Evidence Senate Foreign Affiars and Trade Committee on CUSMA

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OTTAWA, Tuesday, March 10, 2020

The Standing Senate Committee on Foreign Affairs and International Trade met this day at 3:30 p.m. to study the subject matter of Bill C-4, An Act to implement the Agreement between Canada, the United States of America and the United Mexican States.

Senator Leo Housakos (Chair) in the chair.


The Chair: Honourable colleagues, this is the Standing Senate Committee on Foreign Affairs and International Trade. My name is Leo Housakos. I am a senator from Quebec, and I’m the chair of the committeeThe committee has been asked by the Senate to do a pre-study of Bill C-4, An Act to implement the Agreement between Canada, the United States of America and the United Mexican States.This is the beginning of our hearings on the Canada-U.S.-Mexico Agreement Implementation Act.

Colin Robertson, Vice-President and Fellow, Canadian Global Affairs Institute: I encourage you to implement the Canada-U.S.-Mexico Agreement. It is not free trade, but it is freer trade. It is not perfect, but it is much better than no deal.

CUSMA gives us a set of revised rules essential for growing and sustaining our vital continental commerce, roughly about 75% of our trade. Its dispute settlement provisions provide the stability necessary for business and investment decisions. It draws much from the original NAFTA with updates drawn from the Trans-Pacific Partnership in digital commerce, intellectual property, labour and the environment.

CUSMA caps a decade-long effort by federal and provincial governments representing different political parties to open doors to key markets across the Pacific, the Atlantic and, of course, to sustain North America.

As this committee observed in its 2017 report, free trade agreements are a tool for Canadian prosperity. Trade generates two thirds of Canada’s GDP, making us the twelfth largest export economy in the world.

The trade deals — CUSMA, CPTPP, CETA — are a tribute to our leadership in governments, business and labour. They prove that we can make common cause on issues of national importance. Trade diversification is necessary, but for Canada, when it comes to trade and security, it will always be the United States and then the rest.

Now we need to make our trade deals work for us.

First, there is unfinished business when it comes to regulation, infrastructure and internal trade.

Initiatives launched by the Harper and Obama governments and continued by the Trudeau and Trump governments around regulatory cooperation and beyond-the-border action plans are buried within our bureaucracies. Progress requires political oversight. I encourage this committee to hold hearings to identify the roadblocks and keep governments’ noses to the grindstone.

U.S. Democrats and the Trump administration have agreed to a US$2-trillion infrastructure plan, although there is no agreement on how to pay for it. Since there is no procurement provision in the new trade agreement, Canada needs to link into this initiative. To get the best value for our citizens, premiers and governors need to work out the kind of reciprocity deal that the U.S. and Canada achieved in 2010. Again, it was the premiers.

Getting our goods to market means improvements to our ports, pipelines and grids, rail and roads. Canada has an infrastructure program, but is it moving fast enough? This should be an area of close collaboration with all levels of government. Again, parliamentary oversight of the process and progress is essential.

Free trade within Canada remains the unfinished business of Confederation and I applaud and underline the recommendations of the Standing Senate Committee for Banking, Trade and Commerce in its 2016 report, Tear Down These Walls.

Second, the all-Canada effort to remind Americans that our trade partnership is mutually beneficial must become a permanent campaign. American protectionism is older than the republic. It will continue no matter who is president.

While we can’t vote or make donations to campaigns, we can illustrate by district and state the jobs created by Canadian trade and investment. I encourage you to use your travel authority to go to Washington and meet your counterparts. I also encourage you to adjust the rules so you can travel throughout the United States.

This must be a permanent campaign encompassing all sectors, including our cultural industries. I applaud this committee’s recent report on making cultural diplomacy the main stage of Canadian foreign policy, and I would say that it starts with our North American market.

Third, we need to know more about North America, especially the United States.

Given our propinquity and innate understanding of the United States, why aren’t we turning this to our advantage? How many serious centres or research chairs focusing on the U.S. and our continental trade are there in Canada? You will be very disappointed in the answer.

Canada’s influence in the world is measured to a large extent by our understanding of the United States. By using our knowledge and relationships with Americans, our ability to leverage our influence in Washington and state capitals makes us a more desirable partner with the rest of the world. They also have to do business with our often complicated and sometimes confusing neighbour.

In conclusion, I encourage you to pass CUSMA while taking initiatives that will grow our commerce.

Senator Massicotte: Mr. Robertson, as you know, in negotiations they tried hard to improve the Buy American Act and all the infrastructure investments, but they got nowhere, and therefore they’re relying somewhat on WTO. What are your comments on that? Is there a way to get there? Because this is a big piece and a big number.

Mr. Robertson: Yes, I believe there is. Inevitably premiers and governors who have to administer the budget when it comes to infrastructure want to get the best value. One thing they also want to avoid is cartels within their state. So by opening it up to other vendors, you don’t necessarily take them, but perhaps it helps keep local vendors more disciplined. I referred to the 2010 reciprocity agreement on procurement.

At the federal level, we weren’t making much progress. It was something we knew. President Obama had put half a trillion dollars into infrastructure to restart the economy after the 2008 recession and we wanted a piece of it. This is how it turned out: Premier Wall came down with seven of the premiers to a conference of national governors in February 2010 in Washington and sat down. They said, “Look, we’ll open up our market if you open up your market, for the reasons I outlined.”

And it worked. We got this multi-page agreement. There were some exceptions and things, but at least it got us in the door.

I’m afraid that, with the pressure the U.S. is putting on the government procurement agreement negotiated in the WTO, we’ll have to resort to the relationships we have, and we are better placed than any country in the world to do that.

I talked about the relationships that you too can forge; many of you have. That’s going to be important, because more than any country in the world, Americans like us. We’ve got an advantage. We don’t like them as much as they like us, but we should take this as our advantage.

So I would say that we can achieve this, but it wouldn’t necessarily be the traditional trade policy route.

Senator Dawson: We had also said that, under the expectations, the Americans expected us to pass it quickly. That was many months ago. We promised them; we said, “Send it back to us, and we’ll pass it quickly.” So I don’t know how long we can continue working on the wording, but I certainly feel you’re right that we need to have some comments and give some direction to the government. But I certainly wouldn’t want to delay it that much.

Mr. Robertson, you were accused of using “weasel words” in the other place, so maybe you want to defend yourself as a parliamentary privilege.

Mr. Robertson: I thought what I said was clear, but I’ll just say that there is sometimes a temptation to look at trade agreements like a Christmas tree and put all sorts of things on them. I’ll just say that, with regard to data, there are other places where that is being discussed.

If it needs the time Dan says it does, I’m not sure this is the agreement. For that same reason, the environment is there and good, but we’ve got climate agreements, and we’ve gotten labour through the ILO. There are other fora where these things should be considered.

Never forget that we went into this thing with Mr. Trump saying that it was the worst deal ever negotiated, and his commerce secretary telling us that this was about Mexico and Canada giving and the U.S. getting. I think we’ve come out of this extremely well. It is our biggest market. It’s not perfect; it can doubtless be improved, but we can do an awful lot of this stuff under the existing agreement.

I’m not as fussed as some that there is a sunset clause, because there is a sunset clause in every agreement, effectively. You can dump these things off with six months’ notice, anyway. It is important, as with NAFTA, that you keep the thing evergreen. When we negotiated NAFTA, we didn’t travel with these things in our pockets. We weren’t thinking about big data, Google and Facebook. They weren’t around.

So this agreement is as good as it gets under the circumstances. We can make improvements, but let’s make improvements with it in place.


Senator MacDonald: I’ll direct my question first to Mr. Ciuriak, but I’d like the others to feel free to join in afterward.

I have two studies here, one from the C.D. Howe Institute and one from Global Affairs Canada. There are some discrepancies between these two studies.

I want to speak to U.S. section 232, national security tariffs. The C.D. Howe Institute states:

. . . the failure of the new agreement to eliminate the application of US section 232 national security tariffs on imports from its North American partners signals future risk concerning assured access to the US market.

The CUSMA does not prevent the future application of Section 232 tariffs, which have been revived by the Trump administration for ad hoc protectionist purposes . . . U.S. forbearance in applying section 232 tariffs to Canada and Mexico on autos, should those measures be adopted, is only incorporated through a side letter.

On the other hand, Global Affairs seems to say the opposite, that Canada has secured an exemption for many future U.S. section 232 tariffs on automobiles and auto parts.

Did we secure a legal exemption or not? If we did, does it hinge on the way according to a side letter in the 60-day exemption?

Mr. Robertson: A lot of it comes down to interpretation. You have seen the official Canadian government interpretation that this gives us an exemption. That is the word we will take to our American counterparts, and we will have to continue to do that. Part of the reason that the steel and aluminum tariffs were lifted was because of the pressure that came from within the United States. It wasn’t Canadian pressure, although I think we helped make it possible by reminding all of the people who use Canadian aluminum — and they are in the hundreds of thousands. The actual number of steel and aluminum makers is maybe like 42,000, but there are hundreds of thousands who use our products. They were the ones who put pressure on their state legislators, their congressional delegates and on the administration to say, “Lift this, because it is doing measurable harm.”

The interpretation I would put forward would be the one that Global Affairs has taken, but it will be important for us to continue that permanent campaign to remind Americans of what they did. While Americans are extremely litigious, they also like to think they follow the letter of the law. If we put our interpretation of the letter of the law out, which is contained in the Global Affairs study, I think that will go some distance. I would just like to underline to you that when you deal with the United States, nothing is ever permanent. You have to be down there all the time reminding them of your interests. It is political.

Senator MacDonald: This question will again be for all three of you. It refers to article 32.10 of CUSMA, which requires the three parties to give three months’ notice to the other two countries before it begins negotiating a free trade deal with any non-market country. This provision has been described as unprecedented in that it requires any party to inform the other parties of the intention to convince any free trade negotiations with a non-market country at least three months before starting such negotiations.

I have a couple of quotes here from international trade law specialists. One is Clifford Sosnow, a Canadian international trade law specialist who said:

The measure sets up a level of closeness and consultation that one sovereign country typically doesn’t have with another sovereign country prior to reaching a trade deal with another country.

He added that:

It is quite remarkable.

Gary Hufbauer, senior fellow at the Peterson Institute for International Economics in Washington has further stated:

I know Chrystia Freeland says it’s not a restraint on Canada but we’ve never seen a provision like this, which holds out the threat of divorce if the U.S. doesn’t like the terms of an agreement.

Regarding that provision, Hufbauer also said that:

It puts a cloud over the ability of Mexico and Canada to negotiate with China and other ‘non-market countries.’

I guess I want to ask you two questions. Have you ever seen a provision like this in an international trade agreement? Is it not unusual that the Americans would, in essence, be informed about the content of Canadian trade objectives and in the negotiation with a non-market economy before the Canadian Parliament would be informed?

Mr. Robertson: I would concur with Larry. I am not fussed by it. I saw it, and I know some people are troubled by it. I think it was much less about Canada and Mexico than it was about internal politics in the United States and the Trump administration wanting to demonstrate to their base that they could do this. So I think, for the reasons Larry has outlined and as I have discussed with Gary Hufbauer, that, for the practical effect on Canada, the question is — and you can be Clintonesque here in semantics — when do you actually start an agreement? Some could argue that Mr. Harper and Mr. Trudeau had, in fact, already started to improve the economic relations with China. But as we know, they are in the deep-freeze for now, so I just don’t think it will have practical effect. It’s much more likely that the United States will have to be consulting us and Mexico as they move toward some kind of a closer agreement with China, which is certainly not what Mr. Trump had in mind when he insisted Mr. Lighthizer put this in the agreement.

enator Dean: Supply management was a major issue going into these talks, and it was a major and highly public expectation of U.S. negotiators to the highest level. We know what came out of it: some limited access to some limited products with a phase-in period.

I wonder if you have any reactions about where we started with this, what the expectations of U.S. counterparts were and where this ended up.

Mr. Robertson: Mine is perhaps not a conventional view on supply management. My view is we look at this through the wrong end of the telescope. Just as we compete extraordinarily well with agri-food, meat and pork or our grains, for example — and I think we could do the same with dairy — for whatever reason, we have decided to adopt a highly protectionist approach to what I think could be a great export for Canada. The better model for us would be New Zealand and Australia, which also had a kind of constrained market with high tariff walls. New Zealand now provides something like almost a third of that which is exported throughout Asia. There is big demand for protein in Asia now. It will grow. I think we could be a piece of this, but we have constrained ourselves.

Anybody who eats our cheese — I used to serve our artisanal cheeses from Quebec when I was on posting — would say, “Give us more of it. We simply can’t get it.” I think we should look at this as a way of 15 years ago or 20 years ago, as we opened up the grain market, at one point we had some constraints on our beef and pork. We compete extraordinarily well.

With dairy, for whatever reason, we have chosen not to. We have protected it. We protected it again. We have opened the market up, but still 90% of that market is highly protected for the 5,000 or 6,000 dairy farmers across Canada. It means we pay higher prices as consumers, and I think it also constrains an industry that could do very well, but there are some additional constraints in this with the Americans so that we will not be competing.

My view on this is not conventional. I think in terms of the negotiation tactics, the government did extremely well. They did what they said they were going to do. They managed to save it with very little opening to the United States. A couple of percentage points is what we basically gave through CETA and through the TPP as well.

enator MacDonald: I have a quick question about what Senator Dean was asking. I share a lot of people’s thoughts about supply management in principle. I’m not a big fan of it.

However, I always said I agree with it in practice when it came to the U.S. because the U.S. subsidizes their agriculture in a way that we do not, to tens of billions of dollars a year. Were you familiar with any effort of the Canadian government where they put U.S. subsidies of agriculture on the table? Or did we ask them to put them on the table as a counter to what they were asking us to do?

Mr. Robertson: I can certainly tell you, when we did the Canada-U.S. agreement and the NAFTA, we made a list of U.S. subsidies, and you’re absolutely correct. The agricultural subsidies in the United States make us look like pikers. I do not know for sure, but I would think that we would have done that kind of homework again as we went into this agreement because we weren’t sure where the Americans were coming from.

Senator MacDonald: They have an oversupply problem. Wisconsin produces almost the same amount of dairy as Canada does.

Mr. Robertson: Part of the reason this was a big deal is because not only was Senate minority leader Chuck Schumer from New York pushing this one, but the then-Speaker at the time, Paul Ryan, was a Wisconsin cheese farmer.