International Trade Committee on May 1st, 2013

[The Chair, Conservative, Rob Merrifield]

I'd like to call the meeting to order.

This is our last scheduled day of testimony with regard to the Pacific Alliance, as to whether Canada should be a full member or stay as observer status. We're concluding this part of the study today.

We have with us today, in the first hour, the Canadian Environmental Law Association and Pulse Canada. We want to thank our witnesses for coming forward.

Before I give you the floor and we hear your presentations, I just want to make reference to our last meeting.

There was testimony by Ms. Katz, I believe it was. We had sent around information with regard to monthly and hourly salaries between Mexico and China. The information we got was considerably different. I've asked Alex to inform the committee of the numbers he has because they're so radically different from what was in the testimony.

[Alexandre Gauthier, Committee Researcher]

At the last meeting, the witness referred to a study done by Merrill Lynch. In that study, it said the wage per hour in China was now higher than it was in Mexico.

I did some research, and based on the official data that we could find from the International Labour Organization, comparing private sector jobs, you have here a document that explains that the average wage per month in Mexico is $507 Canadian, and in China it is $263 Canadian.

What we will do is get in touch with Merrill Lynch to see if they can provide their methodology.

That's the best we could find in terms of data that is comparable between both countries.

[The Chair, Conservative, Rob Merrifield]

I think this was sent out to your offices. I just wanted to make reference to it here and let Alex have an opportunity to explain the difference in methodology, and why he came up with what he did and how, and follow it up with the Merrill Lynch study.

[Wayne Easter, Liberal, Malpeque, PE]

I have one quick question on that, Rob. Could you also give us the comparable figure in Canada, when you're doing it; that is, Mexico, China, and Canada?

[The Chair, Conservative, Rob Merrifield]

I think it goes beyond the testimony. All I'm trying to do is clear up the testimony.

[Wayne Easter, Liberal, Malpeque, PE]

Yes, I know what you mean, but it would be just good, useful information.

[The Chair, Conservative, Rob Merrifield]

Fair enough. We will now move to testimony.

We have, as I said, from the Canadian Environmental Law Association, Theresa McClenaghan. From Pulse Canada, we have Gord Kurbis and Nick Sekulic.

I'm not sure, Gord, who is doing the presentation.

[Gord Kurbis, Director, Market Access and Trade Policy, Pulse Canada]

We'll split it. Nick will introduce it.

[The Chair, Conservative, Rob Merrifield]

You're going to split it. Very good.

The floor is yours, sir.

[Nick Sekulic, Chair of the Board, Pulse Canada]

Mr. Chairman and committee members, thank you for the opportunity for Pulse Canada to speak to the committee today.

I'll briefly introduce myself. I farm with my wife Caroline and our three children. We have about a 10,000-acre farming operation in the central Peace District of northwestern Alberta.

[The Chair, Conservative, Rob Merrifield]

It's a great place.

[Nick Sekulic]

Thank you.

We have a cattle operation in addition to field crop production, wheat, barley, canola, and peas, which is our primary pulse crop.

I have served on the Alberta Pulse Growers commission for six years now, entering my seventh year. I have been their representative on Pulse Canada for a number of years, and was most recently elected chair of the national organization.

Pulse Canada is a national industry association funded by the farmers who grow peas, lentils, beans, and chickpeas across Canada, as well as by the processing and exporting companies that export pulses to 160 countries around the world.

For more than 15 years, Pulse Canada has been focused on market access as one of the members' top priorities. Access to markets in a predictable and stable trading environment is a prerequisite to building an export-oriented resource economy for Canada.

We'd like to use our time to talk about the Canadian pulse and special crops industry's perspective on the Pacific Alliance and what may be possible to achieve in terms of enhanced regulatory harmonization with the countries involved.

Each of the member countries of the Pacific Alliance—Mexico, Colombia, Peru, and Chile—are among the Canadian pulse industry's top 20 importing countries. However, taken together, exports of Canadian pulse and special crops to the four countries are valued at $148 million annually, equivalent to 206,000 tonnes per year. This is averaged over the years 2009 to 2012.

Measured as one, the four countries would represent the fifth largest export market for the Canadian pulse and special crops industry, equivalent to just under 8% of the value of Canada's total pulse crop export program.

Lentils are the most significant pulse and special crop export to the Pacific Alliance members, with average annual exports of 135,000 tonnes, or approximately 12% of Canada's annual lentil export volume. The primary competition is lentils of U.S. origin, although this is limited, as Canada is the dominant supplier of lentils worldwide, with more than 60% of the global trade.

Canada is also a significant supplier of dry peas and beans to the four countries, which is an important region that ranks behind only the U.S. and the EU in the case of dry beans, and in the case of peas, behind India, China, Bangladesh, and the EU.

The Canadian pulse industry is very supportive of the development of bilateral and multilateral trade agreements at the government-to-government level, because they provide the opportunity to create a more permanent and lasting trade policy framework that levels the playing field with other exporting nations. They also ensure that yearly fluctuations in domestic production are not met with yearly fluctuations in import or access policy. Predictable trade policy is a vital component of food security and, equally important, a vital component of affordable food.

The Pacific Alliance is an interesting opportunity from the Canadian pulse industry's perspective. On one hand, Canada has already negotiated free trade agreements with each of the four member countries, and these either address or are in the process of addressing most tariff, quota, and trade escalation issues.

Gordon.

[Gord Kurbis]

Mr. Chairman, committee members, I'd like to spend the rest of our time highlighting one emerging challenge that all commodity exports will increasingly face in the years to come, as current zero thresholds that are on the books in importing companies collide with analytical methods to test against those tolerances that have now ranged down into single parts per billion.

As you know, crop protection products—herbicides, fungicides, and insecticides—have been critical to improving agricultural productivity. Unfortunately, new crop protection products and their rapid adoption have challenged market access as importing countries could take years to establish legal tolerance for residue levels in grains, oilseeds, and pulses. This is further complicated as countries have zero or near zero default tolerances that apply when the country hasn't got around to setting a legal tolerance.

As an example, in 2011 the pulse industry had a high-profile glyphosate breach and MRL gap encountered on lentils to the EU. The issue was that Canadian farmers were using a crop protection product—glyphosate or, by another name, Roundup—that was fully approved in Canada for use on the crops, and the residues within the exports were well within Canadian food safety standards. However, the EU had never gone to the process of establishing an MRL, or maximum residue limit, for glyphosate on lentils, and consequently applied a near zero default MRL of 0.1 parts per million. This caused rejections as well as product recalls from retail shelves, so it was quite significant. As you know, detection of pesticide residues, even when well below levels considered safe by the world's leading regulatory bodies, can create headlines that undermine the consumer perceptions of the safety of Canadian agrifood products.

I want to emphasize that all of this happened solely as a result of the lack of regulatory harmonization. I want to be clear to all committee members who may not be familiar with the policy and processes around the establishment of crop protection product tolerance levels. Canada is among the toughest regulators in the world when it comes to establishing safety margins, and the product pulled from EU retail shelves was easily compliant with Canadian standards. Underscoring that there was no food safety risk in this particular case was that EU regulators, after they consulted with their own health authorities, increased their default MRL, which was near zero at 0.1 parts per million, by a factor of 100, to 10 parts per million after the dust settled.

The pulse industry then did a lot of work to identify the extent of similar hidden risks across other products and markets where trade is at risk solely due to regulatory gaps and not food safety concerns. That analysis revealed that the value of trade at risk is approximately $900 million for pulses and close to $3 billion for the cereal crops and oilseed crops grown in rotation with pulses. This is categorized as markets that have one or more MRL gaps or missing MRLs.

The four countries of the Pacific Alliance each have a different process to establish MRLs, none of which is effectively aligned with each other's or Canada's. Mexico uses a combination of MRLs established by the U.S. and by the UN body Codex. Peru uses Codex exclusively. Chile has begun to develop its own MRL list as of 2010 but considers Codex and U.S. MRLs. Colombia is currently reviewing its MRL policy but has relied on Codex.

What does this mean for exporters in practical terms? Of the 19 crop protection products registered for and commonly used on lentils in Canada, Canada has MRLs for 19, Colombia has MRLs for 3, Peru for 5, Mexico for 17, and Chile for 6. The key issue is that because absent MRLs get interpreted as zero or near zero tolerances, shipments that are fully compliant with Canadian safety standards would be rejected by the importing country. This creates enormous uncertainty for trade. While the asynchrony between Canada and importing countries is not new, the potential for trade disruption is increasing as testing becomes less expensive, capable of detection at lower levels, and more prevalent in response to increasing consumer interest in food safety, driven by issues such as the EU horsemeat scandal.

The opportunity as we look ahead is to use FTA negotiations and all other multilateral forums to attain the commitment of importing countries toward regulatory harmonization of MRLs. This is occurring now within the TPP, of which three of the four Pacific Alliance countries, except for Colombia, are currently members.

The long-term solution is represented by a best practice currently used by Canada, the EU, the United States, and Australia, and increasingly Brazil, to improve the coherence of crop protection regulation by participating in OECD global joint reviews, which involves splitting the workload of pesticide evaluation among participating regulatory authorities, exchanging data, and peer reviews.

A short-term to medium-term solution is to establish interim MRLs, which could involve the importing country applying an MRL of the exporting country, or some other OECD-referenced country, according to internationally accepted processes. A precedent already exists. The UN World Food Programme uses as the importing country's MRL the MRL that is in place in the exporting country.

In closing, the pulse industry has also been working with other Canadian agriculture stakeholders to identify specific work that can be done by the Canadian industry to complement the work we are asking of government. Agriculture industry stakeholders understand the value of partnerships and are ready to work together to achieve measurable outcomes.

Thank you, Mr. Chairman and members of the committee.

[The Chair, Conservative, Rob Merrifield]

Thank you very much for your presentation. You've practised that one. You're within 10 seconds. We don't often get it that good.

We'll now move to the Canadian Environmental Law Association. We have Ms. McClenaghan.

The floor is yours, Madam.

[Theresa McClenaghan, Executive Director and Counsel, Canadian Environmental Law Association]

Thank you, Mr. Chairman.

Thank you for inviting me to attend and make comments to you. My name, as indicated, is Theresa McClenaghan. I'm the executive director of and counsel with the Canadian Environmental Law Association. We're a 43-year-old federally incorporated not-for-profit environmental NGO and an Ontario specialty legal aid clinic.

I will provide remarks in the hope that we can be of assistance in your study of the potential benefits of Canada joining the Pacific Alliance as a full member. I understand that the relatively recently formed Pacific Alliance's full members consist of Chile, Colombia, Peru, and Mexico, and Canada has been an observer since last November. I also understand there are now a number of other observers.

I have read with interest the transcripts of some of the committee's earlier studies and am somewhat familiar with the testimony you've heard.

I also searched for any information I could obtain with respect to the Pacific Alliance and its agreements to date. For example, I obtained translated text of the Lima Declaration signed by the four member countries. The Lima Declaration, which is very high level, describes a process for the designated senior ministers in the four countries to work together to develop a framework agreement toward a deep integration area.

My focus will be on issues relating to environmental protection in the event of Canada joining the Pacific Alliance as a full member. My remarks will, in general, explore potential benefits and also potential risks. My remarks are very general because it's very early in the process, and of course, there are no specific agreements, as I understand it, or proposed language to which Canada would be bound that we could consider at this time. I will be drawing largely on CELA's prior work on environment and trade matters. We've spoken to this committee in the past, in earlier Parliaments, on some of those.

My primary question is the extent to which participation in the Pacific Alliance would improve both Canada's and the current four members' situations in terms of sustainability. For example, I noted that a witness from Canada's Department of Foreign Affairs and International Trade indicated that Canada is pursuing three pillars in terms of its engagement in the Americas. She outlined these as consisting of economic opportunity, strengthening security and institutions, and fostering lasting relationships.

I would strongly encourage the adoption of a fourth pillar, namely, pursuing sustainability and environmental stewardship.

Sustainability, as normally understood, includes pursuit of environmental, social, and economic goals to ensure we're not only meeting the needs of the present but also ensuring opportunities and resources for the needs of the future.

If this pillar of sustainability were explicitly added to Canada's engagement strategy for the Americas, there may be opportunities that would then be evident in further discussions. I want to be clear that l would see these opportunities as operating both in advancing and improving Canada's own pursuit of sustainability as well as in the Pacific Alliance member countries.

For example, with Canada extensively engaged in mining investment and activities in the Pacific Alliance countries, a question arises as to whether Canada's mining laws are adequate for strong protection of the environment and provision of strong labour, health, and safety rules both at home and abroad. We would want to see these areas improving wherever Canadian companies are operating.

Similar questions arise with respect to oil and gas operations. An opportunity could be created to improve Canada's reputation respecting environmental sustainability if the discussions were to provide a mechanism to develop and implement 21st century solutions whereby trade and investment are focused particularly on sustainable practices.

Those opportunities extend, for example, from research and development from academia, ENGOs, or environmental non-governmental organizations, governments, and the corporate sector, through to implementation of best practices. A necessary part of a sustainability approach is to keep track of whether the sustainability and environmental stewardship goals are being achieved versus whether negative impacts are occurring. There is a need for monitoring and enforcement. Equally important is to ensure that public participation and transparency in those frameworks are considered. I might add, I say that in the sense that those would need to be very seriously pursued. We often see the agreements talk about monitoring, enforcement, and transparency, and then when it comes to finding information, it can be quite difficult.

Examples of the types of inquiries that would need to be considered in analyzing a sustainability framework in this context are illuminated in the sustainability reports of the Inter-American Development Bank for Latin America and the Caribbean.

For instance, the bank's 2011 report outlined the challenges arising in that area from growing incomes and greater opportunities in that it becomes urgent to consider integrated approaches to energy, food, and water security—all are under pressure with those changes in their economic and social structure—and to ensure future supplies of all of these while not degrading the underlying environment on which those goods depend. Significant issues of sustainable agriculture, low carbon development, and sustainable resource extraction are just a few of the most obvious and urgent issues.

If Canada is increasing activity and investment in the regions, and if its activities are accelerating the pace of change and contributing to greater environmental stresses, then I would submit Canada is obligated to explicitly consider how to turn its actions into impacts, such as resource extraction, for example. It's imperative that this analysis be done very early in the process of considering further activity in the region. I would urge Canada to apply the lessons learned at home as well as in other areas of the world.

I noted that there had been a Pacific cooperation platform established by the members of the Pacific Alliance. This was stated to be the area where issues of environment, climate change, innovation, science, technology, social development, and educational institutions are being considered by the alliance in terms of further integration, but I haven't been able to find details on those discussions. I would suggest this would be an area for productive inquiry by the committee to ascertain the extent to which sustainability issues are already under discussion, if they are, and the extent to which Canada's full participation could advance sustainability.

Turning to the risks of participation, I will briefly mention some of those that have occurred in the various bilateral and regional trade agreements and I would urge the committee to consider them in your recommendations.

One issue of ongoing concern for us is the continued provision of investor rights in the agreements, as is the case with the currently existing bilateral agreements with all four members of the alliance countries. Our concern, as some of you may have heard me say before, is that the agreements provide the opportunity for non-domestic investors to bring claims against our governments for regulatory action. We are of the view that this is not appropriate. It's couched under the term of expropriation or indirect expropriation. In our view, if there is a claim of true expropriation as understood by our well-developed court system, then it should proceed under our domestic legal system in the way that our nationals would proceed.

Another concern is the frequent aim in the agreements to pursue harmonization of standards. This is often framed in terms of efficiency. Our concern is that we want all of our governments to be free to pursue strongly protective environmental, labour, occupational safety, and health standards. Harmonization approaches often result in the adoption of those standards that the least progressive nation will pursue.

We're also concerned to ensure that Canada consistently protects the rights of governments at all levels—municipal, provincial, national, and first nations—to own, manage, operate, and make decisions with respect to public drinking water supplies in particular. Any discussions about providing additional private investment in this area has to be cognizant of the high priority Canadians place on public drinking water control that was stressed after the Walkerton experience in the year 2000.

To conclude, there may be opportunities to pursue additional environmental and sustainability commitments in the areas of habitat protection, restoration, wildlife conservation, legacy contaminated sites restoration, and many other areas. Attention to quality of life issues is also essential in any expansion of economic activity by Canada. We would suggest that those include fair safe work, environmental health, application of the precautionary principle, reduction of use of toxic materials, and public participation in decision-making with respect to land use. Those would be just a few, but those very same areas may be worsened if the sustainability issues are not examined and explicitly pursued before economic activity by Canada is increased in these areas.

Thank you for the opportunity to make these comments. I will be pleased to answer any questions.

[The Chair, Conservative, Rob Merrifield]

Thank you very much for your testimony. We look forward to the questions and answers. We'll start with Mr. Davies, for seven minutes.

[Don Davies, NDP, Vancouver Kingsway, BC]

Thank you to all the witnesses for being here.

I'll start with you, Mr. Kurbis. You know that Canada has four trade agreements already with the four participants in the Pacific Alliance, and the four participants in the Pacific Alliance have free trade agreements with themselves.

My first question is whether there are any tariffs currently against pulse products in Canada in terms of those four markets.

[Gord Kurbis]

Yes, but they are in the process of being sunsetted through the existing FTAs. For example, we have 4,240 tonnes of dry edible bean TRQ into Colombia. That won't become completely duty free with unlimited quota until 2020. It was originally scheduled to be 2022, but it's two years earlier because we have the transversal clause.

[Don Davies, NDP, Vancouver Kingsway, BC]

Do I understand correctly that the free trade agreements have dealt with tariffs and there's a mechanism in place to systematically reduce them to zero over time? Is that taken care of?

[Gord Kurbis]

Exactly correct. Yes.

[Don Davies, NDP, Vancouver Kingsway, BC]

Okay, thanks.

Also, obviously there's some level of pesticide, insecticide, or herbicide residue that's unsafe in our food. With all these five jurisdictions sitting down to harmonize that, what if there are differences in the respective tolerances in the different countries? How does that get resolved? Whose view prevails?

[Gord Kurbis]

This is a good question. Let me answer it in two parts.

First of all, the residues present in pulse crops in the vast majority of cases can't even be detected using today's analytical methods, so they're not different from zero. Our residues in pulse crops from Canada are so low that by and large we wouldn't worry, for example, if we had an MRL in Canada that was 5 parts per million but it was 4 parts per million in Colombia and 10 parts per million in Chile, because what we are asking to have as a safeguard is that even though we can easily come within any of those limits, even though they differ, what we can't tolerate is the near zero default tolerances of, let's say, 0.01 parts per million.

So the differing MRLs, those could become an issue some day. They aren't the issue that we're discussing today. It's the near zero default tolerance.

[Don Davies, NDP, Vancouver Kingsway, BC]

Thank you. I understand your position on that.

Ms. McClenaghan, you raised environmental considerations, and you also mentioned labour rights. I think that's something that's really top of mind for Canadians with the disaster we've seen in Bangladesh, where over 400 workers have died, and this being May Day, where we think worldwide about the working conditions of workers. I think what's on a lot of Canadians' minds right now is that while we all want trade and we want products to come, we are concerned about the conditions in which those goods are produced. I think Canadians want goods that are not produced with child labour, are not produced with labour that is exploited to the point where people's health and safety and basic needs are being jeopardized. I think also that Canadians don't want goods that are produced in areas that do unacceptable damage to the environment.

You mentioned drinking water as well. I'm mindful of the fact that in one of these countries, there's a live issue. There's the Pascua-Lama mine, which is a mine that Barrick Gold is operating on the border between Chile and Argentina. This is a very, very large mine with billions of dollars of development already invested. Recently the Chilean court halted any further development because there are concerns that this mine is leaking toxins into the rivers and local water supplies.

I'm just wondering, from your point of view, is there something Canada can do or should be doing, or anything you've seen in trade deals that can address these kinds of concerns?

[Theresa McClenaghan]

Some of the agreements have environmental chapters or side agreements or annexes. The proof is in the pudding, so to speak, in terms of how well those are enforced and monitored and what kinds of rights they give for citizen engagement, for example, in all of the member countries. I agree that fundamentally we would like to see any trade agreements enhancing sustainability and not making it worse. In other words, the idea that we have a triple bottom line and not a single bottom line needs to be really internalized in a way that we haven't necessarily done in the past.

Specifically in the area of mining, Canada has learned a lot in terms of our past mining activities here in Canada in terms of legacy sites, and while more recent legislation is improving in some respects, we don't want to see that kind of activity repeated or those mistakes repeated elsewhere. We're well aware that tailings ponds, for example, can provide a significant risk, and we know all too well that when drinking water sources have sources of contamination that are not controlled, there can be real tragedy.

Those are the kinds of things that should be controlled.

[Don Davies, NDP, Vancouver Kingsway, BC]

I take it you're somewhat familiar with the environmental side agreements that form part of Canada's trade template. How effective have those been, in your view, in monitoring and enforcing environmental standards or in raising the environmental standards of production in the trading nations?