International Trade Committee on May 17th, 2012

[The Chair, Conservative, Rob Merrifield]

We'd like to call the meeting back to order.

We have our witnesses before us. By video conference, we have the Canadian Canola Growers Association, and Richard White, the general manager.

Richard, can you hear us?

[Richard White, General Manager, Canadian Canola Growers Association]

Yes, I can hear you loud and clear. Can you hear me?

[The Chair, Conservative, Rob Merrifield]

Very good. We can hear you loud and clear.

We also have, as an individual, Julian Dierkes.

Can you hear us?

[Prof. Julian Dierkes, Centre for Japanese Research, Institute of Asian Research, University of British Columbia, As an Individual]

I hear you just fine. Thank you.

[The Chair, Conservative, Rob Merrifield]

Very good, and likewise.

We will start with you, Mr. White. The floor is yours. We look forward to your testimony before the committee.

[Richard White]

Thank you, Mr. Chairman, and good afternoon to the members of this committee. Thank you for inviting me here today to speak about the Canada-Japan economic partnership agreement.

Japan is a vitally important market for canola, and we fully support Canada’s efforts to strengthen our economic ties.

In addition to my role as general manager of the Canadian Canola Growers Association, I continue to be involved in the family grain farm in southeastern Saskatchewan. Canola is an incredibly important economic and agronomic contributor to our farm and to the 43,000 canola farms in this country.

CCGA represents these 43,000 canola growers. It is governed by a board of farmer-directors who represent all provinces, from Ontario west to B.C.

Japan was Canada’s first and continues to be our longest-standing international customer for canola seed. Over the decades, it has become an incredibly valuable, and, equally important, predictable export market for Canadian canola. Because of this, our industry is continuously building on our trading relationship with Japan. For example, every year, Canadian canola exporters host a large delegation of Japanese customers as part of the official Canada-Japan consultations. This biannual event, which includes tours and round table discussions, is held every July in Canada and each November in Japan. These consultations have laid the foundation for a successful, long-term trade relationship between Canada’s canola industry and Japan’s crushing industry.

Canola oil has been the number one vegetable oil in Japan since 1989, when it exceeded soybean oil consumption in demand. As a result, the Japanese purchase more than two million tonnes of Canadian canola annually. This consistent demand has played an important role in our industry’s success. That success has seen canola go from marginal production in the early 1980s to being the number-one cash crop in the country. It contributes $15.4 billion to the Canadian economy annually. Over 12 million tonnes were produced in the last crop year alone. And the industry has set a goal to increase production to 15 million tonnes by 2015, a goal that may even be surpassed this year, three years early.

The industry is highly trade dependent—we export 85% of seed and canola products on an annual basis—and the canola industry’s success has been facilitated by our ability to compete in global markets. The future success of the industry, and therefore the success of Canada’s canola growers, is also highly contingent on its ability to export products, including seed, meal, and oil, and to compete in international markets.The pursuit of new markets and the liberalization of existing ones are key to the growth of canola exports and to profitability for Canadian growers.

In conjunction with the Government of Canada, CCGA will continue to push for the liberalization of trade in those markets where trade barriers currently exist. Pursuing export markets for seed is important, but an increase in exports of value-added products, such as canola meal and oil, will have a greater economic impact domestically than seed exports alone. CCGA is hopeful that an agreement with Japan would result in a shift in trade from seed exports to higher value oil exports.

While Japan maintains tariffs on canola oil to protect its domestic processing sector, seed and meal enter the country duty free. As a result of this tariff escalation, whereby refined canola oil faces an even higher tariff than crude canola oil, Canadian canola exports to Japan have focused primarily on seed, which remains duty free. Over each of the past few years, Canada has exported about two million tonnes of seed, worth over $900 million, to Japan, making this Canada’s largest consistent seed market. By comparison, oil exports to Japan have been relatively modest, at just 8,400 tonnes, worth about $6.8 million, in 2009-10.

Japan’s tariffs on imported edible oils are applied on a specific-rate basis. The rate for canola and soybean oil is higher than it is for other, similar vegetable oils, such as corn oil and sunflower oil. This creates two significant problems. First, canola oil and soybean oil have a tariff disadvantage relative to competing oils, given that corn and sunflower are subject to lower tariffs than canola oil. Second, as currencies and product prices fluctuate, the ad valorem equivalent of the specific-rate tariff varies. As the Canadian dollar falls, the tariff rate, as a percentage of price, rises.

CCGA would like to see the elimination of tariffs on all edible oils. Where tariffs are not completely eliminated, they need to be converted to an ad valorem basis or a percentage of the value. In addition, there should be parity across all products.

Beyond tariff and tariff escalation issues, there are two other issues that canola growers would like to see addressed in an agreement with Japan, namely, MRLs and low-level presence.

Japan’s approval process for an MRL, otherwise known as a maximum residue level, for chemical products such as pesticides and herbicides results in unnecessary delays. In most countries, a chemical company can apply for an MRL while the product application is pending approval in its home country. In Japan, however, companies cannot apply for an MRL until the product license has been granted. This causes delays in getting products to market. The Canadian industry would like Japan to accept and assess applications for MRLs without the condition of prior approval in Canada.

On low-level presence, the industry is looking to both Japan and Canada to adopt low-level presence policies for GMO traits in order to reduce the risk of trade disruptions.

In closing, I'd like to make a brief comment on the Trans-Pacific Partnership, or TPP.

With both Japan and Mexico, along with Canada, applying for membership in the TPP, it is critical for canola growers that Canada gain entry into this partnership. With a large and ever-increasing population, the Asia-Pacific region continues to grow in economic importance and it is a priority market for Canadian canola products.

CCGA believes it is paramount that Canada become party to the TPP agreement due to the significant importance and opportunity the region presents to the canola industry and canola growers. Together, TPP countries represent 51% of Canada’s agrifood exports. For the Canadian canola industry, that represents $2.9 billion in canola exports.

Of particular concern for canola growers is the inclusion of Japan in the TPP, making Canada’s membership in that trading group a necessity. A TPP that includes Japan but not Canada could result in the erosion of any tariff or competitiveness that we have with the Japanese market and place our exports to that country in jeopardy. If Canada were to be excluded from a TPP that included Japan, major Canadian export competitors like the U.S. soybean industry would quickly capture market share in Japan from the Canadian canola industry.

Our efforts to join the TPP should not detract from our negotiations for an FTA with Japan. A trade agreement with Japan, whether it be through a bilateral trade deal or through the TPP, should result in additional exports of high-value Canadian canola products.

Thank you for the opportunity to speak to the committee today. I look forward to your questions later.

[The Chair, Conservative, Rob Merrifield]

Thank you very much for your testimony. Canola is a massive industry in this country, and you described it very well. I spent 30 hours seeding it this last weekend, so I understand the—

[A voice]

[Inaudible--Editor]

[The Chair, Conservative, Rob Merrifield]

I know, I know; I just had to throw that in.

We now look forward to the testimony of Mr. Dierkes.

The floor is yours, sir. Go ahead.

[Prof. Julian Dierkes]

Good afternoon, ladies and gentlemen.

Good afternoon. This is Julian Dierkes from Vancouver.

Mr. Chairman, and members of the committee, thank you very much for giving me this opportunity to speak to you today. I want to speak to you a little bit about the perspective people might take of this partnership agreement with Japan.

I had an opportunity last year to take 10 of our students to Japan in the summer and engage in a simulation of exactly these negotiations with some Japanese students and colleagues at Hitotsubashi University. In the preparation for that, we had a chance to talk to many stakeholders, both in Canada and in Japan, to get a sense of what the motivators are for these kinds of agreements. And so I will speak a little bit today about exactly what the context is in Japan. You've heard a fair bit of testimony here about the potential economic benefits, but why would the Japanese engage in this agreement? Given my research on Japan, that's something I hope to share a little bit with you.

I first want to emphasize that in addition to the economic benefits and some of the risks that you've heard a fair bit of testimony about, these kinds of partnership agreements obviously also have a very highly symbolic and very important role to play, especially in bilateral relations. The symbolic value derives sometimes from economic activities. And by signing such an agreement, a given market, in this case Japan, becomes that much more prominent to producers, to businesses in another country, in this case Canada; but it's also a sign of continued engagement and friendship, if you will.

Japan and Canada recently celebrated 75 years of diplomatic relations. There are very strong people-to-people links. The project that I mentioned where we had students join us in a process in Tokyo is a good example of that, but this kind of agreement will be highly valuable in cementing the relationship between Canada and Japan.

It'll be of specific value to Japan. As has been mentioned before, Japan is a relative latecomer to bilateral trade agreements, given their strong multilateral commitments previously. So they don't currently have an agreement with a fellow-developed economy at the level of the G-7 or the G-8. So being able to negotiate such an agreement with Canada would be a real prize in the Japanese context. Overall, I would emphasize that even the negotiations, and certainly a signed agreement, would be valued very highly in Japan for its symbolic value.

TPP was just mentioned by Richard White and has come up in previous testimony as well, so I want to give you that context briefly. The Japanese government has marked TPP as its highest international trade policy. Prime Minister Noda is pursuing participation in TPP for Japan in the same way that Canada is. Obviously, you will be much more familiar with Canada's position on this than I can be.

For TPP specifically, the most significant supporters in Japan are within the government. The two ministries that are primarily involved in the system are the Ministry of Foreign Affairs and the Ministry of Economy, Trade and Industry. Then outside of government, it's primarily large industries, large businesses that perhaps stand to benefit most from these kinds of agreements. On the other hand, the opposition is also quite significant to TPP in Japan and is making a conclusion to or participation in TPP relatively unlikely, given that the opposing agricultural interests are highly organized and have taken a very strong stand against TPP.

Part of the context is also that the current governing Democratic Party of Japan, which used to be a party rooted primarily in the cities, is beginning to discover that now that it is a governing party it also has rural constituencies. So to the extent to which it may have been in favour of international trade and the liberalization of trade in the past, it may be somewhat waning today as its rediscovers some of those roots.

On TPP, I would say while it is a high priority for the Japanese government, it may be relatively unlikely to happen. That, in many ways, leaves bilateral agreements as the next best, or certainly the next, priority of activities for the Japanese government.

The most important potential here for Japan increasingly, of course, is northeast Asia. It's important to remember that Japan has become very much an Asian economy; it's much more integrated into Asian trade flows than it was even 5 or 10 years ago. This is not just in terms of trade, but also in terms of the significant investments that Japan has been making, particularly in China, but really also across Asia. So as their attention is shifting, if there were any opportunity to explore perhaps a trilateral trade agreement in northeast Asia with China and Korea, that would be an opportunity that the Japanese government would clearly jump at. That would have very significant support from the business community there as well. As we saw in the news last week, that possibility seems relatively remote, but when it does happen, it may be a priority aim of the Japanese government.

As was mentioned earlier by Mr. Boutziouvis, the closest competitor of Canada in negotiations with Japan is Australia, but those negotiations have been going on for a very long time. Australia is also perceived to be a bit of a hard-liner, if you will, in the TPP situation, so it's a little unclear where those negotiations might go. In some ways that leaves Canada as a very good choice for the Japanese government to pursue for the next bilateral agreement.

On these bilaterals, the areas of support for these agreements—again, those would be the government and large industry primarily—would be just the same. Perhaps the opposition to bilateral agreements would be less highly organized than it is against the TPP. I would also mention, as an aside, that apart from very organized agricultural interests in the Japanese deliberations about these kinds of trade agreements, NGOs and other civil society groups play a relatively lesser role than would generally be the case in Canada.

That leaves me thinking a bit about the Japanese context that presents itself as an opportunity for negotiations with Canada. There are a number of reasons to think that Canada looks very attractive to Japan in this context. One of the reasons is more economic: it's internal to this kind of trade agreement, in that the trade is somewhat asymmetrical.

Some of the issues of particular concern in both countries are not in areas receiving many exports from the other country. Obviously there are other regions where there's much more overlap. For example, you would not be expecting large exports in the forestry sector—you heard testimony about this the other day—to come from Japan to Canada. So those negotiations will always be difficult. But given the asymmetry, there may well be room for some productive engagement.

I would emphasize that Canada currently enjoys a very strong reputation, particularly within Japan. When you have an opportunity later this year to go on your study tour to Japan, you will certainly see that. Part of that is linked to the Canadian response to the triple disaster last March. It's important to emphasize in this context that the government, and particularly the embassy in Tokyo, has been very proactive. It was seen as a very important step that Canada was the first country to drop import restrictions on Japanese food products after the triple disaster, and official Tokyo very much took note of that.

The concerns that grew out of the triple disaster in Japan about food and energy insecurity make Canada a very attractive partner. In most observers' eyes within Japan, which is worried about food and energy security, Canada is an obvious partner and a very strong and likely partner.

I'd also mention that there has been a lot of relatively low-level progress in Canadian-Japanese relations recently that hasn't received much attention. For example, the apology by the Japanese governments to Canadian POWs held during the Asia-Pacific war was one of those steps, and likely the Canadian decision announced during Prime Minister Harper's visit to Tokyo to open a satellite office in Osaka after the general consulate had been closed there, were relatively small but important steps in further developing a very important relationship.

Finally, I want to echo a comment that Mr. Boutziouvis made earlier, and that is to remember that Japan is now very much engaged in Asia but it's also potentially a stepping stone for Canadians into Asia. That is true for economic relations as much as for political relations. An agreement of this kind would certainly represent a huge boost to that relationship. It would motivate further people-to-people contacts and it would be seen in Japan as a very positive step. Should the negotiations proceed quickly, an agreement could be reached.

Thank you very much. I am looking forward to your questions.

[The Chair, Conservative, Rob Merrifield]

Thank you very much, both of you, for your testimony.

We'll start with Mr. Sandhu. The floor is yours, sir.

[Jasbir Sandhu, NDP, Surrey North, BC]

Thank you, Mr. Chair.

Welcome to the committee. Thank you very much for being here today.

I'm going to be a homer. I don't actually grow canola myself, but I will ask Julian Dierkes a question, because I'm from Surrey.

Mr. Dierkes, you mentioned that you took 10 students to Japan and you had an exchange with Japanese students. Could you maybe highlight some of the things students discussed with regard to trade? How did they say Canadians would benefit? What are some of the concerns that Canadian students raised? What are the concerns that the Japanese students raised?

[Prof. Julian Dierkes]

Thank you very much.

As a teacher I'm always very happy to talk about student activities, and this was really a wonderful opportunity for students to engage and to collaborate. The way we set it up though, I have to tell you, was that we mixed up the teams. We had Canadian students on the Japanese negotiation team and Japanese students on the Canadian negotiation team, largely for pedagogical purposes.

But at the same time, just to respond to the question you're asking, when we simulate a negotiation like that, students clearly are at greater liberty to be creative with this kind of negotiation than DFAIT negotiators will be. One of the areas that the students focused on—and this has come up as a concern in earlier testimony as well as today—was to perhaps think about having a development chapter that would accompany an agreement like this so that the impact of trade between Canada and Japan, two highly developed and very successful economies, on other economies, including developing countries, could also be subject to discussion within the context of this trade agreement. That's something the students were quite interested in.

Just one other issue that I would highlight is that both Japan and Canada have very strong IT sectors. In some areas obviously we're world leaders. IT is one of those areas, as is e-commerce with economic transactions online, where things are developing very rapidly. We would expect negotiations that occur now in 2012 to look relatively different from negotiations that may have happened in the 1990s or even two or three years ago. This is an area, for issues like microfinance, that may be mediated by e-commerce transactions, so it's one of the areas that the students highlighted as a real opportunity for these negotiations.

[Jasbir Sandhu, NDP, Surrey North, BC]

Thank you.

You also mentioned this in your written brief:

The highly visible signing of an EPA would also boost people-to-people exchanges. A Canada EPA would be of great symbolic significance to the Japanese government.

Can you just briefly expand on that? I then also want to ask Mr. White a couple of questions.

[Prof. Julian Dierkes]

Mr. Sandhu, you're from Surrey, so you know for example how many English language students we get in Vancouver, and many of those come from Japan. When an agreement like this is signed, of course it enters the newspapers, and it's discussed in the media. All of that makes Canada that much more present in the mind of Japanese students for example when considering people-to-people exchanges, and they will continue to look to Canada as a destination. Hopefully it would also appear in the media and people's minds to the extent that then students, whether they're from British Columbia or from across the country, would also consider Japan as a destination and intensify those things.

[Jasbir Sandhu, NDP, Surrey North, BC]

Thank you.

Mr. White, I have a question for you. You mentioned that we export a lot of canola seeds to Japan. I suppose there's canola oil and there are seeds. Does Japan produce canola domestically?

[Richard White]

They would produce small amounts, but they are certainly an import-dependent country when it comes to vegetable oil. They cannot produce enough to feed themselves, so they depend on imports from countries like Canada and Australia, I guess, to meet their demands for vegetable oil, and from the U.S. for soybeans as well. They do grow some, but not nearly enough to feed themselves.

[Jasbir Sandhu, NDP, Surrey North, BC]

Mr. White, you also mentioned that there is a higher tariff on canola. Why is that so?

[Richard White]

I think it goes back in history to other trade deals. The American Soybean Association was very effective in getting a better deal under previous arrangements, and canola is a more recent product than soybean oil is. We face discriminatory tariffs in canola consistently around the world, not uniquely in Japan. More often than not we'll find ourselves at a slight competitive disadvantage due to tariff differentials between canola and soybeans in particular, and I also referenced the sunflower tariffs. I don't know the reason for that, but that's a domestic policy that's been implemented on some of these importing countries.

[Jasbir Sandhu, NDP, Surrey North, BC]

Are you able to get your product to the Southeast Asian marketplace in a timely manner ?

[Richard White]

Yes. As I mentioned earlier—

[Jasbir Sandhu, NDP, Surrey North, BC]

I'm talking in regard to the infrastructure that's available here and whether that is complementary or whether that's helping you, or whether there are some issues that the government could deal with it.

[Richard White]

We've seen a significant expansion to the crush industry here in Canada, so we have an incredible increase in our capacity to ship oil now, as opposed to a number of years ago. The canola industry has invested heavily in infrastructure, and we are positioned to start shipping the higher valued oil to countries like Japan, which has typically been predominantly a seed market for us. We'd like to see an agreement like this open the door to oil exports to Japan and keep the value-added here at home. We have the infrastructure in place and we're ready to go.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Mr. Wallace.

[Mike Wallace, Conservative, Burlington, ON]

Thank you, Mr. Chair.

And thank you to our guests for being with us today.

I'm actually sitting in today for Gerald Keddy, who's the parliamentary secretary for international trade. He's actually on his way to Japan. I and another member of this committee, Monsieur Morin from the NDP, are heading there tomorrow. There's a group of us going. I'm the co-chair of the Canada-Japan parliamentary association, and we have our biannual discussions with those from the Diet. We are going to go to the earthquake zone for a couple of days also.

I have a couple of questions. Sorry, but I'm going to focus on Professor Dierkes because I don't plant canola seed.