International Trade Committee on Oct. 29th, 2009

[The Chair, Conservative, Lee Richardson]

Welcome to the 33rd meeting of the Standing Committee on International Trade in this, the second session of the 40th Parliament.

Today we welcome back Mr. Dhaliwal, who is substituting for Mr. Cannis.

I hope you will pass along to Mr. Cannis our concern. We hope he is well and will be back with us soon. We miss Mr. Cannis.

We have before the committee today, in our continuing study of Canada-South American trade relations with particular reference to Canada-Colombia, representatives and witnesses from the Grain Growers of Canada. Richard Phillips, the executive director, is with us, along with Gary Stanford. As well, from the Canadian Pork Council we have Martin Rice, the executive director.

We are going to begin in the usual fashion with some opening remarks.

Mr. Stanford, I think you were going to begin. If you could give us a ten-minute opening statement, then I'll move to Mr. Rice for further comments, and then we'll go to questioning.

We'll begin, then, with the Grain Growers of Canada.

Mr. Gary Stanford.

[Gary Stanford, Director, Grain Growers of Canada]

Good morning, Mr. Chairman, members of Parliament, and fellow guests.

My name is Gary Stanford and I am a director on both the Grain Growers of Canada and the Alberta Winter Wheat Producers Commission. I farm 1,200 acres in southern Alberta, where I grow wheat, barley, pulses, forages, etc. With me today is Richard Phillips, the executive director of the Grain Growers, with a long farming and agricultural policy background in Saskatchewan.

First I'd like to thank you for the opportunity to be here and to share our thoughts on Canada's recent trade initiatives, more specifically those related to Colombia and South America.

The Grain Growers of Canada represent grain, oilseed, and pulse commodity associations from every province in Canada except Quebec, but even there we have now formed a coalition to work together with the Quebec grain growers on the issue of funding for public research.

Today in our remarks I would like to touch on the need to keep our Canadian producers competitive.

Internationally, we have negotiated and are looking to negotiate trade agreements between ourselves and other countries, both multilateral and bilateral. Bilateral agreements are good in one respect because we can target key markets for Canadian exports. Examples are NAFTA, South Korea, the EU, and Peru.

It is with Peru that we have our most recent South American free trade agreement. Peru eliminated tariffs on virtually all Canadian exports, with most remaining tariffs to be eliminated in the next five to ten years. Agricultural products that have enjoyed immediate duty free access to Peru include wheat, barley, lentils, peas, and selected boneless beef cuts. Canada eliminated its tariffs on almost all Peruvian imports. The rest will be eliminated over a three- to seven-year period, with the exception of over-quota tariffs on dairy, poultry, eggs, and refined sugar, which are excluded from these tariffs.

Direct bilateral agreements with countries like Peru and Colombia are advantageous in trade because many of our imports are products that we don't produce in Canada and many of our exports are products they don't produce enough of. Canadian farmers are blessed with an abundance of land for crops like wheat, barley, canola, and pulses, while other countries have the advantage of a more temperate climate. That creates a situation in which trade can work for farmers in both countries.

In regard to the Colombian trade deal, two days ago you heard from a pulse exporter about the potential markets for pulse crops, and I would like to reinforce some of this potential. Colombia is Canada's seventh-largest market for pulses and special crops, with an annual import from Canada averaging over $53 million and 111,000 tonnes. In 2008, the pulse and special crop exports to Colombia were $80 million and 102,000 tonnes.

Pulses are Canada's second-largest agrifood export to Colombia, followed by cereals such as wheat and malt barley. The U.S.-Colombia agreement would immediately eliminate tariffs for U.S. peas, lentils, chickpeas, canary seed, and mustard seed, and would result in an immediate 15% tariff disadvantage for those Canadian products upon implementation of that agreement.

The Canada-Colombia Free Trade Agreement would ensure that Canadian pulses and special crops are not disadvantaged relative to the U.S. competitors and might even provide Canada a tariff advantage for a period of time if the Canada-Colombia agreement enters into force before Colombia's agreement with the United States does.

The Canada-Colombia Free Trade Agreement will initially provide 4,000 tonnes of tariff-free access for Canadian beans, the quantity increasing over time, compared to the 60% duty currently in place. This free trade agreement would provide competitive access for a set quantity of Canadian beans and would help Canada rebuild its market share.

Now I'll turn the time over to Richard, and he'll give you some important statistics.

[Richard Phillips, Executive Director, Grain Growers of Canada]

Thank you, members.

Gary has touched on why bilateral agreements with South American countries are good, but I'd like to share some of the shortcomings of bilateral trade agreements with you.

Bilaterals deal primarily with tariff lines, and this becomes an issue for smaller marketplaces. Canada has a population of just over 30 million people, while the United States has over 300 million, which is roughly 10 times the size of Canada's domestic market. Because we are not as large a market for imports, we don't always have the same bargaining clout that countries such as the U.S. have. In South Korea, for example, the U.S. might negotiate a better bilateral deal due to their large import market for Korean goods. If that happens, Canadian producers are permanently locked in a disadvantage if we can't negotiate the same tariff lines and market access.

A better way forward in the long run for Canada is a competitive multilateral agreement of the kind we see at the World Trade Organization talks. The multilateral process is crucial because it is the only meaningful way to get at the key issues of domestic and export subsidies.

Not that many years ago, both the EU and the U.S., for example, were subsidizing their farmers at artificially high prices, which led to massive overproduction, and then they had to subsidize the exporters to get the prices down to world prices to even make the sales. It was a double subsidy, which hurt not only Canadian farmers but farmers in many other countries also, such as Colombia.

Subsidies from other countries can be both direct and indirect. An example is what we face today in the EU oat subsidy. Although the EU does not export oats into Canada, they do sell oats at a subsidized price into the U.S., which then depresses our prices here in Canada, since the U.S. is our main market for oats.

Every country in the world wants to protect its farmers, so over time we have seen multitudes of subsidies and tariffs preventing the movement of agricultural goods and people trying to produce crops that may not be agronomically suitable for their areas. What a multilateral trade deal does is provide fair trade rules that everyone has to follow, whether they are large, powerful countries such the U.S., or the EU bloc, or smaller ones like Canada and Colombia. A WTO agreement would also provide a dispute resolution process to solve agreements that have dragged on for years.

In summary, we recognize the importance of bilateral agreements, especially in connection with the rapidly growing South American market, but we also encourage all parties to remember the importance of the multilateral process in keeping Canadian farmers competitive.

Thank you for the opportunity to be here. In a previous job I worked in international development and lived in a number of developing countries. I look forward to your questions.

[The Chair, Conservative, Lee Richardson]

Thank you, Richard.

We're now going to turn to the Canadian Pork Council.

I should say that at the outset of introductions, I did not introduce César Urias, and I ask you, Mr. Rice, if you're going to share the time as well, or will you give the complete presentation from the Pork Council?

[Martin T. Rice, Executive Director, Canadian Pork Council]

I will give the complete formal presentation.

[The Chair, Conservative, Lee Richardson]

Thank you. Of course, following Mr. Rice's opening statements, everyone is welcome to take part in the responses to questions from the committee.

We now have Mr. Martin Rice from the Canadian Pork Council.

[Martin T. Rice]

Thank you very much, and thank you for introducing César. Mr. Edouard Asnong, who is president of CPI, was planning to join us today, but he was not able to get away from his farm.

Most of you may be aware of the Canadian Pork Council. We are the national federation of provincial hog producer organizations, and we're also one of the two founding members of Canada Pork International, which is our industry export market development arm. We thank you very much for inviting us today to discuss the Canada-Colombia trade relations file.

I'll begin with a few bits of information in order to highlight the importance of trade and commerce for our industry, the hog and pork value chain.

Of the roughly 30 million pigs produced in Canada this year, two-thirds will be sold to markets outside our country. Many will be sold as live animals, but the majority will be processed into value-added products with a worldwide reputation for quality and integrity.

Canada is the world's third-largest pork exporter, accounting for about 20% of world pork trade. Furthermore, we are highly diversified in our market configuration. We exported to over 100 countries in 2008. The largest of these by volume is the United States, but in terms of value it is Japan. That was a first in 2007, and that trend is continuing.

We're very proud of our accomplishments over the last decade in achieving a wider participation in the global pork trade and in lessening our dependence on the U.S. for our exports. When CPI was created in the early 1990s, well over 75% of our exports were going to the United States; now our exports to that market are just over a quarter of our total. An essential factor in our success has been the opening of new market opportunities, whether through the WTO Uruguay Round, which introduced us to many new markets such as the Philippines, to name one, or regional trade agreements, including those with Mexico and, we hope, Colombia.

Colombia has several characteristics that make it particularly interesting from a trade standpoint. It has a large population of over 45 million, a population that is also young. The median age of Colombia's population is 27 years; Canada's is 40 years; in the U.S. it is 37, and in Japan it is 44. A young population points to greater growth in future consumption of food than does an older one.

Although it is considered a developing country and although it has experienced periods of serious political and social instability, Colombia has made very impressive gains in its economic position, having reached what might be considered a middle level of income, as it stands 29th in the world in both population and gross domestic product.

While population growth is relatively high, mean per capita income has also been increasing, and as is often the case with developing countries experiencing economic growth, there are greater expenditures on food and a rising demand for meat in the diet. Given these conditions, Canada has witnessed increased pork exports to Colombia. Pork exports have more than doubled in quantity over the past 10 years, and it is of particular interest in our quest to achieve greater value-added exports that they have grown by five times in value.

We wish to point out that to the credit of our federal food safety system, Colombia has recognized our plant inspection and export certification procedures. In practice, all Canadian federally registered establishments can export to Colombia. Not having to bring inspectors from Colombia to inspect and visit each plant in Canada represents a major benefit for us. Rather than going to the individual plants, they've approved our system.

The conditions of economic growth and improved political stability in Colombia lead us to believe Canada can look to continued growth in trade, including pork, if we are able to retain favourable terms of access relative to our competitors in that market. The particular case in point here is the United States.

Colombia's WTO tariff bindings on pork range from 70% to 108%, while the applied tariff rates range from 20% to 30% on some products. The U.S.-Colombia free trade agreement provides for the complete phasing out of tariffs on most key pork products within five years. This would provide a significant advantage to our U.S. competitors for several years.

The Canadian deal with Colombia calls for the phase-out over five years of only the in-quota tariff. It will require another eight years to see the effective elimination of duties above the tariff quota.

While the tariff quota is 5,000 tonnes--a fairly large amount that is at least 50% greater than our exports last year, and an amount that will increase by 3% per annum--we do see opportunity for even greater growth in export volumes, such that the U.S. will maintain a significant total advantage for several years by having all tariffs on all products entering the U.S. eliminated within five years of the implementation of their agreement.

As the members are likely aware, the Colombia-U.S. FTA has not yet been implemented, and it remains quite unclear as to when the United States Congress will deal with it. However, based on information from our own contacts with U.S. industry officials and policy-makers, our view is that the U.S.-Colombia agreement will quite likely be passed and put into effect by the current Congress--in other words, by 2012.

It is therefore very much our hope that Canada will pass into law its own trade liberalization agreement with Colombia as soon as possible, so that we can get a head start on reducing Colombian import charges on Canadian pork. The sooner we are able to implement our own agreement, the lesser will be the U.S. tariff advantages, both in size and in duration.

In summary, the Canadian Pork Council supports the establishment of conditions for continued development of economic relations between Canada and Colombia. In that context, we strongly support passing the Canada-Colombia Free Trade Agreement at the earliest opportunity.

May I take one more minute of the committee's time? In the same context of economic and trade agreements, we'd like to bring the members' attention to a development that occurred last week: the European Union and Korea signed their free trade accord. We expect this development will revive interest in the United States in implementing the deal they completed with Korea last year.

South Korea is Canada's fourth-largest market for pork exports, with shipments for the first half of this year exceeding $70 million. It happens that Canada's two principal competitors on the Korean pork market are the European Union and the United States. Here again, Canada has a very significant interest in not being left behind in the race to complete regional trade deals. We urge the committee to support efforts to complete and implement a Canada-Korea free trade agreement.

Thank you for your time today. I look forward to answering any questions you may have.

[The Chair, Conservative, Lee Richardson]

Thank you, Mr. Rice. We will begin our questioning with Mr. Brison.

[Scott Brison, Liberal, Kings—Hants, NS]

Thanks very much for your presentations today.

I would concur with your intelligence that both the Obama administration and Congress are moving forward with the Colombia-U.S. FTA. I was in D.C. two weeks ago, and one of our meetings was with Secretary Clinton. She volunteered the information that they're making great progress with Congress on this. Despite the challenges around health care and the rest of it, there is a growing consensus on the FTA. Of course, President Obama has asked Trade Representative Kirk to move forward, and the Democrats in Congress have been asked to move forward on this.

You touched on what the effect would be if the Americans were to secure the FTA with Colombia prior to the ratification of the Canada-Colombia FTA. What would be the impact on jobs? We're in a difficult economic environment in Canada. What would be the impact on jobs in your industries if the Americans were to secure a ratification of the FTA before Canada does?

[Martin T. Rice]

We look at our industry as accounting for about $10 billion of economic activity, both domestic and export, of which roughly two-thirds, or perhaps a little less, is related to the export business. Conservatively, we're looking at a $6 billion industry. Colombia is our 20th-largest market. It's actually one of the few that has grown significantly in the last five years. We would be looking at that country right now as representing probably less than 2% of our exports, but we would quite easily see it climbing to 4% or 5%.

We'd be looking at being at a real risk here, because if the U.S. took over that market, probably $50 million of economic activity within five years would be lost if we couldn't also at least get in a position to have those first 5,000 tonnes go in at the reduced tariff.

For our first 5,000 tonnes, we would keep up with the Americans. It's when it goes over 5,000 tonnes that the Americans would be ahead of us, considerably, under the free trade agreement. If we can get two or three years' head start on them, then the advantage they would have would be much reduced, perhaps even insignificant.

[Richard Phillips]

On the grains and oilseeds side, they sell about $185 million of wheat and barley alone a year in there. That's 360,000 tonnes of wheat--a third of a million tonnes of wheat--and about 60,000 tonnes of malt barley.

It's hard to measure whether we would have job losses, because we would export those crops somewhere else, but we would have to find another market for that product. When you have too much product that you're trying to sell, you end up taking a lower price. It probably feeds back into farm income directly, but I'm not sure there would actually be job losses in grains and oilseeds.

[Scott Brison, Liberal, Kings—Hants, NS]

Mr. Stanford spoke of the fact that there isn't a lot of overlap between the commodities within which Colombia has a comparative advantage and commodities wherein Canada has a comparative advantage. That's an important issue to us, because we don't want to see a crowding out of Colombian agricultural capacity broadly.

Richard, you mentioned your background in international development as well, so you can speak to this. Where do you see the future of Colombian agriculture? What is the effect of the FTA on Colombian agriculture? I would be interested in your feedback.

[Richard Phillips]

It's my understanding that only about 5% of the land in Colombia is actually arable land. I think Colombian farmers will always be doing some local production for local consumption.

Their main exports are coffee and bananas, for example. Those are two of their major exports, and it's stuff we don't grow here, so there's a comparative advantage for them to export crops like that while importing wheat from Canada, for example. Canadian farmers can produce wheat and produce it cost-effectively. We're just simply blessed with so many acres of land and a climate that is well suited for wheat production.

I think each of us in some way would gravitate to what we produce best and what our climates are best suited for.

[Scott Brison, Liberal, Kings—Hants, NS]

Then there ought not to be a broad-based crowding out of Colombian agricultural capacity as a result of this, except perhaps in coca and the narco-economy. Hopefully legitimate economic opportunity can crowd out some of the drug economy, but you're saying that in terms of legitimate agricultural capacity, it won't have a significant effect on Colombian agriculture.

[Richard Phillips]

No, a Canada-Colombia deal won't, just because of the difference in the products.

[Scott Brison, Liberal, Kings—Hants, NS]

You mentioned the recognition of Canada's food inspection standard. We're hearing from some witnesses that economic engagement can help in Colombia from an institution-building perspective. Those witnesses included the representatives we had here from the Government of Canada last week, and one representative from HRSD, who was speaking of the fact that Canada is funding labour inspectors in Colombia through a special project. Colombia has more robust labour rules than Canada, but inspection is an issue, so we're helping fund them.

Do you see a potential for Canada's food inspection agencies and our practices to help Colombia strengthen its regime in this regard, as part of an institution-building exercise?

[Martin T. Rice]

Yes, I certainly would. I think the Canadian food inspection system has already been engaged in several countries, including China, to help establish a system that is fairly rigorous and fairly predictable in its operations.

It will be more than just food inspection. We actually have a fairly good dialogue with our Colombian counterparts, and many years ago we shared with them the Canadian grading system. This is not food inspection; this is quality improvement. That would probably be 10 or 15 years ago.

I actually just came from a conference at which several Latin American countries were present, and one of our past directors, Dennis McKerracher, who is a former producer and is still very involved in matters of the swine industry in Alberta, is working with Colombians on bringing in traceability systems. In fact, the Colombian industry is quite well organized, and quite prosperous, actually. They've had some tariff protection, but they've also had strong growth in their domestic market. They are working with Dennis and others to put in place a system for tracking of animals, which would then complement their food safety system. It will be more than just the food inspection agency; I see a lot of industry collaboration.

[Scott Brison, Liberal, Kings—Hants, NS]

Thank you.

[The Chair, Conservative, Lee Richardson]

Go ahead, Monsieur Cardin.

[Serge Cardin, Bloc, Sherbrooke, QC]

Thank you, Mr. Chairman. Welcome, gentlemen.

For some time now, we have been hearing some members repeatedly state that it is only a question of time before the United States reach or ratify an agreement with Colombia and that it will happen sooner rather than later.

I guess it depends on who you talk to. Some have said that the agreement is ready and that it only remains to be ratified. That is not necessarily true, especially since one of you said that it could be done by 2012, because there remain human rights issues. So we think it could be 2012 but it might even be later. We are saying here that we have to move faster than the others. But I think in this case we can take it relatively easy. If Canada decides to ratify, I believe it can be done before the United States.

Earlier, Mr. Stanford or Mr. Phillips talked about the relatively positive results of the negotiations and bilateral agreements. You also mentioned that a multilateral agreement would probably be ideal since it is difficult for smaller countries to reach a beneficial agreement in a bilateral framework and that the rules under a multilateral agreement are generally more fair. However, Mr. Rice did not raise this issue. So I would like to know if he too would be in favour of a multilateral agreement in an ideal world.

Also, since the United States did not want to ratify the agreement because of human rights issues, do you believe that it would be easier to have a multilateral agreement and to incorporate aspects such as these, respect for human rights, labour standards and the environment? I would like to have your general views on this.

[Martin T. Rice]

Maybe I'll start on the matter of the multilateral approach versus the bilateral, and I think it ties in with the U.S. attitude as well.

There is increasing pessimism over the Doha Round and a lot of speculation that the Doha Round is all but finished, in which case there will be much more attention given in the U.S. to getting their existing trade agreements that have been negotiated into place. We'll see in a month, when the ministerial talks happen in Geneva. There will be a linkage between those two; I think the pessimism on Doha will give more impetus to getting the Korea deal through.

Maybe I will pass it over to Rick. I'll think of another point, maybe.

[Richard Phillips]

I think the advantage in the multilateral, as I said, is that the agreement becomes the rule and the standard for everybody. If we rely solely on bilateral agreements while trying to get at some of the issues of human rights and labour, for example, we could end up with a mix-and-match of standards, because each country may negotiate differently. The U.S. could negotiate levels different from those Canada might be able to negotiate. You'll end up with a mishmash of things. For some of these issues a multilateral approach will end up being far superior.

[Serge Cardin, Bloc, Sherbrooke, QC]

In each of your industries, there are sometimes very significant price fluctuations. You also have a very large production capacity. This can cause major problems at various times.

Also, there are often food shortages happening in the world. Today, you are trying to increase your markets. How can we reconcile this contradiction? The food crisis is relatively recent. Nevertheless, you are able to sell and you are looking for further markets. However, there must be markets out there even if we have a food crisis happening somewhere. How do you explain these price fluctuations when there is a food crisis going on and it is becoming difficult to export?

[Martin T. Rice]

It does sound odd that we wouldn't be seeing a more remunerative market for our pork, for example, on the world market right now, given that there is a certain amount of pressure on production in some areas, but we have slipped considerably behind some of our competitors in terms of access, and some of it is through the free trade agreements.

Also, on the cost side we've seen a great deal of instability. We aren't suggesting it's unfair, but it has come on rather suddenly in terms of some of the costs of inputs. Biofuels, for example, have affected the price of grains, and so on. It's taking time to absorb that and to adjust to a new reality. The Canadian dollar has been very strong; that has had an impact opposite to the impact of the weakness of the U.S. dollar, which has made U.S. exporters much more competitive.

We've also seen a decline in major markets that emerged in the last four or five years as very promising opportunities for our exports. That's partly due to recession. We've seen Russia backing off on their importations, and China, for its own internal political reasons, deciding that it would not allow itself to be dependent on imports, at least for a while yet, and turning up its production levels remarkably. These developments have caused us to see much less opportunity.

For us this year, it has been the emergence of H1N1, which is a huge factor in the world demand for pork. There are still many countries that link pork meat with the transmissibility of H1N1, when in fact the problem is more one of people passing the virus on to pigs. That has been the most serious situation for us as an exporter. We've been hit quite significantly.

Yes, we are still moving product, but as in any commodity market, it moves at whatever price you can get for it, and when the demand conditions are weak, the price is also weak.

[Richard Phillips]

I'll follow up with a couple of short points.

We saw a tremendous run-up in prices about a year ago. In the last 24 months we've seen a huge price spike in grain. There will always be highs and lows in grain prices due to global weather. Maybe China will have a bad crop one year, or India or the U.S. will have a bad crop. Those supply-and-demand aspects will always result in small spikes in prices.

A couple of years ago when the biofuels were starting, we saw that it wasn't just the biofuels causing it. A lot of speculators and hedge funds got into the market and drove prices to the point that there was no economic reason for the prices to be where they were. They've exited the market, and now there's a new base under the prices from the biofuel demand. However, I don't think we'll see the same range of price spikes that we saw before.

In a lot of the countries in the developing world, 70% to 75% of the people rely on agriculture for their income. Sometimes higher grain prices can actually help quite a few people in the developing world as well, but maybe not to the levels of the spikes that we saw. We would see a stronger sustained base through some of this trade.