Agriculture Committee on May 11th, 2006

[Richard Doyle]

For the appeal...?

[The Chair, Conservative, Gerry Ritz]

Well, the CITT ruling. Is there an appeal period. What is it? That type of thing. There is no appeal period?

[Richard Doyle]

It was appealed. The appeal came out on January 31. You could proceed with—

[The Chair, Conservative, Gerry Ritz]

The final ruling on the appeal.

[Richard Doyle]

The final ruling on the appeal was issued on January 31, 2006.

[The Chair, Conservative, Gerry Ritz]

Is there no secondary appeal, no other avenue?

[Richard Doyle]

We could go to the Supreme Court, but we decided that would not be worth it.

[The Chair, Conservative, Gerry Ritz]

All right. A timeline and options on that would be great.

Thank you.

Mr. Easter, for seven minutes, please.

[Wayne Easter, Liberal, Malpeque, PE]

Thank you, Mr. Chair.

Is it okay to share confidential documents with others? This is a public meeting, I gather.

On the confidential documents, Richard?

[Richard Doyle]

Yes, Mr. Chairman.

If I may speak, Mr. Chairman. Annex A of my presentation has a timeline of events through the whole process since 1994-95. In part, that might meet your requirements.

[Wayne Easter, Liberal, Malpeque, PE]

Thank you again, Mr. Chair.

Coming back to the previous presentation, there was a suggestion that the minister had asked DPAC and DFC to come together to try to resolve this issue. There was an implication left that maybe the DFC was not willing to participate in that process. First of all, could you outline what the situation is there?

[Jacques Laforge]

First, I think this is the third process. We agreed to it now, but it's the third one.

In order to agree to it, there was a fair amount of dialogue at our board level because of all the time lost in the other two processes—especially for butter oil/sugar blends, which still is going on. The process will never resolve that one, I guess. There was a fair amount of dialogue with the minister on this.

Actually, our executive met with the minister. Even that day, we could not see eye to eye on the concerns we had, to a point where we had our board meeting, discussed the concern the minister had, and mixed it up with our concerns to come up with what Richard mentioned here a while ago.

Officially now, we've let the minister know we're willing to go into a process with a shorter timeframe and basically almost the same type of principle to the process. From the response we got, I think the minister—I don't want to put words in his mouth—is favourable to it, but he's waiting for DPAC to respond.

[Wayne Easter, Liberal, Malpeque, PE]

But the bottom line is, you're going to participate in the process, albeit maybe under a little different scenario than originally suggested.

[Jacques Laforge]

To conclude, it has to be in that short timeframe, otherwise we're going to go back to the same scenarios as before.

[Wayne Easter, Liberal, Malpeque, PE]

I think you were here for the previous presentation. Certainly one of the problems is the predictability of supply. Basically we are dealing with a world trade system, and it doesn't seem that the WTO is going to fix it. It is a world trade system that is based on the exploitation of labour and, in the process, of farmers, and on pushing raw commodities down to the lowest common denominator.

We have a system that works, but because it doesn't work in the rest of the world, we have a huge problem for farmers and, to a great extent, for processors too. That's a whole other issue.

Richard mentioned that the government could harmonize with the United States. Can you explain that further, Richard?

On the timeframe, Jacques, what are you suggesting: that the government use the tariff lines immediately and then set up a timeframe in which you would resolve the issues with the processing industry and with the various trade bodies? Is that what you're suggesting? I want to be clear.

[Richard Doyle]

I'll start on the first part of the question, Mr. Chairman.

In terms of harmonization, right now the United States has milk protein concentrates under 0404--well, 9010, but to keep it simple I'll refer to 0404--and has defined milk protein concentrate to cover any concentration of protein between 40% and 90%. The CITT, interestingly enough, was dealing with a product that was 87.5%. They didn't call it MPI or MPC, as we've heard before. They say there is no clear distinction in classification or definition of milk protein concentrates, and therefore they didn't set a level at which point over 85% it becomes an MPI or below 85% it becomes.... They made it very clear that they were not in a position to do that.

So that's what the U.S. does. What we're suggesting, simply, is that if article 28 is not the option, then basically the option for Canada is to pass legislation to put a note into the tariff schedule, under chapter 4, to explain that this chapter and this tariff line 0404 would cover milk protein concentrate up to a concentration of 90%. That way you would basically harmonize with the U.S.

Why 90%? Perhaps I can explain. If you're going to concentrate protein, you're still going to have some moisture. From a technology standpoint, as we were told, that could go up to 5%, and you're still going to have some minerals left. So it's very difficult to go into a concentration level that would be beyond 90%. I mean, you could add something, some blends and mixtures, but purely from the standpoint of ultra-filtering your milk, you have a technical limit of 90%. That's why this is the option.

Let me explain very quickly what this option does, because we are aware of the consequences. The U.S. would join you. On this issue about NAFTA or not NAFTA, whether it applies or doesn't apply, the U.S. would be in a tough position to challenge Canada harmonizing its system to be exactly identical to theirs.

New Zealanders, who are the exporters, if you will, and who would have lost the right that was confirmed by our own Canadian tribunal, might challenge you at the WTO. You may end up in an article 28 one way or the other, from a WTO standpoint. I don't want to speculate, but that is the potential situation. That's why we thought article 28 was a cleaner approach overall.

[Jacques Laforge]

With regard to your other question, Wayne, the timeframe given for this was to come up with finding some solution, not to take responsibility for import control. We made it clear to the minister that he'd have to implement some kind of import control. But for the rest, compositional standards and other issues of debate facing producers and processors, it would be nice to come to a conclusion or compromise between the two groups before we took any steps of decision in import control. Basically it's establishing a long-term plan or long-term dairy policy, that both parties agree that Minister Strahl knows what he has as a compromise before he takes any action, because one could undermine the other.

For example, I think Yves Leroux raised a while ago the structural surplus we have in Canada and so on. There is stuff we can do with processors, but to a certain extent.... On compositional standards, we have a very big question about the future in terms of having a protected supply management that satisfies producers and processors.

As to the timeframe and why it's so short, whatever we do, we feel that we need some kind of legislation process in order to get these things done. After that, the legislation process is very long. We have to decide this fairly shortly.

[The Chair, Conservative, Gerry Ritz]

Thank you, Mr. Laforge.

André Bellavance.

[André Bellavance, Bloc, Richmond—Arthabaska, QC]

I would like to share some of my time with Claude.

Mention was made of the need to restrict imports. Although I alluded earlier to the fact that many processors in Quebec agreed with the dairy producers — even a large majority of them do — the industry representatives who are appearing before us today said that a ban on imports was what was being sought. And yet, before the decision rendered by the Federal Court of Canada, milk protein imports were allowed. Now that the door is open, they probably see dollar signs on the horizon. However, for the dairy producers, this situation...

I did not obtain an answer on this matter, but I said earlier that this was jeopardizing supply management, since import restrictions constitute one of the pillars of supply management.

It was said that dairy producers may lose up to $500 million per year. In terms of money, this is serious; in terms of family life or even the very survival of the dairy sector, this is serious; it is also serious for the survival of supply management.

I would like you to tell us, from the dairy producers' viewpoint, what the consequences of this decision will be since we all fully appreciate that, beforehand, there were milk protein imports and the system managed to operate all the same, even though the situation was not ideal.

[Jacques Laforge]

I think that it always comes back to our ability to forecast what is going to enter. This is the basic principle enabling us to plan our production. Right now, it is impossible to forecast because the product corresponds to number 35.04. The situation is aggravated further since each kilogram of milk protein concentrate with a protein level of 87.5 per cent displaces 2.57 kilograms of skim milk powder, which we then buy. This situation is totally unacceptable. The same processors who use and import protein concentrates, dry our protein to turn it into milk powder. The producers pay them a margin, and we then buy back the product.

We know that there is a limit as to how much milk can be displaced. However, this quantity can reach a certain level if technology is improved in the plants, among other things. However, we now find ourselves facing a loss of $500 million because we cannot do anything with this milk powder except sell it on the animal feed market. We cannot export it. Because of supply management, we have inherited this liability. We may enter into a cost-sharing arrangement, so that we are not the only ones to bear this burden. In the United States, when the surplus of milk powder hits a certain level, the government buys the powder. The same thing occurs in Europe, where the government sells it back. This is tantamount to an export subsidy.

Here, nobody does anything whatsoever. The processors certainly do not take our side and the government does not know what to do about this situation. We are trying to find some solutions. Meanwhile, our wallet is taking a hit. As long as the situation persists, we will have the same type of problem as that seen in the butter oil and sugar sectors.

[André Bellavance, Bloc, Richmond—Arthabaska, QC]

To protect supply management, the government has two solutions: it can use article 28 or the regulatory route, which would to some extent enable it to correct the error made by the Canadian Border Services Agency.

Earlier, a representative of the processors said that there was a danger pertaining to NAFTA. Moreover, in his most recent speech, given on April 6, minister Strahl said that it would be possible to use article 28, but that there were some risks pertaining to NAFTA.

Could you explain your opinion? Do you feel that using article 28 may bring in some potential conflicts with our American's partners?

[Richard Doyle]

Thank you, Mr. Bellavance. We have included in your kit a legal analysis that deals with this issue. It was prepared by our lawyers. As far as article 28 is concerned, the distinction to be made in this case is that Canada, until our tribunal ruled otherwise, already provided protection and surveillance under WTO tariff 04,04. As regards negotiations on our activities, concentrated proteins could be found in tariff line 0404.90.

In 1996, the United States did not want our new tariff quotas, which were negotiated at the WTO or as part of the Uruguay round, to be included but they did not win. More specifically, tariff line 0404.90 was at issue. At that time, the tribunal had said—and here I would summarize given that it was a complicated case—that Canada, prior to the establishment of tariffs resulting from the Uruguay round, monitored these proteins through a list of control products. According to the tribunal, the fact that tariff quotas were established to imitate this system meant that Canada's acquired rights and those set out in NAFTA were maintained. So we did not lose our rights under the WTO and the GATT.

A tariff quota comprises two tariffs: the one that is applied when the quantity falls within a quota and the one that is applied when a given quantity is exceeded. Consequently, the tariff quotas, particularly the quotas in the second category, were part of the conversion and applied under NAFTA.

We should be told if there is another legal case other than the government case or if certain facts contradict the legal opinion we submitted. We find this situation frustrating. The discussion is taken place behind closed doors. These people received legal advice. We know that a meeting of experts was held. We were there, in 1996, and we are fully aware of what was said and what was done. However, we are being told that does not apply

I believe that an in-depth dialogue rather than a simple no would be preferable.

[Claude DeBellefeuille, Bloc, Beauharnois—Salaberry, QC]

We hear a lot about the dairy producers. You, however, are part of an economic activity we hear very little about. If I understood you correctly, you generate 47 000 jobs whereas processors generate 27 000. We do not appear to realize that it is not in the interest of Canada and Quebec to weaken the dairy production sector, which generates so much economic activity.

I am newly elected and a very recent member of this committee. I find it difficult to understand the issues in the debate. Why do the processors have such fears? They are saying that it maybe dangerous to apply article 28 of the GATT because that would entail negotiating with the Americans, which would eventually lead to a discussion of supply management. You, however, are not at all afraid of this idea. Your opinion is even contrary to that of the processors, as far as the application of article 28 is concerned. Why are your respective positions so different?

[Richard Doyle]

In the case you are referring to, the question is whether the context surrounding section 28 applies to that product in particular or not, in other words, does it apply to tariff line 0404.90.

Based on the legal opinions we have received, we are convinced that it does. We do not want to launch a debate on whether section 28 applies entirely to the acquisition of new rights within the context of the WTO. We are saying that in the context of acquired rights, Canada has legal powers to defend itself and to apply that provision to the United States, as was the case before the intervention of the Canadian International Trade Tribunal. The Canadian International Trade Tribunal is not the WTO; rather, it is one of our own tribunals.

We therefore believe that this is a false debate, if we want to apply it, we can do so. The discussion we are having with the processors does not, in my opinion, deal with article 28. Rather, it is a much more complex debate which concerns those who import these products.

In fact, I would even go so far as to say that the beginning of the presentation was interesting in that it did not deal with the lower profits of processors, but on the lower production rate of producers. In fact, between 4 and 5 per cent of the quota cuts which occurred in the last few years were due to the increase in imports of substitute ingredients by importers. I don't buy for a moment the fact that this is the problem the industry must tackle. We have to stop imports.

[The Chair, Conservative, Gerry Ritz]

Thank you, Madame.

Thank you, Richard.

Mr. Bezan, you have seven minutes, please.