Minister of Small Business, Export Promotion and International Trade appearance before the Standing Committee on International Trade (CIIT) - Canada–United States relationship and its impacts on the electric vehicle, softwood lumber and other sectors

2022-02-07

Meeting scenario

• Your virtual one-hour appearance before the Standing Committee on International Trade (CIIT) begins at 3:30 p.m. Your appearance will last one hour, and the committee has asked supporting officials to stay behind for a second hour. In addition to questions on electric vehicles, committee members may take the opportunity to ask questions on the broader Canada-US trade relationship.
• The following officials are accompanying you virtually during the appearance and may be called upon to respond to questions:

Global Affairs Canada

• David Morrison, Deputy Minister to International Trade (appearing 3:30 to 4:30pm)
• Arun Alexander, Associate Assistant Deputy Minister, Trade Policy & Negotiations
• Michael Grant, Assistant Deputy Minister, Americas
• Doug Forsyth, Director General, Market Access
• Michael Cannon, Director, Softwood Lumber

Other government departments

• Mary Gregory, Associate ADM, Industry Sector (ISED)
• Michèle Govier - Director General, International Trade Policy (FIN)

Study motion

That, pursuant to Standing Order 108(2), the committee undertake a study on the Canada-US relationship and the impacts it will have on the electric vehicle industry, the softwood lumber industry and other areas; that the committee hold a minimum of two meetings for each area; and that the committee report its findings to the House.

Committee context

• After your opening remarks of 5 minutes, the committee will move to rounds of questions. A one-hour appearance would allow for two complete rounds as follows:

First round

• Conservative (6 minutes)
• Liberal (6 minutes)
• Bloc Québécois (6 minutes)
• NDP (6 minutes)

Second round

• Conservative (5 minutes)
• Liberal (5 minutes)
• Bloc Québécois (two and a half (2.5) minutes)
• NDP (two and a half (2.5) minutes)
• Conservative (5 minutes)
• Liberal (5 minutes)
• Any additional rounds of questioning would follow the order and timing of the second round.

Committee membership & interests

• During the 43-2 Parliament, the committee has studied Canada’s International Trade after COVID-19, the Main Estimates 2020-2021, Trade between Canada and the United Kingdom, the Good Friday Accord, the impact on Canada of the E.U.’s mechanism for exports of COVID-19 vaccines, Bill C-18, Reform of the World Trade Organization, Investor-State Dispute Settlement Mechanisms, Trade and Vaccines in Canada, Bill C-216 (preventing further concessions to supply management in future FTAs) and Canadian exportation of green, clean and low- carbon technologies. 
• Committee members’ questions during the 43-2 Parliament committee meetings have focused on the following related issues: 
• Conservative Members – Electric vehicles tax credit, supply chain security, the Softwood Lumber Agreement, support to the forestry sector, non-tariff barriers, WTO reform, importance of ISDS provisions, durum wheat, support for small and medium-sized exporters, sourcing vaccines from the U.S.
• Liberal Members – Electric vehicles tax credit, Investor State Dispute Settlement, the Softwood Lumber Agreement, investment protection, trade with Indonesia, trade with India, support for small and medium-sized businesses.
• Bloc Quebecois Member – Investor State Dispute Settlement, TRIPS waiver, WTO reform, support for softwood lumber, aerospace sector, and aluminum sector, protection of supply management, and support for small and medium- sized businesses.
• NDP Member – TRIPS waiver, removal of Investor State Dispute Settlement mechanisms, transparency in trade negotiations, WTO reform, North American climate change strategies, and non-tariff trade barriers.

Committee work

• You appeared before CIIT six times during the 2^nd session of the 43^rdparliament:
• June 4, 2021 on Countervailing and Antidumping Duties on Imports of Canadian Softwood Lumber by the United States
• April 26, 2021 on Main Estimates 2021-22: Vote 1 under Invest in Canada Hub
• February 22, 2021 on Bill C-18
• February 1, 2021 on EU Vaccines
• November 20, 2020 on the Canada-UK TTA
• November 3, 2020 on Main Estimates 2020-21

Minister NG opening remarks: electric vehicles

Study Motion

That, pursuant to Standing Order 108(2), the committee undertake a study on the Canada-US relationship and the impacts it will have on the electric vehicle industry, the softwood lumber industry and other areas; that the committee hold a minimum of two meetings for each area; and that the committee report its findings to the House.

Merci Madame la Présidente, and good afternoon to you, the vice-chairs, and all the other members of the committee.

It’s a pleasure to be with you today to assist the committee in its important work, and to provide Canadians with another update. Merci de me donner l’occasion de faire d’une pierre deux coups.

Let me start by saying that Canada and the United States share one of the closest relationships in the world. At the end of last year, Canada- U.S trade hit an all time high. This is a testament to the strength our close relationship, our shared values, and of CUSMA. We also share mutual goals of climate action, innovation, and North American competitiveness.

We are best partners to help one another reach these shared goals, and this was clear in my visits to Washington, D.C. in December and November with the Prime Minister to meet with congressional leaders and stakeholders. By working together to strengthen our deeply integrated supply chines, we will generate growth, and create jobs, all while fighting climate change.

And few supply chains are more integrated across our shared border than our automotive sector supply chains. For over 100 years Canada and the United States have been building autos together, and for over 50 years together we have intentionally pursued policies to integrate those supply chains. You’ve heard me say this before but a vehicle and its parts can cross the Canada-U.S. border more than 7 or even 9 times before becoming final.

Now, as our governments are both committed to fighting climate change, we know the future of our automotive sector and its workers, is an electric and sustainable future— Canada has already committed to reaching 100% zero-emissions passenger vehicle sales by 2035. Standing up for this future is a priority for me and for our government.

In a recently proposed Build Back Better bill, the United States proposed tax credits to incentivize the purchase of electric vehicles (EVs), unfortunately in the last draft of this proposal these tax credits would only be for those produced in the United States.

These tax credits would threaten the future of Canada’s automotive sector, and ignore ourdeeply integrated supply chains. Canada and the U.S. are each other’s #1 market for auto exports, and these tax credits would harm businesses and hundreds of thousands of workers on both sides of the border.

Not only are these tax credits inconsistent with CUSMA and the WTO, they would be a barrier to reaching our shared goals to accelerate climate ambition as outlined in the Roadmap for a Renewed Canada-U.S. Partnership.

We have been working diligently to resolve this issue at every level and our ongoing engagement on this issue has clearly registered Canada’s position. The Prime Minister has conveyed this message directly to the President, the Vice President, Congressional leadership and cabinet secretaries. We are working closely with industry on a Team Canada approach working with U.S. congressional leaders to ensure an outcome that will allow the future of our shared industry to thrive.

In early December, I led a Team Canada delegation to Washington that included Members of Parliament from both sides of the House and Canadian consuls general from across the United States to advocate for Canadian workers and industry. The team convened more than 50 meetings on the electric vehicles issue with U.S. administration officials, members of the U.S. Senate and House of Representatives from both parties, representatives of binational labour unions and automotive industry and business leaders.

On December 10, the Deputy Prime Minister and I sent a letter urging the United States to ensure that any EV tax credits do not iscriminate against Canada. Be it through CUSMA dispute resolution, or other trade levers, in the letter we sent a clear message that if we aren’t able to reach a resolution, Canada will defend its national interests, as we always have.

That we have an avenue to pursue resolution through CUSMA, is a sign of the strength of our relationship. For example, we announced just a few weeks ago that Canada will be challenging the United States’ unjustified duties on Canadian softwood lumber under CUSMA. We have trade levers and a process to follow, because our countries negotiated a strong, and fair trade agreement that supports workers, industry, and communities across North America through CUSMA.

In any relationship as large and significant as the one between Canada and the US, there will always be challenges. We have worked together and resolved many of these in the past, and our government will continue to defend our businesses and workers across Canada until we reach an outcome that is acceptable to them.

Retaliation is never our preferred outcome. We are working with our partners in the United States, businesses, unions, and policymakers across our shared border, to reach a solution that supports businesses and workers in both of our countries.

I continue to engage with the US and advocate for the future of Canada’s industries, workers, and the communities they support, at every possible opportunity.

This is my focus and a priority for this government. I look forward to answering your questions.

Thank you.

Standing Committee on International Trade (CIIT)

44^th Parliament – First Session

December 9, 2021 to present

Chair

Hon. Judy Sgro (Liberal – Ontario)

Vice-chair

Randy Hoback (Conservative – Saskatchewan)

Simon-Pierre Savard-Tremblay (Bloc Quebecois – Quebec)

Members

Chandra Arya (Liberal – Ontario)

Anju Dhillon (Liberal– Quebec)

Chris Lewis (Conservative – Ontario)

Richard Martel (Conservative - Quebec)

Brian Masse (NDP - Ontario)

Wilson Miao (Liberal – British Columbia)

Terry Sheehan (Liberal – Ontario)

Parliamentary Secretary to the Minister of Labour

Jeremy Patzer (Conservative – Saskatchewan)

Arif Virani (Liberal – Ontario) Parliamentary secretary to the minister of international trade, export promotion, small business and economic development

Order for questioning:

The time allotted for the questioning of witnesses in the first round be as follows: Conservative Party – six (6) minutes, Liberal Party – six (6) minutes, Bloc Quebecois – six (6) minutes, New Democratic Party – six (6) minutes; that the order and time allotted for the questioning of witnesses in the second round be as follows: Conservative Party – five (5) minutes, Liberal Party – five (5) minutes, Bloc Quebecois – two and a half (2.5) minutes, New Democratic Party – two and a half (2.5) minutes, Conservative Party five (5) minutes, Liberal Party five (5) minutes. If time permits, further rounds shall repeat the pattern of the first two at the discretion of the Chair.

Witnesses have 5 minutes each for their opening remarks.

Mandate:

The House of Commons Standing Committee on International Trade studies and reports on matters referred to it by the House of Commons. The Committee can also initiate studies of subjects falling within its mandate. As a permanent committee established by the Standing Orders of the House of Commons, the Committee may be asked to comment on legislation, departmental activities and spending, and other matters under its jurisdiction. The Compendium of the House of Commons Procedure contains additional information on the mandate and powers of standing committees.

The general subject area of the committee includes the following:

• International trade policy, including trade and investment liberalization, as well as Canada’s economic relationship with other countries;
• Canadian international competitiveness, as well as the effects of global competition on Canadian firms and the Canadian economy; and
• The global trade and investment environment, including the World Trade Organization, international markets and regional trade blocs.

The federal departments and agencies under the committee’s direct scrutiny are:

• Global Affairs Canada (international trade component)
• Export Development Canada
• Canadian Commercial Corporation
• Invest in Canada

Hon. Judy Sgro Chair (LPC—Humber River-Black Creek, ON)

key interests

• Canada-U.S. relationship
• Human rights

Parliamentary roles

Sgro has served as a Member of Parliament since 1999. She served as Parliamentary Secretary to the Minister of Public Works and Government Services in 2003, and as Minister of Citizenship and Immigration from 2003 to 2005. She has served as Critic of many portfolios, including Industry, Status of Women, Veterans Affairs and National Revenue. In the previous parliament, Sgro served as Chair of the Standing Committee on Transport, Infrastructure and Communities.

Notable committee memberships

• Chair, Standing Committee on International Trade (CIIT), January 2020-present
• Chair, Liaison Committee, February 3, 2016 - present
• Former Chair, Standing Committee on Transport, Infrastructure and Communities (TRAN), February 2016 – September 2019
• Former Vice-Chair, Standing Committee on Industry, Science and Technology (INDU), October 2013 – August 2015

Background

Prior to entering federal politics, Sgro served in municipal politics as part of the North York City Council and the Toronto City Council, starting in 1987. At the municipal level, Sgro focused on poverty and crime reduction.

Randy Hoback Vice Chair (CPC—Prince Albert, SK)

Critic for international trade and supply chain resilience

key interests

• Trade of agricultural products (focus on canola)
• Critical of progressive trade objectives
• Impact of CUSMA on Canadian ability to negotiate trade deals with non- market economy 
• Canada-China canola crisis
• Softwood Lumber

Parliamentary roles

Hoback has served previously as the critic for International Trade prior to Tracy Gray, and the critic for Canada-US Relations. He also served as the Chair of the Saskatchewan Conservative Party Caucus. He also served as President of the Canadian Section of ParlAmericas starting in 2010, and as President of ParlAmericas at the hemispheric level from 2011 to 2014.

Notable committee membership

• Vice Chair, Standing Committee on International Trade (CIIT), December 2021-present, February 2016 - September 2017
• Member, Standing Committee on International Trade (CIIT), January 2018 – August 2021
• Chair, Standing Committee on International Trade (CIIT), September 2014 - August 2015
• Member, Standing Committee on Agriculture and Agri-Food (AGRI), October 2013 - January 2015

Background

Hoback was first elected in 2008, and has been re-elected in his Prince Albert riding in each of the 2011, 2015 and 2019 elections. Prior to entering politics, Hoback worked in the farm equipment manufacturing industry before taking over his family farm. He has a business administration certificate from the University of Saskatchewan and a Chartered Director’s designation from McMaster University.

Recent issue statements/background

Hoback recently attended a meeting with WSHDC-HOM/Hillman in October 2021 and discussed the Canada-U.S. border, the COVID-19 pandemic, economic recovery, Buy America and supply chains.

MP Hoback has previously raised concerns on jobs associated with Line 5 during BIA.

MP Hoback has tweeted about the urgent need for permanent trade agreements with ASEAN, India, and the UK.

Simon-Pierre Savard-Tremblay Vice Chair (BQ—Saint-Hyacinthe-Bagot, QC)

Critic for international trade

key interests

• Investor State Dispute Settlement
• TRIPS provision waiver
• Aluminum Provisions in CUSMA (impact on Quebec)
• Protection of supply management
• Aerospace strategy
• Support for Small to medium-sized businesses

Parliamentary roles

Savard-Tremblay was elected in 2019 and 2021 and currently serves as the Bloc Quebecois critic for International Trade and Industry.

Notable committee membership

• Vice-Chair, Special Committee on the Economic Relationship between Canada and the United States(CAAM) – February 2021-August 2021
• Vice-Chair, Standing Committee on International Trade (CIIT), January 2020-August 2021

Background

Prior to entering politics, Savard-Tremblay worked as an academic, author and columnist. He has a bachelors degree in political science from the University of Montreal, a Masters in Sociology from the University of Quebec at Montreal, and a doctorate in the social economy of development from the École des hautes études en sciences sociales in Paris. He was heavily involved in the youth forum of the BQ and has been a frequent commentator in Quebec on economic and sovereignty-related issues. In his academic work, he is critical of neoliberalism and globalization.

Recent issue statements/background

MP Savard-Tremblay has been a strong advocate for supply-managed sectors. During a CIIT meeting on Bill C-216, MP Savard-Tremblay brought up the issue that the bill undermines other sectors during negotiations.

Briam Masse (NDP—Windsor West, ON)

Critic for international trade and Canada-US border relations

key interests

• Canada-US Relations (softwood lumber tariffs, Buy American)
• Border Issues

Parliamentary roles

Masse was first elected in 2002. Masse previously served as critic for Small Business, for Tourism, for the Federal Economic Development Agency for Southern Ontario, and for the Great Lakes and the Canada–US Border. He has also served 16 years as vice-chair of the Canada–US Inter-Parliamentary Group, co-chaired the All-Party Border Caucus, and chaired the NDP Auto Caucus.

Notable committee membership

• Member, Standing Committee on International Trade (CIIT), December 2021-present, November 2011-February 2014
• Member, Standing Committee on Industry and Technology (INDU), April 2006-present

Background

Prior to entering politics, Savard-Tremblay worked as an academic, author and columnist. He has a bachelors degree in political science from the University of Montreal, a Masters in Sociology from the University of Quebec at Montreal, and a doctorate in the social economy of development from the École des hautes études en sciences sociales in Paris. He was heavily involved in the youth forum of the BQ and has been a frequent commentator in Quebec on economic and sovereignty-related issues. In his academic work, he is critical of neoliberalism and globalization.

Chandra Arya (LPC—Nepean, ON)

key interests

• Knowledge-based sector
• Rare minerals and the production of electric vehicle batteries
• Trade with India
• Foreign direct investment
• Investment protections in trade agreements

Parliamentary roles

Arya was first elected in 2015. He is a member of virtually all of the interparliamentary associations.

Notable committee memberships

• Member, Standing Committee on International Trade (CIIT), January 2020 - present
• Member, Standing Committee on Public Accounts (PACP), January 2016 – September 2019
• Member, Standing Committee on Industry, Science and Technology (INDU), January 2016 – September 2019

Background

Arya spent his career prior to entering politics as an executive in the high-technology sector. He has a Bachelor degree in Engineering and a Masters in Business Administration. Arya was active in the Ottawa business community, serving on the board of Invest Ottawa and as Chair of the Indo-Canada Ottawa Business Chamber. He was also active in social causes, serving on the board of the Unity Non-Profit Housing Corporation Ottawa and as Vice President of the Ottawa Community Immigrants Services Organization.

Anju Dhillon (LPC—Dorval-Lachine-Lasalle, QC)

key interests

• Women
• Immigration
• Gender-based violence
• Growing the middle class
• Economic growth
• Mental health

Parliamentary roles

Dhillon was first elected in 2015. She served as Parliamentary Secretary for Status of women from December 2015 to January 2017.

Notable committee memberships

• Member, Standing Committee on International Trade (CIIT), December 2021-present
• Member, Standing Committee on Justice and Human Rights (JUST), December 2021-present
• Member, Standing Committee on Citizenship and Immigration (CIMM), February 2020-August 2021
• Member, Standing Committee on the Status of Women (FEWO), February 2020-August 2021
• Member, Special Committee on the COVID-19 Pandemic (COVI), April 2020-June 2020
• Member, Standing Committee on Canadian Heritage (CHPC), September 2017-September 2019
• Member, Standing Joint Committee for the Scrutiny of Regulations (REGS), September 2017- January 2018
• Member, Standing Committee on Human Resources, Skills and Social Development and the Status of Persons with Disabilities (HUMA), January 2017-September 2017

Background

Dhillon was born and raised in the riding of Dorval—Lachine—LaSalle. Before politics, she worked as a caregiver to running her own law practice. 

Dhillon holds an Honours Bachelor Degree in Political Science from Concordia University, a Bachelor of Law from Université de Montréal, a JurisDoctor (J.D.) and Master of Laws Degrees from Université de Sherbrooke.

Hey journey as a politician began at the age of 13 when she volunteered for the Liberal Party of Canada. She sat on the Executive Council of the LaSalle-Emard Federal Liberal Electoral District Association in various positions such as Youth Vice-President, Vice-President Female, Secretary, and Policy Officer.

Chris Lewis (CPC—Essex, ON)

key interests

• Oil and gas pipelines
• Economic growth
• Canada-US border relations

Parliamentary roles

Lewis was first elected in October 2019.

Notable committee membership

• Member, Standing Committee on International Trade (CIIT), December 2021-present, January 2020-August 2020
• Member, Special Committee on the Economic Relationship between Canada and the United States (CAAM), February 2021-August2021
• Member, Standing Committee on Justice and Human Rights (JUST), October 2020-August 2021
• Member, Special Committee on the COVID-19 Pandemic (COVI), April 2020-June 2020

Background

Prior to politics, Lewis was a member of the Kingsville Fire department for 7 years and chaired the Master Fire Planning Committee. He served on Kingsville Council and was heavily involved with 13 Standing Committees for the Town. Lewis was a member of his family business, specializing in non- intrusive sewer and water repair… saving taxpayers millions of dollars over his 20-year career.

Richard Martel (CPC—Chicoutimi-Le Fjord, QC)

key interests

• Softwood Lumber
• Aluminum
• Dairy

Parliamentary roles

Lewis was first elected in October 2019.

Notable committee membership

• Member, Standing Committee on International Trade (CIIT), December 2021-present, January 2020-August 2020
• Member, Standing Committee on National Defence (NDDN), September 2018-August 2020
• Member, Special Committee on the COVID-19 Pandemic (COVI), April 2020-June 2020

Background

Prior to politics, Martel was an assistant hockey coach from 1991 to 1993 in Chicoutimi. Between 1993 and 2011, Martel served as head coach in the Quebec Major Junior Hockey League (QMJHL) where he twice won the Ron Lapointe Trophy as the QMJHL coach of the year. On February 28, 2010, Martel became the most successful coach in history when he won his 570^th game surpassing a previous record.

Wilson Miao (LPC—Richmon centre, BC)

key interests

• Small and medium businesses

Parliamentary roles

Miao was first elected in September 2021.

Notable committee memberships

• Member, Standing Committee on International Trade (CIIT), December 2021-present
• Member, Standing Committee on Veterans Affairs (CVA), December 2021-present

Background

Miao has a business degree from Simon Fraser University. Before entering politics he worked in corporate marketing and real estate development. Later, he became a consultant for real estate development and senior living projects. He also worked as a Communications and Marketing Director for a media outlet.

Jeremy Patzer (CPC—Cypress Hills-Grasslands, SK)

key interests

• Oil and gas pipelines
• Canola
• Natural resource sector
• Rural and remote communities
• Firearms policy

Parliamentary roles

Lewis was first elected in October 2019.

Notable committee membership

• Member, Standing Committee on International Trade (CIIT), December 2021-present, January 2020-August 2020
• Member, Standing Committee on Natural Resources (RNNR), October 2020-August 2021
• Member, Standing Committee on Industry, Science and Technology (INDU), February 2020- August 2020
• Member, Special Committee on the COVID-19 Pandemic (COVI), April 2020-June 2020

Background

Patzer was born and raised on a grain farm in Frontier, Saskatchewan. He went on to work in the telecommunications industry for 10 years, in business and residential settings for both rural and urban areas. All the while, he remained active in politics, serving on the Board of Directors for the Conservative Party Constituency Association since 2015.

Terry Sheenan (LPC—Sault Ste. Marie, ON)

Parliamentary Secretary to the Minister of Labour

key interests

• Steel (particularly focused on Southern Ontario and Algoma Steel)
• Supply-chains for satellites and Electric vehicles
• Employment and economic growth

Parliamentary roles

Sheehan was first elected in 2015. He was elected co-chair of the All Party Steel Caucus in the previous Parliament. He served as Parliamentary Secretary to the Minister of Economic Development from November 2019 to June 2021. He now serves as Parliamentary Secretary to the Minister of Labour.

Notable committee memberships

• Member, Standing Committee on International Trade (CIIT), September 2018-present
• Member, Standing Committee on Industry, Science and Technology (INDU), September 2016 – September 2019
• Member, Special Committee on Pay Equity (ESPE), February 2016 – June 2016

Background

Prior to entering politics, Sheehan had a career in the private and public sectors in business, community and economic development. His last position prior to being elected as a Member of Parliament was as an employment and training consultant for the Ontario Minister of Training, Colleges and Universities. His riding is home to Algoma Steel and Tenaris

Private members’ motion

In the 42^nd Parliament Sheehan submitted a Private Members Motion concerning the importance of the Canadian steel industry and the creation of a National Steel Procurement Strategy.

Arif Virani (LPC—Parkdale-Highpark, ON)

Parliamentary Secretary to the Minister of International Trade, Export promotion, Small Business and Economic Development

key interests

• Persons with disabilities
• Healthcare
• Indigenous rights

Parliamentary roles

Virani was first elected in 2015. He previously served as Parliamentary Secretary to the Minister of Justice and Attorney General of Canada and to the Minister of Democratic Institutions, Parliamentary Secretary to the Minister of Canadian Heritage (Multiculturalism), and Parliamentary Secretary to the Minister of Immigration, Refugees and Citizenship.. He is now Parliamentary Secretary to the Minister of International Trade, Export Promotion, Small Business and Economic Development as of December 2021.

Notable committee memberships

• Member, Standing Committee on International Trade (CIIT), December 2021-present
• Member, Standing Committee on Justice and Human Rights (JUST), September 2018-August 2021
• Member, Subcommittee on Agenda and Procedure of the Standing Committee on Justice and Human Rights (SJUS), March 2020-August 2021
• Member, Special Joint Committee on Medical Assistance in Dying (AMAD), April 2021-August 2021
• Member, Special Committee on the COVID-19 Pandemic (COVI), April 2020-June 2020
• Member, Standing Committee on Canadian Heritage (CHPC), September 2017-September 2018

Background

Virani came to Canada as a Ugandan Asian refugee. Before entering politics, he worked as a constitutional litigator, advocating for human rights and access to justice.

Virani was an analyst with the Canadian Human Rights Commission in Ottawa, an investigator at the Commission des droits de la personne et des droits de la jeunesse in Montréal, and an assistant trial attorney prosecuting those accused of genocide at the United Nations International Criminal Tribunal for Rwanda.

Virani was also one of the founders of the South Asian Legal Clinic of Ontario in Toronto. He received the 2001 Harold G. Fox litigation scholarship at the Middle Temple in London, United Kingdom, and the 2008 Wilson-Prichard Award in recognition of his contributions to the legal profession and his community.

U.S. electric vehicle tax credit

• The Government is very concerned with the discriminatory elements of the proposed U.S. tax credits for electric vehicles contained in the current version of the Build Back Better bill.
• The discriminatory tax credits run counter to CUSMA and WTO obligations and are inconsistent with shared objectives on fighting climate change and supply chain collaboration.
• We continue to engage at all levels with U.S. officials and stakeholders to highlight the negative impact that discriminatory EV tax credits could have, not just on the industry in Canada, but for jobs and consumers on both sides of the border.
• Canada is closely following the situation in the U.S., however until there is more clarity on next steps, we will continue to work diligently towards an outcome that does not discriminate against Canadian-made vehicles and batteries.
• While our objective was always to come to a solution on this matter, we have considered different options should there be no satisfactory resolution addressing Canada’s concerns.

Supplementary messages

• Canada remains committed to working with our U.S. partners to continue to enhance the competitiveness of the North American automotive industry as it makes a generational transformation towards electrification.
• The Government of Canada will always defend the interests of Canadians.

RESPONSIVE – If pressed on retaliatory measures by the Government of Canada

• To be clear, we do not want to go down a path of confrontation.
• That said, we are prepared to take action if there is no satisfactory resolution of this issue, including launching a dispute settlement process under CUSMA, applying retaliatory tariffs on certain U.S. exports, and consider suspending CUSMA concessions such as dairy tariff-rate quotas and delaying the implementation of copyright changes.
• Before imposing tariffs, we would publish a list of U.S. products that may face Canadian tariffs and engage in broad consultations with Canadians.
• We remain committed to working closely with the U.S. to support the transition to EVs and leverage the deep integration of Canada-U.S. automotive trade.

RESPONSIVE – if asked about the impact that retaliatory tariffs would have on the economy if applied, and whether they would exacerbate current inflationary and supply chain pressures

• There is no decision on a Government response at this time given the uncertainty on next steps in the United States.
• In the event that the Government decides to move ahead with retaliatory tariffs, the normal process would entail consultations with stakeholders to understand the impacts and inform the Government’s approach and decisions to applying retaliatory tariffs, including any impacts on supply chain and inflationary pressures.

RESPONSIVE – if asked whether Canada would discriminate against other auto- producing countries if it aligns its EV rebate program with the U.S.

• Canada’s EV incentives do not discriminate against vehicles from other countries.
• We continue to emphasize to the U.S. that we are committed to working together to ensure Canadian-assembled vehicles and batteries are eligible for the same credit as U.S.-assembled vehicles and batteries.

Background

The House of Representatives’ draft of the Build Back Better bill, passed on November 19, contains discriminatory tax credits for purchases of electric vehicles in the U.S. that threaten the viability of automotive production in Canada. The proposed credits are inconsistent with U.S. obligations under the CUSMA and WTO and could risk triggering a trade war with U.S. allies, including Canada.

In addition to a maximum base credit of US$7,500, a US$4,500 credit is provided if final assembly of an electric vehicle takes place at a unionized facility in the United States; an additional US$500 credit is provided if the electric vehicle is powered by battery cells that are manufactured in the United States; and, most concerning, beginning in 2027 the full value of the credit (up to US$12,500) will be conditional on final assembly of the electric vehicle in the United States.

On December 10, you sent a joint letter with Deputy Prime Minister Freeland to U.S. Senate leadership outlining the retaliatory steps Canada will take if a satisfactory resolution is not found. If passed into law, the incentives are expected to be detrimental to the future of automotive manufacturing in Canada.

The Senate has indicated that it will vote on the bill early in 2022. However, Senator Manchin has publicly stated that he will not vote in favour of the bill as it currently stands, and support from all Democratic Senators is needed for the bill to pass.

Discussions on the Build Back Better bill are currently on pause and there continues to be uncertainty with respect to the timing of a revised bill or new legislative path for the tax credits. On January 25, following the announcement of investments by General Motors, the President issued a statement reiterating his support for an EV tax credit that supports U.S. assembled cars and batteries made by union hands. On January 26, President hosted supporters of his stalled Build Back Better legislation at the White House for a CEO Roundtable, including General Motors and Ford, where he repeated his commitment to the bill.

Softwood lumber

• Extremely disappointed by U.S. decision to nearly double the duty rate applicable to most of the industry; U.S. duties imposed on Canadian softwood lumber are unwarranted and unjustified.
• Vigorously defending the interests of Canadian industry, including through litigation under Chapter 19 of NAFTA, Chapter 10 of CUSMA and before the WTO.
• Continue to believe that an agreement is in both countries’ best interests; raising this at all levels and at every opportunity with the U.S. administration.

Supplementary messages

• Remain ready to negotiate a mutually acceptable agreement as soon as the U.S. demonstrates a willingness to discuss meaningfully.
• Working closely with industry and provinces to coordinate Canada’s approach; roundtable with softwood lumber sector leaders on January 13 was very helpful opportunity to discuss strategy.
• Canada recently launched challenges against new U.S. duty rates in consultation with provinces and territories, industry and other partners.

Background

Currently, most Canadian companies are subject to a combined duty rate of 17.91% on exports of certain softwood lumber products to the United States. On December 28, Canada officially launched challenges against new U.S. duty rates under Chapter 10 of CUSMA.

Softwood lumber continues to be a priority for the Government of Canada, and it is being raised at all levels and at every opportunity with the U.S. Administration. In addition, Canada continues to work with long-time allies in the United States, such as homebuilder associations, to stress that U.S. duties are causing undue harm to U.S. consumers, as well as to Canadian producers and communities. U.S. homebuilders have been vocal about the need to find solutions to high lumber prices and have specifically called for an end to duties on Canadian lumber. Canada’s position remains that a new softwood lumber agreement is in the best interests of both countries, and Canada is prepared to re-engage in negotiations when the United States is ready to discuss realistic proposals that would be acceptable to Canadian industry. In the meantime, Canada is continuing to vigorously pursue legal challenges against U.S. duties at the WTO and through NAFTA/CUSMA dispute settlement panels.

Under NAFTA Chapter 19, Canada is challenging the U.S. Department of Commerce’s (Commerce) initial countervailing (CVD) and anti-dumping (AD) determinations.

Canada is also challenging Commerce’s determinations before the WTO. While the WTO AD panel found that the U.S. improperly calculated dumping margins, Canada appealed in June 2019 certain findings from the Panel that were inconsistent with past panel and/or Appellate Body reports. The Panel’s report on Canada’s CVD challenge was released in August 2020, with findings overwhelmingly in Canada’s favour, namely that U.S. CVD duties on Canadian softwood lumber are inconsistent with the United States’ WTO obligations. However, the United States appealed the Panel’s report in September 2020. Timelines for both appeal proceedings are unclear due to the WTO Appellate Body’s current lack of quorum.

Finally, Canada is pursuing challenges of the final results of Commerce’s first and second Administrative Reviews under Chapter 10 of CUSMA. Administrative reviews are annual reviews that Commerce conducts of its AD and CVD orders. The Administrative Review process establishes duty assessment rates for shipments entered during the period of review, as well as the new duty deposit rates going forward until the next annual Administrative Review is completed. The final results of the first Administrative Reviews was 8.99%, and the period of review was part of 2017 to the end of 2018. The final results of the second Administrative Reviews nearly doubled the duty rate to which most companies are subject (17.91% up from 8.99%) during the period of calendar year 2019. The third Administrative Reviews for calendar year 2020 are underway, and final results are expected between June and August 2022.

Dairy TRQS – CUSMA panel dispute settlement

• Canada is pleased that the panel report expressly recognized the legitimacy of Canada’s supply management system.
• The panel report confirmed that Canada has the discretion to manage its TRQ allocation policies under CUSMA in a manner that supports supply management.
• The government will continue to stand up for Canada’s dairy industry, farmers and workers and the communities they support and will continue to preserve, protect and defend our supply management system.

Supplementary messages

• Canada is a strong proponent of rules-based multilateral trade and believes that international trade will play an important role in the global recovery from COVID-19.
• The Government of Canada is working closely with dairy sector representatives as we proceed with next steps in the process while minimizing the impact on the dairy sector.
• Discussions with the U.S. are ongoing.

Update

On December 20, 2021, the Panel delivered its final report to Canada and the United States and the report was subsequently made public on January 4, 2022. The Panel found against Canada on only one of the four claims – that is, that Canada’s practice of reserving TRQ pools exclusively for the use of processors is inconsistent with Article 3.A.2.11(b) of CUSMA. The Panel made no findings on the three other claims.

Canadian officials are engaging with U.S. counterparts to try and reach agreement on a mutually-acceptable approach to implementing the Panel’s findings. If we do not agree with the United States on how we will bring ourselves into compliance, or agree to extend the time period, the United States could be in a position to retaliate as early as February 3.

Supporting facts and figures

• Canada remains a small player in the global dairy trade, representing less than 1% of global exports in 2020.
• Canada was the second largest export market for U.S. dairy in 2020 and has consistently been in the top three export markets for the U.S.

Background

On May 25, 2021, the United States requested the establishment of a dispute settlement panel regarding Canada’s administration of its dairy TRQs under CUSMA. The United States alleged that Canada’s practice of allocating a significant proportion of the TRQs to processors violates Canada’s CUSMA commitments.

Potato wart in prince Edward island

• The U.S. would have imposed its own federal order if Canada didn’t, which could have been even more restrictive and very difficult to repeal.

• Government continues to engage with U.S. to pave the way for resolution of the issue.

Supplementary messages

• I have personally underlined the priority of this issue with my U.S. counterparts. Canadian officials are working diligently with U.S. officials to address scientific concerns and reach an agreement to have trade resume.
• Emphasizing to U.S. that, with appropriate measures in place (e.g. washing, grading, applying sprout inhibitors), any consumer risk concerns can be mitigated and fresh PEI potatoes should be eligible for export.
• Litigation: Focus is restoring trade as fast as possible; litigation would take a long time. Good faith talks are ongoing and can bring about quicker resolution. Won’t hesitate to consider other options if situation changes.

Background / historical actions

Following the detection of potato wart on two PEI farms on October 1 and 14, 2021, Minister Bibeau issued a Ministerial Order on November 21 that restricts the movement of seed potatoes from PEI and imposes requirements on the movement of processing and table stock potatoes from PEI to other parts of Canada. At the request of the United States, Canada also suspended export certifications for fresh potatoes (table stock and processing) destined for the United States.

The United States has an extremely low risk tolerance for potato wart. This is not new; however, the frequency of recent detections, and challenges associated with identifying the source, have exacerbated U.S. concerns. U.S. officials made it clear that a new federal order banning imports of seed and fresh potatoes from PEI would be put in place immediately if Canada did not suspend exports. Because U.S. federal orders are very difficult to change or remove – many remain in place for decades despite significant technical and political efforts to change them – Canada proactively restricted exports to the U.S. market.

Reactions to the Order and export restrictions were negative in PEI, both from industry and politicians (including PEI’s Premier Dennis King). Canada continues to believe that fresh PEI potatoes should be eligible for export to the U.S. market with appropriate risk mitigation measures.

Technical engagement between competent authorities remains ongoing; CFIA is working with U.S. regulators to help them to complete their assessments. Canada has asked U.S. officials to prioritize their risk assessment. Canada will continue to advocate for restored access for PEI potatoes, based on engagement and advocacy plans currently being developed through the industry–government Potato Working Group. Minister Bibeau and Minister MacAulay visited Washington, DC, January 26- 29, and met with USDA Secretary Vilsack (January 27) and the Governor of Puerto Rico (January 29) to discuss resuming trade in PEI table stock potatoes.

Key Statistics: PEI’s exports over 70% of its potatoes to the U.S. PEI exports approximately $30 million worth of potatoes to Puerto Rico each year (out of the $120 million destined for the U.S.). PEI exports 31% of its potatoes to Massachusetts, 13% to Puerto Rico and 10% to Wisconsin.

In 2020, PEI exported $121.6 million in fresh potatoes. The majority of those exports were table and processing potatoes ($116.3 million), with seed potato exports being valued at $5.3 million. PEI’s largest potato export category is frozen potatoes, which was valued at $396 million in 2019/2020. The Order does not apply to frozen or processed potatoes.

Beef and Cool measures

• Mandatory country-of-origin labelling had a negative impact on Canadian cattle and hog farmers in the past.
• Continue to monitor the situation in the U.S. closely to ensure no new discriminatory labelling measures are put in place.
• Will continue to examine proposed measures to ensure that they do not restrict or disrupt supply chains.

Supplementary messages – BSE

• Recent case found was atypical, does not affect Canada’s BSE negligible status as confirmed by the World Organization for Animal Health (OIE) on May 27, 2021.
• Despite this, Korea and the Philippines temporarily suspended Canadian beef and China asked Canada to stop issuing beef export certificates pending further technical information on the case.
• Pleased to note Korea and the Philippines have now lifted their temporary suspension of imports of Canadian beef.
• Proactively working to resume trade with China.

Background / historical actions

Mandatory COOL: In December 2015, U.S. Congress passed legislation that repealed COOL requirements enacted in 2008 for beef and pork, which had a significant negative impact on the Canadian cattle and hog industries. Canada successfully argued its case at the WTO, which found the U.S. measure discriminated against imports of Canadian (and Mexican) livestock and was in violation of U.S. international trade obligations. Canada was granted final authorization to retaliate up to $1.055 billion annually on U.S. exports to Canada. Canada nominally retains these retaliatory rights. However, there remains a strong desire on the part of some within the United States for mandatory COOL. Multiple actions have been attempted since 2015 to enact similar requirements. A bill was proposed in Congress in September 2021 that would reintroduce mandatory COOL. While not expected to advance, it signals the growing interest to look at changes related to COOL

Voluntary Product of USA labelling: There has been a shift in focus over the past year to a voluntary “Product of USA” (vPUSA) label, which the United States considers more likely to be WTO-compliant, but which may still have negative impacts on Canadian exports of live animals and meat should the label prove popular in the marketplace. Last July, the USDA announced that it will be conducting a ‘top-to- bottom’ review of ‘Product of the USA’ meat labels; consultations with trading partners will be part of the review. This process has been highlighted by President Biden several times, most recently during a January 3 announcement of his Administration`s Action Plan for Meat and Poultry Supply Chains.

Canadian officials continue to monitor the situation closely as concern remains that further attempts will be made in the United States to introduce a labelling scheme that could restrict trade.

BSE: On December 17, 2021, the Canadian Food Inspection Agency (CFIA) announced a case of atypical BSE in Alberta. As an atypical case, this does not affect Canada’s BSE negligible risk status (most preferred status) as confirmed by the World Organization for Animal Health (OIE) on May 27, 2021. On this basis, market access for Canadian beef and cattle to global markets should not have been affected.

Nevertheless, Korea and Philippines temporarily suspended Canadian beef (since restored) and China asked CFIA to stop issuing beef export certificates pending further information (remains unresolved).

Solar tariffs and other U.S. trade remedy issues

U.S. solar safeguard tariffs

• Although the U.S. administration did not use the proclamation to immediately exclude Canada as we had repeatedly pressed for, we are hopeful that negotiations will bring an end to the U.S. safeguards once and for all.
• These tariffs are unjustified and contrary to NAFTA and CUSMA obligations.
• We are optimistic that the CUSMA panel result, expected by mid-February, will further facilitate a resolution to this issue.

Seasonal produce plan investigations

• Canada has actively defended Canadian farmers in the context of U.S. investigations on blueberries, strawberries, bell peppers, cucumbers and squash.
• We are monitoring developments closely and will continue to strongly defend Canadian interests in close cooperation with industry and sub-federal partners.

Supplementary messages

• Resolving the solar safeguard tariff presents an additional opportunity for bilateral collaboration to strengthen North American competiveness and support the broader international effort to combat climate change.
• Canada will continue to actively defend its trade interests in the context of U.S. trade remedy investigations.

Supporting facts and figures

• Since early 2018, the U.S. solar safeguard tariffs have caused Canada’s exports of solar products to the United States to decline by as much as 82%
• Canada now accounts for less than 1% of U.S. imports.
• In 2019, exports from Canada to the U.S. of cucumbers and squash were US$257 million and strawberries and bell peppers were US$315 million.

Background

Solar tariffs

In 2017, the U.S. International Trade Commission (ITC) undertook a safeguard investigation on solar products, and recommended that Canada be excluded from the measure. In 2018, the U.S. imposed a 30% safeguard tariff on solar modules, including from Canada, in violation of NAFTA. The U.S. blocked Canada’s attempt to launch NAFTA dispute settlement proceedings in 2018. CUSMA dispute settlement consultations were held in January 2021 and Canada requested a panel on June 18, 2021. A hearing was held on November 10 and the panel’s ruling is expected on February 2. The non-confidential report is due to be released publicly by February 17.

Separately, the U.S. ITC undertook an expiry review in the fall of 2021, and recommended extending the measure. Canada participated actively in the investigation and the USTR Trade Policy Staff Committee process. The U.S. President issued his decision on February 4, which extends the safeguard for another four years, but instructs USTR to enter into negotiations with Canada and Mexico for agreements to suspend the tariffs, if it is determined doing so will not undermine the measure. Under CUSMA, Canada should be fully excluded from the measure.

Seasonal produce plan investigations

On September 1, 2020, USTR announced its Seasonal and Perishable Products Plan, requesting several investigations by the ITC. The global safeguard on blueberries terminated in February 2021 with a negative injury determination by the ITC. The Section 332 fact-finding investigations on cucumbers and squash ended on December 7, 2021, and the ITC reports (the final step in the process) broadly aligned with Canada’s positions. Only the fact-finding investigations on strawberries and bell peppers remain ongoing. U.S. industry is able at anytime to file requests for an expedited safeguard investigation. In 2019, Canada was the second largest exporter of bell peppers and fresh strawberries to the U.S., at US$302 million and US$7.9 million respectively.

Section 232 investigation on neodymium magnets

In September 2021, the U.S. Department of Commerce self-initiated a new Section 232 national security investigation on Neodymium-iron-boron permanent magnets. Neodymium is a light rare earth element (REE), a key component in many electronic devices, and used in the production of fighter aircraft, electric vehicles and wind turbines. The findings are to be provided to the President by June 18. Canada is not a major global producer of REEs, but has some of the largest known reserves and has requested to be excluded from any trade measures.

Transboundary oil and gas pipelines

• Integrated cross-border energy infrastructure plays a critical role in North American energy supply and security.
• Canada and U.S. must work together to support infrastructure and exploit the benefits of our integrated grid of pipelines.
• Canada is the U.S.’s #1 foreign source of energy, supplying 60% of its crude oil imports.

Supplementary messages

• We strongly support Canada’s energy sector.
• Over 70 oil and gas pipelines cross the border. Crude oil exported in pipelines from western Canada is fundamentally important in our bilateral energy trade relationship.
• The economies of Canada and the U.S. will need fossil fuels over the next three decades.
• Canada’s fossil fuels are the most sustainably-produced available to the U.S.
• Canada will continue to promote the security, economic and environmental benefits of our energy supplies with the U.S. Government, alongside our engagement on fighting climate change and other environmental issues.

Supporting facts and figures

• Canada is the #1 foreign source of energy for the U.S., supporting its economic and energy security, and Canada’s energy sector.
• In 2020, Canada supplied the U.S. with 60 per cent of its crude oil imports, 98 per cent of natural gas imports, 93 per cent of electricity imports and 28 per cent of uranium purchases.
• The relationship is reciprocal, as the U.S. is Canada’s #1 source of foreign imported energy.
• Over 70 oil and gas pipelines cross the border, moving energy back and forth.
• In 2020, from a $109.8 billion two-way energy trade, Canada enjoyed a bilateral trade surplus in energy of $62.1 billion driven by crude oil in pipelines.
• Because of the economic impacts of COVID and the April 2020 OPEC+ price war, the value of Canada’s 2020 export figures was significantly down compared to 2019; however, the volume of exports remained roughly the same, running at 3.7 million barrels/day. The value of Canada’s oil exports in 2021 will likely rebound, because of higher prices and volume due to increased pipeline capacity. In early October 2021, export volume exceeded 4 million barrels/day, only the third time this has happened in the past 11 years.

Background

Completing key transboundary oil and gas pipeline projects will support exports, Western Canada’s energy sector, strengthen the bilateral energy relationship and support North American energy and economic security. Canada has strongly supported new and expanded oil and gas transboundary pipelines.

No matter how successful we are at achieving net zero emissions by 2050 and de- carbonizing the economy, Canada and the U.S. will require significant amounts of fossil fuels over the next three decades. For the U.S., Canada is the best, most sustainable producer of this energy.

Crude oil exported through pipelines dominates our energy exports and drives Canada’s huge energy trade surplus, which in turn affects the health of our overall goods trade balance.

The positions of the Biden Administration to cross-border energy infrastructure pipeline projects have varied widely, from outright opposition (in January 2021, the President cancelled KXL’s permit on his first day in office) or avoiding taking a position (Line 3).

Enbridge’s Line 3 replacement project runs through Canada, into the U.S., connecting to U.S. refineries. The project represents an investment of $10 billion. It became fully operational on October 1, 2021 after six years of permitting reviews and appeals. It carries 760,000 barrels/day of crude oil.

Line 5

• Canada has strongly defended the continued operation of Line 5, invoking the 1977 Treaty’s dispute settlement mechanism.
• The first formal negotiation session took place on December 17, 2021. The next will take place in early 2022.
• Line 5 is a critical part of Canada’s economic and energy infrastructure.

Supplementary messages

• Canada has vigorously defended the continued operation of Line 5.
• Line 5 sends critical energy from Alberta and Saskatchewan to Ontario and Quebec.
• Canada has three times intervened in U.S. (federal) District Court with amicus briefs (May 11 and November 5, 2021; and February 1, 2022) in support of Enbridge.
• On October 4, Canada invoked the dispute settlement provision of the 1977 Transit pipelines treaty, triggering formal negotiations with the United States.
• Canada will work with the U.S. to search for a negotiated solution that keeps Line 5 open and operating safely.
• Canada also supports plans for a future Great Lakes Tunnel for Line 5. This will make an already safe pipeline even safer.

Update

October 4: Canada formally invoked with the U.S. the dispute settlement provision of the 1977 Transit pipelines treaty, thereby triggering formal negotiations on Line 5.

December 17: the first formal negotiation session with the U.S. under the Treaty took place. The second negotiating session will likely take place in late February.

Supporting facts and figures

• Line 5 sends 540,000 barrels/per day of light crude oil and natural gas liquids coming from Alberta and Saskatchewan, supplying six refineries in Ontario and Quebec, and four refineries in Michigan, Ohio and Pennsylvania.
• The section under the Straits of Mackinac, the focus of Michigan’s action to shut down the line, has operated since it was built in 1953 without any spill or leak.

Background

In November 2020, Governor Whitmer (D-Michigan) ordered Line 5 shut down permanently, effective May 12, 2021, by withdrawing a 1953 easement granted by Michigan that allows the pipeline to run along the bottomlands of the Straits of Mackinac, where Lake Michigan meets Lake Huron. The Governor requires, but has so far failed to achieve, court authority to implement her decision. Line 5 remains fully operational.

Litigation between Enbridge and Michigan continues in the U.S. (federal) District Court over efforts by Enbridge to block any Michigan action to close the section of Line 5 in the Straits, and Michigan’s efforts to have the easement under the Straits nullified.

Canada’s filing of amicus briefs, most recently on February 1, 2022, have supported Enbridge by raising the pertinence of the 1977 Transit pipelines treaty, and the fact that bilateral negotiations under the Treaty’s dispute settlement mechanism are ongoing.

Before invoking the Treaty on October 4, 2021, Canada was active in engaging with the U.S., seeking solutions that would help Michigan and Enbridge resolve their dispute. During the period from April 1 to October 3, Canada reached out more than 40 times to the U.S., including at ministerial level, to encourage the U.S. to make a final effort to work constructively or persuade Michigan to compromise, to no avail.

The opposition to Line 5, including environmental and Indigenous groups, has been vocal, publically calling on Biden to intervene to shut down the pipeline, including cancelling the Line’s 1953 Presidential permit at the border on the St. Clair River.

Backgrounder on historical actions for oil and gas pipelines

Transboundary oil and gas pipelines (line 5; line 3; KXL)

N.B.: see separate subject briefs on transboundary oil and gas pipelines and line 5 for details on these two issues.

Enbridge line 5

1977 Transit pipelines treaty

• During 2021, the Minister of International Trade raised Line 5 on four separate occasions with her counterparts, the U.S. Trade Representative and the Secretary of Commerce.
• The Prime Minister and other ministers did likewise more than 20 times.
• When we did not see sufficient progress from these interventions to resolve the issue, we acted.
• On October 4, 2021, Canada invoked the dispute settlement provision of the 1977 Canada-U.S. Transit pipelines treaty.
• Formal negotiations with the U.S. under the Treaty have commenced. The first session took place on December 17, 2021. The next round will be held in early 2022.
• The negotiations under the Treaty are a constructive start to efforts to find a solution to this issue of great importance to our relationship.

Great Lakes Tunnel Project

• We have also supported the Great Lakes Tunnel Project, which when completed will replace the existing Line 5 under the Straits of Mackinac.
• In 2020, the Government of Canada provided three formal, written submissions supporting the tunnel project to permitting and assessment processes of Michigan state agencies and to the U.S. Army Corps of Engineers.

Enbridge/Michigan litigation

• The Government of Canada has filed three amicus curiae briefs in the U.S. (federal) District Court supporting Line 5: in May 2021 and in November 2021; and, most recently on February 1, 2022.
• Canada’s three amicus briefs address the ongoing litigation between Michigan and Enbridge over Michigan’s attempt to close Line 5.
• The briefs supported Enbridge’s position that any case relating to Michigan’s attempt to close Line 5:
  • Should take place in federal court, not at the state court level;
  • That the federal court should defer to negotiations taking place under the Treaty; and,
  • That formal negotiations under the Treaty’s dispute settlement provision are underway.

Enbridge line 3 replacement project

• The final stage before completion of the U.S. section involved a years-long, complex and multi-layered permitting process for the 542-kilometre section of Line 3 in Minnesota.
• The Government of Canada supported this project in Minnesota every step of the way.
• Between 2017 and 2020, the Government of Canada (through our Consulate General in Minneapolis) provided formal, written submissions supporting Line 3 for the permitting and assessment processes of Minnesota state agencies.

TC Energy keystone XL

On January 21, 2021, President Biden, on his first day in office and fulfilling a long- standing public commitment made during the 2020 election campaign, revoked the Presidential Permit for KXL, effectively ending the project.

• Between the November 2020 election results and President Biden’s decision to cancel the Presidential Permit on January 21, 2021, Canada intervened at high level to make the strongest possible case for KXL.
• This involved ministers and Ambassador Hillman reaching out to incoming members of the Biden team.
• It also involved the Prime Minister raising the issue directly with the then President-elect.
• The Embassy in Washington also worked with U.S. stakeholders (labour and trade unions).

Buy America

• Concerned by the expansion of U.S. Buy America(n) requirements in infrastructure package.
• Actively engaging U.S. decision-makers to highlight the unique nature of our highly integrated Canada-U.S. supply chains.

• Continuing to explore all possible avenues to ensure Canadian suppliers can take advantage of procurement opportunities in the U.S.

Supplementary messages

• Canada and the U.S. share the goal of stimulating job creation, however applying expanded Buy America requirements against Canada would do the exact opposite − increasing costs, delaying projects and negatively impacting jobs on both sides of the border.
• Canada’s advocacy efforts are focusing on finding a solution to mitigate the negative impacts of the expanded Buy America requirements for Canadian suppliers.
• Canadian officials have also been highlighting Canada’s Budget 2021 commitment to pursue reciprocal procurement policies.

Background

The US$1 trillion Infrastructure Investment and Jobs Act (IIJA) was signed into law by President Biden on November 15, 2021. The IIJA includes US$550 billion in new spending over five years for roads, bridges, highways, water infrastructure, broadband, electric vehicle infrastructure, and the electric grid.

The IIJA includes new Buy America requirements, which will permanently apply to any infrastructure projects undertaken with federal financial assistance. These provisions expand current Buy America requirements by: 1) applying requirements to all U.S. federal assistance programs related to infrastructure; and 2) applying requirements beyond iron and steel to all manufactured products and construction materials.

The Canadian Embassy in Washington and Canada’s network of U.S. missions have been actively engaging U.S. Congressional members and staff as well as the U.S. Administration to advocate for a binational solution that would see Canada carved into any expanded Buy America requirements. Officials have also highlighted Canada’s Budget 2021 commitment to pursue reciprocal procurement policies to ensure that goods and services are only procured from countries that grant Canadian businesses a similar level of market access. This language was included in response to the Biden Administration’s pledge to attach expanded Buy America requirements to its infrastructure stimulus package (i.e. IIJA).

While the Budget 2021 language was used to support Canada’s advocacy efforts to seek a Canadian carve-in into the expanded IIJA’s Buy America requirements, the IIJA was signed into law without an exception for Canada. Canada is now trying to influence the implementation of the expanded Buy America requirements beyond the legislative phase (e.g., rule-making process) to mitigate the impact on Canadian suppliers. That said, the expanded Buy America requirements will not fully take effect until the 180-day regulatory process is completed (i.e., May 14, 2022).

In order to protect Canadian supply chains and ensure that Canadian suppliers are put on a level playing field, the ministerial mandate letters for Minister Ng and Deputy Prime Minister Freeland commit them to “introduce a reciprocal procurement policy that will ensure goods and services are procured from countries that grant Canadian businesses a similar level of market access”. Officials from GAC and Finance are coordinating next steps with the interdepartmental community, which includes PCO, TBS, PSPC, INFC, TC and ISED. Given the legislative, policy and administrative considerations, it is expected that any reciprocal procurement policy would be implemented over a medium- to long-term horizon (12 to 18 months).

Canada-United States relations

• Canada and the U.S. enjoy a unique relationship. No two nations depend more on each other for their prosperity and security.
• We continue to work with the U.S. to further strengthen our bilateral relationship and to engage on key bilateral and global issues, as demonstrated at the November Trudeau-Biden bilateral Summit and North American Leaders Summit (NALS).
• We are also working to address bilateral irritants, namely on Line 5 and protectionist U.S. electric vehicles tax credits.

Supplementary messages

• The close and productive ties built by parliamentarians with Members of Congress, subnational leaders, and other American influencers are crucial to maintaining a strong relationship with our closest international partner and to our advocacy and defense of Canadian interests in the United States.

Update

You joined Prime Minister Trudeau at the North American Leaders’ Summit (NALS) in Washington, D.C. on November 18, as well as at the Prime Minister’s bilateral summit meeting with President Biden.

Supporting facts and figures (statistics in canadian dollars)

• According to an estimate from the Migration Policy Institute (2021), there are about 800,000 Canadians citizens living in the United States.
• In 2020, Canada was the U.S.’ largest destination for goods and services exports (14.5%), third largest source of imports (11%), second largest source of inward FDI (11%), and fourth largest destination for outward U.S. FDI (7%).
• Millions of U.S. jobs are related to trade and investment with Canada, more than from any other single trading partner.
• Canada’s diplomatic and commercial network in the United States includes the Embassy in Washington D.C., 12 consulates general, 3 trade offices and 14 Honorary Consuls. Alberta, Quebec and Ontario also have representatives posted in the United States.

Background

Since President Biden’s inauguration on January 20, 2021, the Prime Minister and other members of Cabinet have undertaken 179 engagements with senior U.S. Administration officials. Through this outreach, combined with calls and meetings by Canadian federal officials, Canada’s Ambassador in Washington, and Consuls General, 481 individual contacts have been engaged.

Representation: The Canadian Ambassador to the U.S. is Kirsten Hillman, and the U.S. Ambassador to Canada is David Cohen.

Canada-U.S. trade - U.S.-facing advocacy efforts

Key messages

• The vast majority of our trade with the U.S. is seamless. When there are challenges, there is no one-size-fits-all advocacy solution. We approach each issue strategically to ensure we’re finding the right allies and sending the right messages.
• Our advocacy is often focussed on Congress and the White House. Since November 2019, I [Minister Ng] have had 61 high-level advocacy meetings with senior members of the U.S. Administration, members of Congress, and other top officials to discuss topics like EV tax credits, supply chains, and CUSMA.
• Beyond Washington, Canada continuously engages in all 50 states with nearly every type of stakeholders, from businesses to labour unions to think tanks to industry associations.
• Our advocacy is very much a Team Canada effort: it’s not just our diplomats in the U.S. or me and my Cabinet colleagues. We regularly work with Canadian officials from all levels of government and with industry, labour and other groups in Canada who have ties with counterparts in the U.S.

Background

Advocacy and engagement are an important element of Canada’s approach to trade challenges in the U.S. The focal point of this engagement tends to be with members of Congress and the federal Administration, recognizing that those decision-makers are often the most able to address Canadian concerns. These stakeholders are engaged by a wide variety of Canadian officials, including frequently by Canadian ministers. In addition, Canada engages with other types of U.S. stakeholders, like business groups, labour groups and think tanks. These engagements are most frequently undertaken

below the ministerial level but are a critical component of Canada’s overall advocacy in the U.S. Lists of recent ministerial-level advocacy activities with Congress, the Administration and other types of stakeholders can be found on the following pages.

When there are trade irritants to be addressed, there’s no one-size-fits-all approach. Overall, Canada focuses its advocacy strategies on: early, sustained and proactive engagement with federal and state legislators; taking an evidence-based approach to advocacy, using data, academic and think-tank research to support Canada’s position; targeting outreach with particular allied groups, such as organized labour or influential industry groups; and, having American voices focus on harm to Americans. Canada also takes a Team Canada approach in the U.S., leaving domestic politics at the border.

Members of the opposition, provinces, territories, businesses, labour groups and many others generally happy to work alongside Canada to echo messaging, use their own networks, and advance Canada’s national interest.

MINT engagement with Congress and the U.S. administration since November 2019

This a count of MINT interactions with high-level U.S. officials on trade-related files since November 2019. This is in addition to other outreach conducted by other members of Cabinet and officials with the U.S. Administration and Congress. Information on other types of stakeholders can be found on the next page.

Recent ministerial U.S. stakeholder interactions by stakeholder category

Unlike with engagements in Congress and the Administration, GAC does not count engagements with other types of U.S. stakeholders given the sheer breadth and depth of the relationship between the two countries and its various level of government officials and other stakeholders. The below are examples of recent trade-related interactions between Canadian ministers and U.S. stakeholder in some of the more common stakeholder categories to which outreach is typically done.

U.S. businesses, industry associations, and chambers of commerce examples

Labour group examples

Think tanks, academia and community organization examples

Canada-U.S. trade promotion

• The U.S. is a priority trade promotion market, and the Trade Commissioner Service delivers a range of trade promotion programs to help Canadian businesses grow.
• TCS trade promotion programs focus support on SMEs, under- represented exporters and high potential clients.
• Investment attraction and innovation partnerships are supported by investment outreach and retention efforts, as well as innovation programs.

Supplementary messages

• Relying on a network of the Embassy in Washington, D.C., twelve consulates general and three trade offices, the TCS in the U.S. delivers a range of client- facing programs to secure market access and reinforce integrated supply chains.
• 28% of all TCS clients during 2020-2021 received a service delivered by a TCS post in the US. The number of services delivered by posts in the US increased from 6499 services in 2019-20 to 8325 services in 2020-21 (a 28% increase).
• The U.S. market is home to the largest number of TCS clients reporting Economic Outcomes Facilitated (EOFs) with 245 (delivered to 154 clients), versus 101 for the next market, China, and 211, for Europe.
• Program funding for exporters comes from CanExport for SMEs and CanExport Innovation for technology partnerships and associations.
• The Canadian Technology Accelerator (CTA) program supports high- potential, high-growth Canadian technology start-ups by offering them business opportunities and introductions to potential investors, buyers and partners in four U.S markets (New York, Boston, Palo Alto and San Francisco).
• A network of Investment officers works with the wider TCS trade promotion team on FDI retention and attraction, focusing on Fortune 500 global entities.
• The U.S. market offers significant potential for underrepresented exporters, which the TCS leverages through initiatives including group-specific business delegations that help companies access supplier diversity corporate opportunities and women in Tech cohorts hosted by US based Canadian Technology Accelerator (CTA) cohorts.

Supporting facts and figures

Canada and the United States enjoy the largest trading relationship in the world. Every day nearly US$2 billion worth of goods and services crosses the Canada-U.S. border.

In 2020, Canada was the U.S.’ largest destination for goods and services exports (14.5%), second largest source of imports (11%), third largest source of inward FDI (11%) and fourth largest destination for outward U.S. FDI (7%).

At the sub-national level, 32 states count Canada as their top customer and 20 states rely on Canada as their top source country for imports.

The Canada-U.S. trade and investment relationship is built on long-standing binational supply chains. 76% of U.S. imports from Canada are related to supply chains and are used for domestic U.S. production. Canadian goods exports contain on average 20%

U.S. content and, in some sectors like machinery and automobiles, it is significantly higher.

CanExport SMEs has approved more than $73.5 million in funding for 2332 projects targeting the U.S. since 2016 (over $10.4 million in funding for 459 projects in 2021- 22).

Canada-U.S. border

• Canada is pleased to have been able to reopen the Canada-U.S. border as of August 5, 2021 to fully vaccinated American citizens and permanent residents residing in the U.S., for non- essential travel.
• Canada is pleased that the U.S. land and ferry Ports of Entry are open to fully vaccinated visitors for non-essential purposes as of November 8, 2021.
• On January 15, 2022, exemptions to Canada’s entry requirements for certain categories of unvaccinated travellers (including truckers) were removed. This was done in close consultation with the United States to ensure effective border measures. Similar border measures were imposed by the United States on January 22, 2022.
• We recognize that both Canada and the United States will continue to assess the evolving situation and make adjustments as required.

Background

In response to the COVID-19 pandemic, Canada and the United States arranged on March 18, 2020 to temporarily restrict all non-essential travel across our common border, with a series of extensions.

On August 5, 2021, Canada implemented phase two of its re-opening plan, allowing fully vaccinated U.S. citizens and permanent residents to travel to Canada, subject to vaccination and testing requirements for non-essential travellers.

As of September 7, 2021, all fully vaccinated foreign nationals are eligible to enter Canada for discretionary (non-essential) reasons, such as tourism, with some continued restrictions and requirements.

As of November 8, the U.S. opened its land and ferry Ports of Entry to fully vaccinated travellers for non-essential purposes. Furthermore, as of November 8, non-citizen, non-immigrant air travellers to the U.S. must show proof that they are fully vaccinated before boarding a U.S.-bound flight, with limited exceptions.

On January 15, 2022, the Government of Canada updated requirements for certain cohorts so they can no longer enter Canada unless they are fully vaccinated, including: family reunification visits (18+); international students (18+); professional and amateur athletes; most non-agricultural temporary foreign workers; most essential service providers and truck drivers; among others.

As of Jan 22, the U.S. Department of Homeland Security (DHS) requires all Canadian and non-U.S. individuals to be fully vaccinated against COVID-19 to enter the country.

Anyone wanting to enter the U.S. at land borders or ferry terminals at the Canada-U.S. (and U.S.-Mexico) border must provide proof of vaccination whether they are travelling for essential or non-essential reasons, including truckers. These new U.S. restrictions will remain in effect until April 21, 2022, unless amended or rescinded prior to that time.

Canada-U.S. cooperation on China

• Canada shares many of the U.S. concerns related to China, notably China’s use of non-market practices and economic coercion that undermine both the rules-based multilateral trading system and the norms guiding international relations.
• We welcome opportunities to work in tandem with the U.S. and other like-minded partners to address issues of common concern, including through regional and multilateral initiatives at the G7, the Five Eyes, APEC and others.
• Canada’s evolving approach aims at strategically positioning Canada to challenge, compete, cooperate, and coexist (4C’s) with China across the full spectrum of our relationship.
• On November 18, 2021, PM Trudeau and President Biden announced a new Canada-U.S. Strategic Dialogue on the Indo- Pacific, which will serve as an important step to enhancing Canada-U.S. cooperation in the region, including on China.

Recent developments

• On January 10, you spoke with Taiwanese Minister John Deng and agreed to launch exploratory discussions on a possible FIPA with Taiwan, and discussed the need to continue to work together to further promote supply chain resilience and mutually beneficial commercial opportunities, as well as to increase collaboration on science, technology and innovation, amongst other issues.
• On December 23, President Biden signed the Uyghur Forced Labour Prevention Act. The law bans import from Xinjiang unless companies can prove that the goods were not made with forced labour. The bill received large bipartisan support in both chambers of Congress.
• On December 20, following Hong Kong’s Election, where pro-China candidates claimed an overwhelming victory marked by a historic low turnout, Allies expressed grave concern over the erosion of democratic elements in Hong Kong. Pursuant to the Hong Kong Autonomy Act, the U.S. sanctioned five individuals linked to the Liaison Office of the Central People’s Government in Hong Kong, the PRC’s main platform for projecting its influence in Hong Kong.
• On December 16, the U.S. took action to address the PRC’s efforts to develop and deploy biotechnology and other technologies for military applications and human rights abuses. The U.S. imposed investment restrictions affecting eight entities involved in the defense and related materiel or surveillance technology sectors of the PRC economy. The U.S. also added 37 new entities to the Entity List, including the Academy of Military Medical Sciences and its 11 research institutes.
• On December 6, the White House announced that it would not send government officials to the 2022 Beijing Olympics games. This “Diplomatic Boycott” is instituted in light of the PRC’s ongoing human rights abuses in Xinjiang. U.S. Athletes will be permitted to participate in the games. Canada, Australia, the U.K., and a few European countries announced similar boycotts in the following days.

Background

Secretary of State Antony Blinken best summarized the U.S. approach to China as “competitive when it should be, collaborative where it can be, and adversarial where it must be.” Supported by a bipartisan consensus in Congress, countering China’s growing global influence and safeguarding U.S. national and economic security is a high priority for the U.S. administration, which is adopting a whole-of-government approach to China. This is in line with Canada’s own approach to China, which recognizes that we need to challenge, compete, cooperate, and coexist (4C’s) with China.

The Biden administration is seeking to act in concert with like-minded partners to address shared concerns about Chinese domestic and foreign policy issues such as repression of human rights, arbitrary detentions, growing military expenditures, conditions for foreign investors, market access, technological competition, maritime/territorial claims in the East and South China Sea, foreign direct investment/financial assistance, coercive diplomacy, state-sponsored cyber program and foreign interference. Long-standing concerns about Taiwan and growing Chinese interest in the Arctic, Latin America, and elsewhere is of concern for the United States.

Canada shares many of the U.S. concerns with respect to China’s assertive behaviour both internationally and domestically, notably with respect to China’s non- market practices, which include pervasive industrial subsidies; prevalence and preferences provided to – and discriminatory and anti-competitive activities of state- owned enterprises; discriminatory or arbitrary regulations, forced technology transfer including through trade secret theft; lack of legal and regulatory transparency; and, forced labour and other human rights abuses. As a member of the G7, NATO, APEC, ASEAN Regional Forum, and other multilateral organizations, Canada is a key partner for the United States.

On November 18, 2021, PM Trudeau and President Biden committed to establishing a strategic dialogue on the Indo-Pacific to collaborate on regional security, the rule of law, good governance, and their approaches to China, including with respect to trade and investment. As part of the Roadmap for a Renewed Canada-U.S. Partnership, Canada and the U.S. agreed to more closely align policies on China and work together to secure the release of Michael Kovrig and Michael Spavor. The two Michaels were successfully released on September 24, 2021. As part of CUSMA, Canada and the U.S. jointly signed on to new obligations that prohibit each country from importing goods made in whole or in part by forced labour.

Trade and Economic issues

On October 4, 2021, U.S. Trade Representative Katherine Tai unveiled the administration’s trade policy strategy towards China, which includes immediate next steps such as 1) advancing discussions with China within the structure of the U.S.- China Phase One Agreement, including about China’s non-market behaviour and industrial policies, and 2) restarting the tariff exclusion process for the Section 301 tariffs against Chinese goods (it was also made clear that tariffs are here to stay). USTR is also looking to deploy all tools currently available and explore the development of new ones, including with allies, to address shared concerns with China.

Domestically, the Biden administration is also using competition with China as a way of justifying a revamped U.S. industrial policy. For example, Congressional efforts to fund semiconductor manufacturing and a robust domestic electric vehicle and battery industry are a response to the PRC’s “Made in China 2025” policy, and amount to a more deliberate state-driven sector of the innovation economy. To support this, the U.S. is focussed on reshoring or nearshoring key industries, such as the critical minerals and active pharmaceutical ingredient supply chains. In addition, the U.S. has exercised their existing legislative framework to prohibit the import of cotton and tomato products from China that are suspected of being produced with forced labour, and further expanded the use of its export controls regime to a wider selection of products destined for China and Chinese entities, as well as introducing specific economic sanctions against certain Chinese companies. Canada is also considering options with respect to its supply chain resiliency in critical sectors, particularly telecommunication technologies (i.e. 5G), critical minerals, and medical supplies.

CUSMA auto rules of origin – Core parts

• Canada’s decision to join the dispute as a complainant is based on concerns with the United States’ application and interpretation of certain elements of the rules of origin that apply to motor vehicles under the Canada-United States-Mexico Agreement (CUSMA).
• Canada’s view, which is shared by Mexico, is that the U.S. interpretation is inconsistent with the CUSMA, the trilateral CUSMA Uniform Regulations on Rules of Origin, and the understanding shared by the Parties and stakeholders during the negotiations.
• We are optimistic that a dispute settlement panel will help ensure the timely resolution of this issue, which will help provide certainty and predictability for the industry.

Supplementary messages

• The U.S. interpretation differs from the understanding the CUSMA Parties shared and communicated to stakeholders during and following the conclusion of the negotiations.
• This interpretation makes it more difficult for Canadian-produced vehicles to benefit from tariff-free trade provided under the CUSMA.
• Canada and the U.S. make automobiles together; the entire industry would benefit from having certainty that the new agreement is being implemented as negotiated.

Update

No progress was made during consultations initiated by Mexico under the Chapter 31 state-to-state dispute settlement process that took place on September 24. The consultations period ended on November 3. Mexico requested the establishment of a dispute settlement panel on January 6, 2022. Canada notified the U.S. that it would be joining this dispute settlement process, as a complainant, on January 13. It is expected that the panel will be composed by mid-February and that the panel would deliver its final report in late summer 2022.

Background

The CUSMA automotive rules of origin represent a significant change from the NAFTA rules of origin. Under CUSMA, automotive producers must comply with strengthened rules of origin for passenger cars and light trucks in order to continue to receive duty- free treatment when these goods cross the border. Under NAFTA, a vehicle was required to meet a regional value content (RVC) requirement of 62.5%. To qualify under CUSMA, a vehicle must satisfy five requirements: a 75% RVC requirement for both the finished vehicle and for each of the seven “core” parts used in the production of the vehicle^{Footnote 1}, as well as steel, aluminum and labour value content requirements.

CUSMA provides a standard methodology for performing an RVC calculation for goods, including for core parts. In addition, it includes two alternative RVC methodologies that apply only to core parts. These alternative methodologies provide greater flexibility than the standard methodology, and the treaty text provides that they may be used to qualify a core part as originating. Canada and Mexico maintain that once a core part is considered originating for the purposes of the core part RVC requirement, regardless of the calculation methodology used, that core part is also originating for the purposes of the vehicle RVC calculation. During the negotiations and up until the summer of 2020, USTR officials also held this view.

The current U.S. position is that the alternative methodologies can only be used for determining if the core parts RVC requirement is fulfilled. The United States asserts that the standard RVC calculation methodology must be applied to core parts when determining if they are originating for the purposes of the vehicle RVC calculation. This interpretation makes it more difficult for automakers to qualify vehicles as originating.

The U.S. interpretation contradicts the text of CUSMA that provides that a good that qualifies as originating is treated as such if it is subsequently used in the production of another good (e.g. core part incorporated into a vehicle). The U.S. approach results in core parts being subject to two RVC calculations – the first to determine if the part satisfies the core parts requirement, and the second to determine the originating status of these parts for purposes of the vehicle RVC calculation.

This added compliance burden would be avoided if the rules were implemented as negotiated and originally agreed by all three Parties. [REDACTED].

This issue has been discussed at length on multiple occasions at the trilateral working level as well as at Ministerial levels, with no progress.

CUSMA implementation and reinforcing the Canada-U.S. economic partnership

• Effective CUSMA implementation, including Mexican labour reform, is crucial to the success of the North American partnership and economic recovery.
• In the past year, we’ve returned to higher levels of cooperation at all levels of government, from active discussions in CUSMA committees, the Leaders’ Roadmap and North American Leaders’ Summit, to our diplomatic network across the U.S.
• While we have trade irritants, they are not an obstacle for pursuing increased cooperation.
• That strong mechanisms for dispute settlement in the CUSMA are being put to use while we continue cooperating on many fronts speaks to a healthy relationship.

Supplementary messages

• We have seen a renewed relationship with the U.S. with increased communication at all levels, more cooperation and more predictability in our relationship.
• Two progressive governments in Canada and U.S., who share similar values and objectives means many opportunities for collaboration, in particular in areas such as inclusive trade, SMEs, underrepresented groups and climate.
• We are relying on the CUSMA dispute settlement mechanism to resolve issues like Autos Rules of Origin, Dairy Tariff Rate Quotas, and Solar Panels.

Supporting facts and figures

• The CUSMA Deputies Free Trade Commission (FTC) Meeting took place on January 12-13, 2021, with deputy ministers from each of the parties. Canada will host the Second Ministerial CUSMA FTC in Q2 of 2022.
• Canada will devote $27.5 million over four years, starting in 2021, to support capacity building and effective enforcement of Mexican labour reforms, including the deployment of two Canadian labour attachés to the Canada Embassy in Mexico. The U.S. has earmarked US$180 million over a similar period.
• For the first three quarters of 2021, bilateral trade in goods and services was $691 billion. Canada-U.S. trade is built on long-standing binational supply chains. Roughly 76% of Canadian goods exports to the U.S. ‘feed’ American supply chains for final goods.

Background

CUSMA entered into force on July 1, 2020, reinforcing strong trilateral economic ties and enhancing North American competitiveness. Canada and the U.S. are working closely to support the effective implementation of Mexican labour reforms, including those required under CUSMA. The CUSMA FTC Deputies meeting took place on January 12-13. It was an opportunity to ensure the effective implementation of the agreement and outline concerns and areas of collaboration on bilateral and trilateral matters. While CUSMA implementation is proceeding well overall, certain bilateral irritants exist, including with respect to solar safeguards, autos rules of origin, dairy TRQs, and Mexico energy reforms. The U.S. Administration’s support for measures that favour U.S. producers has created concerns for Canada, including the efforts to expand Buy America requirements and implement tax credits for electric vehicles that discriminate against Canadian assembled EVs and batteries.

Commitment to a green economic recovery

• Canada and the U.S. are prioritizing public climate-resilient and green public infrastructure spending to spur economic recovery.
• Exports are driving economic growth in Canada’s clean technology sector, and there are many opportunities for companies in an increasingly green global economy.
• The U.S. Administration’s plan for clean energy and green infrastructure includes expanded Buy America requirements that could hinder Canadian companies from fully participating in the clean technologies supply chain.

Supplementary messages

• Canada is working with the U.S to strengthen Canada-U.S. supply chains, including in areas such as critical minerals, zero-emission vehicles, and other clean technologies as part of the Roadmap for a Renewed U.S.- Canada Partnership.
• Canadian companies are leaders in renewable energy and power distribution, and these strengths align well with the U.S.’ need for clean power to propel its economy.

Supporting facts and figures

• Global Canadian exports of environmental and clean technology products totaled $14.3 billion, an increase of 6.7% from 2019. The U.S. accounted for over 70% of these (2020, latest stats).
• The environmental and clean technology sector is responsible for approximately 322, 972 Canadian jobs (2020 statistics).
• Canada’s infrastructure sector is a key economic contributor, accounting for 9.8% of national GDP ($189.9B) and employing some 934,397 Canadians (2020 statistics). Canadian infrastructure services exports, including engineering, architectural and construction services, were $9.2 billion in 2020.

Background

PM Trudeau met with President Biden on November 18 in the context of the North American Leaders’ Summit and discussed shared priorities including building a greener economy and tackling climate change. Canada and the U.S are building on the work accomplished at the Group of 20 Summit and the 26th United Nations Climate Change Conference of the Parties (COP26) to strengthen supply chains, help keep the economy growing and competitive, and protect the environment.

Canada and the U.S were among 190 countries at the COP26 in November 2021, which concluded negotiations on a text that includes a global commitment to tackle the climate crisis and keep the goal to limit global warming to 1.5 degrees Celsius within reach. Canada and the U.S. were also among 100 countries who signed the Global Methane Pledge and among 25 countries and five financial institutions who have pledged to end new international finance for unabated fossil fuel energy by the end of 2022.

President Biden’s US$1.2 trillion Infrastructure Investment and Jobs Act (IIJA) calls for investments in clean energy technologies and infrastructure, new electric vehicle charging stations, battery manufacturing incentives, and foreign investment. However, the Bill includes expanded Buy America requirements that could hinder Canadian companies from fully participating in the clean technologies supply chain. Canada is closely watching developments on the bill, especially its proposed inclusion of battery manufacturing incentives.

Climate change and border carbon adjustment

• Committed to playing a key role in addressing climate change, including carbon leakage.
• Engaged with trading partners bilaterally and at the WTO to foster a constructive dialogue on trade and environment issues.
• Addressing trade and environmental sustainability issues requires coordinated global actions.

Supplementary messages

• Canada is an active participant in the WTO’s Committee on Trade and Environment, the Trade and Environmental Sustainability Structured Discussions as well as the Informal Dialogue on Plastics Pollution and Sustainable Plastics Trade.
• Currently assessing whether a border carbon adjustment (BCA) for Canada could mitigate carbon leakage while also encouraging other countries to step up and take effective action to reduce emissions.
• Are also engaged with the European Union, including at the technical level, on its proposed Carbon Border Adjustment Mechanism (CBAM) to ensure that Canada’s carbon pricing is recognized and to minimize impacts on Canadian exporters.

Update

Initial consultations, led by Finance Canada, with Canadian industry stakeholders and non-governmental organizations on a domestic BCA are completed. The views gathered during these consultations will inform next steps of the analysis.

Canadian officials have raised with U.S. and EU interlocutors Canada’s interest in joining the discussions on the Carbon-Based Sectoral Arrangement for Steel and Aluminum Trade. To date, discussions suggest that additional work to define both the objectives and process entailed in negotiating this arrangement is required.

Background

In November 2020, Canada and like-minded countries launched the WTO Trade and Environmental Sustainability Structured Discussions (TESSD). The TESSD, co- chaired by Canada and Costa Rica, aims to advance discussions on trade and environmental sustainability to complement the existing work of the WTO Committee on Trade and Environment and other relevant WTO committees.

Following up on its Budget 2021 commitments, Finance Canada (supported by other departments) is assessing the feasibility and potential design options of a domestic BCA. Initial consultations with provinces and territories took place in August 2021 and additional ones are scheduled for early February 2022.

On July 14, 2021, the European Commission released the draft CBAM regulation that would impose a carbon charge on specific imported goods in the iron and steel, cement, fertilizer, and aluminium sectors. The EU CBAM is expected to be in place by January 1, 2023 beginning with a three-year transition period where no carbon charge would be imposed, before full implementation on January 1, 2026.

Canadian officials have met with U.S. counterparts to discuss possible opportunities for Canada-U.S. collaboration on BCAs. The U.S. have indicated a preference to focus more broadly on measures to address carbon leakage, although no concrete action has been identified.

On October 31, 2021, the U.S. and EU announced negotiations for a Carbon-Based Sectoral Arrangement for Steel and Aluminum Trade, to be completed by 2024. They indicated that the Arrangement would be open for any country that shares the same commitment. Given the highly integrated Canada-U.S. steel and aluminum supply chains, it is in Canada’s interest to monitor the progress of the work and potentially seek to participate in the negotiations of the arrangement.

Clean energy (hydro) exports

• Integrated cross-border clean energy infrastructure plays a critical role in North American energy supply and security.
• Hydro exports to the U.S., via new and existing cross-border projects, help U.S. states meet net-zero emission targets and fight climate change.
• Canada strongly supports the New England Clean Energy Connect project, and will continue to work closely with the Province of Quebec to support this project.

Supplementary messages

• We cannot benefit from clean energy without supporting the necessary transmission infrastructure.
• We were disappointed by the referendum result on November 2 in Maine to stop the New England Clean Energy Connect project (NECEC).
• Hydro Quebec and Central Maine Power have launched legal and constitutional appeals in Maine Supreme Judicial Court.
• Canada and Quebec have worked together closely since 2013 to promote clean electricity exports to New England. We will continue to do so.

Supporting facts and figures

• Canada is the #1 foreign source of energy to the U.S., supporting its economic and energy security, and Canada’s energy sector.
• In 2020, Canada provided 93 per cent of U.S. electricity imports.
• Over 35 electricity transmission lines cross the border.
• In 2020, Canada exported to the U.S. clean renewable hydro worth nearly $3 billion, contributing to states and regions meeting clean energy and emission reduction goals.
• This amounted to 67 Terawatt hours (TWh) [1 TWh = 1 trillion watts/hour]. This represents 2% of overall U.S. electricity consumption, or the equivalent of powering over 6 million U.S. homes.
• Hydro exports are concentrated in the Pacific Northwest, Minnesota, New England and New York. For example, Hydro Quebec provides Vermont with 25% of its electricity and about 12% for all of New England (six states).

Background

On November 2, 2021, Maine voters retroactively rejected the New England Clean Energy Connect (NECEC) project in a referendum. NECEC had all state and federal permits in place. Pre-construction and construction activities started in 2021, with completion scheduled for mid-2023, but construction has halted, as well as on the connecting transmission line in Quebec that runs up to Canada-U.S. border.

NECEC’s proponents, Central Maine Power (CMP) and Hydro Quebec (HQ), are now appealing the referendum process’s constitutionality before the Maine Supreme Judicial Court. A decision is expected in mid-2022.

NECEC is a consequential cross-border infrastructure project for Quebec and Canada. It will provide clean, renewable, firm (24/7), low-cost power to Massachusetts, and some to Maine. HQ’s 20-year multibillion-dollar contract with Massachusetts represents a major addition to Canada’s clean electricity exports and helps Massachusetts and New England achieve emission reduction goals in the fight against climate change.

NECEC is a partnership of HQ and CMP. The 1200 MW line is located entirely within Maine, running 145 miles from the Quebec-Maine border to southern Maine, connecting from there to Massachusetts through the existing grid. The first section in Maine from the Quebec border, 53 miles long, represents a new corridor which requires clear cutting, and is the focus of local opposition. The rest of the corridor follows existing rights-of-way controlled by CMP.

Mexico energy reform

• Canada is concerned with Mexico’s ongoing energy reform, including its impact on Canadian investors, climate change efforts and North American supply chains.
• Canada continues to closely monitor these issues and is engaging officials at all levels of the Mexican government to discuss the business climate.
• While Canada is hopeful that we can reach a mutually beneficial solution to resolve this matter, we are also assessing legal options with respect to dispute settlement that are at our disposal including under CUSMA and CPTPP.

Background

Over the past two years, the Government of Mexico has introduced a variety of regulations and legislation to strengthen the position of state-owned utility CFE while weakening the role of the private sector in energy generation. These measures have largely targeted renewable energies. Following the courts upholding multiple injunctions against the government’s attempts to amend the electricity laws, President López Obrador (AMLO) submitted a constitutional reform to Congress on October 1, 2021. This reform would: guarantee CFE a minimum 54% of market share; disband the independent grid operator and regulatory agencies; abolish clean energy certificates; cancel all private sector generation permits; prohibit self-supply; and amend the dispatch order. Approximately US$4.1 B of Canadian investment in Mexico is at risk. Canadian investors in the manufacturing sector have also flagged concerns that the reform would lead to power shortages leading to impacts on North America’s supply chains, as well as hurdles in meeting their net-zero commitments. Congress is currently debating the bill in the Open Parliament session and is expected to vote on the bill in early/mid 2022. In the lead-up to the vote they will attempt to sway the opposition in order to get the 2/3 majority required to move forward. AMLO has indicated a willingness to negotiate content of the reform as long as the “spirit” is maintained, generally meaning a strengthening of the CFE.

Additional references

Letter from MINT/DPM on the Build Back Better Act

December 10, 2021

The Honorable Charles Schumer
Majority Leader
United States Senate
Washington, DC 20510

The Honorable Mitch Mcconnell
Minority Leader
United States Senate
Washington, DC 20510

The Honorable Ron Wyden
Chair
Finance Committee
United States Senate
Washington, DC 20510

The Honorable Mike Crapo
Ranking Member
Finance Committee
United States Senate
Washington, DC 20510

The Honorable Bob Menendez
Chair
Foreign Relations Committee
United States Senate
Washington, DC 20510

The Honorable James Risch
Ranking Member
Foreign Relations Committee
United States Senate
Washington, DC 20510

The Honorable Joe Manchin
Chair
Energy & Natural Resources committee
United States Senate
Washington, DC 20510

The Honorable John Barrasso
Ranking Member
Energy & Natural Resources Committee
United States Senate
Washington, DC 20510

Dear Senators:

The Build Back Better Act soon to be under consideration in the United States Senate contains provisions that are discriminatory toward Canada, Canadian workers and our auto industry. We are writing to register our objection in the strongest terms. Canada very much supports global efforts for a more sustainable future and shares your interest in supporting the transition to electric vehicles. Canada is committed to cut its greenhouse gas emissions by 40-45 percent below 2005 levels by 2030 and has a concrete plan to deliver, the centrepiece of which is our robust price on pollution that is globally recognized as one of the most progressive and effective measures in the fight against climate change. Additionally, we have committed to a mandatory target of having 100 per cent of new light duty vehicles be zero-emission vehicles by 2035. We have also introduced trade-compliant consumer incentives for the purchase of zero-emission vehicles, which currently include those produced in the United States.

Against this backdrop, we are deeply concerned that certain provisions of the electric vehicle tax credits as proposed in the Build Back Better Act violate the United States’ obligations under the United States-Mexico-Canada Agreement (USMCA). The proposal is equivalent to a 34 per cent tariff on Canadian-assembled electric vehicles. The proposal is a significant threat to the Canadian automotive industry and is a de facto abrogation of the USMCA.

We have been building cars together for over 50 years. Given the deep integration of our respective automotive industries, the proposal would have important repercussions in the U.S., affecting American production and jobs. Canada is the number one market for U.S. automotive exports, buying about 10 per cent of U.S. production. Canadian-assembled vehicles also contain approximately 50 per cent U.S. content and Canada imports over $22 billion worth of automotive parts from the U.S. annually. These parts come from suppliers in numerous states, including Michigan, Ohio, West Virginia, Virginia, Indiana, Kentucky, Illinois and New York, among others.

This issue is at the top of Canada’s agenda with the United States. With this in mind, we urge you to ensure an outcome in the Build Back Better Act that does not discriminate against Canada, so we can strengthen our mutually beneficial automotive trade, and work together, as partners, on many shared priorities.

We want to be clear that if there is no satisfactory resolution to this matter, Canada will defend its national interests, as we did when we were faced with unjustified tariffs on Canadian steel and aluminum. In that regard, Canada will have no choice but to forcefully respond by launching a dispute settlement process under the USMCA and applying tariffs on American exports in a manner that will impact American workers in the auto sector and several other sectors of the U.S. economy.

Beyond possible retaliatory actions, if the U.S. proceeds with the tax credit provisions as drafted, we would see this as a significant change in the balance of concessions agreed to in the USMCA. As such, we would consider the possible suspension of USMCA concessions of importance to the U.S. in return. Those concessions could include suspending USMCA dairy tariff-rate quotas and delaying the implementation of USMCA copyright changes.

In the coming days, we are preparing to publish a list of U.S. products that may face Canadian tariffs if there is no satisfactory resolution of this issue. While including the auto sector, our proposed retaliatory actions will extend across a number of sectors. At the same time, we intend to make clear which U.S. businesses and workers will be impacted.

To be clear, we do not wish to go down a path of confrontation. That has not been the history of the relationship between our two countries – nor should it be the future. There is an opportunity to work together to resolve this issue by ensuring Canadian-assembled vehicles and batteries are eligible for the same credit as U.S.-assembled vehicles and batteries. We are also prepared to work closely with you to support the transition to EVs and leverage the deep integration of Canada-U.S. automotive trade. Preserving Canada’s participation in the joint production of electric vehicles is crucial to protecting our integrated industries, sustaining good, high-paying jobs for workers on both sides of our border, achieving our shared environmental objectives, and ensuring a strong bilateral relationship between our two countries.

Sincerely,

The Honourable Chrystia Freeland, P.C., M.P.
Deputy Prime Minister and Minister of Finance

The Honourable Mary NG, P.C., M.P
Minister of International Trade, Export Promotion, Small Business and Economic Development