International Trade Committee on June 19th, 2012

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

We'll now move to Mr. Shipley.

I believe you're splitting your time with Mr. Keddy.

If there's any left...? Okay.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

Thank you, Mr. Chair.

Thank you to the witnesses for being here.

Mr. Bacon, I'd like to follow up with you on the issue you were just talking about. In your statement, along with all the concern about getting products, you mentioned that people have long memories when they don't get their food or don't get their fuel on time. I wonder if you can be just a little more specific about the issues, because quite honestly, we're going to spend a lot of effort and resources building a trade agreement with Japan, as we have—and you may have been in earlier—following up on CETA.

Those types of discussions give us an idea of the amount of effort that it takes on both sides. But if we cannot commit to making sure that those products get to our producers, to you as a producer, to our friends from Manitoba, and to beef producers across Canada when we promised they would, then we have put in some ghost barriers that the Japanese will see through very quickly.

I wonder if you could just expand a little bit about what we need to be doing or about what the big hurdles are with regard to this shipping issue.

[Gordon Bacon]

We have a very complex logistics system in Canada, especially if we take a look at pulse exports to Japan, which all go in containers. You can imagine the number of steps between moving them from a farm to a processing plant and arranging equipment—whether that be a container in an inland position or a hopper car or a boxcar—to move them to a port position where they have to be reloaded into ocean-going containers and booked on vessels, and we have to find space at the port for them. The whole logistics system has to work in a very coordinated manner.

Taking a look at this issue very closely over the last five years, we've seen that a lot of individuals and individual companies in the system work to optimize it for themselves, which unfortunately can have the effect of sort of suboptimizing the performance of the entire system.

We've talked about our need to optimize system performance. The railways play a key role in this, because they are the link that is common through a lot of these elements of the logistics system. Certainly railway performance has much improved in the last number of months over what it was in the recent past.

But we have to make sure we have some guarantees that we're going to have the kinds of linkages in the system to ensure we can improve. I'll just cite one particular fact that I think illustrates it well, which is that for agricultural exports in containers out of North America, we have the worst record in all container shipping around the world. At one point we had more than 40% no-shows, bookings that were made and cargo that did not arrive. The steamship lines have told us that you pay for that.

Because we have inefficiencies, everyone is trying to make sure they're operating with a full system. It's like airlines that overbook. But can you imagine if airlines overbooked at 40% the kind of chaos we would have? Well, this is the kind of problem that we're having in our shipping system, and we all have to look at the responsibility we have to contribute to those kinds of problems.

I think there need to be some better linkages. We need to have some consequences for non-performance through all the players, and that is one of the things we're lacking.

When I talked about service-level agreements, it really was to define what kind of service you're buying, what the obligations of service providers are, and what the consequences for non-performance are. I think it's an incentive to perform well, if you know that you've defined what you're going to do and you've said you're going to do it. I think the concept of service-level agreements is going to go a long way, not only for our industry in agriculture. It was very interesting to see the strong level of support from a number of shippers in other sectors as well.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

I want to skip to the next one.

Thank you. That deserved a good explanation given some of the concerns we have and some of the remedies that are coming.

I want to actually move to the regulatory issues around the Codex and meeting those requirements in terms of registered use. Do other countries that deal with Japan have these same issues in terms of unmarked pesticides that go into Japan? How do farmers here overcome that barrier and still be competitive, if they cannot use new products while other countries still have access to them? Maybe that's not the way it works.

[Gordon Bacon]

Here's the challenge we have with Japan, in that Japan's regulatory system does not start looking at establishing an MRL, a maximum residue limit, until it's registered for use in Canada or the United States. The challenge is that farmers can legally use a product, but Japan does not have an established tolerance for that product and may not for a couple of years. So we have this gap between what farmers can do in a producing country and what the Japanese regulatory system will actually approve—

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

So it will be the same for another country also, whether it's the United States or Australia.

[Gordon Bacon]

Yes. And that's exactly the same system that Codex uses. What we are trying to push for across all crops, because we all face the same issue, is to basically push for regulatory reform so that there's a linkage, harmonization, and more mutual recognition of data. We're seeing that with global joint reviews in the registration of products. I think what we need is continued evolution so that we have some synchronized approaches to registration of product.

A bridge measure may be needed—that is, until Codex. Or perhaps we can talk to the Japanese and say that until they have defined their own import tolerance, we would accept the tolerances that are established by the respected agencies like PMRA or EPA or other agencies, just so that we're taking some of the risk out of trade.

It is an issue. It's an issue for bean producers in Ontario, for example, where they don't have access to a new desiccant, not because it isn't registered in Canada now but because we don't have MRLs established in markets like Japan.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

I guess I'm done.

[The Chair, Conservative, Rob Merrifield]

Yes. We may have cut you a little bit short, but that's okay.

Mr. Easter, the floor is yours.

[Wayne Easter, Liberal, Malpeque, PE]

Thank you, Mr. Chair.

Thank you to the witnesses, both here and in Winnipeg.

I'll cut my questions short too, Chair, to try to save a little time for the end.

Just on the point you made, Gordon, with the worst record on shipping, I think a lot of that comes back to the service review and the fact that we've been waiting on the Government of Canada for the service review for almost forever now. It's unacceptable. They should act on that service review, take the railways on and do it.

In your paper you talked about addressing the quota and tariff issues, and how that in and of itself is not enough. Further down you talked about the regulators from Japan and Canada. In advance of the trade agreement, should the regulators within Canada and Japan be working more closely to try to solve some of those problems? They're not really a negotiating point, but a lot could be done just by way of discussion and a similar regulatory regime.

You had mentioned, Mr. Dahl, that we need this negotiation, that we not be left on the sidelines. Do you have any comment you want to raise on Korea? Korea is already an established market for Canada—beef and hogs. We don't seem to be in the game. Here we are talking about new agreements, and we're risking the potential of losing a billion dollar market for beef and hogs, because for some reason, the government seems to be asleep at the switch on an established agreement.

So there are two questions.

[Gordon Bacon]

I'll answer quickly.

PMRA and the Japanese regulators seem to be working very well together. We receive advance notice from Japan when they plan to introduce or change MRLs, so it in fact is an example of a country that's working very well.

I think where we could perhaps make some improvement would be to have Japanese regulators more involved in global joint reviews, so that they're more involved earlier on and work towards harmonizing their system with what other regulators in Europe, Australia, Canada, and the U.S. have now moved towards.

[The Chair, Conservative, Rob Merrifield]

Go ahead, Mr. Dahl.

[Cam Dahl]

Thank you, Mr. Easter. I appreciate the question.

On Korea, we are pleased that we have been able to reach an agreement with Korea on the restrictions they had in place, which were put in place after the BSE and were, in fact, not in line with those of the World Organisation for Animal Health, the OIE. Canada had launched a WTO case, and we're pleased that we're moving forward with this in a way that doesn't require us to go back to the WTO.

In fact, that WTO case has been suspended because Korea has come into compliance. But there's no question that it would be beneficial to Canada and to the beef industry in Canada if we were to have a free trade agreement with Korea. There's absolutely no question about that, and it's something that the cattle industry and the beef industry strongly support. We strongly support revitalization of those negotiations, and we hope they're successful because right now we're at about a 22% disadvantage to U.S. products going into Korea. That's a pretty big hurdle to overcome, so absolutely it would be beneficial to have an agreement with Korea. But on the non-tariff barrier front, I think we have seen some movement in recent months, and we have suspended our WTO case because of that movement.

I just wanted to add a couple of comments to the discussion on regulatory harmonization. I think this issue goes beyond the grains and oilseed issue. It covers all of agriculture. We see that with animal pharmaceuticals as well. I hope we can have this kind of regulatory cooperation with all of our trading partners. I know there are discussions through the Regulatory Cooperation Council with the United States as well, and I hope those will be helpful, but these are issues that do need to be part of any future trade negotiation. It's not just about tariffs and quotas anymore.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

We'll now move to Mr. Holder.

[Ed Holder, Conservative, London West, ON]

Thank you, Chair.

You know, it never fails to amaze me, Chair, that when a member of the Liberal Party gets the opportunity to do a body slam against the government, he takes it, and I find it very distressing.

Here we've had Her Majesty's loyal opposition stay on the subject at hand, which is the matter at hand, which is important, and that's what we have our witnesses here for. It's great that we all have opinions on different things, but it's consistent and I find it disturbing.

Having said that, I'd actually like to stay with the topic, which actually happens to be Japan.

So if I may, I'd like to say to our guests thank you very much for attending. The advantage you all have.... Mr. Dahl, I heard you say very clearly not to forget agriculture. I know we hear that. I know that as we approach the discussions relating to Japan, we will not forget agriculture, but it's important that you said that. I would suggest to you and your group, the Manitoba Beef Producers, and to Pulse Canada that because we're at the very start of these discussions, it's very important that you're here. This is not a situation in which we have signed something and you're playing catch-up and saying, “don't forget me” or “what about this or that?”. You have the opportunity to provide real input that, I think, matters and is substantial to the discussion as we move towards signing a trade agreement.

I don't think we stand still, and I do think we need to ensure that we put trade agreements in place around the world. As I look at some of the information that the beef producers have provided, I would say that for your association in Manitoba, the Japanese market would be substantial.

Could you—whichever person at Manitoba Beef Producers is the right person— just explain to me more about the snap-back? Help me understand what exactly that is again, because it sounds like an extra way for the Japanese government to initiate another tariff. I'm not a rural guy, but I enjoy the odd steak. Could you help me understand what that means to us in this negotiation?

[Cam Dahl]

Absolutely. Currently the applied tariff in Japan, the tariff they apply to our products going into Japan, is 38%. But under the world trade rules, they could actually have a 50% tariff.

That 38% tariff will snap back—it will increase. The Government of Japan has the ability to increase that tariff if it sees substantial increases in imports from any particular country. If Canada's beef exports to Japan were to increase 20% next year, that is, within the next 12 months, Japan could actually significantly increase that applied tariff to protect its market.

When you're looking at the benefits of reducing tariffs and trade barriers, it's not only the applied tariff that's important; it's also the tariff rate that Japan could apply, because that creates business uncertainty. That's one of the key benefits from trade agreements, creating certainty in the market.

We're not an industry that has a short production cycle. If we're producing to meet a particular demand in the market and all of a sudden we see that market's tariff increase 20%, that's a really big hit across the entire production chain. It takes time to produce for that.

If we are able to have long-term certainty and stability in a market, it will significantly increase the business certainty for cow-calf producers like Ray, for feedlot operators, as well as for our processors. And there is significant value in creating that business certainty.

[Ed Holder, Conservative, London West, ON]

Thank you for that.

I have a question now to Mr. Bacon, as it relates to Pulse Canada. You talked about the UN body Codex Alimentarius. That's a very nice Latin name. I'm curious about that body. From what I've read about them, and you'll be more of an expert than I am, it seems they're an intergovernmental body. I guess there are 170-plus member countries working within a framework to establish food standards and joint practices relating to food safety and a variety of things.

Why do we need a trade agreement, with any country for that matter, to set issues relating to MRLs? Couldn't Codex just simply, within its wisdom, say, “Here's the new standard”? Or is it dysfunctional? Can you help me to understand Codex in that regard? I don't get what it does, if in fact you're telling us that part of what it's not doing has become a challenge for you in moving pulses into Japan—which I've noted have progressed over the last couple of years in terms of numbers.

[Gordon Bacon]

Japan has its own system. Canada has its own system. Many countries around the world that don't have the technical ability rely on Codex, the international food safety standards body. It was set up in the sixties by the World Health Organization and the FAO, the Food and Agriculture Organization of the United Nations, to provide that food safety standard.

[Ed Holder, Conservative, London West, ON]

Are they the lowest common denominator? Is that what they are?

[Gordon Bacon]

No. I wouldn't want to look at it that way, because it's really an international community that comes together to set a safety standard. Taken to regulatory harmonization's natural end, it would be Codex that would establish one standard for the world. That would mean that governments and regulatory bodies around the world would have to defer to—

[Ed Holder, Conservative, London West, ON]

Why isn't that happening, then?

[Gordon Bacon]

Individual countries decide that they want to have their own standards in place, which I think is all right, but what we need to have is a harmonized approach in terms of the timing, the process, and the assessment of risk factors. Those could then be tailored to an individual country's need, but we're not going to have huge differences, four- and five- and ten-fold differences, in safety standards between one country and an international standard. That just simply wouldn't make sense.

Codex, from a pesticide perspective, has not kept up with the changes that are going on. It's hopelessly behind. We need a quick fix there. An interesting example of the quick fix is what the World Food Programme does, an organization that's also an arm of the FAO. When procuring food supplies on the commodity side, it accepts the MRL that's in place in the country of origin. So when the World Food Programme buys Canadian canola or Canadian peas, it will accept the PMRA's MRL.

[Ed Holder, Conservative, London West, ON]

So it's a UN body that's hopelessly behind. I'm surprised.

Thank you, Chair.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

I want to thank our witnesses for being here.

Mr. Bacon, Mr. Armbruster, Mr. Dahl, and Ms. Stone, thank you very much for being with us and taking part in this important debate with regard to our study of a comprehensive partnership agreement between Canada and Japan. It's very important to all of us, and we understand that. So thank you very much for your contribution.

With that, we will be moving in camera.

Go ahead, Mr. Easter.

[Wayne Easter, Liberal, Malpeque, PE]

Mr. Chair, I ask that I move this motion and that it be held in public.

The motion before you is that we do a report on the hearings we had on the operation of the Canada-Colombia Free Trade Agreement Implementation Act. I say we need to do that report because hearings shouldn't be just window dressing. When we hear from people, we should report to government and make decent recommendations of where they could improve their operation.

On this particular issue, we did two days of hearings. We heard from a number of important witnesses. A number of concerns were raised about the fact that the government didn't act on what was stated in the implementation act—that there be a report from both Canada and Colombia on the human rights issue.