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View Randy Hoback Profile
I'm just trying to read through that. So it does carry through into CUSMA. Basically, if you wanted to put a tariff on, say, Kentucky Bourbon, or something like that, it would not be an option in your toolbox at this point in time?
Steve Verheul
View Steve Verheul Profile
Steve Verheul
2020-07-09 13:34
Just to be clear, this is not a part of the CUSMA agreement. It's not part of the obligations contained in the formal international treaty that we've agreed to with the U.S. and Mexico. This does mean there is a certain amount of flexibility with respect to the particular statement that was issued back in May of 2019.
From our perspective, I think it really depends on what kind of action the U.S. takes. If the U.S. were to take some kind of action that was viewed as being consistent with that statement, I think we would have to think about what kind of reaction we would have. We would likely want to stay within the context of that understanding, recognizing that “aluminum-containing products”, for example, is a broad category.
If the U.S. acts outside of the constraints of that agreement or statement that was made back in May of 2019, I think we would certainly have more flexibility in how we might want to respond.
View Colin Carrie Profile
View Colin Carrie Profile
2020-07-09 13:56
It's not a lot of time.
Thank you very much to the witnesses for being here.
It's great to see colleagues.
I wanted to talk a little bit about the economic impact. I know that with the original CUSMA we begged and pleaded to get these economic impact studies. The Prime Minister didn't make them available until after the deal was done. One of the disturbing things I saw in them was on page 61. It basically said that automotive would be taking a $1.5-billion hit compared to the old NAFTA.
Mr. Verheul, you said in your opening statement that it's so important that Canada maintain its ability to be “an attractive investment environment”. Two-thirds of our income comes from trade, and 3.5 million jobs come from trade. I'm really concerned about the uncertainty we have on the implementation of CUSMA and the effects of COVID on the supply chains.
I'm not an MP from Quebec, but I think everybody knows that the federal government sole-sourced and ordered two jets from Bombardier Aerospace recently. Immediately after CUSMA came into effect, Bombardier Recreational Products announced they'll be opening a brand new plant. But, Steve, it's not in Canada; it's in Mexico. They're investing $185 million and creating up to 1,000 jobs, but not in Canada, not in Quebec. It's in Mexico.
I was wondering what the Liberal government has done and what kinds of resources it has given you, as we move through this implementation, to make sure that the message gets out that Canada is an attractive place to do business. What have they done to decrease the uncertainty with these supply chains? With any new investment, manufacturers are going to be looking at how they're going to get these products back and forth across the border. What has the government asked you to do immediately, as CUSMA is coming into effect, to allow that to happen?
Steve Verheul
View Steve Verheul Profile
Steve Verheul
2020-07-09 13:58
With respect to implementation, I think we have been doing a lot of work, a lot of consultation, with industry moving forward to ensure that the change from the existing NAFTA to the new NAFTA, or CUSMA, can happen as smoothly as possible. However, I think probably even more importantly, we have been looking at a number of steps to take to ensure that companies in Canada understand how they can take advantage of the changes under the new agreement, and how we can ensure that we can strengthen our position with respect to the economic relationship between Canada and the U.S., and Mexico as well. A lot of our work through the trade commissioner service has been dedicated to trying to help those companies reach those kinds of achievements.
I want to turn briefly to my colleague Eric Walsh, who is responsible for U.S. trade relations; he might want to add a few comments.
View Colin Carrie Profile
View Colin Carrie Profile
2020-07-09 13:59
Just before that, Mr. Walsh, I know many companies wanted CUSMA to come into force after January 1, 2021, because of COVID and other factors. What does that delay...? How is having CUSMA implemented now affecting the automotive companies? What's it doing to their certainty levels? Again, I don't want to see this bleed continue in the automotive and manufacturing sector where they think it's better to build in the United States or Mexico because they don't have these issues about supply chains, etc.
Steve Verheul
View Steve Verheul Profile
Steve Verheul
2020-07-09 14:00
That was clearly a strong concern of ours, when the U.S. was pressing to have the agreement come into effect sooner rather than later. We know that companies across Canada are facing enough challenges dealing with COVID-19. We were, at least initially, reluctant to have them have to adapt to new rules under the new agreement, so we've been working closely with them to try to make sure this process is as smooth as possible.
In particular with respect to the auto sector, there are a number of provisions that allow for gradual implementation, with a number of flexibilities in recognition of the challenges we're facing now. We have various flexibilities that would delay the coming into force of some of these elements.
View Randeep Sarai Profile
Lib. (BC)
Thank you, Madam Chair.
Thank you, Mr. Verheul.
As the member of Parliament for Surrey Centre, along with my colleague, the member of Parliament for Surrey-Newton, I know that Surrey is a big trading hub, whether it's ports or borders. Logistics companies have headquarters here and have a huge impact on our local economy.
I first want to thank you for having concluded CUSMA prior to the pandemic and having it ratified. I think it would be a much more difficult task with protectionist views heightened during a pandemic, so we are fortunate to have it in place. However, due to the pandemic, we've still had over one-third drop in trade between the two countries. I think it's roughly 35% respectively either way, along with toughening the borders in terms of crossing times and limited border crossings.
How difficult do you think it will be to restart supply chains and restart that trade generator that we were before? Would CUSMA be beneficial in that, considering the problems the U.S. is having, particularly with some of its Asian partners?
Steve Verheul
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Steve Verheul
2020-07-09 14:02
I think we are certainly doing a lot of work to determine how quickly we can move back to as close to normal as we can get in terms of the trading relationships. I think the impact that you cited with respect to the trade going back and forth.... Those numbers are higher than the ones I have seen. I think we have been managing to maintain supply chains, by and large, particularly with the U.S. and with Mexico going forward.
I think there will probably be further pressure on us to narrow the supply chains to some degree—in other words, putting more pressure on North America as a supply chain in itself—and the relationship with the rest of the world will depend on us making efforts to maintain those supply chains as well.
I'd like to see if Eric Walsh has something further to add on this supply chain issue. He's been working on these issues more closely than I have.
Eric Walsh
View Eric Walsh Profile
Eric Walsh
2020-07-09 14:03
Yes, I'm happy to jump in. Thank you for inviting me here today.
I think we can say that both Canada and the U.S. are very close partners and part of these complex, integrated, reciprocal supply chains that go both ways across the border, and it's in both of our interests to allow these supplies and people to continue crossing the border.
We've seen this with the situation with PPE, personal protective equipment, and all the related COVID materials. We had difficulty accessing inputs and raw materials, and that's really slowed down production. Logistics has been another factor in the supply chain disruptions, so reinforcing our strong relationships with the U.S., as well as Mexico, is really important to Canada's ongoing prosperity. The integration of the North American production platform, especially in the context of the COVID-19 pandemic, is equally important.
View Sukh Dhaliwal Profile
Lib. (BC)
Thank you, Madam Chair.
Thank you to all of my friends. Welcome back to Ottawa.
Mr. Verheul, both Randeep and I come from British Columbia, so we are fully aware of the impact of the ongoing softwood lumber dispute with the United States. Right now, Canadian parties still have pending WTO and NAFTA challenges to the Department of Commerce's underlying countervailing and anti-dumping duties. Could you tell us how the ratification of CUSMA will impact these challenges? Overall, can you give us some context with regard to how the new agreement might work to de-escalate the ongoing dispute between the U.S. and Canada?
Steve Verheul
View Steve Verheul Profile
Steve Verheul
2020-07-09 14:11
As you well know, we've had a long-standing irritant with the U.S. with respect to softwood lumber. Given the most recent actions they've taken to reimpose tariffs, both anti-dumping and countervailing duty tariffs, against our softwood lumber producers, we have been challenging those measures under NAFTA and at the WTO. We have met with a number of successes in those efforts. We had been hoping that those kinds of successes would bring the U.S. back to the negotiating table so that we could resolve this for the longer term, but we have not seen a willingness on the U.S. side to advance that.
With respect to the new CUSMA, I think it's important to remember that any kind of softwood agreement is outside of that agreement. It was not envisioned by that agreement, nor was it envisioned by NAFTA. When we have the U.S. pursuing anti-dumping and countervailing duty actions against our softwood lumber producers, they have a legitimate right to do that under the trade remedy provisions of both NAFTA and CUSMA. We have the right to challenge those. In most cases, we've successfully challenged those measures, but the decision to try to negotiate something out requires agreement on the side of both parties.
We are ready to go to the negotiating table at any point in time to resolve this issue. We think it causes damages on both sides of the border. It increases costs, particularly in housing in the U.S., and is totally illegitimate in terms of the application. We're ready to go back to the negotiating table at any point in time. However, we have not yet seen any willingness on the U.S. side to do that.
View Sukh Dhaliwal Profile
Lib. (BC)
The COVID-19 pandemic has shown us how fragile the global supply chain can be and how that can impact Canada. With regard to manufacturing, can you explain how the new CUSMA might help bring in some of the manufacturing jobs that left Canada over the past few decades?
Steve Verheul
View Steve Verheul Profile
Steve Verheul
2020-07-09 14:14
Aside from the kinds of modernization gains we made in the new NAFTA, particularly with respect to goods moving more easily back and forth across the border, the emphasis is on regulatory reform and on making all of these processes more modern and more simplistic.
Going forward, we think there will be a greater emphasis on supply chains operating within North America, and that is the direction we're looking at. When we take a sector like auto, for example, there are stronger rules of origin requirements, so that the parts, the products and the assembly of the automobiles have to be done on the basis of predominantly North American parts and North American inputs.
We have this situation with respect to other products as well, so I think we will see more of an emphasis on production within the North American region than we've seen in the past. We certainly expect that, as a result, more jobs in these areas will come back to North America and back to Canada. That was a major objective in the negotiations.
Derek Burney
View Derek Burney Profile
Derek Burney
2020-07-09 14:26
Thank you, Madam Chair and honourable committee members.
Good afternoon and thank you for the invitation. If I may, in my remarks I will go a bit beyond the specific topics and offer a little more of a global perspective.
First of all, I believe that the most serious problem on trade for Canada in the wake of the COVID-19 pandemic is that the world is turning inwards and becoming a hotbed for protectionism. The U.S., unfortunately, is as reluctant to lead globally on trade as it has been on the pandemic. The major powers are competing for power, leaving middle powers like Canada dependent on multilateral institutions like the WTO, which have been weakened by a lack of clear leadership and any real will to work together. By refusing to name panellists to the WTO’s dispute settlement mechanism, the United States has severely restricted the institution’s ability to safeguard the rule of law on trade.
Due to the pandemic, self-reliance and self-interest are in the ascendency. Global trade has already seen employment, production, prices and supply chains sharply disrupted, and there is now a new public health rationale for constraints on trade, under the guise of national security. A “might is right” trend is taking hold as countries are compelled to fend more for themselves.
What should Canada do in this environment? First of all, now that the USMCA is operational, we need to defend vigorously and, where possible, advance access to the U.S., our most vital market, invoking the dispute settlement mechanism retained from NAFTA without hesitation and using selective retaliation when necessary. For Canada, the USMCA is a respectful salvage more than a platform for economic growth, but it should help check lunges into protectionism. Because bilateral trade is roughly in balance, there is no reason for Canada to become a passive punching bag for U.S. protectionists and mercantilists.
Arbitrary tariffs once again on Canadian aluminum exports will hurt American producers and American consumers more than anybody. This is a message that should be delivered fervently to Congress and at various state levels in the United States. We should not hesitate to retaliate.
Similarly, chronic complaints from Senator Schumer, the majority Democrat leader in the Senate, about Canadian dairy policy should be rebuffed. Canada made modest concessions on dairy in the NAFTA renegotiation and should abide by them, but nothing more. Nonetheless, these attacks are a harbinger of what to expect should the administration change in November. We should stand firm. The best antidote to American protectionism, in my view, would be a robust, V-shaped economic recovery—the sooner, the better.
Second, because 75% of our trade is with the United States, diversification has always been desirable. Now it's essential. For it to become real, however, we first need complete free trade within Canada, a quest over many decades that has delivered more solemn communiques than substantive results. Most popular in western Canada, this effort will only succeed with firm leadership from Ottawa and if economic common sense prevails over narrow provincialism, notably in Quebec and Ontario. According to the IMF, liberating Canadian internal markets would yield a 4% increase in GDP. That's much more than is expected from the USMCA.
Third, free trade across Canada would also give us greater leverage and better access from other preferential trade agreements, which are the best immediate prospects for diversification: CETA with the EU, the Canada–Korea Free Trade Agreement, and the mini-TPP, which affords significant new potential in Japan, Malaysia, Indonesia and Vietnam, among others.
Fourth, we should move deliberately to conclude a bilateral trade deal with a post-Brexit Britain, complementing, where possible, the terms negotiated in CETA, but mindful as well of the terms being negotiated by Britain with the United States. Canada enjoys more than a 2:1 trade balance with Britain. I suspect that their negotiators will seek to make up what they may lose from the European Union by gaining enhanced access specifically from the U.S., Canada and Australia. Our negotiators should be determined to get at least as much in terms of increased access as we are prepared to give. That is the goal for any trade negotiation.
Fifth, Canada should actively explore the prospects for broader trade with India, despite the difficulties posed by the high degree of regulations and protectionism in the Indian economy. This initiative can best be conducted on the basis of careful preparation and consultations, not by high-level junkets.
Sixth, even more daunting are the prospects with China, where relations are completely hamstrung today by the deadlock over Madame Meng and the two Michaels. There is much not to like about China's behaviour these days on trade and many other issues. The way supplies needed for the pandemic were hoarded before China released initial data on the virus and were then sold for huge profits should elicit worldwide scorn, if not harsh penalties.
Today, we are unwilling to counter discriminatory trade actions against Canadian agricultural exports, even though China has a 3:1 trade advantage over us, lest it harm those in detention. We should not be reluctant to retaliate. We must also be more deliberate in joining sanctions against China for its repressive moves against Hong Kong. Canada should, like Britain, extend a welcome hand to Hong Kong refugees. We should also nimbly expand relations with Taiwan.
Most importantly, we need to find a way out of the corner we have painted ourselves in, if not by an exchange of detainees, then by other means. We have become a hapless pawn caught in a dispute between two giants. Asserting self-righteous points of principle may make us feel better, but they will not break the current stalemate. We must deal with the world as it is and not as we would naively like it to be.
We cannot isolate or immunize ourselves from what will soon be the world's largest economy. Mutual self-interest obliges us to gauge prudently and cautiously the prospects for pragmatic, albeit limited, relationship, proceeding, as the adage about how porcupines mate stipulates, very carefully.
Mark Agnew
View Mark Agnew Profile
Mark Agnew
2020-07-09 14:34
Thank you very much, Madam Chair and members, for the invitation to speak here at committee today.
Although it's quite common for stakeholders to reference the critical or timely nature of a given study, I think this one really is. International trade is critical to Canada, and our relationships with both the U.S. and U.K. are critical as well.
I want to touch on three issues in my opening remarks this afternoon. The first point is that COVID-19’s impact on international trade has been substantial, and it certainly has brought into focus the need to strengthen supply chain resiliency. I think we all know and accept this. I think most commentary has missed the point that supply chain resiliency is not monolithic—each sector of the economy, and maybe each company, has different needs in regard to what that looks like for their supply chain circumstances.
Also quite importantly, we are a market-oriented economy. Governments generally don't own supply chains; instead, they incentivize private sector behaviour and create the conditions within which businesses operate. Our approach to supply chains needs to ensure that we have the interests of consumers and businesses in mind, in terms not only of their being able to supply inputs and products that we need both in the country and into the country, but also supporting exporters. It goes both ways.
It's also much more than just the production of physical goods. Services across different modes of supply play a critical role in supply chains, whether you're talking about the upstream parts, such as research and development, and engineering and design, or about after-sales servicing of equipment, or transportation and logistics.
This week the chamber released our position statement on supply chain resiliency, which I have shared with committee staff. Hopefully, members have had a chance to look at it in advance. In short, we think governments need to take a holistic approach in how domestic and international policy is used to support supply chain resiliency.
The document is quite long, so I'll just draw your attention to a few of the international tools we think need to be a critical part of the effort.
The first we're calling “security of supply agreements”. We've seen that export controls on medical equipment have proven to be a major problem during the early days of the pandemic. We're asking the government to take a positive approach with our most trusted allies and look at a way to circumscribe and tighten up how countries are allowed to use export restrictions.
We're not naive and certainly realize that there would only be a very small subset of countries that we'd be able to do this with. We commend the work that the government has done through the Ottawa Group and think that this might be a way to take that work, talking about transparency and time-limited and being proportionate, and take that to the next level in a tangible way.
Second, there also needs to be a much greater focus on the issue of industrial subsidies. This has been a long-standing problem since before the pandemic, but it's going to get worse as governments around the world throw huge sums of cash at their domestic industries. This is going to tilt the field against Canadian companies even more so than is already the case, and we certainly need to reign in the excesses of other countries by using multilateral or bilateral tools to do that.
The third aspect of supply chain resiliency is digital trade and e-commerce. As more activities head online, we need to make sure that our trade rules are relevant to the economy of 2020, whether that's cross-border data flows or trade facilitation measures that will support e-commerce.
The second point I want to talk about briefly is the United States. We very much welcome the entry into force of CUSMA and thank negotiators like Steve and his team who have done phenomenal work to get that deal over the finish line. However, our main message here is that it's too early to get out the proverbial mission accomplished banner, given that we have a number of other outstanding trade issues with the United States. The spectre of so-called national security tariffs on both metals and electrical coils looms large once again. We are steadfastly opposed to the United States using them and are working closely with our U.S. official counterparts and are calling on the government to be active on that issue. Additionally, we are without a softwood lumber agreement at the moment. We hope that the resolution of CUSMA will create bandwidth to be able to pick up this issue again and bring it to a resolution.
The last piece I want to touch on in my opening remarks is our relationship with the United Kingdom. In the absence of further developments, Canadian companies are generally now operating on the assumption that the U.K. will leave its current transition status with the EU as of the end of 2020, and that it will enact its so-called global tariff regime in January 2021, which was announced earlier this year.
This means fundamentally that the clock is ticking. Given that discussions have been happening for some time between the U.K. and Canada, our view is that we need to conclude the efforts to transpose the CETA into a bilateral agreement at the earliest possible opportunity and begin the necessary implementation processes, especially here in Canada.
Being fully self-aware, I know this view puts the Canadian Chamber of Commerce in a slightly different spot from some others, but our position is informed by several factors.
One, companies have already faced more than enough supply chain disruptions in the last number of months. Let's give companies the certainty they need and ensure that they won't face tariffs on their exports to the U.K., potentially as of January next year.
The second piece is that, based on the media reporting we're seeing on what the European Commission has said about the status of the U.K.-EU discussions, they might not be finalized until October. That certainly cuts very close to the end of the year, and given our own parliamentary timings, if we decide to wait until we have complete certainty about the outcome of the U.K.-EU discussions, that doesn't leave much time for businesses to plan, especially in the COVID-19 context.
The third factor is that landing a bilateral agreement with the U.K. based on the CETA positions us quite well to take the trade relationship to the next level. Out of the 28 countries in the EU, the U.K. is the one where we can probably have the most advanced trade relationship possible. This includes, for example, deepening services, regulatory work and digital trade rules. It also sends an important signal for Canada to maintain that we are the only G7 country to have comprehensive FTAs with all other G7 countries.
The Canadian Chamber of Commerce represents Canada at a number of global business forums, and that's a point we're always very proud to make when we are speaking to our global counterparts when representing Canada abroad.
I'll stop there, but I'm certainly happy to take any questions from committee members in the Q and A rounds.
Mathew Wilson
View Mathew Wilson Profile
Mathew Wilson
2020-07-09 14:41
Good afternoon. Thank you, Madam Chair and members of the committee, for inviting me to participate in today's discussion.
It is my pleasure to be here on behalf of Canada's 90,000 manufacturers and exporters, and our association's 2,500 direct members, to discuss COVID-19 and Canada's manufacturing and exporting sector. Our members cover all sizes of companies from all regions of the country and all industrial sectors. We represent the majority of Canada's manufacturing output as well as value-added exports.
I'll keep my commentary short so there can be more discussion at the end. However, it is important to make a few critical comments to provide context and background.
First, manufacturers have been critical in the country's response to COVID-19. Not only have domestic manufacturers made many of the goods necessary for the response; they have also continued to operate and employ millions of Canadians. Despite this, the sector has been very hard hit from the crisis. Output declined roughly 30% over March and April. We are not expecting a full recovery until well into 2022. While the impacts have been bad, it could have been much worse without strong actions by government. The wage subsidy and other liquidity measures were literally lifesavers for our members. With the crisis far from over, it is critical that these measures continue to exist and be adjusted based on economic conditions for the foreseeable future.
Second, while manufacturing continued to operate and global supply chains were maintained with only minor disruptions, the lower output meant a corresponding decline in Canada's trade activity. The 30% decline in output led to a decline in merchandise export activity of roughly 33%, and imports of 27%. The most impacted sectors, however, were among the largest in the country—automotive and aerospace in particular. The decline in imports and exports was widespread amongst our trading partners, but obviously of higher value with the U.S., given our volume of trade with that country. Notably, however, Canada did witness a massive spike of 35% of imports from China as consumers increased spending on electronics in particular.
Third, it is critically important to create a plan to move the country from recovery to growth and prosperity by harnessing the strength of Canada's manufacturing sector through a comprehensive strategy. The focus of the strategy must be on driving investment to improve global competitiveness for long-term economic growth. Canada faced structural economic problems of underinvestment, soaring trade deficits and poor productivity before COVID-19 hit that must be addressed now.
For the purpose of this committee, there are several concrete actions that we believe the government should take on to help Canada's exporters. One, work to implement all aspects of the new CUSMA, especially the chapter on competitiveness, which aims to increase co-operation between the countries to deal with global trade cheats and unfair trading practices of third countries. Two, launch a made-in-Canada branding exercise at home and in international markets to boost awareness of Canadian capabilities and technologies with the goal of boosting sales and exports of Canadian-made products. Three, support SME export potential by expanding investment in government export concierge programs and private peer mentoring networks, which are critical to getting companies going internationally.
Finally, before making a few remarks about Canada-U.K. trade, I would like to note that we believe there will be some shifting in global supply chains moving forward and increased opportunity for Canada. This shift will be to protect supply chains and to meet increasing demands for consumers to buy local. However, these opportunities will flow to the locations that provide the greatest returns. Canada has a huge advantage in access to many foreign markets through FTAs, as well as a skilled labour pool that is world class. However, as a small and trade-exposed country, if our domestic business environment is not world class, investment will continue to flow to other markets and Canada will miss out on these current opportunities. Manufacturing investment in particular has been drifting downward since the early 2000s, which has stalled overall exports in the country and seen ballooning trade deficits. This trend must be reversed.
The possibility of a Canada-U.K. FTA is fully supported by CME. At nearly $20 billion a year in exports, the U.K. was Canada's third-largest export market in 2019, behind only the U.S. and China. While gold accounted for 71% of this total, other exported products totalled over $5.5 billion, including more than $4 billion in manufactured goods. As such, even without gold, the U.K. is Canada's sixth-largest export market.
Given this, extending the terms of the existing CETA agreement to the U.K. would be logical. However, we must ensure through negotiations that Canadian exporters are gaining an actual advantage over other countries who do not sign new FTAs with the U.K. We understand that the U.K. is aggressively pursuing new FTAs with many markets and offering up broad-based tariff concessions to many countries. In some cases, these tariff concessions are being made even before there's a trade deal in place. Trade agreements should be about mutual gain and benefit. If there is no unique benefit to Canada in exchange for opening our market, it undermines the value of the FTA.
Thank you again for inviting me to participate today. I look forward to the discussion.
Ken Neumann
View Ken Neumann Profile
Ken Neumann
2020-07-09 14:46
Thank you, Madam Chair and members of the committee.
The United Steelworkers thanks CIIT for the invitation to participate in the committee's study of the impact of COVID-19 on Canadian international trade relationships, with a focus on the United States and the United Kingdom.
The United Steelworkers represents more than 800,000 members across North America, including 225,000 members in Canada, in virtually every sector of the economy. We are the primary private sector union representing workers in trade-exposed sectors and regions. We also have a strong relationship with the trade union movement in the U.K., specifically through our partnership with Unite the Union and our global union, Workers Uniting.
As such, trade policy and trade agreements are of fundamental importance to our union and to our membership. The massive drop in trade between the U.S. and Canada, with exports down by 41% in April alone, has had an immediate impact on our members, particularly those in trade-exposed sectors such as manufacturing. At the height of the economic shutdown, about 15% of our entire membership was on a layoff of some type, including about 20% of members in manufacturing.
The COVID-19 pandemic has highlighted fundamental problems with the international trading system and our reliance on global supply chains for essential products. We must refocus the entire trade system to one that benefits both the workers and the environment, rather than one fixated on obtaining the cheapest possible products regardless of the conditions of production.
However, we are currently focused on the United States' possible reimposition of section 232 tariffs on aluminum, the risk posed by unfair trade on the steel industry, as well as the ongoing softwood lumber dispute. We are disappointed that these issues were not fully resolved prior to the negotiations and the implementation of CUSMA, which came into force on July 1.
While there are positive aspects of CUSMA, specifically the labour provisions demanded by trade unions and the U.S. Democratic Party, the section 232 side letter legitimizes the once-rare national security tariffs and curtails our options for counteractions in the event the United States reimposes the tariffs. The possibility of 10% tariffs on aluminum products threatens the 15,000 direct and 41,000 indirect jobs in Canada's aluminum sector, including 5,000 workers represented by the Steelworkers.
The United Steelworkers emphasizes that Canadian aluminum does not pose a national security threat to the United States, nor has there been any significant surge in exports. This assertion is backed by The Aluminum Association, which represents the majority of producers in the United States. Compared with 2017, exports in the first quarter of 2020 declined by 12%, and are up only about 3% compared with the annual average of 2017, the last full year without any major trade disruptions.
The cancellation of the original section 232 tariffs in May 2019, along with the end of the ABI lockout in the spring of 2019, led to the resumption of more normal trade patterns between our two countries. The drop in the U.S. aluminum prices is largely caused by the significant drop in demand as a result of COVID-related shutdowns, particularly in the auto sector. Massive growth in the Chinese production over the past 20 years remains the biggest threat, increasing from 1.9 million metric tons in 1999 to 31 million metric tons in 2019.
Ultimately, Canada must strongly defend community-sustaining jobs in the aluminum sector. That means that if the U.S. does reimpose section 232 tariffs on Canadian aluminum, Canada must impose retaliatory tariffs on a wide range of U.S. products, not only on aluminum. If the U.S. is not prepared to play by the rules, Canada should not be limited by the agreement signed last May. Canada must also stand up for the 22,000 direct and 100,000 indirect jobs in the steel industry. Since this pandemic, we have seen a 20% overall drop of steel mill exports to the U.S. in May.
This makes it even more important to grow the domestic market for Canadian steel. We could start by making sure that we use only Canadian-made steel products on government infrastructure projects like bridges, energy projects, transit and buildings.
Canada's steel is a very low carbon and global standard, so it is the green alternative to foreign steel. However, we should also implement a carbon border adjustment so that we're not placing our steelmakers at an unfair disadvantage compared with other countries that do not price carbon. Furthermore, workers and unions should also be considered as part of the domestic industry under Canadian trade law. This should allow trade unions to initiate trade cases in order to protect the domestic workers.
Canada's softwood lumber exports remain at risk despite our maintaining NAFTA's chapter 19 dispute settlement mechanism in the CUSMA. These provisions are not enough to prevent future duties on softwood lumber. Steep declines in forest product exports—minus 18% in May—combined with the volatile trade situation with the U.S. adds insult to injury to the Canadian forestry sector beset by declining prices.
Workers in British Columbia have been particularly hard hit by these multiple crises as thousands of workers have lost jobs and communities have been decimated by the effects of trade disputes, low prices and COVID-19.
Looking to the United Kingdom, United Steelworkers contend that any post-Brexit trade agreements must be based on strengthening workers' rights, and trade of products must be made in decent working conditions in both countries. We stand with our U.K. trade union allies in their opposition to the U.K.'s entrance into the CPTPP.
Along with our partner union, Unite, we support a trade policy that includes binding labour rights and strong trade safeguards for vulnerable industries and one that does not include investor-state dispute settlement provisions, or diminish the right to regulate.
Overall, the COVID pandemic has laid bare fundamental problems with the international trade system and our reliance on global trade chains for essential products. We need a broad vision and policies to ensure that Canada has the capacity to produce essential goods domestically in a manner that improves the quantity and quality of employment and allows us to meet our climate obligations.
Most importantly, we need to stand up to protect jobs in the aluminum sector and to ensure that the new CUSMA does not lead to continued erosion of the Canada-U.S. trade relationship.
Thank you for the opportunity. Mark Rowlinson and I are happy to answer any questions you may have.
Claire Citeau
View Claire Citeau Profile
Claire Citeau
2020-07-09 15:47
Thank you for having me today.
As you know, CAFTA is the voice of Canadian agri-food exporters, representing the 90% of farmers who depend on trade and the ranchers, producers, processors and agri-food exporters who want to grow the economy through better access to international markets.
Thank you for the opportunity to speak today with you about the state of global trade and what the road ahead may look like. The year 2020 was supposed to be a big year for trade for us with the ratification of CUSMA, the need to address CETA issues, non-tariff trade barriers and the lack of respect for international trade rules, the necessity to modernize the WTO, opportunities to diversify in Asia and the creation of a new post-Brexit trade relationship with the U.K.
Yet, in an instant, COVID-19 upended the predictability and stability businesses and exporters need. The last few months have shown us just how foundational agri-food trade is for our economy and way of life. While we’re proud of the role our members have played in feeding Canadians and the world while also protecting jobs in a time of crisis, clear worries remain.
Chief among them is the fear that this crisis will bring about new trade barriers and other forms of protectionism and that trade commitments will be undermined and not followed. Given the topics today, I will focus my remarks on, first, the need to continue to strengthen and improve existing trade relationships, the need to support WTO modernization and the rules-based global trading system, and the need to continue to open new markets, enforce free trade and put agri-food trade at the centre of the recovery.
Canada has no more important trading partner than the U.S. Our members are very pleased that CUSMA is now in force. It will help ensure a continued strong foundation for uninterrupted trade with our closest neighbour and trading partner. Restoring stability and predictability to North American trade is essential for Canadian agri-food exporters that have developed highly integrated supply chains for the past generation across the continent, and especially so in the U.S.
CUSMA will help restore the competitiveness in the North American free trade platform; normalize trade, not just for commodities but also for value-added food products; and enable a globally competitive sector that drives the economy forward in all three countries.
It will be important to monitor the proper implementation of the agreement to realize its full benefits. I will point to two sectors in particular. The food processing sector is concerned with the implications of the front-of-pack labelling regulation—a trade irritant with the U.S.—and, in the sugar industry, a key driver of food exports to the U.S., discussions on the administration of TRQs create a level of uncertainty of access.
It's very clear that the implementation of trade agreements is just as important as negotiating trade agreements and perhaps even more so. Take CETA, our comprehensive agreement with the European Union. It will turn three this September, yet despite holding so much promise for agri-food exporters, it continues to fall short. This is because the EU is not abiding by commitments to remove technical barriers.
We know there are solutions to these persisting barriers. Such work includes achieving mutual recognition of meat processing systems, developing protocols to verify livestock production practices, addressing misaligned regulation of crop protection products, more predictable and timely review of seed technologies, ensuring that Italy’s country-of-origin labelling requirements are not applied in a trade-restrictive manner and addressing production and trade-distorting EU sugar subsidies that make our exports uneconomical.
Italy provides an example where Canada needs to be assertive in defending our trade interests. Quiet conversations to date have not resolved the issues. It’s important that Canada challenges these so that Italy's protectionist measures do not spill over into other countries and products. We’ve asked the Canadian government to take up these issues with EU political leaders in order to secure commitments and timelines to remove and address the barriers that persist. As the world is moving toward the enforcement of rules, Canada, too, should step up its response and push for enforcement.
Vietnam, Peru, India and others—the list goes on of countries that do not follow internationally agreed-upon protocol, that do not live up to their bilateral and WTO commitments and that maintain unwarranted SPS measures. All of these create significant risks and uncertainty for exporters. Canada needs to be proactive and nimble in its response to the growing use of non-tariff barriers to block agriculture and food exports.
The current crisis has also shown us why we need a rules-based global trading system. CAFTA is pleased that the federal government has been at the forefront of efforts to safeguard the WTO and the rules-based trading system. This was done in large part through the Ottawa Group. The Ottawa Group, led by Canada, initially created to find ways to reform the WTO, has played a major role in keeping supply chains open to agri-food trade during the crisis and in seeking commitments from WTO members to limit and unwind the 200-plus trade restrictions adopted by 93 countries as a result of the crisis. It is imperative that this work continue.
In parallel, the Ottawa Group needs to drive forward WTO reforms to fix the dispute resolution processes to ensure their ongoing functionality, to revitalize the multilateral negotiation process and to restructure the overall governance of the WTO.
Amidst the crisis created by the pandemic, we must recognize that it's absolutely vital to get WTO reform right. We should fully expect that many countries will be tempted to use the current crisis to restrict trade and introduce non-tariff barriers disguised as excuses with protectionist motives. This is precisely why we need a solid, functioning WTO that can deliver on stable, predictable, open, rules-based trade as recovery begins to take root.
Now is the time to step on the gas—
Michèle Rioux
View Michèle Rioux Profile
Michèle Rioux
2020-07-09 16:01
Okay, I will.
Coming back to the United Kingdom, we believe that a bilateral agreement should be founded on the Comprehensive Economic and Trade Agreement, or CETA, with the aim of ensuring consistent transatlantic trade and continuing to work with European countries as we did before Brexit. In our opinion, the agreements with the United Kingdom should follow on from the third-generation agreements, which take into account the global standards, policies and regulations that CETA has promoted.
With respect to CUSMA, very close attention must be paid to implementation, transparency and, above all, the cultural exemption and e-commerce. A number of issues affecting cultural industries will become clearer in the fall. I think our trade relationship with the United States will be seriously put to the test. It will be very important to properly articulate our objectives when it comes to cultural sovereignty and digital sovereignty. They are crucial issues that are not only the subject of trade disputes, but also—
View Greg McLean Profile
I appreciate that very much, and so do many of my friends here in western Canada.
You mentioned the trade mechanisms that are happening with our trading partners like the United States through CUSMA. There is the issue of the carbon leakage that will happen because of the carbon tax, and the number of jobs that will bleed off your industry because of the mispricing of Canadian steel versus American steel, which is one market at this point in time.
Can you explain how many jobs aren't going to come back from COVID because of that mechanism?
Catherine Cobden
View Catherine Cobden Profile
Catherine Cobden
2020-06-18 18:36
Let me first explain that CUSMA is an extremely important deal for us. You mentioned CUSMA. It's an extremely important agreement. We want its implementation. We're looking forward to July 1. We want all parts of CUSMA to come into full play as soon as possible, including, as mentioned in my remarks, rules of origin.
The carbon issue is a very interesting one. The Canadian Steel Producers took a leadership position on this issue just a few months ago, just before the COVID situation hit. Part of our thinking was that we wanted to be very good actors and help green the supply chain for Canada's energy sector as well as all of our other markets that I've mentioned.
You may or may not be aware that we made a collective goal. The members of the Canadian Steel Producers Association adopted a goal, as we call it, an aspirational goal of net zero by 2050. We want to work with our customers, particularly our energy customers and our auto customers, etc., to help them.
View Greg McLean Profile
Ms. Cobden, I asked about the number of jobs that would drift to a different jurisdiction if we have to cost carbon into the steel mechanism.
Catherine Cobden
View Catherine Cobden Profile
Catherine Cobden
2020-06-18 18:38
Yes, it's part of our quest on the net zero to find solutions to reduce our carbon footprint. We don't anticipate losing and don't want to lose any jobs. That's part of the point.
View John Barlow Profile
View John Barlow Profile
2020-06-05 15:50
I'll start with number one, Mr. Chair:
That, given the committee’s letter to the Standing Committee on International Trade on Tuesday, February 25, 2020, regarding its study of Bill C-4, An Act to implement the Agreement between Canada, the United States of America and the United Mexican States (CUSMA), in which the committee outlined concerns about the impact on the Canadian dairy industry of implementing CUSMA before Saturday, August 1, 2020, and since it has been made public that the implementation date will now proceed on Wednesday, July 1, 2020, the Committee send for a copy of all briefing notes, memorandums, emails and documents related to the CUSMA’s implementation date and coming into force, to be provided before Wednesday, July 1, 2020, provided that the government does its assessment and vetting in gathering and releasing the documents as it would be done through the access to information process.
View Pat Finnigan Profile
Lib. (NB)
Thank you, Mr. Blois.
Seeing no hands raised, I would like to ask the clerk to get a recorded vote on Mr. Barlow's motion.
(Motion negatived: nays 6; yeas 5 [See Minutes of Proceedings])
The Chair: We will now go to your second motion, Mr. Barlow.
View Xavier Barsalou-Duval Profile
I have another question for you, Mr. Davies.
With the NAFTA, the government promised to establish an oversight system for imports of steel and aluminum to ensure that there is no dumping by countries producing steel very cheaply and selling it below cost.
We have recently seen that the government intends to postpone the establishment of that oversight system because of COVID-19.
Are you not afraid that countries that have not slowed their production, like China, may decide to flood our market?
Mitch Davies
View Mitch Davies Profile
Mitch Davies
2020-06-05 11:51
On the question of dumping, obviously, the production global oversupply, in particular of steel and other products, is a very sensitive and important topic for Canada. We've worked collaboratively on international fronts to encourage these practices to discontinue, obviously to protect our industry and the competitiveness of our industry.
I wouldn't have specific information on the specific measures, but I think that Canada Border Services Agency could perhaps be consulted in terms of the system of managing what importation is coming in. It's a very important priority, and I wouldn't say it's delayed in any way.
View Karen Vecchio Profile
We talked a bit about the TPP, but can we look at the U.S. agreement as well, the USMCA, and the impact it's going to have on Canadian producers? Have we seen a cap put on how many chickens are coming in, or has it reached that limit yet?
I know that when I spoke to turkey producers back at the end of April, they were saying that there have been more turkeys imported from the U.S. than in previous years. I'm wondering if we're seeing the same with chicken.
Benoît Fontaine
View Benoît Fontaine Profile
Benoît Fontaine
2020-06-02 16:32
Good question.
As I said earlier, because of the free trade agreement, there will be more American chicken on the shelves, since 62.9 million kilograms have been set aside for this financial partner in the form of tariff rate quotas. Again, a total of 129.6 million kilograms of foreign chicken will enter our country, which amounts to 10.8% of Canadian production. For the sector, this means the loss of 3,100 jobs and a $240 million drop in revenue. The turkey producers were right when they told you this.
View Wayne Easter Profile
Lib. (PE)
Thank you both.
I do want to come back to either Mr. Fontaine or Mr. Laliberté on one of Karen's questions.
On the 129 million birds that will be coming from the United States, what percentage of the Canadian market will they take up or supply? What percentage of the Canadian market will the U.S. now have?
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