Evidence of meeting #14 for International Trade in the 39th Parliament, 1st session. (The original version is on Parliament’s site, as are the minutes.) The winning word was america.
Conservative
The Chair Conservative Leon Benoit
Thank you very much, Mr. Young, for your presentation.
We'll go to the last presenter of the afternoon, Sandra Marsden from the Canadian Sugar Institute, before we move to questions.
We now have your presentation in front of us.
President, Canadian Sugar Institute
Thank you, Mr. Chairman and members of Parliament.
I'm here as the president of the Canadian Sugar Institute. We are the trade association representing all manufacturers of refined sugar in Canada. The sugar is produced from imported raw cane sugar, largely from developing countries, increasingly from Central America, as well as from domestic sugar beets produced in Alberta.
Today's industry has plants in four provinces in Canada: Quebec, Ontario, Alberta, and British Columbia. We've rationalized in the face of competing pressures, and we are extremely important to Canada's food processing sector. Sugar is a fundamental underpinning to the competitiveness of particularly Canada's confectionery, bakery, and biscuit manufacturing industries.
Canada is unique in that we don't protect our sugar producers. We have a very modest tariff of $30 per tonne, and that's essentially what I'm here to talk about today. This is a small tariff by international standards; it was 8% when the study was done and is actually 6% by today's world prices. This is a small tariff by international standards, but it's a very important tariff given the trade imbalance internationally in sugar.
The problem for the Canadian sugar industry is that trade agreements have not addressed sugar in any meaningful way. As you are probably aware from discussions at the WTO, certain agricultural products are considered sensitive and may escape even WTO liberalization. Well, sugar is very high on that list.
As a result, the Canadian industry has not achieved any improvement in export market access through the NAFTA, through the WTO, or through regional agreements. It is because countries like the United States and the European Union continue to protect producers at the expense of imports.
In fact, our access to the U.S. market for refined sugar decreased rather than improved with each trade agreement. It's not to say that we don't support the movement towards freer trade. The issue for sugar is that it must move in a multilateral context because regional agreements are not addressing the fundamental distortions, particularly when they exclude the United States.
The problem for us is that any increased access through a reduction in our small 6% tariff erodes our market. We either lose sales and close down plants or we lose earnings and are ultimately not cost-effective. We have no ability to offset the damage through exports. We are rather unique in the regional arena as well as in the WTO arena.
The Central American region is particularly problematic for us because they're surplus sugar producers. We welcome that sugar because we import a lot of their raw sugar and it's all duty free. They are in fact very good suppliers. We have a very good working relationship with the sugar producers in that region.
In fact, they are not actively pressing to remove Canada's refined tariff. The incremental benefit to sugar producers in Central America is very small, but those producers won't drive imports of refined sugar. It will be trading houses and other importers.
The problem for us is that the volume of refined sugar is a potential threat to our whole western sugar region. It dwarfs Canadian sugar beet production and will have a particular impact on our retail grocery segment.
It's very important for the sugar industry to have a large volume going through our plants, and we get that through sales to industrial users. Eighty-five percent of what is sold in Canada is for further confectionery, bakery, biscuit, and so on, processing. But the other 15% is the more profitable segment that keeps the whole alive, and it's the area that refined imports will target.
It's not to say that we're not already competing with those imports. We are competing. The 6% tariff is not prohibitive, yet its removal is like a welcome doormat.
I'd like to say a few words about the Costa Rica example. As members may be aware, we were very concerned about the model that this agreement would set for the Central America trade negotiations, so we are here today. We wanted to share the facts with the committee.
As you can see on page 3, Costa Rica has taken some advantage of their duty-free access to Canada. They started in western Canada, they moved to eastern Canada, and they captured national accounts.
The fact is, the volumes are relatively small at 5,000 tonnes, but the impact can be very large.
At the bottom of that page, you can see what has happened to Rogers Sugar, which owns the facilities in British Colombia and Alberta. There has been a significant decline in their gross margin—their gross earnings, effectively—and a very large part of that can be directly related to the new competitive activity of Costa Rica.
Costa Rica is a small producer relative to Central America; they produce about 400,000 tonnes of sugar and only 20,000 tonnes of refined sugar. The Central American countries are the third largest exporter in Latin America, exporting close to 2 millions tonnes of sugar—much more than the Canadian market—and have sufficient refined sugar supply to erode the western market.
Regarding the next page, the problem for us is that we're already competing actively with refined sugar imports from many countries. Investment in sugar-containing product manufacturing is levelling off, and we're starting to feel the hurt from the loss of market share in refined sugar. Once again, we have nowhere else to go; Canada is our market. That is our market. Until there is liberalization of export markets at the global level, we can only experience harm, and we're forced into a defensive posture when it comes to regional free trade agreements.
At the bottom of the slide, I'd just like to take a moment to speak to the CAFTA agreement. No one should be under the illusion that the United States offered any meaningful access to Central American sugar producers.
As you can see from this slide, on a market share basis, and even on a tonnage basis, these countries are already exporting much more sugar to Canada than to the United States.
So the U.S. increased its share of the market to 2% through the Central America Free Trade Agreement and maintains very, very prohibitive duties above that level.
These producers, who are suppliers of raw sugar and compete with us in our refined market, already enjoy 20% of the Canadian market.
As for the last slide, members of the committee, I just want to bring you back to the negotiations around the Costa Rica agreement and to remind you that the subcommittee on international trade at the time made a recommendation, which went to the House, that the special interests and concerns of our sector be considered very carefully in subsequent trade negotiations.
What we're asking for, indeed, is that very serious work be done on economic benefits and costs, and that sugar not be used as a bargaining chip in this negotiation.
Thank you.
Conservative
The Chair Conservative Leon Benoit
Thank you very, very much, all of you, for your presentations.
We'll now go to questioning, for a seven-minute round.
First up is Mr. Eyking from the official opposition. Go ahead, please.
Liberal
Mark Eyking Liberal Sydney—Victoria, NS
Thank you, Mr. Chair.
I have two questions. My first is going to Mr. Young, if he can be short and precise, because my second question might need a translator.
Free trade agreements always encourage two-way trade, and I think we are looking forward to many more agricultural products we cannot produce coming this way, too, from Central America. I'm from Atlantic Canada, where we are excited about the opportunities we're going to have to ship down there.
Can you expand a little bit on the farm products we're going to be able to sell down in Central America, with some volumes and numbers and, more specifically, what types of products we're going to be able to sell down there?
Director of Marketing, McCain International Inc.
I can really only speak to the potato industry, as that pertains to our own business, which is predominantly french fries in Central America. In those terms, for every pound of french fries produced, basically double that in raw potatoes comes out of the ground. We sell 25 million pounds of finished product, which equates to 50 million pounds of product that's grown in the ground.
That's really my expertise, so I can't really speak to other products that we would be able to sell.
I'm not sure that really answers your question.
Liberal
Mark Eyking Liberal Sydney—Victoria, NS
Is that the increase or total you could see your market having?
Director of Marketing, McCain International Inc.
No, that's our market today, and obviously all of these markets in Central America are growing markets for us. The trend is upward in terms of our volume going into these markets.
Again, as we get further engaged with many of the customers there, and as many of our customers continue to grow their businesses, it's only a good news story for the farmers of New Brunswick. As I said in my statement, almost all of our products sold there come out of New Brunswick.
Liberal
Mark Eyking Liberal Sydney—Victoria, NS
Very good. Thank you very much.
My second question is to the gentleman from El Salvador, Mr. Moreno. Maybe I'll just take my time, because the translators will have to pick it up.
In any free trade agreement there are winners and losers, and it's been brought to our attention that our textile industry is going to face some challenges as we enter into this free trade agreement. We, as a government, have to help our textile industry adapt to that.
My understanding is that many farmers in Central America are also going to have challenges, especially in El Salvador. How is your government in El Salvador helping the farmers go through their transition--assisting them? They have small plots and very challenging conditions in their area.
Conservative
The Chair Conservative Leon Benoit
Go ahead with the translation as Mr. Moreno goes along, if that would be preferable.
Economist, University of El Salvador, Canadian Council for International Co-operation
In El Salvador, the agricultural sector has been penalized throughout 17 years of neo-liberal policies. We have been flooded with imported produce at subsidized prices, and that has forced a lot of farmers into bankruptcy. We think the government of El Salvador will not be able to create a better-balanced situation for the farmers when new crops at subsidized prices start to arrive, and this will generate exclusion and migration due to the economic conditions for these farmers, who will no longer have a sustainable situation.
Liberal
Mark Eyking Liberal Sydney—Victoria, NS
We are faced with the same situation in Canada with our grain farmers. We are getting imports that are heavily subsidized, and it's causing our farmers to have a lot of financial problems. What products are you specifically talking about that are going to create the disadvantage for your farmers?
Economist, University of El Salvador, Canadian Council for International Co-operation
In the case of agriculture, we understand that one of the greatest problems is the import of grain.
Another area that's important for us would be cattle raising. This not only includes meat but also dairy products. Maybe the closest comparison point is the one we have with the agreement with the United States, in which it is very clear that the agriculture in Central America is going to be totally annihilated. The subsidy for grain in the United States amounts to $1.8 billion American. In El Salvador, we have zero dollars in subsidies. Poultry, for example, is 400% more expensive than the subsidized price in the United States. In those conditions, it's impossible to compete. If we add to this the example of Mexico, with NAFTA, it is evident how 2.5 million white corn producers had to go bankrupt because of the importing of corn, much of which is transgenic, from the United States.
The theme of agriculture is very important, but from our perspective it's not the central theme of free trade agreements. Rusa has already mentioned that the volume of trade between Canada and Central America is less than 1%. What's really significant within these agreements are investments, services, and public contracts.
Conservative
Bloc
Pierre Paquette Bloc Joliette, QC
Thank you, Mr. Chairman.
Since there won't be much time at the conclusion of the meeting and since I don't want to miss my opportunity, I want some assurances that the clerks will produce the necessary documents to allow us to table the motion tomorrow morning. I will be in attendance. Therefore, I'd also like to have the documents pertaining to the motion that we've just adopted. I'm told that won't be a problem. Thank you.
Thank you for your presentations. Right off the top, I want the representatives of the Canadian Sugar Institute to know that I'm well acquainted with this file, having served on the Subcommittee on International Trade. I've even visited the Lantic plant. The Bloc Québécois opposed the agreement with Costa Rica because the government was unwilling to take into consideration our concerns, which we felt were quite relevant. Therefore, I can assure you that I intend to make these concerns known to the committee when it examines this free trade agreement with Central American countries.
I'd now like to turn to Mr. Moreno, since I haven't had as much contact with him as I have had with our friends from the Canadian Sugar Institute. It's no secret that opposition to the free trade agreement with the United States was very intense, as he indicated. To my knowledge, CAFTA passed by a one-vote margin in the U.S. House of Representatives. Mr. Moreno described to us some of the problems CAFTA has created for the agricultural industry.
What kind of problems has CAFTA created for public services? The witness briefly alluded to them in his presentation, but I'd appreciate some more concrete examples. In what way does the free trade agreement between the United States and Central America pose a threat to the continued existence of public services in Salvador?
Economist, University of El Salvador, Canadian Council for International Co-operation
Thank you very much for the question.
One of the main risks that CAFTA entails is the privatization of public services. Everybody knows that as of 1989, there have been privatization processes in El Salvador, mainly concerning public enterprises, which have become transnational companies that act as monopolies.
Regarding trade with the United States, specifically chapter IX, which deals with public hirings, this chapter allows tendering for central governments, for municipal governments, for local governments, at the same level, and with the same requests, as the local Salvadoran companies. This is very discriminatory toward the Salvadoran companies, because the only criteria is to grant the business to the lowest bidder.
The network of public hospitals is licensed to American companies. Therefore, there are concessions of private health that are given to the American companies.
This also happens with some commercial services that are public. For example, the postal service is staying liberalized.
One of our greatest concerns is the privatization of water and of related services. In the case of CAFTA, the Salvadoran government has no exclusion, and this includes the topic of water. This is complemented by a loan given by the Inter–American Development Bank in order to create a market for commercial water and also for drinking water. Our greatest concern is that public services such as health, education, and water are inalienable rights of our population. Our own constitution considers those rights as free rights. When all the services are commercialized, then we are actually denying access to more than half the population that lives in poverty.
Conservative
Conservative
Ted Menzies Conservative Macleod, AB
Thank you very much.
Thank you to all of you. I know some of you have travelled a very long way to get here, some from as far away as southern Alberta.
Conservative
Ted Menzies Conservative Macleod, AB
I do appreciate your comments.
I will start by making a comment on some of the issues that were raised here about this not being an open debate. It will be. In the platform we were elected on we said that international agreements would be debated publicly in the House of Commons. I hope this offers some reassurance that this won't be done behind closed doors, that it will be an open, public debate, and that we will listen to comments such as we've heard here today. To be very frank, we've heard proponents and opponents to this.
I want to remind the witnesses of some quick numbers that will I think verify the fact that we don't want to force a bad deal on these countries. Since 1969, for example, we've contributed $287 million worth of official development assistance to Honduras alone; Nicaragua, $17 million in 2003-04; El Salvador, over $8 million in 2003-04; and Guatemala, $14 million in 2003-04.
We didn't invest in those countries to hurt them with a free trade agreement. I think you'll find that all members of this House want to make sure that whatever kind of an agreement we have benefits both of us. It will benefit Canadian companies and Canadian farmers, and it will also be able to provide tariff-free access for products coming from your countries as well. You can be assured that it will be an open debate and that we will take note of these sorts of comments, and we'll be hearing many more.
Mr. Young, you're talking about needing a high standard, and I think you're very accurate in that comment.
Ms. Marsden, you certainly voiced some concerns, and you haven't had a chance to answer here so I'll direct the question to you to start with.
Do you consider that there are more opportunities for your industry through the WTO, and will the WTO provide better access to agricultural products than bilaterals? I ask this because we're having that discussion around this table and in many more forums.
President, Canadian Sugar Institute
That's a very big question, Mr. Menzies.
As members of the Canadian Agri-Food Trade Alliance, we fully support the position of that organization, which represents the majority of Canadian producers and farmers in Canada, that the main avenue to achieve meaningful gains in agrifood exports is through the WTO.
Where regional agreements complement that, the CAFTA, the Canadian Agri-Food Trade Alliance, as it's distinct from the agreement, supports them but also recognizes that there are situations where--and we are a clear example of that--we are actually aggravating the problem. The problem for us is that the WTO won't come fast enough. So if a free trade deal hurts us with Central America, we may lose a plant before we ever achieve any export gains.
Conservative
Ted Menzies Conservative Macleod, AB
You made a comment, Ms. Jeremic, that a free trade agreement wouldn't build capacity, and we realize that part of what we're trying to do in helping other countries is to build capacity. I guess I'd like some reasoning behind that comment, because we've been able to build capacity in other countries, through helping them and promoting them. Providing them market access in our country would, in my mind, naturally help you build capacity for your farmers, and for your food production industries as well.
Can you clarify why you say it wouldn't build capacity in those countries?
Co-Chair Americas Policy Group, Program Coordinator, Global Justice, KAIROS, Canadian Council for International Co-operation
Yes, thank you. I can definitely clarify that. The intent of my statement was to point out the emphasis the government has placed on capacity-building and training, including training trade negotiators in Central America to negotiate with Canadian negotiators. So we're saying that even if you train them to be negotiators, it does not mean--because we're talking about two very different economies, small economies and our economy--that they would necessarily be on a level playing field.
Mr. Menzies, if I may, I was very enthused to hear your comment just now about the agreement being debated in Parliament. That's very encouraging to us. But I do have one quick question that's sort of nagging at me. When we look at Canada's approach to trade negotiations, when we look at the FTAA negotiations, and when we look at the WTO, all of these negotiations have enabled all different sectors of civil society to have access to negotiating texts and draft texts, which is one of our first demands. I find it very curious that in the bilateral realm we don't have access to the draft text, which would allow us to see the direction the government is engaging in. We see that as part of a healthy public debate.
So my question is whether the government would then support, first of all, multi-stakeholder consultations and further study on this agreement at this level with various experts, and whether there would be an actual binding vote in Parliament on the agreement. So this is all part of this process of democracy that the government has committed to. We see that the predecessor to that parliamentary debate is actually an informed public debate that then moves into an informed parliamentary debate.