International Trade Committee on May 3rd, 2012

[The Chair, Conservative, Rob Merrifield]

I want to call the meeting to order.

We have a bit of an abbreviated meeting today, in a sense, and we have some of our guests who are here a little bit early, which is a good thing. With us we have the Canadian Pork Council and Canadian Pork International, with Jacques Pomerleau and Mr. Vincent.

Thank you for being here and for being here a little bit early.

John Masswohl is on his way. He is scheduled at 12 o'clock. We'll probably start with the presentations and then move into that.

Prior to that, while we have a little bit of time, we just want to get straight the title of what we're studying. The title of what we're studying should be “A comprehensive, high-level economic partnership agreement with Japan”. We would ask for unanimous consent to make that change on the title so we get it right. It's sensitive in some quarters, and we just want to make sure we're accurate on it.

[Wayne Easter, Liberal, Malpeque, PE]

Could you run by us what you were asking for? What's the title?

[The Chair, Conservative, Rob Merrifield]

It's that we change the title to “A comprehensive, high-level economic partnership agreement with Japan” instead of “The Canada-Japan bilateral trade agreement”.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

I just have a quick point on that. My understanding is that the Japanese prefer that language.

[The Chair, Conservative, Rob Merrifield]

Yes.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

It doesn't really matter to us.

[The Chair, Conservative, Rob Merrifield]

It doesn't really make a big difference to us.

Do we have unanimous consent to that?

[Some hon. members]

Agreed.

[The Chair, Conservative, Rob Merrifield]

Okay. That's carried.

Now we'll move on to the testimony. We would like to start with the Canadian Pork Council. Mr. Vincent, the floor is yours, sir.

Just one second, please.

Mr. Easter.

[Wayne Easter, Liberal, Malpeque, PE]

Mr. Chair, in terms of witness time, do we have any idea of how long we're going to be meeting? We're wondering about putting a number of witnesses forward.

[The Chair, Conservative, Rob Merrifield]

I've asked.... I think maybe you were out of the room at the last meeting. We wanted.... Put your witnesses forward. We're not going to try to restrict any witnesses. If you have witnesses you want to hear from on this, this is fairly comprehensive.

[Wayne Easter, Liberal, Malpeque, PE]

You're not? That's quite a change.

[The Chair, Conservative, Rob Merrifield]

No, this is actually.... It's very important we hear as many as...and that we have a comprehensive look at this agreement and this study we're doing. So put your witnesses forward. We have no intent to curtail anyone. We'll add the time that is necessary in order to be able to hear the witnesses.

The floor is yours, sir.

[Jean-Guy Vincent, Chair of the Board of Directors, Canadian Pork Council]

Thank you, Mr. Chairman.

Good morning. I have been working as a hog producer for 40 years in Sainte-Séraphine, in the riding of Richmond—Arthabaska, and I am the chair of the Canadian Pork Council's board of directors. I therefore know the pork production industry very well.

I would first like to thank the members of the House of Commons Standing Committee on International Trade for the invitation to appear before you this afternoon to discuss the Canada-Japan bilateral trade agreement.

The Canadian Pork Council serves as the national voice for hog producers in Canada. We are a federation of nine provincial pork industry associations and our purpose is to play a leadership role in achieving and maintaining a dynamic and prosperous Canadian pork sector.

Canadian producers recognize the importance of trade and welcome the Canadian government's efforts to expand economic ties with Japan through a comprehensive economic partnership agreement.

Pork exports from Canada to Japan have been a major success story and this has led to a strong trade relationship that has benefited both countries. The Canadian pork sector has a long history of trade with Japan that goes back more than 40 years since the first shipment of pork left Canada for Japanese customers.

Canada is currently Japan's second largest supplier of pork after the United States and we believe there is still room to grow our sales. A trade liberalization agreement between our two nations will provide a big boost for our industry.

Our major competitors are eyeing the deal with envy and will be seeking their own deals to access this market. Unlike the Korean Free Trade Agreement, we cannot take our hand off the throttle. Any hesitation or delay will allow other countries to initiate their own trade deals with Japan and pass Canada in finalizing their agreements.

The Japanese market is very demanding on the safety of products and requires a high level of food safety from importers.

These requirements have enabled the Canadian pork industry to develop high-quality food safety programs, such as the Canadian quality assurance program. These programs have assisted the industry in accessing Japan and other international pork markets. The Japanese influence on the Canadian industry has led us to be better producers and better exporters.

I must take a moment and point out that the Japanese market, with or without a free trade agreement, will not be a substitute for the lost Korean market or other gains from Canada's entry into the Trans-Pacific Partnership or the European Union. Every market we currently ship to has a different preference for pork.

I want to be clear, we fully support the government's trade agenda and recognize the work Minister Rizt, Minister Fast and his predecessors have done to improve market access for pork and other agriculture products. However, we need to finalize the free trade agreement with South Korea before we completely lose our market share in Korea while pursuing the free trade agreement with Japan. Completing these two free trade agreements will have an immediate and significant impact on the Canadian pork sector.

Increased market access allows our industry to market different parts of the animal for the best price. This makes us more competitive. This also results in a stronger and more flexible industry, where all parts of the value chain can have a return on their investment.

You are most likely aware that the hog sector in Canada has had its fair share of financial difficulties over the past number of years. Therefore, and I repeat, we must first and foremost maintain our market share in various countries and, second, develop new markets so that our industry can remain dynamic, and Canadian agriculture prosperous.

Thank you.

[The Chair, Conservative, Rob Merrifield]

Thank you very much for that testimony.

I forgot to tell the committee what we did with our first two witnesses. Our first two witnesses, the Forest Products Association of Canada and the Canadian Agri-Food Trade Alliance, will be rescheduled for next Thursday. It was the votes that bumped them. It's unfortunate, but they're from Ottawa, so it won't be too much of an inconvenience.

Mr. Pomerleau, the floor is yours.

[Jacques Pomerleau, President, Canada Pork International]

Thank you very much, Mr. Chair.

My name is Jacques Pomerleau. I'm the president of Canada Pork International. For those who do not know us, CPI, as we are also known, is the export market development agency of the Canadian pork industry. We were established in 1991 as a joint initiative of the Canadian Pork Council and the Canadian Meat Council.

Our organization truly represents the industry when it comes to export market development. We deal primarily with market access issues, the promotion of Canadian pork abroad, providing market intelligence, as well as working on other significant issues related to export.

With regard to Canadian pork exports to Japan, in 2011 Canada remained the world's third-largest pork exporter behind the United States and the European Union. The industry established a new record, with total pork exports amounting to 1.15 million tonnes, worth $3.2 billion. Canadian pork has been shipped to more than 140 countries worldwide in the last four years, so we are truly a key player when it comes to the world pork trade. We hold nearly 20% of the total world pork trade. We are a significant player.

More than 50% of total Canadian pork production is exported, and if you add the live animals exported to the U.S., it's more than 65% of total pork production that is exported. It is worth noting that Canadian pork exports to the U.S. now represent less than 30% of the country's total exports, while it was more than 75% twenty years ago.

The Japanese market is extremely important for all Canadian pork industry stakeholders, with sales in 2011 of 220,000 tonnes, roughly valued at almost $900 million. This represents approximately 20% of our total Canadian exports by volume, but more importantly it's almost 28% in value.

Japan is currently Canada's second-largest market, not far behind the U.S. In 2008 and 2009 Japan was our top export market in value, ahead of the U.S. What happened is not that our sales to Japan went down; it's that our sales to the U.S. increased. That explains why Japan is now in second place. For several provinces—namely Alberta, B.C., and Manitoba—Japan is their top export market for pork and pork products. Quebec and Saskatchewan are a very close second. So it's a key market.

Japan is our most lucrative market. Canadian chilled pork, a vacuum-packed fresh pork with a long shelf life, now represents 25% of our total exports to Japan. This is a value-added product.

For the first three months of this year Japanese import statistics showed that our total exports to that country grew by 2% when compared to the same date last year, in spite of a slight decrease of our frozen pork shipments. Our chilled pork exports to Japan grew by more than 12% during that period, which explains the overall growth of our exports to Japan. It is a bigger increase than what the Americans experienced during the same period.

It is worthy to note that Canadian chilled pork is now found in more than 25% of all retail outlets that sell pork in Japan, which is an achievement we're quite proud of. This result clearly demonstrates that our long-term strategy to focus on chilled pork is having some success.

Chilled pork was identified as being the product with the best growth potential in Japan, for several reasons. Number one is that the population is aging. The average age of the pork producer in Japan is closer to 70 than 65. Very small farms and also the impact of the Tsunami are other reasons.

It seems that the consumption is increasing again, which is quite a surprise to us, as we were counting on a stable consumption.

The four-year financial support provided to us by the federal government through the international pork marketing fund was key, as it provided us with the ability to open and staff a marketing office in Japan. It was also helpful in developing the right promotional material—you cannot use the same material you are using in Canada or in China—and also to expand our marketing activities outside of Tokyo. That's where the growth is coming from as far as we're concerned; it's coming from the regions outside of Tokyo.

We will seize the opportunity here to request that the government renew that fund for five years, which will end at the end of March 2013.

Third-party performance evaluation demonstrated that more than 10% of total Canadian pork exports could be directly attributed to activities funded by this fund. So if you take 10% of $3.2 billion, in my books it looks like $300 million of increased exports due to the fund. By the way, that fund is $17 million in total for four years.

In light of what I said earlier, you can see why Canada Pork International and its members are very pleased that Canada and Japan have decided to enter into negotiations aimed at concluding an EPA. Even if Canadian pork already enjoys an excellent reputation in Japan, we see this as an unique opportunity to gain an additional competitive advantage over our major competitors, especially the U.S., in the most sought-after market in the world.

These negotiations would be very different from any we have ever been involved in, due to the unique nature of the Japanese pork import regime. It is a duty differential system articulated around a minimum import price. It is encouraging to know that the Canadian negotiating team is very experienced and fully understands what this implies.

We've already had some preliminary discussions on this issue, but what remains is that CPI will have to undertake intensive consultations, both in Canada and in Japan, to identify all possible options and to develop with our negotiators a realistic negotiating position, hopefully by the end of this summer. It will not be a surprise if pork is one of the very last items to be dealt with during the negotiations. As a matter of fact, we've been forewarned that it's likely to be the last one.

In regard to the Trans-Pacific Partnership, because it's part of these discussions here, I just want to say that Canada Pork International fully endorses the position outlined—I was expecting CAFTA to be speaking earlier—by CAFTA, of which CPI is a member, but I can expand on that if need be.

Thank you very much.

[The Chair, Conservative, Rob Merrifield]

Very good, and thank you very much for that.

We now have, from the Canadian Cattlemen's Association, John Masswohl, director of government and international relations. Thank you for being here. The floor is yours.

[John Masswohl, Director, Government and International Relations, Canadian Cattlemen's Association]

Thank you very much. It's always my pleasure to come and visit with you on the trade issues, and there are many trade issues that are very important.

As you know, and as we've talked about in the past, over half of Canada's beef and cattle production is exported. Nearly 80% of what we export goes to the United States, but we can do better in other markets, and we do face a number of barriers in other markets.

Japan is one of those markets that is very important to us. It's a high-income market. It's the kind of market that's made for the kind of beef that we produce, which is a high-quality, grain-fed product. We tend to want to serve the high end of the market, and Japan is a market that can do that for us. But there are a number of barriers.

We did express our support for moving forward with Japan, in response to the Canada Gazette notice in March of 2011. I've submitted a copy of that to the clerk as evidence for the committee to have on the record. I'm just going to highlight some of the pieces from this.

[The Chair, Conservative, Rob Merrifield]

I'll just let the committee know that we'll get it translated and get it out to them.

[John Masswohl]

Great.

You know, we look at Japan and the potential there, and we know that Japan imports over half of the beef it consumes. Now, as a competitive situation, Australia and New Zealand have supplied somewhere between 90% and 95% of the beef that Japan imports. The beef imports in Japan really grew quite significantly during the 1990s, after they eliminated quantitative restrictions they had previously. As well, remember that in the nineties Japan was in a very positive economic situation, with very strong currency, and it really developed some western beef tastes. They moved away a lot from fish—I'm sorry, Mr. Keddy—but did start to import more beef. Maybe they didn't move away from fish quite so much, but they certainly did add more beef to their diet and looked more at the western cuts. That really peaked, with its apex around the year 2000.

If you look at the year 2000, Japan imported approximately 700,000 tonnes of beef. Their imports from Canada that year were in the neighbourhood of 28,000 tonnes, so we supplied about 4% of their imports. We really see this as an opportunity. If we get a preferential agreement with Japan, we could shift that balance somewhat.

I looked at some of the trade barriers we face. The chief one still is.... Well, in 2003, when we discovered a case of BSE in Canada, Japan closed that market, and then later that year it closed it to the United States as well. It was fully closed and remained closed until December of 2005, when they reopened it, but it was limited to beef from cattle under 21 months of age. That's the status we're still at. We would like Japan to fully implement the OIE standards for all beef from all cattle of all ages, but certainly we would welcome as an interim step raising the age from 21 months to 30 months.

In addition to that, the standard at the OIE for what we call SRM, specified risk materials, requires that most of those be removed from cattle over 30 months of age. There are a few SRMs there for cattle of all ages, but Japan requires the SRM removal regardless of the age of the animal. So even if it's a young veal calf you're shipping, they require that the full brain and spinal cord be removed, which is not consistent with the international codes, so we'd like to see some progress on those technical issues.

The tariff is significant. We face a 38.5% tariff. In addition to that, the 38.5% is what they refer to as their applied tariff, but they have a WTO binding of 50%, which means, if they choose to, they can raise the tariff from 38.5% up to 50% or anywhere in between. They have established a trigger point. Perhaps Jacques mentioned it, because I believe it applies to pork as well. Essentially, if the beef imports rise above a certain trigger point, which I believe for beef is a 17% increase in a similar period from the previous year, then they can raise the tariff from the 38.5% up to 50%. That certainly was a concern back in 2004-05, when, as you can imagine, our exports dropped from the peak in the early 2000s to nothing. As they started to increase again we were very worried about the trigger point. We did reach a temporary understanding that they base the trigger point on a historical period, but that's a temporary policy that they renew each year. So being able to deal with the tariff in a free trade agreement can also provide that certainty so that we will actually know what the rate of duty will be.

I think one last technical issue I would mention—and I've heard it with respect to some other agriculture commodities, but certainly in the case of beef—is that the Japanese tend to pursue policies that discourage importation of the more value-added products, the more processed products. One of the ways they do this with beef—it certainly used to be an issue, and it may well be, I haven't checked in a few years—they only approve the primary slaughter facilities for export to the Japanese market, and not companies that were only taking in beef products and processing them into something more value-added.

I'll conclude my opening statement by saying that we are supportive of this agreement and moving forward as quickly as we can to create these opportunities.

Thank you.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

You can't blame Japan for acquiring a taste for Alberta beef. There's nothing fishy about that.

Mr. Davies, the floor is yours.

[Don Davies, NDP, Vancouver Kingsway, BC]

Thank you, Mr. Chairman.

First, on behalf of the New Democrat official opposition I want to welcome you to the committee and thank you for the great work that you and all your members do. I think all Canadians are justifiably proud of both of your industries. We want to work to encourage, as much as we can, the prosperity of your members.

I have a few questions for both of you.

Mr. Masswohl, you said that 50% of our product is exported and 80% of it goes to the States. From my math, 10% of our total production is for export to other than the United States. How much of that percentage currently goes to Japan? Do you have any idea?

[John Masswohl]

I'm not sure I know it on a percentage basis, but in 2011 we sent 12,287 tonnes, worth $66 million, to Japan. So if I do the math, that's less than 5%.

[A voice]

That's 4%.

[Don Davies, NDP, Vancouver Kingsway, BC]

It's about 4%. Okay.

Second, I hate to pick on my colleague from the Liberal Party. I see he's not here, so it's a good time to do it. When I met with you the other day you pointed out that a previous Liberal government in the 1990s cut some funding for research, and you found that research was quite helpful to your members. I think in one of your briefs to me you indicated you'd like to see federal funding for beef research increased. The industry itself has increased its funding, so in order to increase our ability to sell your producers' beef, should we increase our support for the research end of it as well?