Agriculture Committee on June 6th, 2017

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

One of your solutions for the duties relief program is to require a financial deposit proportionate to the value of duties at risk. Do you have any suggestions on how that might be done ahead of time?

One of the issues we have with smaller companies in other areas of agriculture is that they often have to lay down a bond or deposit in order to operate. This prevents smaller companies and medium-sized companies from operating in certain areas, particularly around buying and selling wheat products and those kinds of things. Can you tell me a little bit more about what you were thinking when you said we should require a financial deposit for those types of issues?

[Richard Domingue]

The principles applicable to the bonded warehouse could be applicable for those importers. It's up to the government to decide if it will be detrimental or not to some smaller importers. Our belief is there needs to be incentive in the system to respect the rules. If you get a licence that is not a licence for life, and if there is a financial commitment attached to that, we believe there would be market discipline and better behaviour.

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

Okay. I think that in terms of bureaucratic compliance, it's easier to make the rules for removing a licence simpler rather than requiring everybody to come and get a temporary licence and have to go through that whole system.

On that duties relief program, which we've talked a bit about, where is the real weak spot here? Is it in terms of what people are declaring and not following up on the declarations?

On the cost of compliance, you talked about fines being too low. Is it the licensing? You talked about making licences temporary rather than permanent. Or is it follow-up? Where would you see the weak spot of that program being? People are moving product in and out and avoiding compliance. Where is that happening?

[Michael Ferguson]

Again, what they're doing is importing a certain level of product that is then supposed to be processed and exported, but they are finding ways of diverting that into the Canadian market. I think it's simply a matter of the Canada Border Services Agency needing better ways of tracking what's coming in and what's happening to it. As they their investigations, they find out where there are problems and how goods are being diverted into the Canadian market. They should use that information earlier in the process to see whether there are signs that those types of activities are going on, as opposed to waiting until later on and doing an investigation into it.

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

Is their system so complicated that they can't keep track of an in and out? It should be that product comes in, and that amount of product or something fairly equivalent should be going out. Are they just not tracking that? Is that where the issue is?

[Michael Ferguson]

Remember that you are talking about goods that are being processed. If it is based on a certain volume, and then that good is being processed and you're talking about a food product, it's possible that in the processing the volume is altered. If the volume is altered, then the amount that came in may be in fact different from the amount that exists after processing. It would be possible to export a volume that equalled the volume that came in, but still have something left over, because processing can alter the volume, if you will. Things like that could happen. They need to understand what things do happen that cause there to be a leftover amount that can diverted into the Canadian economy, for example, and how they identify whether or not that's happening earlier on in the process.

[The Chair, Liberal, Pat Finnigan]

Thank you.

Ms. Brosseau, you may go ahead for three minutes.

[Ruth Ellen Brosseau, NDP, Berthier—Maskinongé, QC]

Thank you, Mr. Chair.

Gentleman, your report raises concerns. We are experiencing huge losses because customs duties are not being collected, diminishing economic returns. You made recommendations to address that, as my colleagues have repeatedly mentioned. It's really time for the federal government to show some leadership. A number of agencies are responsible for what goes on at the border.

How did the Department of Finance respond to your report? Is a lack of cooperation or data to blame? Do you think the situation will get better?

[Richard Domingue]

The Department of Finance's involvement is limited to the duties relief program. The recommendation related to quota-controlled goods, in other words, goods requiring a permit, was not addressed to the Department of Finance but, rather, to the Canada Border Services Agency and Global Affairs Canada. Their response, which appears in paragraph 2.55, indicates that the two organizations will examine ways to work together more effectively and explore automated means to validate accounting declarations when it comes to verifying permits. Their response was quite positive.

[Ruth Ellen Brosseau, NDP, Berthier—Maskinongé, QC]

If I'm not mistaken, the Minister of Agriculture and Agri-Food is supposed to undertake consultations on the duties relief program. Have you had any discussions on the subject? Are you aware of the minister's efforts in relation to the consultations or his thoughts on the program?

[Richard Domingue]

To tell you the truth, the department did not share any consultation results with us. We do not know whether the consultations have begun. We have no information on that.

[Ruth Ellen Brosseau, NDP, Berthier—Maskinongé, QC]

That information would probably be very useful. My understanding is that the minister launched the consultations in 2016.

I'm not sure whether Mr. Poissant, the parliamentary secretary to the minister, has any information. Perhaps he can tell us more.

The minister was doing a consultation on duty release. Are you aware of this? I'm sorry. I'm wondering because this is really important. It would be interesting for our committee to know when the conclusions of the minister's consultation would be finalized.

[Jean-Claude Poissant, Liberal, La Prairie, QC]

The minister remains abreast of what goes on at the border as it relates to the dairy sector. We receive updates. We keep a very close eye on the situation.

[The Chair, Liberal, Pat Finnigan]

Thank you.

Unfortunately, this is all the time we have. I want to thank Mr. Ferguson and Mr. Domingue for giving us their report on how to manage the duty imports effectively as they pertain to agriculture.

We shall break for a short period and then come back.

Thank you.

[The Chair, Liberal, Pat Finnigan]

We'll start this portion of the meeting.

I want to welcome the Canadian Seed Trade Association. Today we have Mr. Dave Carey, director of government affairs and policy. Also, from the Canadian Horticultural Council, we have Ms. Rebecca Lee, executive director, and Mr. Ken Forth, chair, trade and marketing committee.

Welcome to all of you. We'll start with an opening statement.

Mr. Carey, you have up to 10 minutes.

[Dave Carey, Director, Government Affairs and Policy, Canadian Seed Trade Association]

Mr. Chair and honourable members, on behalf of the Canadian Seed Trade Association, CSTA, I would like to thank the committee for your invitation to discuss our perspective on non-tariff trade barriers in relation to free trade agreements.

Before I offer comments, I want to quickly frame the context in which I will be offering my remarks by giving you a high-level overview of CSTA and our membership. CSTA is a not-for-profit, non-partisan trade association and the national voice of the seed industry. We bring together more than 130 companies engaged in all aspects of seed from research, development, and plant breeding to production, processing, marketing, distribution, and sales, both domestically and internationally.

CSTA members serve the needs of their farmer customers by developing seed produced through various production methods. These include organic, conventional, and biotechnology, and they range from small family-owned companies to large multinational firms. Our members work with over 50 different crop kinds that range from corn, soybeans, and canola to wheat, barley, forage and grasses, and vegetable and garden seed.

Seed is the start of it all, the first link in the agriculture value chain, an industry that is vital to the economic well-being of Canadians. The seed industry contributes close to $6 billion to the Canadian economy, employs more than 57,000 Canadians, and exports close to half a billion dollars a year.

Our members are united in their support of our mandate and mission statement, which is to foster seed industry innovation and trade. Given our mandate, CSTA is strongly supportive of the ongoing efforts of the Canadian government to increase market opportunities by pursuing free trade agreements while also addressing tariff and non-tariff trade barriers. Our first strategic priority is the unrestricted trade of seed around the world.

Seed generally trades with zero or very low tariffs, and many countries don't even apply or bind any tariffs on seed for sowing. While this is an advantage for our commodity type, we do experience a number of issues around non-tariff trade barriers.

With the remainder of my time, I will touch on some of the trade barriers we face and offer our perspective on current and future free trade deals. However, before I begin, I want to say that the Canadian industry is extremely well served by the negotiators and the market access secretariat of Agriculture and Agri-Food Canada. They have world-class people working for them day in and day out to grow markets for industry.

Canada is also very well served by our regulators. The two that most impact my members are the the Canadian Food Inspection Agency and the Pest Management Regulatory Agency. CFIA plays a leadership role at the International Plant Protection Convention, and PMRA at Codex.

I had the pleasure of witnessing CFIA' s leadership first-hand while attending the recent IPPC meetings in Incheon, Korea where, after a number of years and different iterations, the 183 contracting member countries of the IPPC adopted an international standard for phytosanitary measures for seed that seeks to harmonize the import, export, and re-export of seed. The IPPC is overseen by the United Nations Food and Agriculture Organization. There is now an 18-month goal implementation period.

One of the biggest non-tariff trade barriers faced by our industry is sanitary and phytosanitary measures, or SPS. Our members, as I mentioned, cover 50 different crop kinds and export to more than 70 different countries annually. It can be very complicated for members to navigate the multitude of trading rules, and they often face issues where SPS rules make exporting a real challenge. I'll give you a few examples.

On treatments, countries may require that shipments of seed be treated in a certain manner, such as through fumigation, in order to allow entry in the importing country, but the treatment method the importing country prescribes is not approved in Canada. Some countries may also require seed be treated with a certain insecticide or fungicide that also may not be registered in Canada, in a lot of cases for good reasons. The real-life example is Mexico's recent WTO notification.

Regarding pests, certain pests are viewed at a different threat level by different countries. Documentation, phytosanitary certificates, treatments, and field inspections are sometimes required for pests that are not present in Canada, such as a tropical insect. It's very difficult for our regulators when we're dealing with an issue and we don't have a protocol to conduct an inspection because that pest is not found in Canada.

Seed as a pathway is the last SPS I'll touch on. Most countries view seed as a low phytosanitary risk due to the rigorous conditioning and controls in place, and therefore our companies aren't subjected to overly burdensome import requirements. However, some countries view seed as a high risk and may require tests to be carried out using protocols not used or recognized in Canada as legitimate. Mexico is also an example of where they view seed as a high risk as opposed to the U.S. and most of our other trading partners.

Another one that I know you’ve heard about so far is on biotechnology. Asynchronous approvals and zero tolerances for products of biotechnology continue to be an issue. Canadian farmers are early adopters of new technologies that improve productivity, provide health and environmental solutions, and enhance competitiveness. Canadian farmers have embraced modern biotechnology in their cropping systems, and as a result, the majority of acres planted in corn, canola, and soybeans in Canada are products of biotechnology. They contain biotech improvements, often called “traits”.

These products have received full approval for food, feed, and environmental release through Canada's very detailed and stringent science- and risk-based regulatory assessment processes, both at Health Canada and CFIA. While Canadian developers are committed to seeking approvals for their innovations in important export markets as part of their commercialization plans, some countries simply do not have effective, functioning regulatory processes, and some have established a zero tolerance policy for any genetically modified product that their own regulatory system has not approved. Seed for sowing in the EU is a good example of this.

The impact on the seed industry has been significant, as countries are requiring legal declarations that there is zero presence of genetically modified product in seed shipments. Zero is not possible to achieve, and that has impacted our members. The CSTA believes that approval processes for products of modern biotech; mutual recognition of assessments and approvals; and a science-based, low-level presence policy for seed should be a part of Canada's negotiating position for all trade agreements.

Lastly, I’ll just touch on some free trade deals. CSTA was and continues to be a strong proponent of the TPP, and testified to that support in June 2016. It would have allowed preferential access to nearly 80% of our seed export markets. We would like to strongly urge the Canadian government to continue to pursue multilateral discussions with the remaining TPP partners and to also consider using agreed-upon text and provisions included in the TPP in future trade agreements.

CSTA is a strong proponent of science-based decision-making, and supports the inclusion of provisions in free trade agreements that would commit signatory countries to science, transparency, and incorporating the concept of equivalence.

The TPP also contains provisions that require countries to make their science-based approval processes for new biotechnology traits more transparent, thereby providing a greater sense of predictability and encouraging investment in innovation here in Canada. We would also support provisions around low-level presence being included in all future agreements. The TPP was the first-ever trade deal to contain such a provision. The provisions essentially establish a process to address instances where a low-level presence occurs, which will reduce trade disruptions and, again, increase transparency.

CSTA was pleased to see CETA receive royal assent, but we still have concerns with the EU's hazard-based evaluation system, as well as the very slow and unpredictable approval process for products of biotechnology. It’s rectifying hazard versus risk.

CSTA would also like to encourage the government to continue to consult and then negotiate a trade agreement with China. As other witnesses to this study have attested to already, there have been and will continue to be significant trade issues with China related to SPS and biotech approvals.

Lastly, it is our hope that the Regulatory Cooperation Council between Canada and the United States will continue to be an active entity regardless of the NAFTA renegotiations. Our industry saw real value in being able to attend the RCC meetings, in particular the PMRA-EPA interface and the CFIA-APHIS interface meetings.

In conclusion, Canada is a trading nation and agriculture is a global industry. As such, bilateral or multilateral agreements that seek to establish rules-based trade among major export markets are extremely important to the Canadian seed industry. The commercial world seed market is assessed to be approximately $45 billion U.S. a year, based on 2013 numbers. This is a global market where Canada has a lot more room to grow and expand our market share. Free trade agreements are also crucial for Canada's burgeoning non-traditional exports for seed, such as variety and germplasm exchange agreements, multinational R and D, contractual agreements for production of seed for export and import, marketing new varieties imported into Canada, and marketing new varieties abroad.

CSTA members, their farmer customers, and Canadians will benefit from reductions in tariff and non-tariff trade barriers on seed exports, and will see many positive gains from access to new markets and agricultural innovations.

We would like to thank the committee for undertaking this important study, and we welcome any question that you have today.

Thank you, Mr. Chair.

[The Chair, Liberal, Pat Finnigan]

Thank you, Mr. Carey.

I understand you will be sharing your opening statement. Go ahead, Ms. Lee.

[Rebecca Lee, Executive Director, Canadian Horticultural Council]

Mr. Chair, honourable members, good afternoon.

Thank you for the opportunity to come here today to discuss some of the non-tariff trade barriers that are affecting members of the Canadian Horticultural Council.

CHC is an Ottawa-based, voluntary, not-for-profit, national association that represents fresh fruit and vegetable growers across Canada who are involved in the production of over 120 different types of crops on over 27,500 farms, with farm cash receipts of $5.5 billion in 2015. Since 1922, in collaboration with members and the government, CHC has advocated on issues with long-lasting impacts on Canada's horticultural sector, promoting healthy, safe, and sustainable food, and ensuring the continued success of our industry.

Global competitiveness is a high priority for CHC members, and we welcome all opportunities for collaboration with the Government of Canada to prioritize agriculture as a key sector for the Canadian economy and to meet the goal of increasing agrifood exports to $75 billion by 2025. While we look forward to growing new markets through free trade agreements, there are a number of non-tariff trade barriers that should be considered when negotiating Canada's free trade agreements.

Canada's maximum residue limits, or MRLs, are set by Health Canada through the Pest Management Regulatory Agency. Health Canada sets science-based MRLs to ensure that the food Canadians eat is safe. The MRLs for each pesticide-crop combination are set at levels well below the amount that could pose a health concern.

When Canada and another trading country do not agree on these MRLs, it means the risk assessments conducted in each country differ in the amount of pesticide determined to be acceptable to remain on certain produce when it enters the market. This poses a huge technical barrier for imports and exports.

For example, Nova Scotia used to export apples to the EU, but the province stopped doing so when the EU dropped its MRL for diphenylamine—a common storage treatment for apples—to 0.01 ppm. In Canada, the maximum residue limit for this product is set at 5 ppm. In the U.S. it's 10 ppm.

Without harmonized MRLs, the risk is often too high for growers to venture into new markets. A producer in full compliance of the Canadian pesticide product label uses can have their crop rejected by the destination country due to residue violation resulting from an MRL set below the Canadian level.

Last week, CHC sent in a submission on the possible free trade agreement with China. Many of our members voiced their concern with the lack of harmonization regarding residue levels, which creates a substantial barrier for those in the horticultural sector. There have been efforts by international organizations such as the WTO and Codex to develop a world standard, but so far there is none recognized by all countries. The majority of countries are setting their own tolerance levels, and the result is inconsistent MRL standards among trading partners.

The priority to enhance trade in agricultural commodities may not be entirely successful without the work of PMRA to create MRLs for new registrations and see that they are harmonized around the world. The roles played by PMRA at Codex are essential. However, PMRA has been forced to back away from this work at this critical juncture due to severe budget restraints. Canadian horticultural producers support adequate funding of the PMRA, so they are able to continue not only to do their registration and re-evaluation work well and on time, but also to provide their expertise to further Canadian involvement in science internationally, including in harmonization of MRLs.

Trade negotiators should continue to lobby for science-based MRLs to be harmonized between trading countries to ease this technical barrier.

With regard to phytosanitary import requirements, particularly with fresh produce, it is important for our products to cross our trading partners' borders quickly, without delays, to ensure they arrive in the foreign market with the same high quality as when they leave Canada.

Phytosanitary import requirements can become significant deterrents to market access for fresh Canadian produce, as other countries may impose restrictions that are not always supported by a science-based assessment of risk. Some of these include unreasonable laboratory testing requirements, costly pre-clearance inspections, lack of acceptance of CFIA-accredited laboratory tests, and inconsistent and non-transparent regulations, such as phytosanitary requirements that change without fair notice.

In CHC's recent member consultation regarding a potential China free trade agreement, strict and inconsistent phytosanitary restrictions were one of the biggest barriers for our growers entering the Chinese market.

To reduce this trade barrier, we support the inclusion of enhanced and technically justified phytosanitary requirements that are harmonized between countries. This would strengthen the need for importing countries to conduct science-based risk assessments and allow fair market access opportunities based on valid phytosanitary conditions.

I'll now turn to hazard-based in-or-out regulatory decisions.

Building on our advocacy for a science-based approach, an additional non-tariff barrier is when governments take fundamentally different approaches to make regulatory decisions. This is the case currently with the EU, and it has the potential to become a trade barrier with other countries as well.

For example, Canada looks at actual cases and uses a science-based approach to see how to mitigate risk while continuing to use a crop protection product. In contrast, the EU makes decisions based on the simple existence of a hazard, without researching to find a solution to the risk. An example is the EU arbitrary limit for the detection of any pesticide in drinking water of 0.1 micrograms per litre, which is not based on risk. This is a different approach and comes at a cost to Canadian growers who may wish to remain in that market and have to adhere to foreign regulatory decisions.

CHC would encourage an approach whereby trade negotiations include that phytosanitary risk mitigation, based on science, is recognized in the registration of crop protection products.

[Ken Forth, Chair, Trade and Marketing Committee, Canadian Horticultural Council]

Further on fair market access, to keep Canadian fresh produce competitive here at home, we need to continue to have the support of anti-dumping rules, through the maintenance of ministerial exemptions.

Fruits and vegetables are perishable crops that are stored under costly, highly managed conditions from harvest until utilized. In the case of many crops—apples, potatoes, and root crops—growers and packers manage the available supply through the winter, spring, and summer to provide high-quality produce until the next crop is harvested. The predictability of the market ensures that, for example, Canadian potato producers provide a consistent, high-quality supply of fresh potatoes to consumers and the processing industry.

The orderly import and interprovincial trade of potatoes is facilitated either in the free import of potatoes meeting the requirements of the fresh fruit and vegetable regulations of the Canada Agricultural Products Act or through the ministerial exemption provision of these regulations.

Ministerial exemptions provide exemption from some requirements of the regulations; for example, container size and grade standards. Without the ME provisions, produce such as apples and potatoes could not be moved in bulk shipments or totes, and could not be moved in ungraded form.

At the same time, ministerial exemptions eliminate the potential dumping of large quantities of potatoes in Canada or in a province, which could result from unrestricted bulk shipments of potatoes. In the absence of this orderly marketing, Canadian producers would continue to incur the high costs and high risks associated with the storage of potatoes, yet be exposed to the unpredictable bulk shipments into their province, and accompanying economic uncertainty.

Similarly, the requirement for a ministerial exemption for grade exemptions limits the dumping of low-quality produce into the Canadian market. Such dumping could severely impact the market price for high-quality Canadian products.

As we head toward the NAFTA consultations, this is front of mind for most of our growers, who view it as essential that ministerial exemptions under the fresh fruit and vegetable regulations be maintained and not lost through NAFTA renegotiations.

I'll now turn to the cost of competition to Canadian growers.

Because Canadian growers adhere to strict food quality standards and labour laws, as well as environmental standards such as carbon pricing, their costs of production are often much higher than those of growers in other countries. Due to these production costs, other countries are often able to enter our market at lower prices, forcing growers to absorb the costs on increasingly lower margins.

While our sector promotes competition and free trade, we value the opportunity to provide fresh, safe produce to Canadians, without having to depend on imports, especially during the summer months. The Government of Canada may need to assist Canadian growers, through regulating imports to ensure foreign product meets Canada's high standards, including labour, environment, and of course, the quality and safety of the product.

In conclusion, the fresh produce sector wants to be more competitive and enter new markets. However, there are significant non-tariff trade barriers that stand in the way of our sector and deter Canadian growers from exporting their products. Strengthening the regulatory system and providing the appropriate policy support within Canada, while harmonizing regulations with trading partners, will contribute to creating the necessary conditions for success.

For Canadian exports, it's very important to have the embassies in our trading countries establish good working relationships, which can help encourage new market opportunities for Canadian growers. Key to exporters' confidence in the new markets will be ensuring that a fully developed dispute resolution mechanism is in place in the countries Canada is negotiating with. The work in Canada of the Fruit and Vegetable Dispute Resolution Corporation on slow pay and no pay could be used as a model.

Additionally, especially with our largest trading partner, we need resolution of the Perishable Agricultural Commodities Act. That's a United States act. It's called the PACA trust. The Canadian Horticultural Council has been trying for decades to get a reciprocal system in Canada for Americans, so we can use it here too, between provinces and between buyers.

[The Chair, Liberal, Pat Finnigan]

I ask you to conclude quickly; we're running out of time for the statement.

[Ken Forth]

All right.

A number of years ago our preferential treatment in the United States was taken away from us in PACA, so now we're just like any other country trading with the Americans. We need that to be resolved here so we can get that back in the U.S.

[The Chair, Liberal, Pat Finnigan]

Thank you, Mr. Forth.

We shall move to our questioning period.

We have Mr. Shipley for six minutes.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

Thank you very much.

Thanks to the witnesses.

Both of you have talked about the maximum residue levels. We have import countries and everybody talks about science-based. What we don't talk about is political science-based, which seems to be the driver above the actual analysis that comes from the science. I'm wondering, when we're talking about that, and you're talking about industries, do you keep a full discussion with the industry people that will have an impact on governments?

I'll give you an example. When we talked about CETA in Europe, the farmers over there who did not have access to GMOs said they would love to have access because they understood the value of it and the production value to it, but there was the political drive not to. It didn't matter about the science. How do you deal with that with an industry?

Then I want to come back a little to the PACA.

Dave first, and then maybe Rebecca.

[Dave Carey]

Sure, I'll leave it to my colleagues in the Horticultural Council to talk about maximum residue limits, because that's not one that we deal with on the seed side, but we definitely do deal with foreign markets where decisions do not seem to be made on the best possible science.

We have a strong working relationship with the European Seed Association, as well as the International Seed Federation. I think from our members' perspective, as well as those companies, especially the multinationals that operate in all the jurisdictions, when it comes to the import or export of biotech products into the EU, it still happens. It still happens for feed, it still happens for things, but it doesn't happen for sowing. We hear from a lot of our members that a lot of our companies have given up trying to get approval so they can actually export seed to the EU, so the EU farmers, who do often want it, can actually plant and grow that crop.

Right now, the only access they have to biotech products is for feed for animals or just the straight importing of products. We do talk to them quite a bit, but as you said, the European approval process is not great; but it's when it actually gets past that process to the EU member states that everything gets into a logjam.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

I don't know if Rebecca or Ken would have a comment.