Welcome, colleagues, to meeting number 9 of the Special Committee on the Economic Relationship between Canada and the United States. Pursuant to the motion adopted by the House on February 16, 2021, the special committee is meeting to discuss the economic relationship between Canada and the United States. Today, we're continuing our examination of buy America procurement policies.
I would like to now take the opportunity to wish a very warm welcome to our witnesses from the Department of Foreign Affairs, Trade and Development. We have with us today the Honourable Marc Garneau, Minister of Foreign Affairs; Steve Verheul, assistant deputy minister, trade policy and negotiations, and chief trade negotiator for the Canada-United States-Mexico Agreement; and Mr. Michael Grant, assistant deputy minister, the Americas.
Thank you very much, Minister, for taking the time. I know you're very busy, as we all are.
I understand you have some opening comments. You have five minutes, sir.
Thank you very much, Mr. Chair.
It's a pleasure to be in front of your committee. It's my first time in front of any committee as foreign minister. I'm delighted to be here with Steve Verheul and Michael Grant from our ministry.
Canada and the United States have a unique and incomparable relationship. We enjoy the world's largest trading relationship and the longest undefended border. We are strong allies on the world stage and work together to protect the natural environment in our two countries, but we are also guided by the objective of reducing emissions globally. No two nations depend more on each other for their mutual prosperity and success. About 2.7 billion dollars' worth of goods and services cross our shared border every day. Roughly three-quarters of Canada's exports go to the United States.
In February, mere weeks after his inauguration, President Biden chose to renew a tradition. His first meeting with a world leader would be with . They talked about the importance of a shared vision for clean, sustainable growth that creates opportunities and strengthens the middle class on both sides of the border. Following this meeting, they announced the road map for a renewed U.S.-Canada partnership to revitalize and expand our historic relationship. The road map is a blueprint to expand our co-operation in many critical areas, including in our response to the COVID-19 pandemic and in building cleaner, fairer and more inclusive economies for everyone.
Following this meeting, I talked to Secretary Blinken about pursuing the work undertaken by our two leaders. We agreed to work together with like-minded partners to promote our fundamental values around the world, values such as democracy and human rights, on issues including the challenges posed by China, the rise of authoritarianism, and the arbitrary detention of Michael Kovrig and Michael Spavor. The U.S. assures us of their unequivocal and unwavering support in calling for their release. Secretary Blinken and I have also discussed the importance of working together to build back in an inclusive way from COVID, as well as co-operating on migration issues.
We also agreed to refuse needless protectionism. We all recognized that the economic recovery, both in the United States and in Canada, will be quicker, stronger and more sustainable if we act together. For that reason, President Biden and launched a new strategy to strengthen the resilience and reliability of our supply chain, which is so critical to the prosperity of our two countries, and which has been and remains essential in our pandemic response.
Workers and businesses are not just exchanging goods; they produce them together so that they would be used here and around the world. Concretely, most of the U.S. imports coming from Canada already contain American products. The two countries understand very well that it is crucial to avoid unexpected consequences of poorly thought out protectionist policies.
Canada is a predictable and stable partner for the U.S. and is also its closest ally. We work together to ensure that our mutual prosperity and our national security would be supported by a solid and resistant supply chain.
We know full well that the Buy America policies negatively impact our cross-border trade, as well as our American interests. That is why and Vice-President Harris agreed in February to avoid the unexpected consequences of those types of policies. What is more, last month, and Vice-President Harris discussed the importance of free trade, especially in the context of proposals surrounding Buy America policies.
Our two countries also recognize the vital role natural resources play in our trade relations. Canada is the largest energy supplier to the United States, and that includes oil, natural gas, hydroelectricity, as well as uranium. It is essential for us to work together to ensure a sustainable and predictable provision of resources for North America and the entire world.
Energy underpins our exports. It supports the economy, jobs and competitiveness on both sides of the border. It provides energy, security and resiliency to North America, and supporting Line 5's continued operation remains a top priority now and in the future through Enbridge's tunnel project.
We work tirelessly through Canada's diplomatic network in the U.S. to promote and strengthen the energy relationship. Our shared desire to ensure greater energy security on the continent is coupled with our shared commitment to create jobs in a clean, sustainable economy of the future that both protects our natural environment and addresses the existential threat of climate change while creating opportunities in the energy sector of the future.
We agreed with the U.S. administration to take a coordinated approach to accelerating progress towards sustainable, resilient and clean energy infrastructure, including encouraging the development of cross-border clean electricity transmission. We have also agreed to align policies to achieve a zero-emission vehicle future and to create the necessary supply chains to make Canada and the U.S. global leaders in battery development and production, so every citizen can participate in the transition to cleaner energies and renewable energy storage.
Under the new road map, we will also launch a high-level climate ministerial to increase our climate ambitions consistent with the Paris Agreement and net-zero objectives, while holding polluters accountable.
Beyond economic recovery and energy security, Canada and the U.S. also collaborate closely on defence, both at home and abroad, notably through multilateral organizations.
Over the short and medium terms, we will expand our cooperation in terms of defence on the continent and in the Arctic, including by modernizing the North American Aerospace Defence Command, NORAD, and by launching a broader dialogue between the United States and Canada on the Arctic.
We are currently going through a landmark and very exciting moment in our relationship with the United States. Over the next few years, Canada will have an array of opportunities to work with the Biden administration, and we are in a very good position to take advantage of those opportunities.
Thank you for listening. It would be my pleasure to answer your questions.
Thank you, Mr. Chair, and thank you, Minister. We certainly appreciate your coming out here to answer questions.
Minister, at a Manufacturing Canada Conference in May 2014, which is as relevant today as it was then, Robert Hattin, a former chairman of the Canadian Manufacturers & Exporters board of directors, suggested that to get around the challenges to competing in the U.S. economy, Canadian manufacturers should simply buy an American company:
Business as usual is no longer an option, and we have to figure out other ways to continue to participate in the largest economy in the world. Let's buy America. Let's invest in America.
Of course, what Mr. Hattin doesn't say is that this will result in a potentially catastrophic loss of well-paying manufacturing jobs in Canada.
Minister, to stem further hemorrhaging of contracts and jobs in Canada during the year-long closure of the Canada-U.S. border, what is the Canadian government doing to ensure that manufacturers can thrive in Canada and jobs in Canada are protected from President Biden's latest tightening of the buy America provisions?
Thank you, Minister, I certainly appreciate that. I'm very happy that you spoke about the integrated approach.
Minister, another concern I have about the buy America or buy American provisions is the impact on the Canada-U.S. supply chains, which are highly integrated, as you've just suggested, sir.
Right here in my backyard in Essex is the Windsor Assembly Plant, the Chrysler assembly plant. We cannot get chips for our vehicles; therefore, the plant is shut down for one month. I really suggest that integration is not happening at the greatest level that it perhaps could.
Minister, parts for a vehicle go back and forth across the busiest international border up to seven times before a car is manufactured. Then, that same vehicle or truck is sent back to the States and/or Mexico in some cases.
Minister, is Canada negotiating with its U.S. counterparts to ensure that the integrated supply chain with respect to manufacturing in Canada, particularly in the automotive sector, is protected?
Interestingly enough, Minister, I am the chair of the Conservative auto caucus. Yesterday I had eight or nine stakeholders there, from all aspects of auto. Yes, there's a lot of talk on electric, and I think that's fantastic. As you know, sales across Canada are down 20%, and that's because we cannot get commerce back and forth across the border and we can't get people back and forth across the border.
Specifically, Minister, have you had any conversations with your counterparts in the United States to ensure that manufacturers, advanced manufacturers in the auto sector, can get people across the border to do their jobs?
Minister, it's good to see you again, even if it is virtually.
On January 25, President Biden issued an executive order: “Ensuring the Future Is Made in All of America by All of America's Workers”. It's not a very subtle executive order, may I say? It seems to me that it was a very political executive order. From this side of the border, one thinks that maybe treaties, laws and various agreements, including NAFTA 2.0, are more casual suggestions than actual agreements that are binding on both parties.
My first question is, what is your political strategy with respect to getting the most favourable treatment under that executive order? Everything in Washington seems to be political, and you can operate at an executive level but not necessarily at a political level. I'd be interested in your strategy with respect to that.
The second question I have is with respect to your seeking exemptions from the arbitrary orders that many American officials might well make with respect to Canadian products. Mr. Lewis can give you examples, and I can certainly give examples as well. I'd be interested in your political strategy and how you're going to ameliorate the section 4 exemptions.
Thank you, Minister, for being here. Thank you again for your quick and decisive action on trucks carrying hazardous material going across the Ambassador Bridge during this past Christmas holiday season. Your intervention with Governor Whitmer was significant in blocking these trucks carrying dangerous material from crossing over our Great Lakes system.
With that, I want to ask about another issue with the FAA in our region. That's the Nav Canada study to close the Windsor airport. I have presented your government with Bill , a private member's bill that would give the government the power to stop the study from happening.
Have you had a chance to review this? Why would we want to get into a dispute with the FAA? With that airport tower being closed, planes are having to share space, especially with the U.S. military and their private and commercial aircraft.
I would suggest that batteries shouldn't be alone; semiconductor chips should be part of that, because we are dependent on that entire infrastructure.
I want to move to a proposal by the Wilson Centre to have a border task force to deal with the health-related issues of COVID-19 and building back our two countries.
Is this being considered by the government right now? Similar to the issues over COVID, we have the Canadian Association of Moldmakers, who cannot get workers across the border properly.
The order in council you're a part of didn't accommodate those types of employees. We also have families who can't get reunited. Could you make a commitment today to having a border task force created, as many businesses, including the Business Council of Canada, have advocated? There are so many issues under that. It's going to take ongoing operations.
Is that something the government is considering?
I sit on the COVID committee, and we are constantly evaluating border policy. It's probably fair to say that the number one driver in making any decision is the health and safety of Canadians.
Having said that, the situation is gradually changing and we are very sensitive to the need to recover our economies. We are looking at fine-tuning the process, so in some cases we will examine whether certain classes of workers who aren't on the original list of essential workers need to have access across the border.
Those are the kinds of things we're looking at as we move forward and improve our processes with respect to getting people checked before they cross the border, getting people checked after they cross the border, and refining our quarantine regulations. All those things are being dynamically examined at the moment by all the relevant people.
We are talking to stakeholders and they are certainly talking to us, especially from industry but also from the United States, where some groups want to reopen the border more quickly. However, we have to always bear in mind that the number one consideration is the health and safety of Canadians. They have to—
Thank you very much, Mr. Chair.
Minister, thank you very much for joining us today.
It is not easy to take the floor after five members, as a number of my questions have already been asked.
Therefore, I have to switch my strategy a bit.
With respect to the border, obviously we are both from the Montreal area. Being 45 minutes away from the St-Bernard-de-Lacolle border, I hear about this often, from both sides: that we don't want to open the border, that we do want to open the border, or that we could at least let people go in, especially those who have property on the other side of the border.
You've mentioned that it's an evolving issue and that month by month we're looking at that, but is there a possibility, given the vaccination rates ramping up both in the United States and in Canada, that we will see the border open before the end of summer?
Minister, the U.S. Centers for Disease Control issued a “high” warning for travel to Canada for American citizens. The point I have with regard to the order in council process is that it's secretive; it doesn't have to be inclusive of the different groups and organizations. The tentacles for it might reach out for advice from different groups and organizations or bureaucrats, but why not have a border task force to at least provide some public accountability and some innovative ideas on how to deal with this?
Who would have thought the U.S. would be issuing a travel advisory against Canada to its citizens? That's where we're at right now because of their advanced COVID immunization. Why not have some type of formal process like we've had in the past, which would untangle border issues on a regular basis and proactively work on solutions and proposals?
It has been very cruel for families who are waiting month by month for somebody, somewhere, to make a decision on whether they can actually have a process to be reunited, let alone the business decisions and the business engagements we have that are very particular to regions, like the moldmakers in my riding.
You also touched on the process you're using. It is similar to what we used for the USMCA, or CUSMA, negotiations. I was actually part of them. I worked very closely with Andrew Leslie at the time. We worked across party lines to talk about the Canadian-American advantage and how we work well together.
I see problems with that right now. First, you haven't assigned anybody to that role in your caucus. Second, we can't travel, and part of the process was face-to-face meetings. The U.S. has a new Senate. In fact, the Senate actually said no exceptions, if you look at the letter that 21 senators sent to the President. They didn't want to see any carve-outs, any exceptions.
How are we going to do the grunt work, the work that Mr. Masse, and I were part of? How do we do that in light of the fact that we can't travel to the U.S. and can't visit?
I'm also very concerned when I start hearing from colleagues in the U.S. that they don't even understand the problem. When we were dealing with Line 5, for example, they didn't even realize that was an issue. What's your strategy to make sure that work gets done?
Thank you, Chair. Thank you, Minister.
Minister, you've heard this from some of the colleagues across the aisle as well. One of the successes of the CUSMA negotiations was a bipartisan, multipartisan, all-Canadian approach. I was part of the Canada-U.S. interparl that visited many congressmen, congresswomen, governors and senators to emphasize the amount of trade they had and that Canada was usually the largest trading block for most states in the U.S., and if not the largest, then the second-largest trading block.
In the same light, when it comes to procurement—and I've asked this before, so I'm not expecting an actual dollar figure—would it not be very important that we emphasize to American states, congressional districts, senators and otherwise how much procurement Canadian companies do in the U.S.? Also, vice versa, how many American companies do procurement in Canada? If they put buy America provisions on Canadian goods, and if Canada were to do the same, how much would be put at risk?
Has that been emphasized? Have GAC officials been able to collect that data? Perhaps you can let us know what you've been doing to get that message across to them.
I think it was not intended. I'm going to interpret things here, but I don't believe the United States buy America policy was intended to be aimed at a particular country. I think it was a policy that the new administration decided to put in place.
Having said that, at the first encounter between our and the President, the subject was discussed, and it's been discussed several times since then. There is a realization in the United States that they would not want, through their policy, to have unintended consequences, because of the high level of integration in our supply chains between the two countries.
They are open to listening to us if we believe that something is having an unintended consequence. That is, in my opinion, a very positive position on their part, and it shows they're sensitive to the importance of maintaining strong, integrated supply chains between our two countries.
Thank you very much, Mr. Chair.
Thank you for the opportunity to testify. It's an honour to appear before this committee. I'm testifying in my personal capacity and expressing my own views.
The United States is currently entering a stage when buy American is likely to play a greater role in federal government policy, and for three reasons, I do not see immediate relief for those who oppose that.
The first is politics. “Buy American” has always been a popular slogan, and in last year's election, both our parties supported strong domestic procurement provisions. The voters the two parties are competing for, largely white, blue-collar workers in traditional manufacturing sectors, believe that buy American is an important policy that will create jobs for them, and President Biden seems determined to recapture as many of those voters as he can. Pursuing a more aggressive policy than President Trump did will be part of that effort.
The second reason is the COVID-19 pandemic, which has brought to light gaps in our supply chains that led to shortages of critical personal protective equipment, among other things. Many of them were short-term, and ultimately resolved through market adjustments, but U.S. citizens were left with the realization that we did not have everything we wanted at the moment we needed it, and the government wants to make sure that does not happen again. My understanding is that Canada is experiencing similar problems right now.
In starting that process, the administration, to its credit, has not proposed autarky and has acknowledged that working with our allies and partners is the best way forward. The extent to which that is lip service remains to be seen.
The result of the pandemic has been to refocus supply chain management on resiliency and redundancy. Managers need not only plan A, but plan B and plan C as well, and all those alternatives will involve more domestic sourcing or nearshoring. They will also involve some movement away from just-in-time manufacturing to rebuilding inventories.
The third reason is related to national security and grows out of our deteriorating relationship with China. In the last 10 years, there has been a significant change in public opinion in the United States about China. In 2011, 51% of those polled had a favourable view of China, and 36% had a negative view. In 2020, those numbers were more than reversed: 22% favourable and 73% unfavourable. This change has been echoed in the U.S. Congress, where elected officials of both parties have pronounced China a security threat and vie to see who can take the hardest line against it.
The debate has moved in two directions: running faster, improving our innovation capabilities in critical technologies to better compete with China, and slowing China down by restricting its access to U.S. technology. Both strategies have involved efforts to reorient supply chains away from China, sometimes by banning the use of Chinese equipment in the United States, as in the case of Huawei, and sometimes by encouraging companies to decouple from China and return manufacturing onshore.
At the same time, U.S. companies have been shortening their supply chains for reasons unrelated to U.S. government policy, in response to political uncertainties in some countries, rising wages or a desire to reduce transportation times and to be closer to their customers. The sharp economic downturn in the spring of 2020 due to COVID accelerated that trend.
All these factors have combined to push companies to restructure their supply chains in ways that favour domestic production. In addition, it appears the government will attempt to change its procurement rules further to favour domestic production. That will be a complicated undertaking, in part because 96% of federal procurement is already domestic. That number is a bit misleading, because we treat some parts and components incorporated into a product as domestic even if they are imported. Changing that methodology will force some manufacturers to adjust their supply chains to include more U.S. content.
Federal procurement contracts for goods in fiscal year 2019 amounted to $231.4 billion U.S. in spending, a relatively small amount compared to the size of the U.S. economy. The larger economic impact is likely to occur with respect to supply chain adjustments that U.S. companies make, either on their own or as a result of government pressure.
There, the key issue will be how we define national security. There were officials in the Trump administration who defined it very broadly, and a glance at President Biden's supply chain executive order shows similar breadth. He has ordered urgent studies on four critical sectors: semiconductor manufacturing and packaging, batteries, critical minerals and pharmaceuticals, but he has also ordered year-long studies of major sectors of the economy: the defence industrial base, public health, information and communications technology, energy, transportation and agriculture. Taken together, these sectors amount to nearly 60% of U.S. GDP. If all the studies recommend actions to reorient supply chains to the domestic economy, the administration's policy will have a significant impact.
Finally, as an American, it is not my place to suggest what your government might do with respect to U.S. policy, but nevertheless, I'll make some suggestions.
First, the premise of NAFTA was to further integrate the three North American economies, and I believe it succeeded. Economic integration on our continent, particularly between Canada and the United States, is inevitable and it would be useful for your government to continue to remind ours of that imperative from time to time. Instead of buy American, we should be buying North American.
Second, since our security interests are closely aligned and we both benefit from close defence co-operation, Canada could also work with the United States in developing a definition of national security that does not overreach and sweep into the domestic procurement pot a lot of things that shouldn't be there.
Third, the Canadian government could remind the United States of its obligations under the WTO government procurement agreement and of its obligation to provide compensation if it limits other nations' benefits.
Mr. Chair, thank you for the opportunity, and I'd be happy to take questions later on.
Thanks very much to the chair and to the committee for this chance to speak to you about the Biden administration's plan to tighten up the buy American and buy America rules.
First, I'll tell you a bit about me. I currently direct the trade and investment research project at the CCPA, which has been doing public interest research into Canadian trade and investment policy since the late 1990s.
I've split this presentation today into three parts. The first gives some context on the buy American policies themselves; the second is on the way in which I think we shouldn't respond, and the third is on the way in which I think we should respond to this moment.
The first point is that buy America is here to stay. As committee members know and have heard from other witnesses, buy America, buy American and other domestic preferences on U.S. procurement have existed for some time, and they enjoy broad bipartisan support. Buy American policies require federal agencies to favour domestic end products or domestic construction materials when procuring goods, except in situations where it would be impractical or overly expensive to do so. For example, if buying locally would be more than 25% more expensive than the lowest qualifying foreign bid, or where there is no domestic supplier, the agency can waive the buy American requirement at the federal level.
The buy America policy at the state level refers to a slate of domestic content statutes and regulations in which federal funding for state and local governments, mainly for transit and highway projects but also for water infrastructure, comes with domestic content quotas. These quotas generally relate to the use of American iron and steel and certain other manufactured goods, or they could apply again to the value of components in things like buses and railcars for public transit projects.
As the committee has heard, while many buy American measures at the federal level in the U.S. are generally waived—by regulation, not by statute—for Canada and other member countries to the WTO agreement on government procurement, buy America transfers to the lower levels of government are completely excluded from the U.S. GPA coverage even for the 37 states that have made other procurement commitments in that agreement.
The long-standing measures are standard operating procedure in the U.S. no matter who's in office, and the U.S. is well within its legal rights to continue them. We have very little leverage, in other words, to change these policies. I think the main unknowns, as this committee has already heard, are what exactly the buy America conditions that will apply in this specific new stimulus plan are and how he plans on changing or tightening up this waiver application process in response to criticism that the buy America contracts have been going to foreign firms. I think we have to put in there that the main focus seems to be on China with respect to this specific aspect of the buy America contracts.
So how should we not respond? Looking back at the Obama administration days, when they passed their own recovery act a decade ago with strings attached—buy America strings—we tried to negotiate a bilateral procurement agreement that would be balanced, and it didn't go well. The end deal announced in 2010 was hugely lopsided in favour of the U.S. Canada largely opened up provincial and local government procurement to unconditional U.S. bids, in return for a tiny sliver of opportunity to bid on stimulus money in a handful of federal projects. This wasn't guaranteed access, obviously; it was an opportunity to bid on what was left of the money that hadn't already been spent. It amounted to about four or five billion dollars' worth of what was initially a $275-billion U.S. procurement fund, so not a great deal at the end of the day.
Canada has since made permanent commitments in the WTO GPA to restrict provincial procurement flexibility and bilateral commitments with the EU to permanently cover municipal procurement. U.S. firms with a presence in Canada benefit from both of these agreements already, and as a result we have very little to offer the Americans in a new procurement deal. You could offer them a CETA-plus arrangement with municipal coverage, but that's exactly what we did in the CUSMA negotiations and they weren't interested, and I suspect the Biden administration wouldn't be interested now.
So instead of making a new deal or fretting over what Canadian products or components may or may not be excluded from Biden's new buy America plans, I think we should recognize, as this committee has already heard from other witnesses, that these same products and components—steel pipes, concrete, railcars, buses, transit, renewable power, broadband access, infrastructure, and water in particular—are needed here in Canada as well for the same purposes. The AFB at the CCPA recommends that we spend $36 billion over the next eight years on new water infrastructure because we have a huge deficit in that area.
If we're going to spend the money, which I think we should, why not take a page out of the Biden playbook and find ways to channel some of that money to domestic manufacturing, local small and medium-sized enterprises, women-owned businesses, indigenous-owned businesses, etc., with all the spillover benefits that doing that would produce in Canada and the U.S.?
In summary, I would say that sustainability criteria on federal transfers to the provinces and territories that prioritize high–quality sustainable Canadian goods and services may even bring the Biden administration to the table to discuss, as we just heard from the previous witness, a potentially beneficial and mutually beneficial North American green jobs and procurement strategy.
I'm also happy to answer questions. Thanks very much for your time.
Thank you, Mr. Chair. I'm having some connection issues myself here in Chilliwack today, so bear with me, please.
My questions are for Mr. Reinsch.
I think that certainly at the Government of Canada level there was an almost celebratory mood when there was a change in administration. We figured that there would be a return to certainly a more predictable diplomacy, etc. I think a lot of Canadians perhaps thought that a lot of the protectionist types of tendencies of the Trump administration would be immediately rolled back and we would get back to being the good old friends singing together and cranking out deals to the benefit of both countries.
You alluded to it. It has been my observation that so far we actually have made very few gains, if any, in terms of our relationship with the new administration in terms of policy initiatives that would benefit Canada. We have seen the cancellation of the Keystone XL pipeline. We have another pipeline under threat with Line 5 in Michigan. We have no movement on the softwood lumber agreement, which has not been signed, and now we have this buy America issue.
Other than perhaps a friendlier and more predictable president, do you see any change from the Trump administration's protectionist measures with the Biden administration vis-à-vis its relationship with Canada? Or are we just in for more of the same for the next four years?
I think the answer would be “not yet”, but I wouldn't lose hope. I think it's too soon to say where they'll come out on a number of these issues. Most of these things are under review.
I can't speak to Keystone. That was not an issue we have done any work on. I'm a trade person.
With respect to the other issues, the equivalent of your trade minister, Ambassador Tai only took office three weeks ago. Issues like lumber are things that are under review. I can't tell you that they are going to be the same as they were before.
As you've noted, there is obviously a difference in tone and a difference in rhetoric. There is a philosophical difference as well, which I think will come out. President Biden is a multilateralist in every sense of the word. He believes in co-operation. He believes in teamwork. President Trump was a unilateralist who believed in American sovereignty and was not interested in institutions' co-operation.
That leads also to the view that Biden looks at relationships holistically. Canada is not just about trade. It's about a whole range of issues, some of which you have discussed today. I think that works to the benefit of the relationship and the benefit of the things we're talking about in the long term.
I cannot, however, say that in the first almost three months of tenure they've taken a bunch of actions that should make you happy. They have not, and I think with respect to domestic procurement in particular they're unlikely to do so. When they produced their policy, someone asked them, “What's the difference between you and Trump?” The answer was essentially, “Well, his didn't work and ours will”, so I'm not sure that's a good sign.
That's a good question.
It's still a little too soon to say, partly because, as those of you who work with tax legislation know, the devil is in the details. There's no legislation yet; there's only a concept, so it's a little hard to say.
I think the effect would fall largely on American multinational companies that have already offshored their production. I think in the end there might be incentives for them to reshore, to come back here. I don't see a large impact on non-American multinationals.
One of the criticisms of his proposal, which I have not analyzed myself, is that it may have the effect of encouraging corporate inversions, which is what President Trump's tax bill attempted to stop, and actually did stop fairly effectively. It had other negative effects, but it stopped inversions. There's some feeling the Biden proposal may be a step backwards in that respect.
I don't see a major impact on non-U.S. multinational companies, though.
My experience with buy America began in Albany in 1981, when my then boss consul general Ken Taylor and I travelled from New York City to Albany to see then governor Hugh Carey to push back on buy New York policies on steel and cement, an experience that over the years I would repeat in different states and on Capitol Hill.
Protectionism through preferential procurement policies for goods and services is not particular to the United States. It is practised by all nations, including Canada, and at every level of government.
If all politics is local, so is trade. Voters prefer that their tax dollars be spent locally, even though buying local generally costs more and provides less choice. But these are economists’ arguments, and they don’t matter much to the public. Neither does the bleat that Canada deserves an exemption from buy America because we are America’s friend and neighbour. While polls consistently show that Americans like Canada more than any other nation—in fact, more than we like them—the business of America is business.
We've learned to deal with buy America policies on four levels.
First is by negotiating a procurement agreement within our trade agreements, as with defence production sharing. At the Trump administration’s insistence, there is no procurement chapter in the current Canada-U.S.-Mexico Agreement. Yet, much of what was included in the NAFTA is included in the WTO's plurilateral agreement on government procurement. There are more likely to be deletions from the entities listed in this agreement, given the current protectionist mood on both sides of the aisle in Congress and the “Made in America” approach of the Biden administration.
Second is to offer reciprocity in procurement at the state and province level, because that is where the money is spent. This is how we dealt with President Obama's Recovery Act program in the wake of the 2008-09 recession. Prime Minister Harper turned to the premiers' Council of the Federation. Premier Jean Charest and his successor as chair, Premier Brad Wall, reached out to their governor counterparts, including through a trip by seven premiers to the National Governors Association in February 2010, to make the case for reciprocity.
The arguments that the premiers made then still apply. By opening to outside vendors, local cartels' ability to game the market was curtailed. Competition means better value. Most states are constitutionally prevented from running deficits. Governors need to make their dollars count, especially as they face huge costs in public services because of the pandemic. The 2010 Canada-U.S. Agreement on Government Procurement did not include every state nor cover every sector, but it did open procurement opportunities for Canada.
Third, working with labour is vital. When our unions are part of the negotiations, as we saw during the CUSMA negotiations, we make progress. United Steelworkers leads the charge for buy America, but their membership is both Canadian and American. In the early 1990s, we gained respite from buy America on steel because then trade minister Michael Wilson went to Washington with then Canadian Steelworkers national director, later Steelworkers president, Leo Gerard. After talks with then Steelworkers president Lynn Williams, the administration agreed that buy America would not apply.
Fourth, with those Americans we buy from and sell to, we need to make permanent our campaign that making things together is mutually profitable for jobs and prosperity. Look at our mutually profitable integrated auto trade. Before a car is assembled, its parts have criss-crossed the border at least six times. A car assembled in Canada contains 60% American-made parts, often from Canadian manufacturers with U.S. operations, like Magna, Martinrea or Linamar.
We need to underline that our regulatory standards, especially labour and environmental, are commensurate with those of the United States. We also need to avoid the “tyranny of small differences” that keeps us out of the U.S. market.
Given America's growing national security concerns about reliable supply and resiliency, we need to point out that we are their closest ally and the source of their energy independence, including for the critical minerals required for next-generation manufacturing. When it becomes an American issue with Americans who want to preserve their supply chains, we increase our success rate, as we witnessed with the dismissal of the Trump tariffs on steel and aluminum.
To conclude, there is no magic bullet for buy America. Hoping for an exemption because we are Canadian won’t work. We need to make our case around reciprocity and better value, while underlining the security of our mutually beneficial supply chains. Buy America is not going away, so making our case must be a permanent campaign, a team Canada effort involving the Prime Minister, premiers, cabinets and legislators working with business and labour.
Thank you, Chair.
Yes, it was Matthew Dubé. I'm sorry. Don't tell him I forgot.
I would take exception to Mr. Trew's absolutely sort of nihilistic view of Mr. Harper's attempt with the Obama situation in his buy America program. It wasn't a good solution, but I'm not sure that it was as horrible as some of the labour unions suggested. I think our approach with the new NAFTA was much better, because it was much less partisan. It involved labour unions. It involved senior leadership from the Conservative Party and the NDP. It involved business. It involved premiers.
Obviously, I am going to start out by saying that this needs to be our approach this time. We need to have a broad-based approach.
I'm appreciating that it's not going away. Mr. Robertson was very right. This is something that is here to stay. I think all the witnesses have said that, so now, as I'm looking at it, if it's here to stay and we need an all-party approach and a multi-level approach, what are our levers?
When I spoke to American legislators, I was astounded at their lack of information and knowledge about their dependence on the Canadian economy and Canadian supply chains. I was astounded that they didn't know about the integration of our manufacturing sectors. I was astounded that they didn't know about the dependence that the United States had not only on our natural resources but on other sectors. Information has to be part of it.
On leverage, though, I'd like all our witnesses to comment on what levers they think that we, as a Canadian government and a Canadian Parliament, can bring to bear, knowing that we start out with a position that a strong American economy and a strong Canadian economy are not mutually exclusive—they're interdependent.
I will open it up to the order in which you spoke, with Mr. Reinsch first.
Thank you very much, Mr. Oliphant.
Let me begin by saying that having worked in Congress for 20 years and then serving in the Clinton administration and then in the private sector, I've seen this issue from multiple angles. I can tell you with confidence that your government—regardless of which party is in power at the moment—and your embassy have done an absolutely superb job over the years in providing the United States Congress with exactly the information you're talking about. That doesn't mean that they pay any attention to it or that they read it, but your government has been diligent in developing the information that demonstrates the linkages you're talking about.
I guess my first point would be to say, “Keep on doing that.” One of the things that I think one learns in politics is that repetition is an important element. You have to keep saying the same thing over and over again. With our congresspeople, I think it's important to do that.
Also, it's very effective to do it in the way you referred to in your remarks: to do it personally—which of course is more difficult now, but it won't be forever—and in direct contact with legislative colleagues in Congress. Forming relationships—personal relationships and cross-border relationships—is also effective.
The information is there. The information is available. I mean, these are teachable moments, but we also have to have learners, and sometimes you have to just keep pounding it in over and over again. I wish I had something more brilliant, but I don't.
Thank you, Mr. Oliphant, for the question.
I'm not sure I would say that our assessment of the first buy America deal was nihilistic. I think that is not quite the right word.
In terms of the leverage we have now with the Biden administration, I would say we should be working with them where we can. Where we see Biden saying he wants to reform these procurement rules at the WTO, for example, to make it easier for all governments to use public spending in these ways to support domestic priorities—whether it's renewal in the case of post-COVID recovery, whether it's job creation or those kinds of things—that's an area in which we could work with the Biden administration to reform the trade agenda, as we kind of did under the Trump administration with respect to investor-state dispute settlement.
We've kind of started to come up with new thinking around ISDS, that maybe we don't need to be included in these agreements, that maybe the threats to Canadian environmental policy and other measures.... As Minister Freeland mentioned, when we signed the deal, we said, “Thank God we got rid of ISDS. Now we can actually have more flexibility around these policies.”
I would encourage us to work with the Biden administration on these interesting areas in which we can put these things like sustainable development and trade into a better balance than perhaps they are now.
Thank you to our witnesses for being here.
I have a general question to everyone right now. What I was trying to get at with the previous witnesses.... Mr. Oliphant raised it. What his delegation did helps my riding of Windsor West. I'm on the border here with 40% of our trade and all kinds of cultural and social issues. What I was trying to get to with the last panel was that right now we don't have a border task force that includes the private sector, unions, civil society and so forth to work on our border policies. Sometimes they get entangled; some are outdated, some need tweaking and so forth. And with COVID, it's even more complicated. The point is that the cabinet and the order in council are very secretive. There are no minutes, no provision for the public to have full access to documents and to see what's going on, what's on the table and what's not. I don't think that's a helpful process right now.
A good example is that Mr. Sarai and I have been in the United States, lobbying. Mr. McKay and I have been to so many meetings over the years, and Mr. Hoback and I covered tons of ground in Washington as well, opening up doors and creating conversations the government wouldn't even have access to because either they don't have the people there or they don't have the diversity because they don't represent all of Canada. They represent the political party in power at the time.
My question is general, maybe starting with Mr. Trew and going across the board. Would it not make sense to have some type of a working group or working model that has some type of accountability and openness to the public? I have so many concerned citizens who can't see their relatives or families. They have no idea, month by month, what to go by. They're not asking for things to be unsafe. Then we have issues with our mould-makers, a very particular industry, who are left behind, and we have a series of other types of measures in place that could require some tweaking and that can build stronger economic ties more efficiently.
Mr. Trew, if you think it's a bad idea, say so. I don't mind. It's not going to hurt my feelings.
We've had a long trade screen when we cross the border. After 9/11, we had a security screen. We're now going to add a health screen. We need to look at border crossings.
Regionally, there's very good work being done by the Pacific NorthWest Economic Region out there in terms of pilots as to how to make the border work better. There's something going on at the Wilson Center. Ultimately, it's going to be the and the premiers, in their Thursday night conversations, who will make the decisions on where we go.
It's an opportunity for us to also think about how we reimagine this border, post COVID. Yes, we should be looking at this, and we shouldn't be bound by the notion that one size fits all. There may be a variety of things we can try, opening it in certain parts of the.... We have a massive border. It's not just the 49th parallel; it's also the border between Yukon and Alaska.
Yes, I would agree with your approach.