Thank you, Mr. Chairman, and good afternoon to the members of this committee. Thank you for inviting me here today to speak about the Canada-Japan economic partnership agreement.
Japan is a vitally important market for canola, and we fully support Canada’s efforts to strengthen our economic ties.
In addition to my role as general manager of the Canadian Canola Growers Association, I continue to be involved in the family grain farm in southeastern Saskatchewan. Canola is an incredibly important economic and agronomic contributor to our farm and to the 43,000 canola farms in this country.
CCGA represents these 43,000 canola growers. It is governed by a board of farmer-directors who represent all provinces, from Ontario west to B.C.
Japan was Canada’s first and continues to be our longest-standing international customer for canola seed. Over the decades, it has become an incredibly valuable, and, equally important, predictable export market for Canadian canola. Because of this, our industry is continuously building on our trading relationship with Japan. For example, every year, Canadian canola exporters host a large delegation of Japanese customers as part of the official Canada-Japan consultations. This biannual event, which includes tours and round table discussions, is held every July in Canada and each November in Japan. These consultations have laid the foundation for a successful, long-term trade relationship between Canada’s canola industry and Japan’s crushing industry.
Canola oil has been the number one vegetable oil in Japan since 1989, when it exceeded soybean oil consumption in demand. As a result, the Japanese purchase more than two million tonnes of Canadian canola annually. This consistent demand has played an important role in our industry’s success. That success has seen canola go from marginal production in the early 1980s to being the number-one cash crop in the country. It contributes $15.4 billion to the Canadian economy annually. Over 12 million tonnes were produced in the last crop year alone. And the industry has set a goal to increase production to 15 million tonnes by 2015, a goal that may even be surpassed this year, three years early.
The industry is highly trade dependent—we export 85% of seed and canola products on an annual basis—and the canola industry’s success has been facilitated by our ability to compete in global markets. The future success of the industry, and therefore the success of Canada’s canola growers, is also highly contingent on its ability to export products, including seed, meal, and oil, and to compete in international markets.The pursuit of new markets and the liberalization of existing ones are key to the growth of canola exports and to profitability for Canadian growers.
In conjunction with the Government of Canada, CCGA will continue to push for the liberalization of trade in those markets where trade barriers currently exist. Pursuing export markets for seed is important, but an increase in exports of value-added products, such as canola meal and oil, will have a greater economic impact domestically than seed exports alone. CCGA is hopeful that an agreement with Japan would result in a shift in trade from seed exports to higher value oil exports.
While Japan maintains tariffs on canola oil to protect its domestic processing sector, seed and meal enter the country duty free. As a result of this tariff escalation, whereby refined canola oil faces an even higher tariff than crude canola oil, Canadian canola exports to Japan have focused primarily on seed, which remains duty free. Over each of the past few years, Canada has exported about two million tonnes of seed, worth over $900 million, to Japan, making this Canada’s largest consistent seed market. By comparison, oil exports to Japan have been relatively modest, at just 8,400 tonnes, worth about $6.8 million, in 2009-10.
Japan’s tariffs on imported edible oils are applied on a specific-rate basis. The rate for canola and soybean oil is higher than it is for other, similar vegetable oils, such as corn oil and sunflower oil. This creates two significant problems. First, canola oil and soybean oil have a tariff disadvantage relative to competing oils, given that corn and sunflower are subject to lower tariffs than canola oil. Second, as currencies and product prices fluctuate, the ad valorem equivalent of the specific-rate tariff varies. As the Canadian dollar falls, the tariff rate, as a percentage of price, rises.
CCGA would like to see the elimination of tariffs on all edible oils. Where tariffs are not completely eliminated, they need to be converted to an ad valorem basis or a percentage of the value. In addition, there should be parity across all products.
Beyond tariff and tariff escalation issues, there are two other issues that canola growers would like to see addressed in an agreement with Japan, namely, MRLs and low-level presence.
Japan’s approval process for an MRL, otherwise known as a maximum residue level, for chemical products such as pesticides and herbicides results in unnecessary delays. In most countries, a chemical company can apply for an MRL while the product application is pending approval in its home country. In Japan, however, companies cannot apply for an MRL until the product license has been granted. This causes delays in getting products to market. The Canadian industry would like Japan to accept and assess applications for MRLs without the condition of prior approval in Canada.
On low-level presence, the industry is looking to both Japan and Canada to adopt low-level presence policies for GMO traits in order to reduce the risk of trade disruptions.
In closing, I'd like to make a brief comment on the Trans-Pacific Partnership, or TPP.
With both Japan and Mexico, along with Canada, applying for membership in the TPP, it is critical for canola growers that Canada gain entry into this partnership. With a large and ever-increasing population, the Asia-Pacific region continues to grow in economic importance and it is a priority market for Canadian canola products.
CCGA believes it is paramount that Canada become party to the TPP agreement due to the significant importance and opportunity the region presents to the canola industry and canola growers. Together, TPP countries represent 51% of Canada’s agrifood exports. For the Canadian canola industry, that represents $2.9 billion in canola exports.
Of particular concern for canola growers is the inclusion of Japan in the TPP, making Canada’s membership in that trading group a necessity. A TPP that includes Japan but not Canada could result in the erosion of any tariff or competitiveness that we have with the Japanese market and place our exports to that country in jeopardy. If Canada were to be excluded from a TPP that included Japan, major Canadian export competitors like the U.S. soybean industry would quickly capture market share in Japan from the Canadian canola industry.
Our efforts to join the TPP should not detract from our negotiations for an FTA with Japan. A trade agreement with Japan, whether it be through a bilateral trade deal or through the TPP, should result in additional exports of high-value Canadian canola products.
Thank you for the opportunity to speak to the committee today. I look forward to your questions later.