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Minutes of Proceedings

43rd Parliament, 1st Session
Meeting 4
Monday, February 24, 2020, 5:03 p.m. to 6:27 p.m.
In Camera
Sherry Romanado, Chair (Liberal)

Library of Parliament
• Sarah Lemelin-Bellerose, Analyst
• Alexandra Savoie, Analyst
Pursuant to Standing Order 108(2), the committee resumed consideration of the Subject Matter of clauses 22 to 38 and 108 to 122 of Bill C-4, An Act to implement the Agreement between Canada, the United States of America and the United Mexican States.

At 6:11 p.m., the sitting was suspended.

At 6:17 p.m., the sitting resumed.

It was agreed, — That the Chair convey the following message to the Chair of the Standing Committee on International Trade:

Pursuant to your letter and request dated February 18, 2020, the following are our committee’s recommendations and proposed amendments to Bill C-4, An Act to implement the Agreement between Canada, the United States of America and the United Mexican States.

1.) Inadequacy of Parliamentary Scrutiny of the Bill

We must first take issue with the compressed time table and context under which we were required to respond to this request. The bill itself is wide ranging and has considerable implications for the Canadian economy, as well as our nation’s sovereignty. It is worthy of careful study.

At the time of writing your letter, our committee had not yet been constituted for the 43rd Parliament. Your committee’s request functionally allowed us only four days, two of which were not weekdays, to consider the bill, request and review evidence from affected parties, and come to a point of recommendation.

It is important for future studies of this subject matter to understand the time table Parliamentarians were faced regarding the study of this bill:

· Knowing that the federal election was coming up in October 2019, Members offered to begin a pre-study on the CUSMA legislation in May of that year, so that when the government was ready to move the legislation through the House, all that would be left to do at committee was the clause-by-clause examination. The government declined.

· When the revised agreement was signed in December 2019, Members offered to come back early from Christmas break to begin work on the bill. The government declined.

· The government waited until January 29, 2020 to introduce the implementation legislation in the House, even though the revised agreement was signed in December. Members moved the legislation through the house in six sitting days – compared to the sixteen sitting days it took to move the original implementing legislation (C-100) through the House to committee.

· The International Trade Committee had approximately 200 requests to appear on CUSMA. The amount of work to do on the bill hasn’t changed and Members consistently offered to commence that work earlier. The government declined.

· Members offered to complete clause-by-clause examination by no later than March 5, under the assumption that the government wouldn’t be recalling the House during the constituency break week to conduct report stage and third reading on C-4. The government declined.

· The government still has not released their economic impact analysis on CUSMA to Parliamentarians (USTR released theirs in April 2019) and the first formal briefing that parliamentarians received on the new agreement was on December 11, 2019.

We have done our best to review the bill within these timelines.

2.) Adverse impacts of the Bill must be mitigated

In the very limited amount of time that the Committee had to study this bill, we have heard the relief of many industry groups in Canada that this agreement will provide some measure of stability for trade interest. We also see the necessity to ratify CUSMA in an expeditious manner and agree to the same.

However, we also heard potential adverse consequences for Canadian industry, a negative overall economic impact, and we are troubled by the long list of concessions that this bill enables.

A. Overall Impact of CUSMA

In spite of a unanimous motion passed at your committee for the government to table the economic impact analysis on CUSMA to Parliamentarians, they have not done so. Due to this, we have to rely on the most recent study from CD Howe which states:

“the negative elements of the deal outweigh the positives and will result in lower real GDP and welfare for all three parties. […] Canada’s real GDP stands to shrink by -0.4 percent and economic welfare to fall by over US$10 billion.” Page 1

“In general, it seeks to shifts the net benefits of the NAFTA towards the United States, rather than seeking a win-win outcome; and, in particular, it seeks to repatriate industrial activity for the United States based on the Trump administration’s linking of reindustrialization with national security.” Page 2

Canada’s exports to the US will fall by $3.2 billion, while our imports from the US will increase by $8.6 billion. Canadian agriculture is negatively impacted with shipments declining by $1.2 billion. The worst impact is on the dairy sector where shipments will fall by $67 million. Page 12

The CD Howe estimates that the new CUSMA will reduce Canadian GDP by US$ 10.8 billion or C$14.2 billion which works out to more than $1500 per family.

We ask you to consider ordering the government to produce its economic impact analysis and embed a requirement within Bill C-4 to review the same, including up to date data within a one year period after implementation.

B. Auto Sector and Rules of Origin

The new CUSMA agreement has a complex series of criteria for the auto rules of origin.

In some instances, these rules layer on top of one another and are exceedingly difficult to implement which could present challenges to the industry.

The government must commit to comprehensive oversight of the new CUSMA auto rules to ensure new Rules of Origin and Labour Value Content measures are being properly applied. At present there is currently no requirement for public oversight.

We encourage you to look for ways to incorporate the following into Bill C-4:

· The new auto rules could potentially exacerbate competitiveness problems of Canada’s auto industry, so we call on the government to take steps to improve the market position of the auto industry.

· Conduct a study on the future of auto production, from supply chain developments to the skills needed to lead the Electric Vehicle and autonomous vehicle transition.

· Use the establishment of CUSMA to craft a National Auto Strategy to retain and attract investment while securing the necessary research and development to ensure the Canadian industry is secure in the sector’s transition and future evolution.

· Work to create a single, streamlined auto investment support structure between federal and provincial governments.

C. Aluminum

In the final round of negotiations, the US pressed further on the definition of North American aluminum and steel, saying that these would have to be “melted and poured” in North America.

Mexico accepted that steel would have to be “melted and poured” in North America but refused to do so with aluminum. This is because Mexico does not have a domestic aluminum industry.

This means that Chinese steel is mostly blocked from the North American auto industry, but aluminum slabs or ingots can be brought in from China to Mexico, transformed by the Mexican industry and it would qualify as North American.

The OECD has documented massive subsidies and government support by China for its aluminum industry. Aluminum prices are poor as there is a global oversupply of over 1 million metric tonnes of aluminum.

The aluminum industry feels that it was sold out by the government, and they say they are unable to compete with aluminum that China is dumping in Canadian markets.

We ask you to look for ways to embed the following measures within the context of Bill C-4:

· Create an action plan and a timetable to ensure the traceability of aluminum in North America, and robust control over imports;

· Provide a report on what happened to the $2 billion in tariff revenues collected by the government and to ensure it was used to support Canadian businesses.

· Develop a strategy to market and export Canadian aluminum as the greenest on the planet

· Produce a study on costs and construction times, and how Canada can be more competitive in the face of emerging markets

D. Steel

In the deal to remove steel tariffs, the US can reimpose steel and aluminum tariff if there is a “meaningful” surge of imports above historic levels. There is no definition of “meaningful”, which is left up to the Americans.

That deal also limits how Canada can use retaliatory tariffs because we can only retaliate on steel and aluminum products. Previously, Canada would have retaliated with a broad range of tariffs on products that strategically target important US politicians or industrial sectors (e.g. bourbon, ketchup, yogurt, agriculture products). We are unclear if Canada has conceded this capacity per the context of Bill C-4. This should be considered.

This factor could potentially discourage investment in the steel and aluminum industries in Canada. If the Government of Canada has agreed that the US can impose steel tariffs anytime it sees a “meaningful” surge, and has given up its ability to retaliate. This begs the question, under these provisions, why would anyone invest here?

We encourage you to looks for ways to incorporate the following into Bill C-4:

· A mechanism to ensure transparency on how the government spent the $2B that was collected in tariff revenues.

· Bring in tougher safeguards to protect Canadian industry from dumping

E. Procurement

There is no procurement chapter in CUSMA that would provide equal access to government contracts for North American companies. “Buy American” remains an important barrier to Canadians doing business with the US Govt, particularly at the state level.

We encourage you to looks for ways to incorporate the following into Bill C-4:

· Report back to Parliament regarding efforts made with the US to negotiate a separate procurement agreement that would provide equal access to government contracts for Canadian companies.

F. Dairy

We recommend that you take every measure possible to ensure full and fair compensation to the dairy sector for the cumulative impacts of CETA, CPTPP and CUSMA.

G. Intellectual Property and Copyright

Many credible sources have raised serious concerns regarding the Intellectual Property and Copyright provisions including in Bill C-4. At a time when the government is spending billions of dollars on programs like the Supercluster initiative, Bill C-4 raises significant concerns about the ability for expenditures like this to retain and grow intangible assets such as intellectual property, because it entrenches the American approach to protecting intellectual property into our economic system. CUSMA goes well beyond the globally accepted WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) and embeds US-style IP protection and enforcement measures which means the owners of pre-existing IP – who are dominated by American businesses – extend and entrench their monopoly rights and rents for decades to come.

Concerns that were raised to us in our short review of this bill included:

• CUSMA extends the term of copyright protection for 20 years, from the life of the author plus 50 years to life of the author plus 70 years. Witnesses felt this was inappropriate and measures should be taken to mitigate the impact of these changes. For example, Prof. Geist confirmed that in his belief, including a registration requirement would strike a balance between the ‘life + 50 years’ requirement established in the Berne Convention for copyright, while also providing protection of copyright for those who want the extension. Professor Geist also raised concerns in his testimony at committee about the enormous costs a life plus 70 year copyright term can have on Canada’s education system, in classrooms, and regarding innovation, which rely on public domain works.

• Canada apparently can keep its ‘notice-and-notice’ regime for handling copyright infringement on the internet, which contrasts with the United States’ ‘notice-and-takedown’ regime. However Canadian ISPs may be liable if they do not take down unauthorized content “upon obtaining actual knowledge of copyright infringement.” It is not clear how Canadian Internet providers will be affected by CUSMA.

• The intellectual property chapter has a section directed to the protection of trade secrets, which define trade secrets as well as means for enforcement, both civilly and criminally. The United States implemented federal legislation on trade secrets, the Defend Trade Secret Act, in 2016, while Canada relies on a mix of national security legislation, the civil code, common law and contractual protections of trade secrets. It is not clear if Canada plans to pass trade secret legislation to meet the obligations under the agreement.

• In the area of trademark enforcement, Canada has agreed to allow enforcement against counterfeit goods that are in-transit (passing through) Canada as well as a form of presumption of damages. Currently, border enforcement measures against counterfeits are only available against goods entering Canada.

• New IP clauses in the CUSMA agreement do not place US and Canadian implement manufacturers on the same footing. US Copyright law makes exceptions for legally modifying motorized agricultural equipment for the purpose of interoperability. Canadian Copyright law does not provide these exemptions, making it illegal for Honey Bee or any Canadian company, to reverse engineer OEM platforms to achieve interoperability. Canada has no exception for: motorized land vehicle such as a personal automobile, commercial vehicle, or mechanized agricultural vehicle as per US exemptions. The current US Copyright Law allows for you to attach to products in the US, but not in Canada. This means that products made in Canada cannot be legally adapted in Canada, putting Canadian manufacturers and farmers at a disadvantage for no reason other than lack of clarifying language.

Therefore we recommend that you seek to embed within the context of bill C-4:

• Appropriate recommendations from the Standing Committee on Industry (42nd Parliament) comprehensive review of Canada’s copyright regime

• Address the outdated obstacle that Crown Copyright has become for the economy, the access to government funded information, and public policy development.

• Include an amendment to provide an exemption to prohibition against circumvention, equivalent to Part 201.40 of the United States’ Code of Federal Regulations, Title 37 - Patents, Trademarks, and Copyrights (See enclosed document). Most critical to this amendment is Section 9 of Part 201.40:

(9) Computer programs that are contained in and control the functioning of a lawfully acquired motorized land vehicle such as a personal automobile, commercial vehicle, or mechanized agricultural vehicle, except for programs accessed through a separate subscription service, when circumvention is a necessary step to allow the diagnosis, repair, or lawful modification of a vehicle function, where such circumvention does not constitute a violation of applicable law, including without limitation regulations promulgated by the Department of Transportation or the Environmental Protection Agency, and is not accomplished for the purpose of gaining unauthorized access to other copyrighted works.

H. Digital Trade

CUSMA also precludes Canada from making sovereign decisions on how it will deal with data protection, because the government has failed to establish a national data strategy in a timely fashion. This has the potential for massive negative impacts on the Canadian economy as the digital economy grows and potentially displaces other forms of industry as a primary source of global economic growth.

Other jurisdictions such as the EU have not entrenched provisions similar to those found in Chapter 19 of CUSMA because of the newness of the field and the need to have clear strategies around economic growth and regulation of data ownership prior to signing away sovereignty on the same.

What particularly shocked our committee was the lack of preparedness by the trade negotiation team, in testimony, to explain what analysis and strategy was used by the government in making significant concessions in Chapter 19 of CUSMA. Given the failure of the government to draft a national strategy on the digital economy prior to signing off on CUSMA, the recommendations contained herein are particularly acute.

CUSMA also enshrines internet safe harbours, whereby internet companies are not liable for the content of their users. This restricts the ability for a country to create a system premised on liability for Internet companies. Additionally, the new trade agreement has raised uncertainties with regards to privacy laws and potential future reforms being contemplated and anticipated with regards digital consumer rights.

As such, we encourage you to look for ways to embed the following into Bill C-4:

• Clarify how anti-localization provisions will affect provinces like British Columbia and Nova Scotia who currently have data localization laws for things like financial information.

• Study the impact of the data provisions in Chapter 19 of CUSMA on the Canadian economy with a specific focus on how they value of data.

• On an urgent basis, create a National Data Strategy.

• Provide an analysis on how the principle of internet safe harbours will impact the Government’s proposal to regulate online content.

• Study and evaluate how future consumer protections in the digital services and telecom sectors could be impacted by CUSMA.

• Establish mitigation measures to ensure future reforms and new authorities granted to the Privacy Commissioner to protect Canadians can sustain any challenges

• In order to accurately inform Canada’s policy response of the economic and non economic effects of the Intellectual Property (IP) and Data provisions of the CUSMA to effectively manage strategies that address the highly consequential nature this legislation has on all Canadians it is suggested that a clause be inserted into the legislation requiring a review of its effects as well as Canada’s policy strategies for the digital economy no later than 1 calendar year from those sections coming into force, with subsequent reviews taking place no later than every 2 calendar years thereafter. The review is to be conducted by the House of Commons and tabled in a timely manner in accordance with the review schedule. This, for example, could be included in Part 3 of the Act titled ‘Coming into Force’. It can be included as a subsection 5 or included as an additional clause at the end of each section requiring a 1 year review.

I. Supply management

Producers under supply management – eggs, poultry and dairy products – are the big losers in the negotiations that led to CUSMA and it is important that the implementation of the agreement and of Bill C-4 do so as to lessen the harm that the deal causes them. In particular, the clause that gives the United States a say in our exports of non-fat solids outside of North America is a precedent that we regret and do not want to see duplicated.

We recommend that Bill C-4 be accompanied by the following measures:

• That producers and processors under supply management be fully compensated for their losses in CETA, TPPGP and CUSMA and that a signal to this effect be given in the next budget;

• That import licenses resulting from breaches in supply management be granted as a priority to processors rather than distributors and retailers;

• Before ratifying, the government considers the fact that if the agreement comes into force before August 1, 2020, the export quotas for dairy proteins for 2020-2021 will be 35,000 tonnes rather than 55,000 tonnes if the agreement comes into force after August 1;

• That the government set up a permanent table with producers and processors to ensure that the establishment of these export tariff quotas is done in the least damaging way possible for the dairy sector.

J. Review and Revision

CUSMA has the potential for significant adverse consequences for Canadian industry, a projected negative overall economic impact and a despairingly long list of concessions.

Given this, we recommend that Article 34.7 of CUSMA be amended to include a thorough and broad analysis of economic sectors adversely impacted by the deal and to provide recommendations for improving the competitiveness of North American industry.

This study could then be used to inform the “joint review” that occurs on the sixth anniversary of the entry into force of this agreement.

At 6:27 p.m., the committee adjourned to the call of the Chair.

Michael MacPherson
Clerk of the Committee