Agriculture Committee on June 1st, 2006

[Wayne Easter, Liberal, Malpeque, PE]

But what I need more of, and what I think we need as a committee, is your analysis backgrounding the decision that had you arrive at that position. You have a number of folks saying that you should invoke an article 28 process, saying that would solve the problem. What's your analysis for getting to the position that you've got to, and is each department's analysis the same? Or are you privy to give us that information?

[Graham Barr]

There are several implications of undertaking an article 28 process. A bit later I'll turn it over to my colleagues from the Department International Trade, as well as the Department of Finance, to discuss, possibly, the NAFTA implications of undertaking an article 28 process, but there are other implications. For example, if the United States were not to challenge Canada's right to apply article 28 to imports from the United States, the implication would be that the United States could do the same against imports from Canada, including on products sensitive to them, such as wheat, hogs, or cattle.

So if Canada were to undertake an article 28 process against imports from the United States, it would likely be more difficult for the American government to reject or rebuff calls from its own industry for an article 28 action against Canadian imports. In fact, several years ago, the United States industry was pressing for an article 28 action on imports of sugar-containing products, including from Canada. As you can imagine, that would have threatened Canadian investment in certain plants.

Another implication is that it sets a domestic precedent. Undertaking an article 28 process on dairy products could likely result in pressure from other sectors to introduce TRQs.

And the third implication I'll speak to is an implication for us in the ongoing WTO agriculture negotiations. As you know, the overall goal of the WTO agriculture negotiations is to further liberalize trade by lowering barriers to trade. An article 28 action, by its very definition, is about increasing trade barriers, and our trading partners could very well view our undertaking an article 28 process as being inconsistent with the direction of the WTO negotiations.

As far as I know—and my colleagues from the Department of Finance will correct me when they speak, if I'm wrong—since the agriculture negotiations began in the year 2000, neither the United States nor Canada has initiated an article 28 process.

[Wayne Easter, Liberal, Malpeque, PE]

Just before the Department of Finance responds, that's where the difference is. You're seeing an article 28 action as increasing or restricting the flow of trade. We don't—or I don't—and I don't believe Dairy Farmers of Canada do. What they see article 28 doing is meeting the original intent of protection in the beginning; it was to protect milk products from coming in. So it's not increasing the restrictions, but it's living up—under the new technologies—to what the intent of supply management was in those restrictions in the beginning. There's a huge difference there. We're not increasing trade barriers here; we're just seeing that the intent, in this day and age, is abided by.

[The Chair, Conservative, Gerry Ritz]

A very short response, if you can, Mr. Barr.

I'm sure Mr. Bellavance will pick up on this thread.

[Graham Barr]

Mr. Chair, I'd like to reconfirm what I said, that Canada's trading partners could view an article 28 action as increasing barriers to trade. Our role here is just to point out the possible implications, and that's certainly one of them.

Am I out of time, or would you like me to continue?

[The Chair, Conservative, Gerry Ritz]

Mr. Easter is out of time, but you can certainly follow that up. I'm sure Mr. Bellavance will maintain this line of questioning on article 28.

Mr. Bellavance, seven minutes, please.

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

Thank you for being here today. Imports of milk proteins is an issue of great concern. This is what is shaking up the foundations of the supply management system, particularly import restrictions which constitute one of the pillars of the system.

You yourself said that the minister told you he supported supply management. The former government also supported supply management. Everyone says that they support supply management. But what have we done in practical terms to protect supply management? Mr. Easter just mentioned section 28. There are also regulations that could be put in place. Officials from the finance department are not here for nothing. They are here because we could go through the Department of Finance to have access to regulatory measures. There are means and solutions we can use to protect import restrictions, which constitute the pillar of the supply management system.

Earlier on, you mentioned problems with applying section 28 under NAFTA. Have you read the testimony of the Dairy Farmers of Canada, who appeared before us, or the legal opinion they obtained on the use of section 28? According to that legal opinion, using section 28 did not have the same consequences as those you identified. Are you familiar with their testimony and opinion?

[Graham Barr]

Yes, we're very aware of what the Dairy Farmers of Canada presented on May 11 when they appeared before the committee.

To address your question about the NAFTA implications of undertaking article 28 action, I'll turn it over to my colleagues from the Department of International Trade.

[Marvin Hildebrand]

Thank you.

In response to your question, as Mr. Barr noted, we are familiar with the legal opinion furnished by the Dairy Farmers of Canada. We've also looked at this question in the context of Canada's rights and obligations under both the NAFTA and the WTO. Our assessment is that one of the really major considerations of taking an article 28 action on MPCs is that our NAFTA obligations would leave a very large hole in the coverage of such an action. Given our NAFTA obligations, in article 302 in particular, we would not be able to extend an article 28 action to the U.S. and Mexico, and given the production capacity that exists for MPCs in the U.S., there is an obvious hole in the coverage that would result.

As I said, we've looked at this carefully, and we may have looked at different aspects or dimensions of it than others, but this is our legal assessment.

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

Do you have that legal opinion? We have the opinion of the Dairy Farmers of Canada, but it seems that your opinion is different.

[Marvin Hildebrand]

You refer to the opinion of the Dairy Farmers of Canada?

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

Yes. The Dairy Farmers of Canada submitted the legal opinion they obtained to the committee. You say that you have a legal opinion indicating that we will have problems with NAFTA. I would very much like to see it.

[Marvin Hildebrand]

As I said, we've looked at this question carefully. The question of furnishing legal opinions covered by a solicitor-client privilege is not one for us to make here. It's a decision for the government, as to whether such opinions might be made available.

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

We agree on the fact that other countries have already used section 28 in special situations. I believe that we have a situation which is both special and urgent, and the possibility of using that section of GATT was part of the WTO negotiations, and was part of the Uruguay Round negotiations. Some countries used it, so there are precedents. Earlier, we heard that we should not be creating precedents, but I believe we are the only ones who consistently try not to create precedents. I hope that you are aware of the fact that if we do not use section 28, the supply management system will be threatened. You say that section 28 cannot be used. Do you have any other options to suggest?

[Graham Barr]

As you know, the Dairy Farmers of Canada have also put forward other options beyond article 28. In fact, you referred to one a little earlier, the harmonization to 90% protein concentration.

To address what you said about Canada not using article 28 in the past, what I said was that since the agriculture negotiations began in 2000, we haven't used it. We have used it in the past, mostly for technical reasons.

As far as the use of article 28 by other countries is concerned, if you'd like, I'll turn it over to my colleagues from the Department of Finance, but my understanding is that since the Uruguay Round, the use of article 28 has been rather limited, and mostly for technical reasons, for example, EU enlargement, etc.

Would you like us to elaborate on the use that other countries have made of article 28?

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

Yes, because it is the other option. It consists of regulatory measures, and that is what we want. Regulation would be even easier than going through the legislation. We have the flexibility to act so that we can deal with certain problems. In the past, we were protected from imports, but now we no longer are. We want to correct that. Canada did what it had to do, but now it no longer does anything. I would very much like to hear what the Department of Finance officials have to say on this.

[Graham Barr]

We'll address the question of article 28, as well as the question of domestic legislative change.

[Carol Nelder-Corvari]

Thank you.

With respect to domestic legislative change, we have met with the Dairy Farmers of Canada and we've met interdepartmentally on it. We're seized of the issue of the concern of the Dairy Farmers, but we are constrained by the legislation. We can't raise tariff rates without legislation; there's no regulatory or order in council authority that would allow the government to move forward with raising rates without legislation.

With respect to article 28 and the history of Canada's involvement in such negotiations, perhaps Mr. Beyea can respond.

[Dean Beyea, Chief, International Trades and Finances, International Trades Policy Division, Department of Finance]

Just simply, since the Uruguay Round, Canada has taken one article 28 action, with respect to the major rewriting of the Canadian customs tariff in 1998. In collapsing some tariff items, there were some minor areas where tariffs were raised minimally, affecting minimal amounts of trade. Overall, though, there was a net $90 million reduction in duties collected, so it was of broad benefit to all members of the WTO. So it's similar, and in fact a technical measure, as Graham pointed out, like the enlarging of the European Union.

[The Chair, Conservative, Gerry Ritz]

Thank you.

We'll now move to Mr. Miller for seven minutes.

[Larry Miller, Conservative, Bruce—Grey—Owen Sound, ON]

Thank you, Mr. Chairman.

I would like to thank all the witnesses for being here today.

This may be a question for Mr. Hildebrand or Mr. Barr.

In the recent WTO talks, we've run into a bit of a stumbling block, if I could use that term, with the vote of 148 to 1 when it comes to supply management. Now this government has made a commitment to protect supply management.

In your opinion, would you agree that leaving the table altogether would basically leave supply management out on its own, with basically nobody there to fight for it?

[Graham Barr]

If Canada were not present at the negotiating table, the fight for those issues would not be as strong, as we would have been the only ones fighting to defend the issues of importance to supply management.

[Larry Miller, Conservative, Bruce—Grey—Owen Sound, ON]

Thank you.

As has been brought up here around the table, changing article 28 to change the tariff numbers on milk protein concentrates would increase the level of imports of recent years by 10%. Yet the Dairy Farmers of Canada have a legal opinion that doesn't go along with that. I'd like to hear your comments on why that opinion by the Dairy Farmers of Canada is basically in opposition.

[Graham Barr]

I won't speak for the Dairy Farmers of Canada, but my understanding is that they're not disputing the fact that there would be this extra 10% cushion if we were to undertake an article 28 action. My understanding of the Dairy Farmers of Canada's position is that they differ with our view on whether or not Canada would be able to apply an article 28 action to imports from our NAFTA partners.

[Larry Miller, Conservative, Bruce—Grey—Owen Sound, ON]

Are there other ways of limiting the imports?