International Trade Committee on June 12th, 2006

[The Chair, Conservative, Leon Benoit]

Good afternoon, everyone.

We are here today to look at the World Trade Organization again, at the agriculture services and non-agriculture market access generally. Today we'll be focusing, obviously, on agriculture probably more than anything else.

We have as witnesses today from the Canadian Agri-Food Trade Alliance, Liam McCreery, who is president. From the Canadian Federation of Agriculture, we have Bob Friesen, who is president; and we also have with Bob, Marvin Shauf to answer some of the questions, I would assume, as required. We have, from the Dairy Farmers of Canada, Jacques Laforge, president; and from the Canadian Canola Growers Association, Rick White, who is the policy analyst.

You're allowed up to five minutes to make an opening statement and we'll get right to the questions after that. I'm looking forward very much to your presentations and to the questions.

We'll proceed in the order on the schedule, starting with Liam McCreery from CAFTA.

Go ahead.

[Liam McCreery, President, Canadian Agri-Food Trade Alliance]

Thank you, Mr. Chair.

My name is Liam McCreery. I am a farmer from southern Ontario. I grow corn, soybeans, and wheat, and I'm also president of the group called the Canadian Agri-Food Trade Alliance.

Mr. Chair, I provided your clerk with a submission, both in French and English, and asked that it be part of my presentation today and part of the record. Thank you very much.

As I say, I grow corn, soybeans, and wheat, and I'm part of the 91% of farmers who rely on international markets, either for markets or for setting the price I receive.

I want to talk just a bit about CAFTA. I think each of you has the submission in front of you, and if you would please follow through, I'll go through it within my allotted time.

If you look at our membership, we have a varied membership. We represent the Grain Growers of Canada, the Canadian Cattlemen's Association, the Canadian Canola Growers Association, and Alberta Pork and Sask Pork, but we're much more than just producers. We have representation from the entire value chain in agriculture.

Indeed, we do over $50 billion in business annually and employ over 500,000 Canadians. And everyone in this room, I hope, knows how important trade is to our great country. Close to 41% of our gross domestic product does come from international trade.

On page 1, you can see it's broken down by province and we can each see how trade is important for our provinces.

Agriculture is the most distorted industry in the world. I'm going to quickly go through what it does to the members of the Canadian Agri-Food Trade Alliance.

If we look at grains and oilseeds and add up the tariffs and the subsidy distortions, it adds up to over $2 billion a year. In canola alone, tariff escalation and discriminatory tariffs cost Canadians close to $500 million a year. In beef, tariffs and TRQs cost us $1 billion; in pork, $800 million. I won't read the whole submission, because we are on such a tight timeline, but please go through those numbers and see how it materially affects Canadian producers and Canadian industry.

CAFTA's long-term goal is free trade in agriculture and agrifood. We should say that up front. That's why we exist as an organization: to promote trade liberalization, mostly through the WTO.

Let's talk about the Doha Round; that's what we're here to talk about today. It was launched back in November 2001. It was to establish fair and market-oriented trading systems through a program of fundamental reform, encompassing strengthened and strengthening rules, and to provide substantial improvements in market access; reductions of, with a view to phasing out, all forms of export subsidies; and substantial reductions in trade-distorting domestic support. Those are the goals of the WTO.

What has Canada's interaction been at the WTO so far? Well, we did sign on in 2001; we did support the framework in 2004, which built on the 2001 launch, but in November 2004 a motion was passed in the House that talked about no reductions in over-quota tariffs and no expansions in TRQs for sensitive products. That was clearly offside with the goals and objectives of the WTO and the Doha Round.

When our ministers participated in the ministerial conference in Hong Kong, the ministers from all countries had hoped to make progress on market access. Canada and its minister representatives slowed the whole process down by saying that we basically did not want any changes. We stood alone.

Presumably as directed by government, Canada's negotiating team recently stood alone in a negotiating session on sensitive products and caused consensus not to be reached. Basically Canada stood alone: it was 148 countries to 1. The WTO does work on consensus; in Geneva a couple of weeks ago, Canada clearly stopped a consensus from being formed.

There's a problem with sensitive products. If you do an analysis of sensitive products, the most sensitive products in the world are grains, grain products, and meats. Those are our two largest sectors and our two largest exports from this great country.

Clearly, those products need to have sensitive products addressed. Please read the submission; I'll skip to the bottom.

We do need a successful conclusion to the Doha development round. Canada urges this committee to direct the Government of Canada to clearly and publicly state its commitment to the Doha Round and to an ambitious outcome on all three pillars.

Then get engaged. It's absolutely ludicrous that this great country, the fourth-largest trading nation in agriculture and agrifood, continues to be offside with the rest of the world when we should be taking a leadership role.

Mr. Chair, that's a submission in five minutes. Thank you for the opportunity, sir.

[The Chair, Conservative, Leon Benoit]

Thank you very much, Mr. McCreery. We appreciate that.

I just wanted to note for all of you presenting that we will have your written presentations ready. I understand five minutes isn't enough to make your case. I also know that most people here--probably all of the members here at this committee--have talked to you considerably about your positions, so we're not coming in without some idea.

We're looking forward then to the other presentations. Next is the Canadian Federation of Agriculture. Mr. Friesen, are you making the presentation?

[Bob Friesen, President, Canadian Federation of Agriculture]

Yes. Thank you very much, Mr. Chair.

Thank you for the invitation. It is a pleasure to be here to talk about the WTO. Certainly all of the Canadian Federation of Agriculture members would like to see a successful Doha Round, and we believe we need to continue to negotiate very strongly as a team to ensure that we can achieve the objectives we need to achieve for the entire agricultural industry across Canada.

Of course, our goals for this round of negotiation are to considerably improve market access for exporters, to continue to ensure that we can maintain orderly marketing systems such as supply management and the Canadian Wheat Board, to make sure we can increase our trade in value-added products, and simply to make sure we can develop and implement clear, enforceable trade rules in this next negotiation.

I'm very quickly going to run through the positive parts of the negotiation and those where we still have concerns when it comes to export competition.

Clearly it's good news that export subsidies will be eliminated. We'd like them to be eliminated immediately, but certainly it looks positive.

We're also looking positively at getting hopefully better disciplines in government export credit and food aid programs. The concern, of course, is that the rules will not be tight enough on government export programs and promotion programs and also that our Canadian Wheat Board continues to be pressured in the Doha Round. Whether you agree with the Canadian Wheat Board philosophically or not, that is a decision that should be made by farmers in Canada. We continue to support our negotiators on that front.

On domestic support, it looks positive that we will finally be able to get the U.S. to at least significantly reduce their amber expenditures. The concern we have is that they will simply move money around, into either a blue box or a green box. Of course, some of their green box programs are as trade distorting as any amber program. We would really like to see a re-definition of green box programs. We know our negotiators are working on that, and clearly we support them.

We also want to make sure our production insurance programs can be put into the green box as well, and we continue to push on that one. The concern there is on product-specific supports: they want to cap them based on historical spending. If that happens, the U.S. is going to be capped at some very high levels for some of their commodities, and Canada, because Canada historically hasn't provided much commodity-specific support, would be capped at a very low level. That would simply institutionalize that disparity.

We believe we can achieve significant market access. We want to see significant reductions of tariffs in the tariff reduction category. At the same time, we also have a sensitive product category that we want to make sure we can get enough of our supply management tariff lines into, to ensure that our import-sensitive industries aren't undermined through this negotiation.

A concern there is that the Europeans would like to, for example, put a sensitive product such as pork into the tariff reduction category. What we fear will then happen is that the tariff reduction category will not be as aggressive as we want it to be. They need to put their sensitive products into the sensitive product category as well, to make sure we use it for its intended purpose and to make sure that in fact the Europeans have to improve market access.

For example, I'm a turkey producer and a hog producer. Coming out of the Uruguay Round, as a turkey producer I had to give up 5% of our consumption in Canada for market access to the rest of the world. As a hog producer, I and the rest of the world got only 0.5% market access into Europe. That's a disparity that needs to be solved or changed as well.

In conclusion, Mr. Chair, I would like to emphasize one thing. That is that this negotiation does not have to be a tug of war between supply management and our exporters. As I said, I'm a turkey producer and a hog producer. I believe Minister Strahl and Minister Emerson have the tools they need to negotiate in such a way that there will be a win-win for everybody. I think we need to continue to push for that and support our negotiators, because they have to date done a very good job.

We also believe it's counterproductive to suggest that Canada should give in during the negotiation. We believe our negotiators should push right to the wall, and we shouldn't talk about what Canada is willing to give up, because this is a negotiation for the entire agricultural industry. We need to support our negotiators and to push right to the wall to get the best deal we possibly can for the entire agricultural industry in Canada.

While some people say that Canada is isolated with sensitive products, every other country has a sensitive product as well. This is about negotiating market access, this is about negotiating tariff reductions, this is about making sure that each country has the ability to put their sensitive products in the “sensitive product” category, so that those industries aren't undermined.

Mr. Chair, we continue to work closely with our negotiators and with our ministers to make sure, again, that we get the best deal we possibly can for the entire agricultural industry.

Thank you.

[The Chair, Conservative, Leon Benoit]

Thank you very much, Mr. Friesen, from the Canadian Federation of Agriculture.

Now to Mr. Laforge from the Dairy Farmers of Canada. You have five minutes.

[Jacques Laforge, President, Dairy Farmers of Canada]

Thank you, Mr. Chairman.

As members of the CFA, we share Mr. Friesen's views. In that context, I would like to speak a bit more about the dairy industry.

Within the framework of the Doha round of negotiations, Canada wanted to reach an agreement with clear and specific rules that applied to everyone. However, after everything that happened since 1996, the Canadian dairy industry realized that that was not at all the case. At this point in negotiations, when you read the document Mr. Faulkner has just tabled on market access, the fairness of the rules raises more concerns than ever before.

The dairy industry has changed since 1996, during the first round of negotiations. The issue of butter oil and sugar imports and protein concentrates is still outstanding. It's a huge problem. By 2013, we are supposed to have eliminated all subsidized exports—even if they are not subsidized—because based on its interpretation of the rules, a panel has determined that our exports are indeed subsidized.

By 2013, when supposedly subsidized exports will have been eliminated and imports will have increased, the dairy industry will have lost the equivalent of a billion dollars per year in terms of markets or exports. These rules really don't mean very much within the framework of WTO agreements. If there is a challenge, each party's interpretation will define the scope of negotiations. That makes no sense whatsoever.

With that, I think the dairy industry is kind of poor in trying to understand how we're going to conclude this negotiation in a fair manner. Originally, the Canadian position on agriculture was that we would give market access and we had to maintain over-quota tariff for supply management. As we speak right now, the cleaning up of market access, with everybody going up to a minimum of 5% and so on, is not in the cards at all. We're to the point where this negotiation will not be rules-based. It will not apply to each individual country and commodity the same way. We have to seriously stand our ground as far as this negotiation goes, because we're going to undermine all the supply management in Canada and we will not be giving anything to the export-oriented commodities, because they think they'll be gaining something. But again, for rules-based, they won't get anything. So we have to make a very conscientious analysis of where we are in this negotiation because we could be losing from all ends.

With that, Mr. Chairman, thank you.

[The Chair, Conservative, Leon Benoit]

Thank you very much, Monsieur Laforge.

From the Canadian Canola Growers Association, Rick White, five minutes.

[Rick White, Policy Analyst, Canadian Canola Growers Association, Grain Growers of Canada]

Thank you, Mr. Chair. I will keep my comments quite short.

I represent the Canadian Canola Growers Association, and we are members of CAFTA. Liam has given a quick overview of CAFTA's position, and we wholeheartedly support that.

The Canadian Canola Growers Association represents about 60,000 growers across Canada from B.C., Alberta, Saskatchewan, Manitoba, and Ontario, and that covers 95% of the canola growers in Canada. So we are the national association representing those growers, specifically.

We believe strongly that there are significant opportunities for liberalized trade in this round of WTO negotiations, and it's critical that we get a good deal, an aggressive deal, on all three pillars.

Every year we produce, on average, about seven million tonnes of canola. Last year was a big year. We produced over nine million tonnes, and the farm gate value of that canola was about $2 billion to $2.5 billion for our growers. It's a significant and important cash crop for grains and oilseeds producers in Canada. It can make up anywhere from half to a third of a farmer's gross revenue in any given year.

It's a going concern out there, and it creates in the whole industry about $11 billion in economic activity every single year. But we depend heavily on trade. About half our seed production is exported as seed. Of the other half, which we crush here in Canada, we consume about half--not even half--of that as oil in Canada. The other half of that oil is exported. Then of course we export meal, in addition to consuming some of that domestically.

The point is that canola is extremely heavily dependent on the international market, whether we're shipping it abroad or crushing it here at home. The price is set on the world market. And it doesn't matter where it goes; the law of one price holds. So any distortion in the international market for canola ends up hitting us here in Canada.

As I mentioned, the international marketplace is distorted by subsidies and tariffs, and these are costing us real dollars every single day. Estimates are that trade-distorting domestic subsidies cost Canada's grains and oilseeds sector about $1.3 billion every year, and tariffs and quotas are costing us another $1.2 billion, again, every year. And those estimates are from independent studies. One was done by Agriculture and Agri-Food Canada and the other was done by the George Morris Centre.

If you put that in a canola perspective, what is canola's share of that pain? On the domestic support and export issues, it's costing us about $37 a tonne, so typically, if we produce about seven million tonnes, it costs us approximately $260 million. And that's just on the domestic support pillar.

On the tariffs and quotas it's costing about $77 for every tonne of canola. Multiply that by seven million tonnes and it's about $540 million. What we are leaving on the table every single year, just from canola, is about $800 million, and that's just one commodity in this country that relies on the export market. There are other examples for barley. There are other examples for wheat and flour, and so on.

That is a lot of money. I actually calculated this for what happens on my farm in terms of my own production. On the family farm that I'm part of, we typically harvest about 285 tonnes of canola every single year. Multiply that by the $37, and that's $10,500, just on domestic support issues, that it's costing me personally on my farm.

On the tariffs and quotas of $77 a tonne, if you apply that to the 285 tonnes that I produce, it's $22,000. The total bill on my particular farm is $32,500, and I'm just one of 60,000.

So there is a tremendous opportunity here. I'm not here to say that we need to drive subsidies down to zero or that we're here to drive tariffs down to zero. I know that's not realistic, but what I am here to say is that surely to goodness, an aggressive round can bring some of that $32,000 that's leaking out of my pockets every year because of the international distortions back to Canada.

So with that, I would like to turn it back to you, Mr. Chair. And thank you very much for the invitation to appear before your committee today.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. White.

Thank you all for your presentations. We'll go directly to questioning now. From the official opposition Liberal Party, we will start with Mr. Maloney.

Mr. Maloney, you have seven minutes, please.

[John Maloney, Liberal, Welland, ON]

Mr. Friesen, I have to comment that negotiators should go to the wall and that we should get the best deal we possibly can.

What is the best deal that we can possibly get? Do we have something out there that the agricultural community can actually focus on and grasp? My concern is whether tariff reduction and market access are reconcilable.

[Bob Friesen]

A good deal for Canadian agriculture would be if we get significant improvement and profitable market access around the world for exporters. We believe we can do that, and at the same time do it in a way that doesn't undermine supply management, because supply management has proven to be more viable and stable in the agricultural industry, as a tremendous consumer of feed grains in Canada. So we believe that both of them can be done.

We also need to make sure that there is significant movement in subsidies around the world. Mr. White just said it: the $1.3 billion a year, competing against high subsidies, has cost our grains and oilseeds sector. So we need significant movement there.

At the same time, we need to make sure we don't simply allow those countries to then move that money around. We would like to see restrictions on how that money can be moved around. We would also like to see a redefinition of green box programs, because as you know, the direct money that is paid to farmers in the U.S. is trade distorting, although defined as non-trade distorting at the WTO.

[John Maloney, Liberal, Welland, ON]

I certainly support supply management, but I'm having difficulty reconciling our continuing desire to gain market access, reduce tariffs, and still maintain supply management. Are they irreconcilable?

[Bob Friesen]

No, I don't think they are, simply because most other countries at the WTO have sensitive products as well.

In fact, I mentioned the EU's pork access earlier as an example. They have no intentions of providing better market access for pork. They know that their over-quota tariffs are high enough that they can reduce them significantly. They want to make sure they don't have to expand the 0.5% minimum market access that they provide on pork. So they will fight very hard to do exactly this.

It really has to do with different countries wanting to provide market access for their sensitive products in different ways. For example, Canada is willing to go to zero within quota tariffs. Some countries have very high in-quota tariffs, and in fact some of the countries prepared to expand their TRQs have high enough in-quota tariffs that there will be no better market access, as you know. Other countries are willing to say they would be prepared to reduce their over-quota tariffs, but you know these countries have enough room that they can reduce them without actually providing better market access.

In the past, Canada has shown that it is quite willing to give a clear 5% minimum market access without in-quota tariffs, and it is prepared to continue with those TRQ commitments. So while different countries want to provide market access in different ways, different countries suggest ways of improving market access that won't actually improve market access. For that reason, Canada isn't isolated in that regard, and in fact I think has been exemplary in the way it has suggested that market access for sensitive products should be improved. Canada has also been exemplary in suggesting that there should be aggressive tariff reductions in the tariff reduction category, and I believe it has shown a lot of leadership in the negotiations on domestic support.

[The Chair, Conservative, Leon Benoit]

Mr. Maloney, Mr. McCreery has indicated he would like to answer that as well.

[John Maloney, Liberal, Welland, ON]

Yes, that's fine.

[The Chair, Conservative, Leon Benoit]

Go ahead, Mr. McCreery.

[Liam McCreery]

Thank you, Mr. Chair, and thank you for the question, because it really cuts to the chase of what we're discussing today. The most sensitive products in the world are meat, grains, and grain products. Those are our two largest exports. That's where we're getting hurt most in international markets. Mr. Friesen is quite correct in saying most countries have sensitive products. The reality is most Canadian farmers want to export into those markets. So what's a successful round? We make some progress on sensitive products. We have a tariff reduction formula that actually bites and allows access to the markets and goes after those trade-distorting supports.

We've talked a bit about trade-distorting support in the context of what the Americans are doing, and it's a huge issue for Canadian farmers. Last year the Americans spent over $10 billion to support their corn farmers, absolutely devastating all feed grain markets in the world, including Canadian barley and corn producers. We have to go after that.

We advocate having a product-specific cap to contain the American spending on each product. Last year, as I said, they spent over $10 billion. The Americans have put a proposal on the table, and I don't have the exact number, but it's between $1 billion and $2 billion for their cap, cutting by 90% what they spent on corn subsidies last year.

These are huge issues, and you've cut to the chase. What you've put on the table, and what we should be discussing very clearly and openly, is the fact that Canadian exporters are exporting products that other countries consider sensitive. It's hurting us when we, Canada, go to the wall to stop any progress on sensitive products. It hurts our credibility in the negotiations when 148 countries say we are going to make some progress on sensitive products and one country, Canada, says no. It hurts our credibility in all negotiations. How can people look us in the eye and say, you guys are serious, when we want to go after export subsidies, when as a country we don't use very many?

[The Chair, Conservative, Leon Benoit]

Mr. Maloney, just a little less than a minute.

[John Maloney, Liberal, Welland, ON]

I'm sorry, do you have a comment on that as well?

[Marvin Shauf, Second Vice-President, Canadian Federation of Agriculture]

Yes, I do, thank you. Following up on what Mr. McCreery just said, when you look at the domestic support currently provided by the United States--we'll take corn as the example he just used. The United States has said they will reduce their amber support, but they will have a fairly significant ability to continue to provide that.

They target five commodities very directly for most of their amber support.

The WTO position is they will reduce that substantially, but they want to have unlimited ability to continue to provide green support. They want to have some blue box support, and they want a peace clause that says you don't get to target us; you don't get to target the way we provide our green support. So you take the amber support as sufficient to tell producers what to grow. Then you use blue support and green support to help them do it in a similar fashion to what they currently do. You have the ability then to get market access for the Americans to continue to stuff subsidized product into those markets. And without a better strategy from a Canadian perspective, we didn't win.

We need, absolutely, to be able to win this round, because Canadian producers are as damaged as they can tolerate from this ongoing strategy of American subsidization. We're trying to compete with it, but without that same kind of protection. We've got to be better than what we have been.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Maloney.

To Monsieur Paquette for seven minutes.

[Pierre Paquette, Bloc, Joliette, QC]

Thank you, Mr. Chairman.

Thank you for your presentations. It may be easy to explain this subject, but it is not easy to deal with it politically. I've noticed that since the Conservatives were elected, there has been more and more talk of Canada's isolation at the WTO, which no doubt was also the case under the previous government. Why is there a sudden focus on Canada's isolation, in particular as regards the protection of supply management? I guess this is the argument of the proponents of that theory.

The minister, Mr. Chuck Strahl, made the same argument two or three times before the Standing Committee on Agriculture and Agri-Food. I wonder whether this state of isolation isn't due to bad management on Canada's part.

For instance, Australia, New Zealand and the United States are constantly attacking us on the issue of dairy products, and Canada has never replied that those countries have set up roadblocks to products entering their territory by invoking various arguments, including the lack of sanitary standards.

First, I wonder why people are suddenly publicly talking about the isolation of Canada, and, second, I wonder whether this was not the result of a bad strategy. I don't think Canada has really tried to explain what supply management is to other countries. I'm thinking of developing countries, for instance, who might be interested in having that type of system for themselves.

It's a question for every panellist.

[The Chair, Conservative, Leon Benoit]

We'll start with either Mr. Laforge or Mr. Friesen, and then go to Mr. McCreery, and then kind of move it around.

[Jacques Laforge]

That's a good question.

It's not new. The previous government talked about Canada's isolation once in a while as well, at critical moments, when the negotiation of modalities was nearly concluded. But now we seem to have more elements which may allow us to reach an agreement. So it's not normal that we are saying that Canada is becoming increasingly isolated.

We don't talk about isolation when it comes to supply management, but only when it comes to potentially maintaining over-quota tariffs. Supply management has not been questioned. It's a mechanism which exists in Canada, in Europe and elsewhere.

What is important is that other countries must be allowed to export sensitive products which we need. For instance, the United States have cotton, sugar and milk, which are all deemed sensitive products. In Europe, there are many such products. Each country will have to choose a percentage. We want the percentage of negotiated tariff lines to include the five staples of supply management, and once that is achieved, we want to maintain over-quota tariffs. We are clearly saying to the government that not reducing over-quota tariffs does not mean that the supply management system will disintegrate in the long term.

[Pierre Paquette, Bloc, Joliette, QC]

Of course, supply management will never be directly attacked, but it's one of the conditions for accepting supply management.

What percentage of tariff lines will be required for sensitive products if we are to protect the five staples?