfratz, chief executive officer for Linamar Corporation, and from Vancouver, British Columbia, via video conference, Andy Rielly from Rielly Lumber Inc.
Welcome to all of you. We appreciate your being here.
Mr. Fay, I will turn it over to you for five minutes of comments.
Good evening, and thank you, Madam Chair and committee members, for the opportunity to present the views of the Centre for International Governance Innovation.
By way of introduction, we go by “CIGI”. We're an independent, non-partisan global governance think tank based in Waterloo, Ontario, and we conduct policy-relevant research exploring global economics, security, politics and international law, with a focus on digital economy issues. Given this background, my comments will relate to Bill and data and intellectual property.
Canada has focused substantial resources and effort on new trade deals to reinforce the rules of the game in international trade, and rightly so. Trade is at the heart of our prosperity. New trade agreements are necessary to open up new markets and preserve old ones, and revised rules are necessary as economies change and to minimize trade frictions.
We fully understand that trade-offs were necessary in negotiations of CUSMA and that hard choices had to be made. We believe that the ratification of this agreement will remove some of the trade uncertainty that has dampened economic growth, and my remarks are not designed to hold up ratification.
Rather, my objective tonight is to highlight how commitments made in CUSMA related to data and intellectual property may inhibit Canada's ability both to innovate and to develop our own domestic policies. Then I'll offer some suggestions on the way forward.
In particular, CUSMA fails to consider the implications of how the nature of trade is changing, moving away from scale and cost efficiencies to, first, intellectual property creation; second, the rise of big data as an economic and social asset; and, third, the resulting imperative of asset protection.
What Canada agrees to in these areas has very wide-ranging repercussions for Canada in many forward-looking areas, including our ability to harness data in new technologies such as artificial intelligence, as well as fundamental domestic policies related to privacy, security, intellectual property, foreign direct investment, competition and innovation.
Yes, that list is long, and it touches upon all aspects of our economy, and indeed our daily lives, yet we are dealing with these issues currently largely through a trade lens, via a trade agreement that is dominated by U.S. interests. I would also note that the recent mandate letters charge the ministers for , and with the main task of coordinating new digital and data rights, which recognizes that there are substantial societal issues related to the use and monetization of personal data.
Indeed, data is an extremely valuable resource. Statistics Canada—and very good for them—has placed the value of Canadian data at over $200 billion, which is about two-thirds of the value of our oil assets. This number is extremely large, but it pales in comparison with other countries, namely, the United States. For example, the market cap of U.S.-based Facebook, Amazon, Netflix and Google is about $4 trillion U.S., and that high valuation results from their monopoly positions and huge data stores.
Further, these companies are cementing their market positions each and every minute with their continued acquisition of all varieties of data through user engagement with their platforms and fierce protection of their assets by a combination of the de facto rule-setting in the absence of national regulations; trade deals that enshrine open data flows; strong intellectual property protection of their data and AI assets; takeovers of innovative firms through their vast reserves of cash; the acquisition of top talent; and, the powerful information asymmetries that they gain with their data and their technologies.
The bottom line is that the data is their intellectual property, and their interests are behind the digital chapter in CUSMA.
We have three examples of some of the commitments in that trade agreement that favour them.
The first is the treatment of data localization. This part of the agreement is short and not so sweet. It says, “No Party shall require a covered person to use or locate computing facilities in that Party's territory as a condition for conducting business in that territory.” From a commercial perspective, that makes a lot of sense, but this is problematic for many non-economic dimensions. For example, if we took the smart city partnership in Toronto that's proceeding right now with Sidewalk Labs, which is a subsidiary of Alphabet, Canadians may well desire that their detailed data that will result from that city remain in Canada and not be transferred to the U.S., but Canada may be limited in its ability to do so.
Second, under CUSMA, localization is permitted if organizations collect, hold or process that information when those activities are undertaken for or on behalf of a government. However, for national security reasons, if the data were held by a private organization, then CUSMA would technically require the government to allow those data to be released to the other two partner countries.
Third, CUSMA contains a safe harbour provision to liberate digital platforms from responsibility for the content that they carry. On the one hand, free speech advocates see this as desirable. On the other, some see the weaponization of platforms like Facebook and YouTube during recent votes such as the 2016 U.S. presidential election as indications of the unwillingness and/or the inability of the digital platforms or governments to regulate content. This is a trade issue because the platforms' business model is supported via massive cross-border data flows.
In summary, it is not clear how much policy flexibility CUSMA will ultimately allow the federal or provincial governments in adopting new laws and regulations to achieve objectives like those to protect people's privacy, prevent algorithmic bias, protect critical infrastructure, ensure national security or promote domestic innovation.
Let me now conclude with three recommendations on the way forward. First, trade negotiators need to be more fully briefed on the wide-ranging implications of the data-driven economy and the implications arising from existing digital measures in CUSMA and those that could arise going forward with the negotiations that are about to begin at the WTO on e-commerce. We need to be mindful that there are vested interests pervasive in the digital realm and that regional trade agreements are an entry point to manage policy space for areas that go well beyond digital trade.
Second, we need new international rules of the game for trade, for foreign direct investment and for intellectual property. As part of this, what Canada could do is push for the creation of a new global organization to set international governance in these areas. Drawing on the experience of the Financial Stability Board that was created in the aftermath of the financial crisis, we have put out a proposal to create a digital stability board. Such an organization would develop standards, regulations and policies across the many realms that digital platforms touch; advise on policy actions needed to address vulnerabilities in a timely manner; and ensure that this work feeds into other international organizations such as the WTO.
Finally, we should use the six-year review built into CUSMA to rectify some of these issues that I have outlined.
Thank you for your time and attention, and I look forward to any questions you may have.
Wow. My presentation is going to be a little simpler, and I think my friend Andy Rielly made a good choice of staying at home in B.C., because I'm probably going to be trapped here until spring by the sounds of what's going on outside. Anyway, thank you for your time.
I was asked to present here from a common sense point of view as somebody who is on the ground and experiences the softwood lumber agreement. I will tell you now that I am not a NAFTA expert or a USMCA expert—which is apparently what we're going to be calling it.
Kalesnikoff Lumber started in 1939 with three brothers: my uncle Koozma—CUSMA, so you confused me right out of the gate—Sam and Pete.
We grew from a horse logging operation of about eight people to 150 people currently, and are heading for 200. I'm the third generation in our business. My two children are very engaged, which is very unusual—they're really keeping the old man in line—and they are our fourth generation. We're located in Thrums, B.C., between Castlegar and Nelson in the West Kootenays; and we're about an hour from the U.S. border.
Who are we? Through our innovation, we care for the environment, the communities, our employees, and that is a focus for us in everything we do. We are always looking for the next opportunity. Our experience in the forest industry and our ability to be nimble and continue to uphold our positive reputation as wood experts have allowed us not only to survive, but also thrive and grow through industry changes and to be where we are today.
Value added is a big piece for me. That's always been important. We've always been about adding as much value as we can to every log that comes into our hands. We make decisions based on maximizing the value from that log depending on its best end-use in the particular wood, our customers, our employees and even our communities. I believe that adding value also creates a diverse, much-needed forest industry.
We reinvest. In 1987, we started by spending $5 million on a small log line, and in 2000 spent $3 million on our remanufacturing facility called Kootenay Innovative Wood. In 2005, we put an end matcher in that cost us $800,000. We upgraded the sawmill in 2012 to the tune of $20 million. In 2014, we upgraded the planer for $6 million, and we have just recently announced our adventure into the mass timber industry—$35-million greenfield project is happening now in the Castlegar area.
We have been successfully growing our business from a horse logging operation and, as I said, we're now investing into that $35-million dollar world-class mass timber facility. We did this with only 15% to 20% of our timber under tenure. We buy over 80% of our logs on the open market.
A big advantage for our getting into mass timber is just our experience with value-added specialty manufacturing, our pre-existing relationships, and our understanding of what it takes to go up the value chain.
There are drawbacks to the softwood lumber agreement. Over the years, the softwood lumber agreements have unfairly penalized the value-added specialty manufacturing sector. I'll give you an example. There was an opportunity for us in 2006, I believe. It was when Mr. Emerson was negotiating the deal. We had just spent $800,000 on an end-matching system—that was the upgrade to enable us to do end-matched softwood flooring, which would then go into panelling and siding as far as end matching was concerned. There was a rule that if the product was end-matched all the way around the piece—in other words, both sides and the end—that it would be exempt. Well, that got negotiated away, and I don't even know that he realized what he had done in the stroke of a pen.
But that affected us. We didn't even turn that machine on and we lost that advantage. It affected Huscroft in Creston, Wynndel Box in Creston and Gorman Bros. in Westbank. We all had those types of machines being installed.
Earlier this year, because of the softwood lumber agreement and the 20-point-whatever per cent duty, we had to make a really difficult decision and shut the remanufacturing plant down because we couldn't afford to make products that were going into the U.S. with a 20%-plus duty on them. Now, our people, because of our moving into the mass timber side, have all been utilized. So, nobody lost a job, but it's causing us a major amount of grief. We also have had customers for 20, 30 or 50 years that we are not able to do business with because of that hurdle.
Because we're a smaller operator, we're more nimble and are able to develop niche products, especially products for customers' needs. That's what we focus on, and the softwood lumber agreement is getting in the way of that all the time.
What's next? To be successful in business, we need a predictable and supportive environment. This is an area where I really believe government can help. We also need open and free access to the markets. Companies such as ours have a track record of being committed to their people and community and don't shut down when things get tough, never mind shutting down permanently. Small, independent companies such as ours are much more nimble and we create more value, far beyond the two-by-four. We just need the right log to make the right product, and access to an open market. In our case, that means taking a high-value log and creating more jobs per cubic metre and more economic payback per cubic metre, instead of focusing on volume. However, again, the softwood lumber agreement does get in the way.
I do not know whether there's an opportunity to have the softwood lumber agreement encapsulated in the NAFTA agreement. It's probably much too late. However, it would have been very beneficial to have something such as that happen to stabilize the industry, especially for the smaller, independent manufacturers, because we are the ones that are getting hit really hard by this type of penalty.
Thank you very much.
Thank you very much for the opportunity to address this committee.
My name is Andy Rielly. I am the president and owner of Rielly Lumber. We're located in West Vancouver, B.C. Our manufacturing plant is in Chilliwack, B.C. In the interest of contributing to an informed discussion about the USMCA, I will give you a quick overview of our company and the nature of our company's business, the effects of the current trade dispute with the United States over softwood lumber, and why the USMCA is important to our company and the future of our sector.
First, Rielly Lumber was founded in 1995 as a manufacturer of western red cedar components and finished products. Our early mission was to make the products that the big sawmills did not want to make or could not make. We do not harvest logs, we do not cut logs and we do not hold Crown tenure. We buy western red cedar lumber and then manufacture finished products.
The U.S. is the biggest market, by far, for our products. In 1996 until 2001, the U.S. and Canada entered a softwood lumber agreement that was based on a quota system, which meant that Canadian companies were awarded quota to ship to the U.S. market based on their previous five-year shipping volumes. Having started just one year earlier, Rielly Lumber did not get any quota to ship into the United States, so we did not have access to our main market. Over the next five years, we figured out how to get quota so that we could ship to the U.S. We continued to grow our business, all the time dedicated to manufacturing and to employing people in British Columbia.
From 2001 to 2006, like all Canadian companies we paid punitive duties on our finished products shipping into the U.S. in the next lumber dispute, which we called “Lumber IV”. That lumber dispute was solved only after many WTO, and particularly many NAFTA, legal victories by Canada. In late 2006 the new softwood lumber agreement brought a 10-year period that was pretty much duty-free for high-value products. There was no major prohibition to shipping into the United States. As well, in that agreement every Canadian company had a return of over 90% of the duty deposits they'd made for the previous five years. At that time, Rielly Lumber decided to invest the duty deposits returned to us into manufacturing facilities, equipment and creating jobs in British Columbia.
The next 10 years were pretty good. We grew our business. Things were going along well until the current trade dispute, which we called “Lumber V”, occurred in April 2007. Again, punitive 27% duties were levied on the selling price of our products. There was the threat of retroactive duties against products that we had shipped previously to when the actual duties came in, with an increased scope of the products. We all thought to ourselves, “Here we go again.” This time, however, the lumber dispute was different, as in worse than Lumber IV. Adding 27% duty to an all-time high price of cedar products resulted in our customers substituting with other products and other species at an astounding rate. New bonding requirements, which were required by U.S. Customs, required large cash deposits by small and medium-sized companies. This was in addition to remitting, every Friday, the duties they had incurred the previous week. Most small and medium-sized companies in Canada cannot continue to post both the deposits on a regular basis and the bond cash requirement.
Another aspect of this dispute is that many major companies in Canada have made huge investments in the United States, transplanting a lot of Canadian investments and jobs to the U.S. side of the duty wall. As Ken Kalesnikoff just said, in order to get behind the duty wall, many value-added companies are relocating to the U.S. side of the border to do their manufacturing. I'll give you an idea of the effect on our company. Rielly Lumber sales in 2019 were roughly 62% of what they were in 2016. Employment in our plant went from 41 to 23. This is an alarming trend for secondary value-added companies across British Columbia and Canada.
I'll turn now to why the USMCA is important to our company. As you know, most softwood lumber in the first NAFTA agreement was not covered by that. It is not covered in the new USMCA. The most important part of the new USMCA, which is vital to us, is the dispute resolution mechanism, previously known as chapter 19.
In this more challenging diplomatic environment, small independent companies need enforceable rules to protect their interests. Short of reciprocal duties on goods entering our country, which are not likely, Canada will only get negotiating leverage in Lumber V from continued [Technical difficulty--Editor] NAFTA and USMCA legal victories. We have to remember that large companies have made huge investments in the United States, and they're not in any hurry to pressure our provincial governments to solve the current dispute. Hundreds of small and medium-sized Canadian companies are in danger of failing unless we have this dispute resolution system and can manage to make it work faster.
New jobs in the forest industry are not going to come from the primary sector. They're only going to come from doing more work in it and adding more value to the resources that we have here.
I can state that my main reason for supporting the USMCA is that Rielly Lumber is a Canadian company. We want to continue to manufacture in Canada, and we have no intention of relocating to the far side of the border [Technical difficulty--Editor]. The dispute resolution system is vital to our company, but if we can get another softwood lumber agreement going forward, that would protect the independent companies.
In closing, I would say that the value-added sector is something that I've been involved in and where I've worked for the last 35 years. It's been good to me and it's been good to our family. I think it's worth fighting for and I hope you agree.
Thank you for listening.
Good evening, and thank you.
First, I'll say a few words about Linamar.
Linamar is a diverse advanced manufacturing company. We are about 70% in auto parts, and about 30% in a variety of industrial equipment, such as access equipment and harvesting equipment, as well as commercial vehicle parts and energy components. We have $7.5 billion in sales. We have 27,000 employees globally. We manufacture in 61 facilities in 11 countries. About 40% of our plants and about 11,000 of our employees are in Canada.
Turning to trade, I believe that an area that is critically important to our prosperity and global competitiveness as a country is free trade agreements. I think it is absolutely critical for us not to lose momentum in this key area, because free trade agreements allow us to have bigger markets to buy from and sell to. They create more opportunities, and more opportunities mean more chances to grow or to cut costs. Free trade agreements have been a key factor in several decisions, as an example, for automotive OEMs to locate in Mexico because of their access to world markets.
In my mind, ratifying the new NAFTA deal here in Canada is absolutely critical to Canada's continued economic success. The U.S. has long been Canada's most important trading partner, and vice versa. As I'm sure you know, trade with the U.S. represents more than 75% of our exports, which is 64% of our GDP. We really can't afford to put that at risk and create the enormous costs that added duties would add to those transactions.
NAFTA was a deal that created enormous prosperity for all three countries since its inception in 1994. The United States' GDP increased by $12 trillion, reaching 2.8 times the 1994 level. Canadian GDP was up by $1 trillion, reaching, very similarly, 2.7 times its 1994 level. Mexican GDP increased half a trillion dollars to almost twice what it was before the agreement.
Importantly, NAFTA also created deep and intricate supply chain optimizations across all three countries. It would be quite disastrous financially to try to unravel those. You can't unscramble the eggs. In the auto sector alone, there are on average seven border crossings between Canada, the U.S. and Mexico for every vehicle that is built. Adding duty to each of these border crossings would add enormous costs to North American-built vehicles, and decrease our competitiveness.
We have a great case study right here at Linamar that illustrates that deep integration. We have a program for a cylinder block that we make that is cast in Mexico, comes to Canada for premachining, goes back to the U.S. for additional processing, and comes back to us again in Canada for final machining. Then we ship it to our customer down in the U.S. to be assembled into an engine. Some of those engines come back to Canada to be assembled into vehicles, and then those vehicles are sold in both Canada and the U.S.
Why is it so complicated? We are tapping into the great strengths and technologies that have been developed and honed in each of those countries. Instead of each country having to develop the technologies and make the investments to do all that processing in each country for its individual needs, we are pooling our needs and focusing on different parts of the supply chain, and in the end we have a great, highly competitive product that we can sell in many countries, not just North America.
The new NAFTA deal has modernized important elements of our trade deal to reflect technologies and realities that didn't exist 25 years ago, but at the same time, from our perspective, will keep consistent core elements of the deal. That means we will see minimal disruption of existing supply chains, which is really key. From an automotive perspective we see only upsides, no downsides for Canadian companies to the changes that were implemented. Higher regional value content means opportunity for work, potentially, as automakers who maybe are not meeting the new standard. Maybe some of the German manufacturers, for instance, will decide to onshore some product. High labour value content may also result in some opportunities for Canadian suppliers to help increase this measure of content in the vehicle.
It is important to remember that we don't win business by being protectionist. We win business based on innovation and efficiency. That's where we should all try to focus and try to eliminate barriers to growth.
At Linamar, our Canadian plants are our most productive globally of all of our 61 plants. We have the deepest bench here, we have the best increases in productivity here, which, by the way, has increased by 34% in the last six years, and we have the strongest commitment here to continuous improvement in our facilities every single day.
We can compete with any country with our product and our process innovation and efficiency, and we do so. We've invested billions of dollars in our Canadian plants in recent years to launch billions of dollars of new business, almost all of which, by the way, ships to the U.S. We critically need the new NAFTA agreement to be ratified to bring certainty to our ability to continue to compete in this manner.
Last, I wanted to comment on timing. The U.S. and Mexico have already moved to ratify the agreement in their respective legislatures. While of course it's important to fully understand and to vet the deal—I appreciate that this has happened, and I encourage that to happen—I do caution against excessive or unnecessary delays or attempts to rewrite something that frankly I think has gone as far as we could get it to go.
Business leaders across North America are supporting swift ratification of the agreement—many I speak to—to keep North America tariff free, make the economy even more vibrant and competitive, drive investment and, of course, support the creation of jobs.
Thank you very much for the opportunity to address your committee. I look forward to your questions.
Madam Chair, committee members and staff, thank you for the opportunity to talk with you about Bill , softwood lumber, and Woodtone. I think there are some commonalities in some of the presentations here this evening.
I am Kevin Young, and I serve as chief executive officer of Woodtone Industries, a family-run company with facilities in Chilliwack, B.C.; Armstrong, B.C.; and Everett, Washington. We employ over 300 people across our operations, which are built on a 40-year legacy of excellence and integrity.
At Woodtone our overarching belief is that everybody should live in a great-looking home that lasts a lifetime and doesn't sacrifice the environment to achieve this goal. Our teams design, manufacture and market Woodtone's finished building products for home interiors and exteriors. Our family at Woodtone is proud to offer some of the finest finished building products available anywhere in the world.
We don't cut down trees, and we don't make commodity two-by-fours, but we respect and appreciate the primary producers that do. Our specialty at Woodtone is high-value finished wood products. Our products are unique in that they have no grade stamps and are not intended for structural construction purposes. All of our products are prefinished—either pre-stained or pre-painted—and are ready for installation in new home construction.
Although our products can be found around the world, the United States and Canada remain our key markets. We welcome and embrace future efforts by governments to address the softwood lumber dispute in earnest after CUSMA is concluded.
The asymmetrical impact of the softwood dispute has been uniquely devastating for Canada's value-added sector and workers. At Woodtone we've had to make tough choices, like many others, including relocating technology, processing knowledge, and moving jobs south. In January 2018, we announced the move of 20 direct jobs and over $1 million in technology from our Canadian operation to our facility in Everett, Washington.
While primary producers have enjoyed sustained demand and record prices during the dispute, processors down the value chain have not. We've lost exports and we've lost jobs. This dynamic still exists. We believe that, when you consider spinoffs including transportation and other suppliers, up to 120 direct and indirect jobs are in play in our operations. We want to recalibrate before it is too late. That is why we are here today.
We don't want to lose the opportunity to repatriate some of this work for finished products not at the core of the softwood dispute. Our products fall outside the intended scope of the softwood lumber dispute. They can be readily differentiated at the border at the time of export. At the border we need a solution that works for authorities; a solution that is feasible, administrable and enforceable well into the future.
This brings us to Bill . We support members of the committee amending Bill to provide for an independent study mechanism on finished exports outside the dispute. Specifically, we seek a review by a panel of experts for finished wood products that is consistent with past Canada-U.S. trade precedents. This, we believe, could be done by amending the reference to softwood in Bill C-4. This will provide reassurance to U.S. authorities that the scope language is enforceable, administrable, and will reduce circumvention.
Possible positive outcomes here include hyphenating the product codes 4407 and 4409, which can be done to assist local border agents in processing our exports with confidence. This is similar to efforts to accommodate U.S. plywood manufacturers back in the Canada-U.S. Free Trade Agreement.
With a simple majority vote at clause-by-clause, committee members can make an independent review happen by amendment. I'm not here to ask members of the committee to renegotiate NAFTA or the new CUSMA. It would not be wise to reopen negotiations with either Mexico or the United States. Enhancing Bill as it relates to softwood lumber is not changing the trade deal. You can take or leave the deal, but the legislation can be improved in this one area.
We want to work with committee members on appropriate language for an amendment. We encourage the members of the committee to act with confidence, supported by past precedent and sound public policy in the public interest. Our approach is collaborative and is achievable. Not only will it benefit Woodtone, but other operations in B.C., Quebec and the Maritimes will also benefit.
The Woodtone approach is not a cure or a solution to the softwood lumber dispute, but it is an effort to help a volume of exports that should not otherwise be in the dispute. We want to take the steps necessary to address the concerns. What we are talking about does not impact Mexico. It is specific to local border entry points to help local officials process our finished products.
We commend the co-operation of members on the committee and the positive initiatives to use Bill to improve Canada's future trade deals and arrangements.
We thank our local MPs and all members of the committee for this chance to be heard. By working together now, we can improve Bill moving forward and improve cross-border trade in finished wood products not in dispute.
Thank you, and I welcome questions and comments and wish the committee good luck and wisdom in your continued work.
I'm Mike Beck with Capacity Forest Management. I'm their operational planner. We have managed over 20 first nation clients in B.C. We help gather tenure through government to government as well as licencee negotiations. We've also been instrumental in two foundation agreements that have taken place in B.C. with the shíshálh Indian band as well as Lake Babine Nation.
I've been invited to discuss the impacts of the softwood lumber dispute and how it is creating issues with first nations businesses and collaborations with forestry licensees, businesses and lumber mills in B.C.
As you know, a few people have already noted that the softwood lumber agreement has basically been a long outstanding issue between Canada and the United States. Basically, this agreement that we've been sitting on has been expired since 2015. The current government hasn't seemed to place the softwood lumber agreement as a top priority to settle during the negotiation processes and ratification of NAFTA between Canada, the U.S. and Mexico. The softwood lumber issues around the competition between Canada and the United States lumber companies are a major problem resulting from differences in their respective forest management principles.
The dispute is based on the U.S. lumber industry opposing the low Canadian stumpage rates and transportation costs, perceived by the U.S. as an unfair advantage that subsidizes our lumber industry. The U.S. has been imposing duties and tariffs on Canada since the early 1900s, and the softwood lumber dispute is not going away any time soon.
Canadian forest management principles are vastly different, and to compare one against the other is very onerous and well documented. A healthy Canadian log and lumber business requires certainty and fair market pricing. In order to achieve this, the Canadian government needs to bring the softwood lumber agreement to the forefront and finalize a long-term deal that avoids protectionist measures on both sides of the border.
Canadian logs and lumber require unencumbered access to world markets in order to return the highest possible pricing. Protectionist measures in this case create an unnecessary cost to Canadian sawmillers, and these costs are passed on to the log sellers, which pushes log prices down domestically. Recent court decisions and reconciliation agreements for first nations are providing control of their timber resources within their unceded territory. The federal government needs to create forestry policies that will ensure success, sustainability and create long-term, meaningful jobs in the industry as well as first nations businesses and ventures.
Imposed U.S. countervailing duties and tariffs have denied the maximum price on logs, which has impacted profit margins for first nations businesses that sell to Canadian mills. There's a requirement for major reforms and policy to remove restrictions on log exports in order to eliminate uncertainty in the Canadian forest industry and allow the highest return and highest prices for our renewable resource.
Duties and tariffs need to be eliminated and a long-term softwood lumber agreement needs to be ratified to ensure a healthy, sustainable and stable forest industry in Canada. The impacts for first nations forestry businesses are, again, another vital component. It's impacting negatively with our first nations businesses, agreements and collaborations with Canadian forest industry partners.
Canada is required to challenge and amend the Export and Import Permits Act that would ratify the softwood lumber agreement, as there are significant impacts. The current U.S. countervailing duties and tariffs are affecting the economic success of the Canadian forest industry, including first nations businesses that are selling their logs to local Canadian lumber mills.
Some Canadian first nations bands, as part of the ongoing reconciliation process such as foundation agreements, are receiving timber rights to harvest Crown timber within their unceded territories. These first nations forestry opportunities, timber tenures and licences provide economic benefit and stability, long-term employment and training opportunities for first nations communities and future first nations business investment opportunities. The impacts of the current softwood duties and tariffs on the Canadian first nations forestry business is that Canadian local sawmills are basing their log purchase pricing on current log markets but factor in the percentage of the tariffs and duties so that the mills pay to reduce the log prices, which impacts first nations businesses and projects negatively.
As well, the U.S. countervailing duties and tariffs impact the bottom line for first nations businesses and ventures. They're looking for the highest economic benefit for their timber resources within their unceded territory.
Currently, with the economies of scale of first nation forestry businesses being upstream log sellers, they are additionally impacted financially as their businesses will not see any reimbursement of duty deposits from the United States once a dispute is settled, as these costs are typically factored into the local mill log purchase pricing agreements at the beginning of the projects.
Ultimately, I'm drawn back to the current government mandate, in which one of their top priorities is reconciliation with Canadian indigenous people, as well as wanting to implement the United Nations Declaration on the Rights of Indigenous Peoples to allow government to bring federal laws and policies for Canadian first nations to pursue economic, social and cultural development needs. Based on the government non-action to settle the long-standing , it is not placed in value for Canadian first nation forestry businesses and the Canadian forest industry. Again, there is a requirement to ratify in NAFTA, Bill , regarding the long-standing softwood lumber agreement, to remove the tariffs and duties. If that is not in place and there's no agreement, this will create considerable adverse effects and restrictions for the first nation forestry businesses.
As for some of the impacts that we're currently seeing with the , some first nations forestry businesses are having a hard time being successful and sustainable. As well, first nation business-to-business agreements and collaborations with other Canadian forest industry partners, ultimately impacting forest economic earnings to the nations and bands, are also creating some issues. Lower lumber market pricing and duties and tariffs, creating mill closures or curtailments, are creating some issues as well around the nations and territories. We're also seeing major licensees establish more mills in the United States than Canada due to the additional duties and taxes, to ensure market competitiveness and balance their dependence on local Canadian log supply. These moves create fewer good-paying jobs for Canadians, as well as first nation band members, and limit log-pricing competition to sell logs at lower market pricing, or better, with these mill closures.
In closing, I want to ensure that the stays at the Canadian government's top priority for settlement and is ratified in some way that will make first nation businesses stay competitive and not be penalized any longer by the unfair and unjust United States' lumber tariffs and duties.
We need our Canadian government to defend our forest management systems and challenge the subsidy, to remove the tariffs and countervailing duties, since wood is used in a wide range of industries and doesn't qualify as a subsidy under U.S. law. As well, the actions of the U.S. are driven by protectionism rather than unfair management practices and stumpage rate determination.
Again, it will be vital to have collaborative discussions and engagement between government, first nation forestry businesses, and the Canadian forest industry to ensure a fair ratification of the to make certain first nation businesses and ventures, and the Canadian forestry industry, economically successful and sustainable in Canada.
That is all I have to say. If you have any questions, I'll look forward to responding.
Yes. Thank you, Madam Chair.
I'll make my remarks in French, but I'm happy to take questions in English.
Madam Chair, members of the committee, thank you for inviting me to appear here this evening. I would like to note that I'm here as an individual, so my comments and answers are in no way binding on the organizations I'm associated with.
I believe the agreement must come into force as soon as possible, as other witnesses have stated, not because it's better than NAFTA—it's not, and for more on that, see the analysis by Dan Ciuriak for the C.D. Howe Institute—but because we must avoid the uncertainty that plagued the negotiations. If Canada were to refuse to implement the Canada-U.S.-Mexico Agreement, the U.S. President would most likely carry out his threat to withdraw the United States from NAFTA.
If the White House did that and it ended up in court, that would have a very negative effect on the entire North American economy, especially the Canadian economy, because investments would be delayed or simply shifted to the United States. Companies would focus on the United States because they would see it as the biggest market. In addition, the costs of many business transactions between Canada and the United States could increase to offset the risk associated with the possible end of NAFTA. This scenario must therefore be avoided at all costs.
CUSMA is certainly not perfect. I'm sure you've heard plenty of criticism. In the time I have left, I would like to focus on two elements. Bob Fay already mentioned one, but I'd like to go into that in a little more detail.
In the future, the Canadian government's commitments under Chapter 19, which covers digital trade, may constrain domestic regulations that federal and provincial governments may wish to put in place to govern data flows between Canada and the United States and the digital space in Canada. I discussed this topic in detail in an October 2019 paper published by the Centre for International Governance Innovation, where I am a senior fellow.
For example, U.S. or Mexican companies, especially U.S. companies, could lobby the U.S. government to initiate a dispute over regulations requiring data localization in the private sector for privacy or national security reasons. That is the issue. The agreement contains a “legitimate public policy objective” exception. No one knows what that means. Ultimately, if there were a dispute between Canada and the United States over data localization, for example, a panel of arbitrators would be called upon to settle the dispute. The panel would have to determine what constitutes a legitimate objective in Canadian public policy.
So the question is, even if the panel is established jointly, do we want to let unelected, technocratic arbitrators decide what Canada can or cannot do? The same issue arises with article 19.7, which states that computer service suppliers cannot be held responsible for content on their platform. This mirrors the immunity laid out in section 230 of the U.S. Communications Decency Act of 1996.
The general WTO exception applies in this case, for example to defend public morality. The Canadian government could therefore decide, for reasons of public morality, to institute measures making companies that transmit content, such as Facebook, responsible for the content they transmit. That said, Facebook could appeal to the U.S. government on the grounds of article 19.7, alleging discrimination. Under CUSMA, Canada would therefore not be able to apply such a measure. This would result in a more constrained environment for Canadian companies and a less constrained one for American companies.
Here is my recommendation to this committee: The government and its partners should define in detail what constitutes a legitimate public policy objective in the context of the agreement so that business has greater regulatory and future certainty, especially with respect to data flows.
Lastly, we mustn't forget that CUSMA is set to expire 16 years after coming into force. After six years, the parties may review the agreement. The problem is that, for companies with an investment horizon longer than 15 years, uncertainty about whether the agreement will cease to exist partway through the lifespan of their investments could prompt them to invest in the United States rather than in Canada.
Not knowing which agreement will apply in 10 or 15 years, anyone looking to invest tens or hundreds of millions of dollars over the next 20 or 25 years in either Canada or the United States could decide to invest in the latter. That means investment and job losses in Canada.
Therefore, the sooner the parties can give CUSMA some permanence, the better for Canada.
Thank you. I'm happy to answer your questions in French or English.
Thank you, Madam Chair.
Thank you very much, witnesses, for coming out this evening. It's really good to see the softwood lumber witnesses tonight. It's better late than never, not unlike the Canada-United States-Mexico Agreement itself—better late than never.
I'm talking about how we got this report shortly after noon today. I've been going through it, and I see in the very first paragraph on page 2 six words that say “reduces red tape at the border”. Great.
I'll continue on to page 5—and I only got to page 5 because I only got this shortly after 12 today—where it goes on to say:
However, the gains will be partially offset by new market access to Canada's supply-managed sectors and more restrictive rules of origin for automobiles and auto parts that will likely increase auto-part production in North America but also lead to higher production costs. In particular, implementing the CUSMA outcome:....
My first question is for Ms. Hasenfratz. I heard you talk about shipping parts back and forth across the border, right? This would suggest that it's supposed to be much smoother. The C.D. Howe report suggests that there's going to be “border thickening”, as they call it.
We do know that the government has not put any extra time, effort or money into the CBSA, who will be the ones implementing this and the tariffs.
My question is twofold. Number one, are you concerned from the auto parts sector that there's going to be a potential issue at the border? Number two, the auto industry would very much like this CUSMA deferred for them to January 2021. Do you share the same ambition?
Thank you, Madam Chair.
Mr. Fay, I'm so glad you came here to talk about the data-driven economy. We had NAFTA for a long time. Now we have this new NAFTA, CUSMA, but it is not going to dramatically change. This agreement is good. It brings some stability to the Canadian economy.
Look at what has happened with respect to trade in the last, say eight or 10 years. I think in 2011 our exports to the United States were around $315 billion. Last year, it was $320 billion or $324 billion. Our imports about 10 years back were around $280 billion. Now we're just $290 billion.
This agreement is important. It brings stability to a lot of the economy, but it doesn't address the economy of the future. We have steel industries. They were producing 16 million tonnes 20 years ago. They are producing the same 15 million tonnes today. The aluminum industry has not seen an increase in storage capacity for the last 15 years.
Basically this agreement is good. It brings stability. However, it is not addressing the future and where the world economy is going, namely, towards a knowledge-based economy. Nobody has talked here about software for autonomous vehicles. Nobody has talked about robotics. Nobody has talked about artificial intelligence and how it impacts not just the Canadian corporate sector, not just the economy, but Canadian society itself.
I'm glad you talked about the data-driven economy. As you pointed out—and as in this agreement—we have been waiting for six years on our negotiator. We all are policy-makers. We can understand more the impact of these things, so that when the review comes in, we can look at and also focus on these things.
Obviously, the existing industries are quite loud in their lobbying, and that draws attention from the lawmakers, the policy-makers, the negotiators. However, the six-year time frame will hopefully give us some breathing space to look into the other aspects that have not been considered.
You touched on FDI, foreign direct investment. Many people don't know that two-thirds or about 65% of Canadian trade is due to companies that are owned by foreign investors, foreign companies. Their foreign direct investment play a very major role in the Canadian economy and Canadian trade. They control 65% of the trade.
You mentioned that we need to have new international rules for FDI and intellectual property. Let's not go to intellectual property. I know that's a big thing, a very, very important thing. That is our next natural resource. That is the only thing that can replace the natural resources.
Can you quickly highlight, keeping it short, the fundamental change you want to see internationally on the foreign direct investments.
Thank you for your question.
It's not necessarily worse, at least not according to economists who have studied its potential impact on the economy as a whole in terms of GDP, for example. Of course, there is always a significant margin of error.
The most recent study by Mr. Ciuriak of the C.D. Howe Institute shows that, overall, there may be a very small decline. However, other agreements were expected to have a positive effect on GDP. Even the United States International Trade Commission in Washington came to the conclusion that, overall, the new agreement would have little or no effect. It estimated that any positive effect would derive primarily from reduced uncertainty regarding the new agreement.
In terms of quality, the agreements are therefore comparable. The new one is more up-to-date in certain respects, such as the chapter on digital trade. However, as I indicated, that chapter is problematic because of how Canada's commitments could affect digital data regulations our government might want to make. As you know, some stakeholders in the ag sector aren't happy.
My source was the analyses that have been done. It seems clear that there are no significant gains here. Overall, it's pretty much the status quo.
This is ongoing thinking, but I've already mentioned this idea that—as was mentioned in the panel review for heritage—if we were to treat social platforms as broadcasters and wanted to regulate their content, for instance, and make them liable for what they publish online, whether it's from news operations or others, then the question is whether that would be challenged by those companies through CUSMA and article 19.17. We would have to see. Of course it would have to be a dispute that would be launched by the U.S. government. There is no investor state in this case; it would not be the companies themselves. In that case, if there was a dispute, then a panel would be set up and would have to decide on these things. It's very difficult at this point to know where that panel would decide.
If it were to rule in favour of Facebook or those kinds of social platforms, it would immediately undermine what Canada would be doing. To me, that's problematic in a way. Are we potentially constraining ourselves when it comes to that?
We talked about privacy of individuals. Down the line, if we wanted to impose more data localizations, for instance, both at the federal level or even at the provincial.... The Quebec government is talking about moving in that direction. What happens if, for example, Quebec says that it wants to do more data localization—not for government purposes, but for private business? Then U.S.-based companies come and say that they think this goes against the agreement that allows free data flow between our two countries. If we were to challenge this and if a panel was set up and they found, for instance, that those regulations or laws can't apply to U.S. companies, then what happens? It creates an even bigger problem. Quebec could continue doing so, but the federal government would have to pay some form of compensation.
Chair, before I get started, I just want to thank all of the staff, the support people who have been here these last two weeks, putting all of this together and making sure that we have everything.
Some hon. members: Hear, hear!
Mr. Randy Hoback: We've always signalled that we're going to vote in favour of this agreement, but we've had lots of concerns about it. One concern was, of course, softwood lumber. The fact that there was a softwood lumber package put together a few years back and that we then found out that a lot of that money didn't flow was concerning. The fact is it's too late now for it to flow.
I looked at softwood lumber. In talking to some of the people right across Canada in the sector—I didn't talk to any of you, which is unfortunate, but I will now—I heard that once this is passed, there is a softwood lumber agreement sitting in the background. Have you heard the same thing?
No, because we were told to diversify, which we did.
You're asking about a deal. I'm very puzzled that it would be out there, and I'm not an expert. What happens to us, all of us, including Andy, is that we are kept in the dark most of the time.
These deals are made, and when Andy refers to big companies, we're talking about Canfor, West Fraser, Interfor, and Resolute. Those are the companies that are being called and talked to. They very seldom talk to us, which is why I'm here. I'm going to be stranded in Ottawa because I wanted to come to have this opportunity to say that to you.
An hon. member: It's a lovely place.
Mr. Ken Kalesnikoff: I don't disagree. Apparently we can't go skating because it's slushy, but I don't know how that could happen when it's so cold.
Anyway, at the end of the day, somebody needs to start to listen to the small operators across this country. That is not happening, and that is very frustrating when we are the ones who are staying in our communities and are the ones employing people. We're not shutting down, but investing.
Our families' sales are $68 million a year. We're investing $35 million. Do you know how we did that? We put our homes on the line, my home and both of our kids' homes. Nobody here knows that, but the policies are being made here, and the people who get to come here are the ones who have big shareholders. We don't. We have ourselves, and if we don't make it, Mama is going to be unhappy.
Getting to your question, Randy—I'm sorry, I get passionate—at the end of the day, I have not heard of anything going on. There may be. I'm not walking the halls here, but when I look at it logically, why would there be? The U.S. holds all the cards. The coalition is super strong. They're sitting just waiting. They're just giggling at all this right now.
When there's enough money in the piggy bank and we start talking about sharing that piggy bank, then maybe they'll come to the table, and if they lose a couple more.... This last NAFTA challenge that came out, where their duties are going to be reduced potentially.... Without that, what would we have? It would continue.
We listen to everyone on every study—whether you're an independent producer like you, or you're small producer with 10 employees, or with 200 or 2,000, or as Linamar is, with $7 billion in sales and 7,000 employees.
When it comes to softwood lumber, we have been fighting. If you recall, the Prime Minister brought this up at his first meeting with President Obama, and the President didn't even know there was a dispute. That's how small it is to them, but how big it is to us. I've been told that this has been talked about at every subsequent meeting between President Trump and our Prime Minister, but you know the politics of how these countervailing duties are put in place. They grind you and they hold you to it.
I think the best that Canada can do, unless you have suggestions otherwise, is to go to the places we can to challenge them. We've been successful. I have a steel fabricating company in my riding with 100 employees who fabricate American steel in Canada and then ship it back for building in the U.S. They were slapped with a 7% tariff three weeks ago. We won at the U.S. commerce board.
Unfortunately, these are the challenges we have to deal with in this kind of trade environment, but the good thing is that Canada usually is successful at the end of the day, and that's what I'm believing. That's why you've survived in the past, even though your piggy bank got pretty slim at certain times, but we hope we'll be successful again.
Mr. Schiller, how do you think we'll be able to amend something very quickly? I don't think it's plausible to put it in this. Maybe what you're asking for is that we push the Americans harder to get an agreement. That might be something, but we will not be able to use this. I don't know how that would be able to be done in a tri-party deal.