International Trade Committee on June 19th, 2012

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

There are two things that I hear very loudly as I dialogue with Canadians and business people. Those are, number one, how important the CETA is to Canada, and number two, how fortunate we are to have you at the helm of negotiations, you and your team.

I want to thank you for being here to bring us up to date. We wish you all the best in concluding this agreement by the end of the year. With that, I want to thank you very much for coming to committee.

[Steve Verheul]

Thank you very much.

[The Chair, Conservative, Rob Merrifield]

With that, we'll suspend until we set up the next set of panels.

[The Chair, Conservative, Rob Merrifield]

I'd like to call the meeting back to order.

I will just let the committee know that we need to move in camera at the end of the meeting for five to ten minutes to discuss some future business, but right now I want to welcome our witnesses.

From Pulse Canada, we have Mr. Gordon Bacon, chief executive officer. By video conference, we have the Manitoba Beef Producers, with Ray Armbruster, Cam Dahl, and Lauren Stone.

Can you hear us okay?

[Ray Armbruster, Director and President, Manitoba Beef Producers]

We can.

[Cam Dahl, General Manager, Manitoba Beef Producers]

Yes, we can. Thank you.

[The Chair, Conservative, Rob Merrifield]

Very good. I like that very much.

We're all set to go.

Mr. Easter.

[Wayne Easter, Liberal, Malpeque, PE]

On the in camera session, I have a motion, as you know, before the committee on a report on the Canada-Colombia Free Trade Agreement hearings that we held. Rather than move it now, I would like five minutes to put that motion at the end of the meeting in public form.

So I'm just giving you notice now.

[The Chair, Conservative, Rob Merrifield]

Okay, we'll discuss it at that time, then. Very good.

Mr. Bacon, go ahead. The floor is yours.

[Gordon Bacon, Chief Executive Officer, Pulse Canada]

Thank you, Mr. Chairman and members of the committee. Thank you for the opportunity to speak to you today.

Pulse Canada has been in existence for 15 years, and we have been steadfast supporters of bilateral trade agreements, because market access really is a prerequisite to our success as an exporting sector in agriculture.

I'd like to use my time to talk about the Canadian pulse and special crop industry's perspective on the importance of pursuing a comprehensive and high-level economic partnership agreement with Japan. I'd also like to mention a couple of issues that I think are also very important to our continued success as an exporter.

For your information, Japan is a top-five importer of Canadian beans, mustard, sunflowers, and buckwheat. As indicated in table 1 of the package that was circulated to you, total Canadian pulse and special crop exports to Japan have averaged about 27,000 tonnes and are valued at approximately $27 million per year. However, the pulse industry does believe that the export values for peas and beans are greatly inhibited by the current import quota in Japan, the in-quota tariff, and as I'll explain to you, the prohibitive over-quota tariff.

As noted in figure 1, Canada's share of Japan's 120,000-tonne import quota for peas and beans is approximately 16%. These in-quota exports are also subject to a 10% duty, which is approximately $100 a tonne. As I mentioned, the prohibitive over-quota tariff is an amazing $4,580 a tonne. This is a clear signal that when the quota is filled, there will be no more imports of peas and beans into Japan.

Something Pulse Canada raised as an opportunity to enhance trade with Japan more than 10 years ago was to have Japan differentiate between feed peas and other pulses. As a duty-free importer of other feed grains, we felt this was an opportunity to expand our market share into Japan, and with the strong nutritional and environmental footprint that we can associate with including peas into animal rations, we thought it would also be of great value to Japan.

A comprehensive and high-level economic partnership agreement with Japan is an important opportunity to negotiate enhanced access to Japan through removal of quota and tariff restrictions. At a minimum, it's an opportunity to increase the overall quota, eliminate or reduce both in-quota and over-quota tariffs, and create special tariff lines for feed peas. Value-added products, such as pulse starches and proteins, also face prohibitively high import duties. Pulse flours face import duties of approximately 13%.

Canada is a leader in the development of novel food ingredients from pulses that can be used to not only boost the nutritional profile of food products but also change the environmental footprint. Given that these are high priorities for Japanese consumers, we think this is an opportunity to introduce some innovation into the marketplace.

I want to share with you a story I have from a recent discussion with a member of the Japanese pulse importers association. At a recent international meeting, we talked about the opportunity to reformulate some traditional Japanese food products, including instant noodles, and to then market them to consumers, highlighting their higher nutritional quality, as well as their environmental sustainability, which would be improved if a mix of pulse and wheat flours were used. This was of great interest to the Japanese importer, but clearly we're going to have to have reform of current quotas and duties before we can realize any of these kinds of innovation opportunities.

Addressing quota and tariff issues does not, in itself, ensure that the path has been cleared for more business to take place. An economic partnership must also look at other policies and regulations that can impact trade between two countries. I'd like to highlight one challenge that all commodities face when exporting to Japan.

When a crop protection product, a pesticide, is registered for use in Canada, it undergoes extensive testing for both efficacy and safety. Part of the registration data that is submitted is to determine the residue that would normally be expected to be found when the pesticide is applied according to label recommendations. This establishes what is known as a maximum residue limit or an MRL. Additional tests then look at the impact that exposure to this minute residue would have on human and environmental safety when people and the environment are exposed to this over a lifetime. This requirement also ensures that there's a wide margin of safety for all pesticides that are registered for use. But what may come as a surprise to some is that when an MRL is set in Canada, that does not mean it will be accepted by the importing country.

The process that is used by regulators in Japan and the UN body Codex Alimentarius to review scientific data on safety of residues does not even start until after a product has been registered for use. This means that Canadian farmers can legally be using pesticides in Canada that make the crop unmarketable in Japan or any country that relies on Codex Alimentarius.

While the Canadian regulatory system works very hard to move registrations through the system here on a timely basis, these new products often can't be used by farmers, or if they are used, they must be segregated to keep them out of countries where MRLs are not established. This is in fact the case for a new desiccant that has already been registered in Canada but will not be marketed to farmers because the MRLs are not in place either in Japan or at Codex.

The impact of this disconnect in approaches to setting MRLs between exporting and importing nations is trade risk and a slowing of the pace of innovation in using new crop protection products.

The solution can be found through closer regulatory links at both the multilateral and bilateral levels, including being a part of the discussions taking place between Japan and Canada. Regulators from Japan and Canada do need to work more closely on the approaches that will provide assurances of health and environmental protection but ensuring that there isn't additional trade risk.

As two countries with sophisticated pesticide regulatory agencies as well as strong commitments to food security and price stability for the developing world, Canada and Japan should also be close allies in moving to a more effective process at Codex. There are benefits to consumers in every country, and to farmers around the world, in having up-to-date food safety regulations and taking the risk out of food trade.

An economic partnership between Japan and Canada can have greater value when it goes beyond discussions of tariff and quota restrictions. As an affluent, quality-conscious market with a strong consumer interest in food that provides health benefits, and with an interest in environmental sustainability, Japan is a natural trading partner for Canadian agriculture. Working together, Japan and Canada will find common interests in trade and economic growth but also in broader social issues that can be linked to trade: improvement in health and environmental sustainability and the elimination of trade risk.

I would like to make a closing remark on what Canadians can do to enhance our reputation and performance as a reliable trading partner for Japan and every other country. While it may be understandable that we want to cite performance data from a timeframe when the logistics systems are performing well, Canadian customers, like those in Japan, have long memories, and for this reason shippers have long memories as well. People don't forget when their food, or their fuel, didn't arrive on time. While trade and partnership agreements open doors to enhanced trade relationships, being the reliable supplier year after year is what's needed to keep a trade relationship.

Pulse Canada has been part of a broad coalition of exporters, and there is a high level of agreement that we can do better, and we have to do better. Service-level agreements will go a long way to adding predictability and balanced approaches to dealing with the performance and non-performance of the Canadian logistics system.

While the discussions today are about a comprehensive and high-level economic partnership agreement between Japan and Canada, an EPA is just one of the tools that businesses need to be able to attract and retain customers in Japan and customers in other markets. A systematic approach to identifying and eliminating tariff and non-tariff barriers to trade, along with efforts to gain additional efficiencies for the entire logistics chain in Canada, will ensure that our trade gateways are busy and operating at peak performance day in and day out, year after year.

I appreciate this opportunity to talk about the comprehensive economic partnership agreement and to introduce our support for government legislation on service-level agreement.

I also appreciate the opportunity to identify the strong need for leadership by Canada in moving towards a harmonized approach to international food safety standards at Codex.

All of these are essential elements of expanded international trade.

[The Chair, Conservative, Rob Merrifield]

Thank you very much for that.

I actually should mention to our witnesses our sincere apologies; the committee got caught in the House last meeting and had to bump you to this meeting. So we're really very pleased that you could be here.

With that, we'll go to Mr. Armbruster, I believe.

Are you presenting, or...?

[Ray Armbruster]

Yes, I am, as is Cam Dahl.

[The Chair, Conservative, Rob Merrifield]

Both of you, the floor is yours.

[Ray Armbruster]

Thank you very much, Mr. Chairman and honourable members of the committee.

Manitoba Beef Producers certainly appreciate this opportunity to appear before you to discuss the benefits of enhanced trading relationships with Japan.

My name is Ray Armbruster. I'm a cow-calf producer from the Riding Mountain area in western Manitoba. I've served as a director for the Manitoba Beef Producers for the past six years. I'm currently the president of our association.

Joining me today is Cam Dahl, our general manager, and Lauren Stone, who is our policy analyst.

I'll begin by giving you a brief introduction to Manitoba Beef Producers and highlighting the importance of beef production in Manitoba's economy. Cam will follow with some specific points on the potential of a Canada-Japan trade deal.

Manitoba Beef Producers prepared a briefing note for the committee, which I believe you all have. I will not be reading this brief directly. The points that will be raised are covered in the written brief.

Manitoba Beef Producers has a producer-elected board of 14 directors from all regions of the province of Manitoba. All are dedicate men and women with a strong representation of young producers and young directors. We represent approximately 8,000 producers, a number of whom have been dropping in recent years. Market closures have contributed to the loss of producers in Manitoba.

Agriculture is an economic driver in Manitoba. The industry makes up about 28% of the province's GDP and is Manitoba's single largest, wealth-generating activity. Beef production represents Manitoba's single largest sector in terms of the number of farms and family farm operations. The economic impact of Manitoba's beef producers is large. Our industry's demand-creation power means that not only rural communities continue to survive but also other centres, such as Winnipeg and Brandon and other major urban centres, can continue to receive the extensive economic derivatives of our industry's wealth creation. Our industry creates jobs and growth in both urban as well as rural centres.

I will turn it over to Cam to continue our specific comments on the potential of an enhanced Canada-Japan trading relationship.

[Cam Dahl]

Thank you, Ray.

Members of the committee, it's good to appear before you again.

I will highlight a number of areas that are covered in the briefing note you all have. I'll touch briefly on the importance of trade to Manitoba Beef Producers, talk a little about the opportunities under a new partnership with Japan, and highlight the importance of science-based trade. This fits well with some of the comments Gordon made and I think highlights the importance of these issues that go across sectors. Then I'd also like to touch a little on some of our concerns in the beef industry about being left behind.

First, on the importance of trade, trade and open markets are absolutely critical for beef producers across the country, including here in Manitoba. Approximately 50% of our production is exported, either as live cattle or as beef. Beef producers know first-hand what happens when we lose market access. We are still recovering from the crisis caused when borders closed when a BSE case was discovered in 2003.

The United States is our most important customer, taking up about 73% of our exports. But we have learned the need for diversity. Just as an example, country-of-origin labelling legislation hampered and restricted our trade with the United States significantly. This shows what can happen when politics interferes with markets. We are hopeful that this issue will soon be behind us, but it clearly demonstrates the need for alternative markets.

To move to some specific opportunities from enhanced trade with Japan, exports to Japan have not yet recovered from the peak in 2001, when the value of our exports exceeded $171 million. Restrictions resulting from BSE are the key reasons for our loss in market. I will touch a little more on this in a moment, when I talk about the need for science-based trade.

Japan is an important agricultural market for Canada. Gordon highlighted this as well. We believe there is sufficient room to expand our beef trade, because the high quality of our product meets the needs of Japanese customers. We also know that the percentage of beef supplied by imports in Japan is going to increase in the years to come. We don't expect to fully replace the United States and Australia as Japan's leading suppliers, but we know we can tilt the trade balance in our favour.

Canada faces a stiff Japanese applied tariff of 38%. Further, the potential for the Japanese tariff is actually 50%. This is often referred to as a snap-back tariff. If Japanese imports from Canada increase quickly, the government can increase the applied tariff up to 50%. What is meant by “quickly” is that if there is an increase in any 12-month period of 17% or more, that applied tariff can be snapped back up to 50%.

The applied tariff makes our beef more expensive. The potential snap-back tariff creates business uncertainty for our processors and our producers. Both limit our ability to access the high-value Japanese market. The removal of these barriers would significantly open up the market for Canadian products. This will promote stable growth and development for our industry here in Canada, which in turn will promote the sustainability and growth of our rural communities and further develop jobs in our urban centres.

I'd like to touch a little on science-based trade and reinforce some of the things Gordon mentioned.

Restriction placed in Japan on Canadian beef imports following the discovery of BSE here underlined the importance of science-based trade. Restrictions are outside of the OIE, or World Organisation for Animal Health, guidelines and are still in place. We are working hard to have these reduced and eventually removed. The specific restrictions I'm talking about are outlined in your brief in front of you. In the interest of time, I won't go through the details.

How is that important to trade negotiations? Historically, trade negotiations have focused on tariff and quota barriers, and that's important. We talked about the 38% tariff and the potential 50% tariff. However, going forward, sanitary and phytosanitary rules are going to be just as important as tariff barriers, if not more important.

All governments feel from time to time political pressure to restrict trade. In the past, tariffs and quotas have been the tools of choice. Those are always bad for Canadian agriculture.

As these trade barriers are removed through negotiations, governments will turn to other means, such as hiding behind unscientific health or safety rules. It is absolutely critical that sanitary and phytosanitary rules be included in these negotiations. It is unacceptable to our industry to see tariff walls come down only to be faced with unscientific restrictions that are just as impermeable.

Science-based food safety rules, and other rules of trade such as environmental conditions, must be part of any future agreement with Japan—or any other country, for that matter. Also required is a robust dispute-resolution process that will ensure rapid and independent resolution of any trade dispute resulting from different interpretations of the sanitary and phytosanitary rules of trade.

I'd like to close with some comments about our concerns about being left behind. Manitoba Beef Producers would be remiss if we did not raise a significant concern of our membership—that of being left behind.

It is not a secret that agriculture is a sensitive topic in all trade negotiations. MBP’s members are concerned that Canada and Japan may reach a comprehensive new trade agreement that fails to include significant gains for agriculture—of course, for the beef industry specifically.

This would not be the first time agriculture has been left behind. The Uruguay Round of the General Agreement on Tariffs and Trade, which of course established the WTO, largely ignored agriculture. All attempts to correct this deficiency within the WTO have, to date, failed. If the Doha Round of negotiations, which was designed to deal with outstanding barriers in agriculture, is not dead, well, it's certainly on life support.

MBP implores this committee to not let that lack of progress on agriculture issues transfer to any Canada-Japan negotiations. Our industry depends on trade. We depend on open access. We cannot afford to be left out of any new agreements.

Our competitors, such as Australia and the United States, are also hoping to negotiate greater access, for example through the Trans-Pacific Partnership. The Canadian beef industry cannot afford to be left behind, especially if our competitors are successful in negotiating increased and more secure access to Japan.

Thank you.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

I will now move to questions and answers.

Mr. Morin, the floor is yours, sir.

[Marc-André Morin, NDP, Laurentides—Labelle, QC]

Mr. Bacon, aren't food safety concerns paramount for an agreement with Japan? Japan has extremely strict rules because of its dense population and the large amount of food it imports. Do you believe that the Japanese are concerned to see our food safety rules loosened, or, as the government calls it, simplified?

Japan has enjoyed a measure of economic success while still maintaining very high standards of hygiene. They have taken all kinds of precautions and have been very careful. That is why they have always agreed to pay higher prices for better quality products. Do you think they could be concerned to see our standards being lowered?

[Gordon Bacon]

I haven't heard anything from the trade side that would suggest that the Japanese people or that Japanese trade is concerned about the standards we have in place.

I'll give you my perspective. Traditionally regulators in all countries have looked at their responsibilities and have not worried as much about collaboration with other regulators. I think this is something that has changed. Certainly we've seen a change. It started with NAFTA. I'll use specific references to pesticides, where there is now much more unity between Canada and the U.S., and more recently, including Australia and the European Union. We're now seeing regulators work more closely together.

I think we have an opportunity to sit down with Japanese regulators and see if we can harmonize policies along the way. We have to provide confidence to both Canadian consumers and Japanese consumers that harmonization of regulations is not a dilution of safety standards. What it does allow us to do is to target resources in monitoring as opposed to duplication of efforts.

So rather than see that as any kind of a dilution, the key to success is going to be proving that we are, in fact, strengthening monitoring systems through avoidance of duplication.

[Marc-André Morin, NDP, Laurentides—Labelle, QC]

Some Japanese people have told us that it is a choice made by our government and by a certain number of Canadians. They are concerned, for example, about the abolition of the Canadian Wheat Board. They have wondered for some time about how their supply is going to be guaranteed. They have a horror of change; they do not like the unexpected. For Japanese people, the unexpected is their worst nightmare. They like to be sure.

When changes happen that they do not expect, or that they are not told about, they will go right into their shells. While these negotiations with Japan were rolling along nicely, a member of the Japan-Canada Chamber of Commerce, who recruits students for Canadian universities, arrived at the Canadian embassy in Tokyo. That's when he saw that all the consular services had been closed and the services needed to get visas or to complete various formalities would be available online in nine months. Otherwise, he could go to the Philippines or Singapore.

The Japanese are excellent potential partners because their agriculture complements Canada's very well and we are not in competition with their rice. My impression is that, if they see us doing things that are too strange, they will take their sweet time in signing an agreement with us. What is your impression?

[Gordon Bacon]

Well, I'll relay again my discussion with a member of the Japanese pulse importers from the trade side. He also feels that there is an interest in innovation and a strong interest in human health and environmental protection. We already are a big trading partner with Japan, so I think what we are doing is just talking about how we can expand that trade.

I think human nature is such that we don't like change, and perhaps when it starts crossing international boundaries it becomes even more challenging, but I do think there is an opportunity to build on the strengths and to provide the assurances of quality that Japan is going to demand. Most importantly, what we are trying to do is to add predictability to trade and eliminate some of the risk. So I think there is opportunity there.

[Marc-André Morin, NDP, Laurentides—Labelle, QC]

Should Canada have a well-defined transportation strategy, a sound plan for transporting all the products we want to export? Shipping Manitoba beef to a port on the west coast…

[The Chair, Conservative, Rob Merrifield]

Very quickly, please.

[Marc-André Morin, NDP, Laurentides—Labelle, QC]

…is not easy, after all. Should we not have a really robust strategy?

[The Chair, Conservative, Rob Merrifield]

Okay. We have a moment. Go ahead.

[Gordon Bacon]

We have been very supportive of the transportation policy direction that the minister and Mr. Merrifield noted back in March. As I said in my presentation, we've been working with a coalition of exporters from the coal sector, the automotive sector, forestry products, and fertilizers to talk about how we can make a good system work better. We do have to make some improvements, just as all of us have to focus on constant improvement all the time.

I think we have a good system, but we need to make sure that it performs at a high level consistently. If you look at the history over the last five years, consistency is something we've not always had, so that's what we have to try to do—raise the level of the game and keep it at a high level.