Agriculture Committee on May 30th, 2017

[The Chair, Liberal, Pat Finnigan]

Welcome, everyone, to our study on non-tariff trade barriers to the sale of agricultural products in relation to free trade agreements, for our first hour. With us today, we have Ron and Ron. We were just saying that we might find both of you a permanent seat, because you are certainly guests who we appreciate having here every time. We appreciate your input.

We'll open this up with Mr. Lemaire from the Canadian Produce Marketing Association.

You have up to 10 minutes for a statement. Thank you.

[Ron Lemaire, President, Canadian Produce Marketing Association]

Thank you, Mr. Chair.

Members of the House committee on agriculture and agrifood, thank you for the opportunity to speak with you today.

As you know, the Canadian Produce Marketing Association represents over 840 companies across the fruit and vegetable supply chain, from farm gate to dinner plate. Our members do business with over 100 countries around the world, and we navigate through various trade issues while doing business with foreign countries.

I'd like to start by taking the opportunity to thank the Senate committee on agriculture and forestry for their recent market access report, which addresses many of the non-tariff trade barriers faced by our industry. The recommendations stemming from the report are relevant and fully supported by the CPMA.

In that spirit, we are pleased to see this committee study non-tariff trade barriers. I would like to highlight a few of these that should be considered when negotiating FTAs.

As you're aware, the Barton report suggests that the agrifood sector has immense potential domestically and globally, and this growth can be supported through the reduction of non-tariff trade barriers that stand in the way of sector prosperity. Trade barriers come in many forms, and the perishability and small margins associated with the fresh produce sector require the tools associated with free trade agreements to enhance profitability.

For example, something as simple as labelling rules can create challenging trade situations. Domestic procurement strategies and rules such as country-of-origin labelling can be thinly disguised trade barriers intended to increase importer costs and to foster a perception that imports may be inherently less safe or of lesser quality.

Regulatory alignment with other countries and trading rules based on sound science are also key to improving market access. Too often, we hear of companies that are looking for export opportunities but are met with roadblocks on issues such as plant protection, including the lack of alignment on maximum residue levels, or industry's continuing challenge to access production tools registered for use by Canada's key trading partners. A process to jointly register plant protection products with trading partners and alignment on MRLs would support competitiveness on an international level.

The border can also be a challenge for exporters. Even discrepancies in understanding or recognizing grades at the border is an issue.

When developing FTAs, we would encourage the government to work towards harmonized solutions to these issues, which can pose significant barriers to growth and expansion in existing and emerging markets.

On the topic of harmonization, there are long-standing issues around nomenclature and the differences between countries for identifying products for customs clearance. Ambiguity around the identification of an item can slow down the automated clearing process and pre-clearing process and can lead to misidentification of items. Also, it could lead to delays in the arrival of the product and the misreporting by customs. Where possible, we would encourage the government to work with foreign authorities to find ways to use a common identification system at a level that provides the necessary information to identify products and avoid confusion at the border.

Expanding on customs clearance, FTA negotiations should examine foreign customs programs, trading systems, and the infrastructure required to facilitate trade. This would ideally include inspection services, phytosanitary measures, and food safety systems that are mutually recognized and respected by all countries involved in the agreement.

One final issue for the industry, and one that many of you are familiar with, is ensuring that the countries we are entering into these agreements with have fully developed dispute resolution mechanisms in the event our exporters find themselves in a slow-pay, no-pay, or bankruptcy situation. We are thankful for the incredible work done here in Canada by the dispute resolution corporation on slow pay and no pay and believe this structure can be a model for the world in terms of financial risk mitigation for the industry.

In closing, I'd like to thank the committee for inviting me here today to discuss these important issues. The CPMA remains actively engaged in government consultation on trade negotiations with new and existing markets and looks forward to seeing the recommendations stemming from this study. As always, we're happy to work with all members of the committee and the government to grow the industry both domestically and abroad.

I'd be happy to answer any questions.

Thank you very much.

[The Chair, Liberal, Pat Finnigan]

Thank you, Mr. Lemaire.

Now we have Mr. Bonnett for 10 minutes.

[Ron Bonnett, President, Canadian Federation of Agriculture]

Thank you again for the opportunity to talk about non-tariff barriers. It does seem that the agriculture committee is very busy now, especially with the focus on agriculture from Barton and the export targets set by the government. I think it's important to make sure we deal with issues such as non-tariff barriers to capture the opportunity for Canadian agriculture.

As you know, Canada has a strong and growing agriculture industry. Despite all the challenges of disease, drought, and frequent below-cost production prices, it has risen above all that and remains one of Canada's most important industries, contributing about 6.7% to Canada's GDP and one in eight jobs.

Canada relies on export trade for 60% of its agricultural output. Clearly, international trade is the undisputed backbone of Canadian agriculture. Canada has consistently ranked as the world's fifth largest exporter of agriculture and agrifood products. There is almost unlimited potential to improve our standing in that category, especially with a projected population growth by 2050.

Our market in Canada is limited, so agreements such as the recently ratified CETA are very important, including but not limited to the increase in profitable market access for pork, canola, and beef.

We are also looking forward to increased access to Japan through the TPP. It seemed for a while that it had no chance of survival, and we support any efforts to revive it. If that fails, Canada should focus on renewing bilateral negotiations with Japan. CETA unfortunately didn't come without hurt to the dairy industry, so commitment from the government to mitigate the damages through compensation needs dedicated focus.

Canadian food exports have grown 77% over the last 10 years, 20% from 2013 to 2015 alone, to $56 billion annually. The United States alone accounts for $29 billion. We rank as the number one supplier of agriculture and agrifood products to the U.S., which is the world's second largest importer of agrifood and seafood products, with Canada's share proudly sitting at 19.2%. Mexico accounts for close to $2 billion.

However, we will never make the mistake of focusing only on the reduction or elimination of tariffs as being the only impediment to our trade and to our competitiveness in foreign markets. We have to ensure that resources are dedicated to the elimination of non-tariff barriers in current trade agreements, that proactive work is done during negotiations to eliminate the potential of these barriers. All too often, lofty access commitments are made, only to have countries then manage to slow the import of products through non-tariff barriers.

The recent Senate ag committee considered it a priority by naming non-tariff trade barriers in their first recommendation:

The committee recommends that the Government of Canada consider establishing a national committee with a mandate to monitor non-tariff barriers faced by the Canadian agriculture and agri-food sector in the international market. This monitoring would facilitate negotiations toward the elimination of non-tariff barriers.

Health, safety, and environmental concerns must be assessed and evaluated using a sound, science-based approach. The bottom line is that farmers increasingly have to manage the impact of existing or new non-tariff barriers.

With regard to removing barriers to competitiveness, non-tariff barriers, such as technical barriers to trade and sanitary and phytosanitary barriers to trade often create major obstacles, even when tariffs have been reduced and eliminated. When countries belly up to trade negotiations, they should always include regulatory harmonization discussions as well. It's one thing to open borders to free trade but quite another to make sure that differences in regulation don't create an unlevel playing field.

The Senate report also specifically mentioned the importance of developing maximum residue limits for pesticides, joint registrations, and a more robust skilled worker immigration program.

Non-tariff barriers can take several forms. A destination country may have a different regulation that prevents Canadian products from entering. Differences may range from sanitary, as was mentioned before, to maximum residue limits, acceptance, or a recognition of biotechnology.

Competitiveness is also affected when you go through regulations, and some of these are self-inflicted. One is the example of the difference in pesticide registration between Canada and the U.S. Canada is still one of the most difficult countries in the world in which to register a lower-cost generic crop protection product, increasing the cost of production for Canadian grain producers and lowering their competitiveness in international markets.

Newly introduced carbon taxes in Canada take on special interest when related to the situation in the United States, which looks as though it is not going to move ahead.

The impact is always greater when a country with the proximity of the U.S. has lower costs of production or when it provides far more domestic support, making it difficult for Canadian farmers to compete against U.S. farmers.

Onerous special risk removal coming out of the BSE incident with beef is an example of disposal rules that are more costly than those implemented in the U.S., which have created a competitive disadvantage.

These are some market-access examples:

China is trying to manage its blackleg fungal disease in canola through lowering allowable dockage to 1%, while Canada's dockage standard is 2.5%. Available research and science indicate that the spread of blackleg through dockage is virtually non-existent.

As mentioned, maximum residue levels regarding crop protection products are a barrier. For example, there has been a great deal of uncertainty about whether certain important export customers will accept canola treated with Quinclorac. It leaves detectable residues, but there is no established maximum residue limit.

We understand that at least one protectionist group in the United States is advising the Trump administration that the renegotiation of NAFTA is the ideal forum in which to reinstate country-of-origin labelling for beef and pork, driving extra costs into Canadian products.

On reinspection of meat at the Canada-U.S. border, since Canada and the U.S. deem each other's meat inspection system to be equivalent, inspections at point of production should be significant.

Canadian cattle are required to bear permanent identification in the United States, while there is no such requirement for U.S. cattle.

Food safety interventions approved and used in Canada and the U.S. take years to gain approval in the EU. By the time they are approved, we may have well moved on to something newer and better here and have to start from square one on the EU approval process.

Another example is that Canada can sell only frozen beef to China because its definitions of frozen and fresh are different based on the temperatures it uses.

India insists that pulse cargoes be fumigated with methyl bromide in Canada before leaving. However, in Canada's climate, that process is ineffective most of the year.

We have a number of different examples. Ractopamine is licensed for sale in Canada, but in other countries it is not.

Several trading partners maintain freezing or testing requirements for Trichinella that are different from those in a number of different countries.

I think this brings up the fact that there needs to be consistency in approaches and regulations across the board. Dealing with the elimination of non-tariff barriers is more important now then ever. Canada needs to focus on existing trade agreements in which these barriers have prevented the maximization of benefits. As you're fully aware, the dynamics regarding NAFTA and the discussion around negotiations will bring this forward.

U.S. farm leaders we have met with to date have supported the notion that more important than renegotiating every aspect of NAFTA is the need to look at regulatory harmonization as one of the key issues.

We also need to continue to emulate CETA in which non-tariff issues, including regulatory changes and a dispute process to deal with non-tariff barriers, were addressed to an extent.

We do celebrate the successes of CETA. We are concerned about the failure of TPP. We vigorously defend NAFTA, and we pursue additional bilateral trade agreements. We must not forget that trade negotiations and agreements need a multi-faceted approach, a combination of access through lower tariff rates, a harmonization of various regulatory regimes, and our own due diligence with regard to production, transportation, and marketing costs as these factors may also severely hinder our competitiveness.

Thank you.

I look forward to your questions.

[The Chair, Liberal, Pat Finnigan]

Thank you, Mr. Bonnett.

We will start our questioning round with Mr. Anderson, for six minutes.

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

Thank you, Mr. Chair.

I want to thank you gentlemen for being here today.

I also just want to note that there are western Canadian beef farmers here in the audience today. We're always glad to see western Canadians making the trip down here. It sometimes gets lonely around the table being the only one from western Canada.

I want to ask the Produce Marketing Commission something.

We hear more and more about international retailers that are basically applying phytosanitary standards to both producers and to marketers, or whatever. I'm just wondering whether you see that as a non-tariff trade barrier. How is your industry beginning to deal with that issue?

[Ron Lemaire]

That's a very valid question.

When we're looking at phytosanitary, and at trying to position plant health as a competitive advantage in terms of the negatives in the market, there's also food safety. We're also seeing the food safety movement, where the buying community may be looking at different requirements from what the market is requiring. As organizations, we're working with our partners not only here in Canada but on an international level to ensure that the baseline, the benchmark, is set. GFSI benchmark programs, such as CanadaGAP on the food safety side, are essential in that we can rely on the fact that if a buyer or a retailer in a foreign country is requesting a food safety standard, everyone is growing to that standard. They're not required to maintain multiple audits. They're not required to have additional costs and potentially cost themselves out of the market if they're not able to meet the special phytosanitary requirements and/or food safety requirements.

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

In the discussions we had here on our animal transport regulations, it was pretty clear that regulatory frameworks that get set up sometimes have nothing to do with science. For example, the EU has a certain framework tied to labour standards for people. It has nothing to do with animal transport. Sound science doesn't always require the same regulatory framework. How does your industry deal with those varying industry requirements? Or does your first answer cover that?

[Ron Lemaire]

It's an ongoing effort by industry to work to ensure alignment. I'll be honest, it's very difficult to have perfect alignment across various corporate entities on a global level. That's where it's essential on a regulatory framework and in the baseline that's set. You set the baseline in a manner that recognizes that the public trust elements are in play. The market realizes that there's a detriment to leveraging phytosanitary and food safety messaging in consumer and competitive messages, or else you create doubt in the market. That's a learning process that goes through a supply chain approach with the buying community, domestically and internationally, to recognize that no one will win on that side.

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

Do you have any recommendations that you could make to us that we might consider for our report? Testimony is fine, but we also encourage people to make recommendations. Maybe it's like asking you to quickly pull this out of a hat, but do you have any thoughts you could give us on the direction?

[Ron Lemaire]

We can definitely follow up with a more fulsome recommendation, but it does start with the baseline or the benchmark tools. The regulatory model has to be in play. As Mr. Bonnett noted, if that alignment with the regulatory systems is not in place, then the other elements that industry can then support and drive will not be manageable.

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

Could you tell us a little bit more about the dispute resolution model that's been put in place? Grains, for example, and specialty crops have tried for years to find a model that guarantees delivery and payment, and have struggled on that. You seem to be proud of the model we have. Can you just lay it out a bit? Do you have any recommendations for us around that?

[Ron Lemaire]

Very quickly, it is supported by regulation in Canada. It is structured in a similar manner to the Perishable Agricultural Commodities Act in the U.S. on the slow pay and no pay model. In short, the dispute resolution corporation was created with a membership-based framework. To sell or market in Canada you are required, at this point, to either have a CFIA licence to sell interprovincially or import product or have a DRC membership. The DRC membership bylaws require that you practise fair and ethical trading rules. The rules of engagement that may be decided on a dispute, whether it's slow pay or no pay, are bound in courts on an international level and domestic level. That gives the power so that in many cases it never actually gets to a full dispute. It can be in many cases arbitrated prior to moving through the dispute resolution mechanism.

That tool is there to implement, if necessary. It is buyer to buyer, and supporting that you need a government-run destination inspection program that is validated by all parties. You need destination inspection and you need a regulatory model to support the infrastructure. The membership base works, because it is a member or business-to-business relationship that is being dealt with.

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

Who pays the cost of that?

[Ron Lemaire]

It's a membership-driven cost. There's no cost to the government. We were very fortunate in that the previous government, back in 1998-99, invested $1 million in the research and the initial seed money to determine if this was even possible. Those funds from the government set the stage, but the program is fully funded by industry. There's no cost to the taxpayer and no cost to the Government of Canada.

[The Chair, Liberal, Pat Finnigan]

Thank you.

Mr. Drouin.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

Thank you, Mr. Chair.

I want to thank both witnesses for being here. You're always welcome here, as somebody said.

Last week, some of us got to be in Washington to talk about NAFTA and one of the issues was how agriculture is so integrated with both of our countries. But there is a potential non-trade barrier issue that will be coming up in the next two years and that's the issue of labelling and GMOs. My approach is I support a science-based approach but because our economies are so integrated together, I'm afraid that if the U.S. moves towards a labelling issue we.... And I'm looking for your opinion on that.

Do you believe that Canada won't have a choice and will have to move towards that because we're so integrated together? I'd love your opinion on that.

[Ron Bonnett]

I think the whole issue of coordinated labelling is going to be critical. It's true not only on the U.S. side moving ahead with GMO labelling but there's also an issue arising in Canada with Health Canada looking at front-of-package labelling, which is creating some concerns for Canada processors.

I think it becomes one of those things, when you're moving ahead with labelling, that you have to really take a look at what's being accepted in the international markets you're trading into but at the same time ensure that it doesn't become a non-tariff barrier. I think in Canada and many countries labelling has always been done to identify a potential food health issue as opposed to a perception issue.

I was recently in the United States and met with a number of farm groups there, and they're basically in the same place we are. They want the labelling to be evidence and science-based. That is why I think it's really important in trade agreements to make sure that those types of issues are addressed. It's not just about tariffs anymore. It's about a number of these different issues and a change in one jurisdiction could really drive extra cost into the system and create a competitive disadvantage for Canadians.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

Ron.

[Ron Lemaire]

I totally agree with what Ron is saying. We see this often in that we have companies that do not export because of the cost of creating secondary packaging into another country. It is a significant burden on the grower-shipper. The GMO labelling discussion is one that is sensitive. We have to try to move away from socially driven regulation towards a science-driven framework.

When we look at how we're currently structured in Canada, we deal effectively with biotech and genetically modified tools to enable us to feed the world in an effective manner in that if the use of the technologies creates an allergen or changes the product, it needs to be identified ensuring that we're clearly labelling and notifying the public.

We have GMO labelling now technically. We don't need to separate it out. No one is asking us to say you must label conventional and say this is how you grow. If we're looking at a science that has been regulated by Health Canada and effectively delivered for many years now, how do we take that sound science forward and look at alignment with our trading partners to ensure that two pieces don't happen and we end up having multiple packaging to ship? We need to look at how we reduce that hard core cost, and that's very difficult because front-of-packaging labelling is one piece, nutrition labelling is another. The U.S. and Canada have two totally different nutrition labelling models.

If you want to ship to the U.S. and you're packaging your apples and you want to make a claim, you must put a U.S. nutrition panel different from Canada and vice versa coming into Canada from the U.S. Right off the top, it's not as simple as just saying what are the commonalities. There are many differences that we're looking at right now. It's a complex issue.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

What we're being told is the food industry approached the U.S. government because it was becoming a patchwork of systems and it would have been a nightmare for them to try to adapt to the different packaging requirement in every state.

[Ron Lemaire]

We could spend the next hour talking about it, but afterwards we should follow up because this is a concern.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

They are going to be spending the next two years developing regulations and that's something that I'll be monitoring closely.

I wanted your opinion on the Regulatory Cooperation Council, and if you find that's a good avenue to harmonize both of our countries' regulations, and if you have personally worked with them to try to advocate for better regulation or harmonization across both of our countries.

[Ron Bonnett]

First of all, we were involved fairly early with them when they started out. I think there was a lot of hope about addressing a number of common issues that we have to deal with. I think they did a good job initially. They seem to have lost a bit of steam. Possibly that's because there hasn't been a really good effort to clearly identify specifically some of the regulatory barriers that we have. That almost comes into taking a look at the Senate report and one of their recommendations about putting a committee together to identify specifically what non-tariff barriers are being faced. Unless you can clearly articulate what the barriers are, then you're in a very difficult situation to negotiate and influence change. It's very easy for people to go into general comments saying, “Oh, yes, it's all about regulations.” Well, we need to start boring down to the specific types of regulations that are a difficulty and ensure that groups like the Regulatory Cooperation Council have that ammunition when they go to talk with their American counterparts.

[The Chair, Liberal, Pat Finnigan]

Thank you, Mr. Bonnett.