Letter to Deputy Prime Minister Chrystia Freeland Regarding the New NAFTA Legislation
The Honourable Chrystia Freeland, P.C., M.P.
Deputy Prime Minister and
Minister of Intergovernmental Affairs
House of Commons
February 28, 2020
Dear Deputy Prime Minister Freeland,
The House of Commons Standing Committee on International Trade has concluded its hearings on Bill C-4, An Act to implement the Agreement between Canada, the United States of America and the United Mexican States, and over the course of our study, the Committee has heard from 100 witnesses. These individuals, businesses and organizations represent a broad spectrum of the Canadian economy and academia and we want to apprise you of their concerns and offer our recommendations to you.
Conservatives have always been clear that we will support CUSMA’s swift passage. In fact, we have already voted for CUSMA legislation twice: when the Bill was introduced in a ways and means motion, as well as at second reading. We recognize that no economic relationship is more important than the close ties of the United States and Mexico to the Canadians economy. A signed CUSMA will remove some of the uncertainty that has dampened investment in Canada while ensuring that Canadian business continues to have open market access to global supply chains and hundreds of millions of North American customers.
While Conservatives will pass CUSMA expeditiously, this is Canada’s most important trade deal in 30 years, and it deserves Parliamentary scrutiny. Simply, CUSMA is in many respects worse for Canada than the original NAFTA with significant adverse consequences for Canadian industry and a negative overall economic impact. Further, we are troubled by the long list of concessions that your government has made to President Trump. The Committee heard from many sectors and businesses that will be negatively impacted by CUSMA and we would like to take this opportunity, as it is our duty as Her Majesty’s Official Opposition, to apprise you of these concerns and offer our recommendations to you. We have also taken the liberty of attaching the recommendations received by the International Trade Committee from the other committees charged with examining Bill C-4 for your review.
1. Adverse impacts of CUSMA
Despite a unanimous motion passed at the International Trade Committee requesting that your government release its economic impact analysis for CUSMA, it was published on February 26, 2020, just one day before we conducted our clause-by-clause review of Bill C-4.
More surprisingly, your government’s economic impact report compares CUSMA to not having a NAFTA deal at all, which sets a stunningly low bar for ascertaining whether CUSMA is positive for North American trade. Almost any trade deal, no matter how unbalanced or restrictive, would be better than having nothing at all.
For Parliamentarians to understand the impact of CUSMA on the Canadian economy and Canadian families, we must compare CUSMA to the original NAFTA. Fortunately, the C.D. Howe Institute released such a report on February 21, 2020, and they found that CUSMA will reduce Canada’s GDP by $14.2 billion, which amounts to more than $1,000 per family. The report also states that after the implementation of CUSMA, Canada’s exports to the U.S. will fall by $3.2 billion, while our imports from the U.S. will increase by $8.6 billion, with the worst impacts being felt in our agriculture and dairy sectors.
Experts and business leaders have speculated about CUSMA’s economic impact, but the C.D. Howe’s quantitative modeling clearly illustrates for Canadians why it is important for the agreement to be studied in detail to plan for mitigation measures. It is disappointing that your government has declined to be upfront about CUSMA’s potential effects on our economy.
The largest group left behind by your government during the CUSMA negotiations is Canada’s dairy sector. A loss of 3.6% of market share in Canada, the loss of milk classes 6 and 7 and the export thresholds for milk protein concentrates, skim milk powder and infant formula all combine to make the dairy sector the biggest loser of this deal. Your government has managed to simultaneously shrink the opportunity for Canadian dairy producers and processors at home in Canada while limiting their ability to grow by exporting. Further, your failure to be transparent with the industry about these concessions during the negotiations is an additional blow to Canada’s hard-working farmers and processors, who had hoped to work in good faith with your government on this deal.
The Conservative Party recommends that your government have a compensation program put in place for all effected supply managed sectors no more than 90 days following the implementation of the agreement. The concessions your government made at the expense of Canada’s supply managed industries will have a real and immediate effect on their bottom lines, which is an unfair burden for them to bear due to your failure to negotiate a better deal.
We also recommend that your government seek an opportunity to amend the agreement to make the export thresholds for milk protein concentrates, skim milk powder and infant formula subject only to trade between the CUSMA signatories, and not to other countries not party to the agreement.
Canada’s aluminum industry is likewise concerned by your government’s failure to secure the same made in North American provision for aluminum as was given to steel. Canada is North America’s largest producer of aluminum and while the 70% rule of origin included in CUSMA looks good on paper, in reality the failure to include a “smelted and poured” definition will leave the North American industry vulnerable to dumping from overseas, particularly through Mexico.
The Conservative Party recommends that your government adopt the recommendations of the Aluminum Association of Canada, chiefly that you work to ensure that Mexico adopts an import monitoring system for aluminum as robust as your own. We also recommend that your government report on the status of the $2 billion in tariff revenues collected thus far, to ensure that it was used to support Canadian businesses. Finally, we urge your government to develop a strategy to market Canadian aluminum as the greenest in the world, to help shore up our competitiveness in existing and emerging markets.
C. Government Procurement
Unlike NAFTA, CUSMA does not contain a chapter on government procurement. Given the draft Executive Order leaked to the media that would pull the United States out of the WTO Government Procurement Agreement, there is a real possibility that Canadian companies will lose out on the U.S. government procurement market entirely. In addition to obstacles experienced at the federal level, Buy American continues to be an irritant at the state level as well.
The Conservative Party recommends that your government work to secure Canada’s access to the U.S. government procurement market.
The new rules of origin regime for autos in CUSMA is complicated as the rules layer on top of one another. The new rules of origin are also the basis for your own economic impact analysis’ projection that “Canada’s exports of motor vehicles to the United States would decline by US$1.5 billion relative to the current trade regime under NAFTA, and imports from the United States would decrease by US$1.2 billion.” There is currently no requirement for public oversight to ensure these rules are being properly applied and the Committee heard that there will be a transition period of adjustment as these rules take effect.
The Conservative Party recommends that your government work to ensure that the new rules of origin do not worse an already bleak competitiveness landscape for our auto industry. We also recommend that your government take this opportunity to craft a National Auto Strategy to retain and attract investment while securing the necessary research and developments to ensure our industry succeeds during future transition and evolution of the sector. Further, we recommend that you consider delaying the implementation of CUSMA for the auto sector until January 2021, as per the industry’s request, to allow them to adjust to the new climate of the deal.
Further, the Committee heard that CUSMA will do nothing to protect Canada’s forestry industry as it does not prevent the United State from applying antidumping and countervailing duties to Canadian softwood lumber. Canadian forestry workers continue to suffer from your government’s lack of action on this files. At a time when more than 20,000 forestry workers have experienced layoffs, CUSMA will provide no relief from continued uncertainty.
The Conservative Party recommends that your government revisit the funding support for forestry that you announced on June 1, 2017 to ensure that it is effectively and efficiently being delivered to prevent further mill closures and layoffs. Further, we recommend that you appoint a panel of experts to evaluate softwood lumber products not included on the Export Control List, including finished wood products under codes 4407 and 4409. We also encourage your government to investigate ways to create more value-added manufacturing opportunities for the forestry sector and we strongly urge you to actively reengage with the United States Trade Representative to find a solution to this current softwood lumber dispute.
F. Cultural Exemption
It was brought to the Committee’s attention that the price for protecting the cultural exemption within CUSMA was to open ourselves up to retaliatory tariffs not limited to the cultural sector, as per the provision contained in CUSMA article 32.6(4). For example, if Canada decided to implement a digital services tax for a company such as Netflix, the United States would be within its right, as per CUSMA, to place a tariff of equal commercial effect on any Canadian export into its country. This will undoubtedly have a limiting effect on Canada’s policy options for regulating the digital field in particular, a space which continues to rapidly evolve.
The Conservative Party recommends that your government undertake a study of the cultural exemptions currently in place, including their commercial value, in order to determine how vulnerable Canada is when CUSMA comes into effect.
G. Digital Privacy
CUSMA limits Canada’s ability to legislate to protect Canadians’ digital privacy with a provision prohibiting data localization, one that goes further than what Canada greed to under the CPTPP. Canada’s agreement to this provision will restrict our ability to legislate in a field in which the policy debate is ongoing. It will also create uncertainty for provinces who already have data localization laws in place, such as British Columbia and Nova Scotia.
The Conservative Party recommends that your government clarify how these anti-localization provisions will affect provinces with data localization laws already in place.
H. De minimus
The Committee heard that the increase to the de minimus threshold in CUSMA does not extend to packages delivered by Canada Post. As Canada Post is our country’s top parcel delivery service, many Canadians will not experience this benefit.
The Conservative Party recommends that your government consider exploring ways to extend the increased de minimus threshold to packages delivered by Canada Post.
I. Support for CBSA
The Committee heard that the CBSA may not be equipped to enforce certain aspects of CUSMA once the deal comes into effect. Specifically, it appears that CBSA will not be trained in time to implement the new tariffs that will come into effect, thereby leading to possible delays at the border.
The Conservative Party recommends that your government allocate the necessary support to the CBSA as soon as possible to ensure the efficient implementation of CUSMA at the border.
2. The Government’s Lack of Cooperation with the Opposition
Finally, please allow us to take a moment to correct the record as per your comments to the media insinuating that the Conservative Party of Canada was seeking to delay the passage of Bill C-4. This is patently false. In fact, we have offered repeatedly to expedite our study of the legislation to ensure swift ratification, but at every stage your government has chosen to play politics, as demonstrated by the following timeline:
- Knowing that the federal election was coming up in October 2019, Conservatives offered to being a pre-study on the original CUSMA legislation (Bill C-100) in May of that year, so that when your government was ready to move the legislation through the House of Commons, all that would remain to do at Committee was the clause-by-clause examination. Your government declined.
- When the revised agreement was signed in December 2019, Conservatives offered to come back early from Christmas break to begin work on the bill. Your government declined.
- Your government waited until January 29, 2020 to introduce the implementation legislation in the House of Commons, even though the revised agreement was signed in December. Conservatives moved the legislation through the House of Commons in six sitting days – comparted to the sixteen sitting days it took to move the original implementing legislation (C-100) through the House of Commons to Committee.
- The International Trade Committee has approximately 200 requests to appear on CUSMA. The amount of work to do on the legislation has not changed and Conservatives consistently offered to commence that work earlier. Your government declined.
- Conservatives ultimately offered to complete clause-by-clause examination by no later than March 5, under the assumption that your government would not be recalling the House of Commons during the constituency break week to conduct report stage and third reading of Bill C-4. Your government declined.
- Your government released its economic impact analysis for CUSMA only one day before the International Trade Committee had to conduct its clause-by-clause review (USTR released their in April 2019) and the first formal briefing that parliamentarians received on the new agreement was on December 11, 2019.
It is disappointing that both your government’s refusal to cooperate with the Official Opposition and its inability to organize an effective legislative schedule has delayed the work of committees regarding the scrutiny of CUSMA. Worse, it appears that your government is attempting to ram CUSMA through the Committee process in order to reduce scrutiny of the many concessions that the Prime Minister has made to President Trump, and the consequences that these will have for Canadian industry.
It is our hope that this letter will help you to acknowledge some of the shortcomings of the new CUSMA and the ways in which the affected sectors expect your government will stand by them during the period of transition to the new agreement.
The Conservative Party of Canada sincerely hopes that your government will work more collaboratively in the future on passing trade agreements through our legislative process. Ultimately, it is the Canadians we strive to serve in the House of Commons who lose out when you fail to do so.
Doug Ford, Premier of Ontario
François Legault, Premier of Québec
Stephen McNeil, Premier of Nova Scotia
Blaine Higgs, Premier of New Brunswick
Brian Pallister, Premier of Manitoba
John Horgan, Premier of British Columbia
Dennis King, Premier of Prince Edward Island
Scott Moe, Premier of Saskatchewan
Jason Kenney, Premier of Alberta
Dwight Ball, Premier of Newfoundland and Labrador
Caroline Cochrane, Premier of the Northwest Territories
Sandy Silver, Premier of Yukon
Joe Savikataaq, Premier of Nunavut