Agriculture Committee on Feb. 20th, 2007

[Steve Verheul]

That's certainly the kind of position that I think we would have some room to try to advance in the negotiations. It's not a position that we could take because of the position, which is consistent with the motion. If we took a position that countries should require real access, up to 5% of domestic consumption, we don't meet that now. That would require a tariff quota expansion for us, particularly in dairy, to a significant extent. So that's not something we could promote under our current position.

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

In an interview you gave to the weekly La Terre de chez nous on February 15, you said this:

The elimination of export subsidies by 2013 and the reduction of domestic support by approximately half will put pressure on supply management in the dairy industry, but that is manageable. It's market access that is the sore point. Canada needs eight percent of tariff lines in order to include all products under supply management (milk, poultry, eggs) in the “sensitive products” category. However, few countries are talking about going beyond five percent. If that were to happen, Canada would have some very hard arbitration to do to select the products that it recognizes as sensitive.

I'd like you to tell us exactly what you mean by that.

[Steve Verheul]

Yes, certainly a number of elements in the negotiations are becoming clearer, at least among a number of members. On export subsidies, we've agreed to eliminate all export subsidies, as have all other members. That will have some impact on our dairy sector, but it's generally viewed as something that can be managed. All of our dairy exports right now, or almost all, benefit from export subsidies.

On the domestic support reductions we will have to face, along with others, our reductions will be considerably less than the reductions in the U.S. or the reductions in Europe or Japan. And that's because of a Canadian idea that the reductions should be different and much greater for countries that are larger players. That will have some pressure put on our current pricing system because we will probably have to make some adjustments to that in order to meet the obligations that we would expect on the domestic support disciplines.

Finally, on the issue of sensitive products and how many are going to be allowed, the U.S. and Europe, including in their most recent discussions, have been talking about 4% or 5%. And there's some suggestion that Europe could agree to 4%. That's not something that other countries--not just us, but others--would find acceptable. Certainly Norway needs significantly more than 4%; Japan needs more than 4%; Switzerland needs more than 4%. So we have been having some discussions with these countries about that challenge that we're going to face in getting the right number of sensitive products.

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

I imagine that each of the 150 countries, including Canada wants to protect its sensitive products. In our case, it's supply management. As you mentioned earlier, the number of sensitive products and the treatment reserved for them are fundamentally important. You said earlier that Canada did not approve the four or five products that the United States wants to include.

Lastly, I'd like you to give us your impression of the positions of the major players. I don't want to talk just about the United States and the European Union, but also about Brazil and even India. What's your read on the situation?

[Steve Verheul]

When it comes to the number of sensitive products, the Brazilians, the Indians, the Chinese, those major countries, have been saying that sensitive products should not be more than 1% of tariff lines--so a much lower number. My own personal view is that they could agree to 4% or 5%. So in other words, most of the membership could agree to 4% or 5%, with the exception of the group of countries I mentioned: Canada, Norway, Switzerland, Japan, and a couple of others.

[The Chair, Conservative, James Bezan]

Thank you, Mr. Bellavance.

Mr. Anderson.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

Thank you, Mr. Chair.

I just wanted to make an observation first. Mr. Steckle had talked about the previous government's support for the Canadian Wheat Board. You mentioned that the export subsidies were going to be done away with. I believe they had negotiated away the export credit programs and the initial price guarantees that were provided by the government. So those two things alone would have made substantial changes to that system.

I want to talk a bit about the Americans and the Europeans working together. In Uruguay they were able to basically come up with an agreement that led to the completion of that round. You talked a bit about that, but I'm just wondering if that type of agreement is likely, in your mind, this time. If it is, there are two other things I'd like to know. What role are the developing countries going to be able to play in that? And secondly, what role is that second level of countries going to be able to play as well? What are the dynamics there?

[Steve Verheul]

A lot of us are certainly concerned about the U.S. and Europe talking and trying to narrow the gaps between them. We realize it's necessary and we want them to do it, but at the same time, we're concerned about what they might come up with. Unlike the last round, though, I don't think there's a possibility for the U.S. and Europe to agree on something and then simply impose it on the rest of the membership.

The power relationship among WTO members has shifted considerably, particularly with developing countries. If the U.S. and Europe come up with something, but it's opposed by some of the other major players, such as Brazil, India, China, and some of the key developing countries, then it's really not going to fly.

I think the U.S. and Europe are conscious of this. I think if they narrow the gap, they're going to start to try to sell whatever they put together more broadly. They'll gradually go to more and more countries to try to convince them of the merits of what they've come up with. The developing world will be the biggest challenge they'll have in that regard.

Part of our strategy in response to this is to work very closely with developing countries, as I mentioned. We're providing a lot of analysis to them, including Brazil and India specifically, on the impact we would see on offers put forward by the U.S. and by Europe. I think we've been of some help in advising them on whether or not an offer put forward has any value to it. To be honest, particularly on the domestic support side, we haven't seen offers that have been all that valuable up to this point.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

It seemed to be clear in Geneva last summer that if they don't have a breakthrough, it's not going to happen. They're the ones who need to lead it.

I have a question. If we don't get an agreement by mid-summer or late summer, what's the impact going to be? Is this thing going to languish on for another two or three years, or is it effectively going to grind to a halt and we'll have to live without an agreement? If that's so, what will the impact be on our country?

[Steve Verheul]

If we fail to make any real progress over the summer, I don't think the negotiations would be dropped entirely. I think there would be an effort to try to keep them going at some very minimal level until we could re-engage, most likely with a new U.S. administration. If they're elected in 2008, it would probably take them half a year to get all the right people in place. Then we might have a chance of continuing the negotiations.

But after that length of time, we wouldn't really be sure where we'd be starting from. Things would have changed in many respects. The conventional wisdom is that we would continue the negotiations and pick it up again at a later date. To this point, we've never had a negotiating round completely fail. Having a negotiating round directed towards developing countries fail would send the world a signal that would not be helpful.

On the second part of your question, if the negotiations did fail, then clearly we'd continue to move forward on our bilateral agreements. We can get some improvements on a lot of those.

There will be more dispute settlement cases at the WTO, and we may well be a part of that. You're all familiar with the initiative we've taken on corn.

We're getting into a much less predictable environment. We not only lose the possibility of getting some real changes in terms of cuts to subsidies and improvements to market access, but we lose the strength of a rules-based system and the ability to get new rules in place, which benefit Canada probably more than anywhere. We need those rules to have a fair environment when we're competing against the major players.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

Well, 90% of our agriculture is export oriented and 10% isn't. Are bilaterals a better place to address that tension or do you think the WTO is the better place to deal with those issues?

[Steve Verheul]

The WTO negotiations and bilateral negotiations are fundamentally different.

In a bilateral negotiation, you can't address domestic subsidies. You can't address export subsidies in any meaningful sense, particularly in relation to the U.S. and Europe, where most of the problems originate. Bilateral agreements are largely about improving market access. You can get gains in specific markets. You might displace some of the countries in that market because of those advantages. But in terms of any broader advantages to improving the system, you really can't get it out of a bilateral agreement.

[The Chair, Conservative, James Bezan]

Because we have votes tonight and the bells are going to start ringing at quarter after five, we're going to suspend to allow the other witnesses to come to the table. We'll then carry on with our questioning on milk protein concentrates.

We'll suspend for a quick minute, and I'd ask that the other witnesses come to the table as quickly as possible.

[The Chair, Conservative, James Bezan]

We'll come back to order. I'm glad to welcome to the table Debra Bryanton from CFIA, Darwin Satherstrom from the Canada Border Services Agency, Gerry Salembier from the Department of Foreign Affairs and International Trade, and Gilles Le Blanc from the Department of Finance.

Mr. Verheul, I'll turn it back to you to start off this round.

[Steve Verheul]

Thank you again, Mr. Chairman. Thanks for the opportunity to appear before you to discuss the initiatives recently announced by the government with respect to milk protein concentrates.

Just to very briefly recap, on February 3, Minister Strahl announced that the government will be initiating negotiations under article XXVIII of the General Agreement on Tariffs and Trade to restrict imports of milk protein concentrates in response to dairy industry concerns about the increasing use of these concentrates in making cheese and other dairy products.

On a separate issue, he has asked the Canadian Food Inspection Agency to launch a regulatory process related to compositional standards for cheese and he has urged the producers and processors to continue the dairy industry working group.

As mentioned before, in addition to the Department of Agriculture and Agri-Food, there are a number of other federal departments and agencies involved in these issues. I'll just briefly introduce them. I am joined by Gilles Le Blanc, senior chief, international trade policy division, Department of Finance; Darwin Satherstrom, director general, trade programs directorate, Canada Border Services Agency; Gerry Salembier, director general, multilateral trade policy, Department of Foreign Affairs and International Trade; and Debra Bryanton, who is the executive director of food safety with the Canadian Food Inspection Agency.

In general, the Department of Finance is responsible for Canada's customs tariff. That's the law that sets out the tariff rates for imported goods. In addition, the department is responsible for other import policy legislation, including the Special Import Measures Act, which sets out the rules for addressing dumped and subsidized imports.

Mr. Le Blanc will be our lead negotiator for the GATT article XXVIII negotiations.

The role of the Canada Border Services Agency is to ensure the proper classification of imported goods, and we follow a process adhering to classification principles that are internationally mandated under what is known as the harmonized system for goods classification as well as national subdivisions within that system.

The Department of Foreign Affairs and International Trade is responsible for the broader international trade elements of the issue, and specifically with respect to article XXVIII of the GATT, that is, DFAIT deals with the intersection of this agriculture-specific issue with Canada's international trade obligations and our engagement with WTO members as a whole. While Agriculture and Agri-Food Canada is responsible for agricultural trade policy, DFAIT is the lead agency on Canada's overall trade policy and as such deals with the implications of the MPC issue and any government action on it from the perspective of Canada's overall trade relations.

In short, the four departments, Finance, DFAIT, CBSA, and AFC, are working together on the article XXVIII negotiations.

You have been provided with a backgrounder setting out how GATT article XXVIII negotiations proceed. Although I understand that your main interest today is to discuss the import of milk protein concentrates, our colleague from the CFIA will be in a position to answer questions you may have on the development of compositional standards, the other part of the announcement the minister made at the dairy farmers' meeting.

CFIA is mandated to safeguard Canada's food supply and the plants and animals upon which safe and high-quality food depend. To deliver its broad regulatory mandate, the CFIA verifies compliance with 13 federal acts and their respective regulations that promote food safety, consumer protection, and animal and plant health. A backgrounder outlining the federal legislation related to food safety and quality for dairy products has also been provided to you.

So given the number of organizations being represented at this table, it has also been agreed that for the purposes of this meeting, I would lead for the government representatives and ask the most appropriate person to reply to each question. I hope this will allow us to expedite the process of responding to your questions.

Thank you, Mr. Chairman.

[The Chair, Conservative, James Bezan]

Thank you, Mr. Verheul, and I welcome all of you to committee as officials for the government.

With that, I turn it over to Mr. Easter to start off round one.

[Wayne Easter, Liberal, Malpeque, PE]

Thanks, Mr. Chair.

Article XXVIII, from our perspective, certainly makes sense, Mr. Chair, because I think the current import of milk protein concentrate goes against the intent of the tariff lines that were established in the beginning, and I think to a great extent the industry found a way around that by the importation of these milk protein concentrates. Originally when this system was envisioned, milk was milk was milk, and now it can be broken down.

So I know in principle that we certainly agree with the call to go to article XXVIII.

In terms of the article XXVIII action itself, though, will it apply to products coming in from the United States?

[Gerry Salembier, Director General, Multilateral Trade Policy, Department of Foreign Affairs and International Trade]

Thanks for the question. It's not a surprise that it's the first one.

The application of a GATT article XXVIII action to imports from the U.S., and from Mexico for that matter, needs to be informed by the rights and obligations that Canada has under the NAFTA. There's a pretty widely held view in the legal community that the terms of the NAFTA do not provide for the establishment of a new tariff rate quota of the sort that's envisioned by the government's announcement on milk protein concentrates a couple of weeks ago.

[Wayne Easter, Liberal, Malpeque, PE]

Is the government doing anything to get around that? I think there's legal opinion on both sides. I know that the legal advice the government seems to be taking is that, using NAFTA as a reason, it would not apply to imports from the United States. I think we differ on that, and I think there are other legal opinions that differ as well.

Without article XXVIII applying to the importation of U.S. products, this article XXVIII is not going to deal effectively with decreasing market availability for Canadian milk products, because that is where a lot of the supply is coming from. Is that not correct?

[Gerry Salembier]

Let me start at the end of your question. Where is the supply coming from?

Part of the problem in coming to grips with this issue is that the relevant tariff line, 3504.00.00, I believe, includes more than just milk protein concentrates. Exactly what imports of milk protein concentrates are coming in and where they're coming from is not a simple matter to ascertain. We're doing some work to try to figure out exactly what and how much is coming from where.

Your question started, I think, by asking if the government is trying to sort of get around this issue of the provisions of the NAFTA. The actions we will take will be in full compliance with our obligations under the NAFTA. We're not going to try to circumvent the obligations we have under any of our trade agreements, be it the WTO or the NAFTA, in this case.

You made reference to the legal opinions on both sides of the issue. In our view, the more widely held view is that the terms of the NAFTA do not allow for the establishment of a new tariff rate quota.

[Wayne Easter, Liberal, Malpeque, PE]

I'm telling you right now, and we're telling the government members, that if making this announcement to the Dairy Farmers of Canada, knowing full well that they can't really deal with the problem, is all smoke and mirrors on the part of the Minister of Agriculture, then we're not going to be a bunch of happy campers on this side of the House, nor will be farmers across this country. We expect representatives from all the departments involved on this issue to come down on the side of the farming community--which was Minister Strahl's intent, as I understand it--and do what you have to do to do that. That's what we will be expecting.

In terms of line 3504.00.00, as I understand it, and again, it's a difference in terms of how we do things in Canada versus the United States, there's a lack of transparency in our tariff classification process in the Canada Border Services Agency, whereas the United States makes all classification decisions available to the public and puts them on their government website. Can we not do the same so that we have transparency in terms of what products we're really dealing with?

[Darwin Satherstrom, Director, Trade Programs Directorate, Canada Border Services Agency]

Thank you.

The issue, for example, of publishing rulings in respect of particular goods is considered confidential, because it applies to specific importations from specific companies. We're not authorized to release this information, as it provides commercial information that might damage particular companies. For that reason, there is no public dissemination of information related to specific tariff rulings.

[Wayne Easter, Liberal, Malpeque, PE]

We'll set that one aside, because I'm going to run out of time.

To the specifics of the issue of article XXVIII, I am very worried about what I'm hearing from you folks, because we do have a deal with the U.S. side. Has the government notified the WTO as of yet? Is legislation required, and if it is, when can we expect the legislation to be before Parliament?

[Gilles Le Blanc, Senior Chief, International Trade Policy Division, International Trade and Finance, Department of Finance]

Thank you, Chair.

With respect to the first question, the answer is no. There is an interdepartmental team that was established soon after the announcement by Minister Strahl. We are basically right now working and preparing the notification. There are certain technical issues that need to be dealt with before we put the notification forward. For example, one was mentioned by Gerry, the import stats. There are no publicly available data with respect to protein concentrates, and therefore we need to do some work in that regard. I think that responds to your question.

With respect to the implementation, an element of your question, what I can say is that in article XXVIII it's quite clear that you can modify concessions, but it's by negotiation and agreement with the affected parties. First we need to go through negotiations before we can change the provisions. We intend to try to get notification soon to the WTO in order to start the process associated with an article XXVIII renegotiation.

[The Chair, Conservative, James Bezan]

Sorry, Mr. Easter, your time has expired.

We will turn it over to Mr. Bellavance for seven minutes.