International Trade Committee on Nov. 21st, 2013

[The Chair, Conservative, Rob Merrifield]

Thank you.

I'm going to use the chair's prerogative to ask one more question. On the rail service agreements, have you signed a service agreement with the railways?

[Catherine Cobden]

Our view on the rail service legislation was that we were supportive and grateful to get another tool in our toolbox, but we have always said we would use that first and foremost as leverage when negotiating with the railways because the process is quite time-consuming and costly. Nonetheless, we like it. I'll just tell you I was with a number of our transportation gang yesterday who, unfortunately, while in Ottawa had to deal with half their cars not showing up, and that was consistent across the group.

[The Chair, Conservative, Rob Merrifield]

I realize that and that's why the Fair Rail Freight Service Act is there. I'm was wondering if you have gone through a process yet. But you haven't yet is what you're saying. You haven't actually gone to arbitration.

[Catherine Cobden]

Yes, I know. I can assure you that our companies are using it as leverage in negotiations—commercial relations.

[The Chair, Conservative, Rob Merrifield]

Okay, very good.

Mr. Hiebert.

[Russ Hiebert, Conservative, South Surrey—White Rock—Cloverdale, BC]

Thank you, Mr. Chair, and my thanks to you industry representatives for coming.

Starting with the Forest Products Association, as a B.C. member, CETA is of close concern to my constituency. On Tuesday we had some witnesses talk to us about how the CETA will increase trade with the European Union as well as with other parts of the world as Canadian companies integrate into multinationals and their supply chains. We will have Canadian companies innovating, sending some sub-component to a European company that then exports that product to Africa, Asia, and the rest of the world. I thought this was a very innovative way of thinking about trade, not to just as one geographic area but as a stopping point to other destinations.

I'm just wondering, from both of your perspectives, how your industries look at this potential opportunity, not just as a market to Europe but as a stopping point to the rest of the world.

[Catherine Cobden]

That's a very good question.

I will say that in general a lot of our transformational activities actually integrate into the supply chains of other industries. For example, I was referencing with some passion my interest in NCC, nanocrystalline cellulose. It integrates into the supply chain of L'Oréal, the cosmetic company. Well, that's for an example. Let's hope that it in fact does. I shouldn't say that as a fact; we hope it will.

The idea is that in general we are creating new base inputs into new products in companies all over the world, so anything that helps to facilitate the transfer of our product to where their manufacturing operations are, like Europe, is helpful, for sure.

[Andrew Casey]

I would only add that like Ms. Cobden's industry, we're in the supply chain as well. Biotechnology is allowing a lot of industries to transform. Any sort of trade agreement that expands markets for other industries in which we're sort of central is good news for biotechnology ultimately.

When you look at mining, for instance, or at oil and gas, oil and gas is using a company out of Quebec City that has an enzyme that basically gobbles up their CO2 emissions. That company is going to do well as long as the oil and gas industry is going to do well. That's probably not the best example, because we know that oil and gas is going to continue to do well for a while, but there certainly are other industries where biotechnology is central to the transformation of those industries. As those industries compete more in the bioeconomy, biotechnology will be central to that and will benefit accordingly.

[Russ Hiebert, Conservative, South Surrey—White Rock—Cloverdale, BC]

Mr. Casey, you've talked a little bit about the new patent protections in the agreement, in CETA. Could you help us appreciate or understand how these new timeframes compare to those of other jurisdictions that we would be competing with?

[Andrew Casey]

They're essentially catching up. Let's put it that way. We're talking about a two-year restoration period for patent term restoration. In Europe, it's five years. In the U.S., it's five years. It's trying to keep pace with them. It's not exactly five years, but it's better than what we had before, which was nothing.

It's essentially recognizing that we have to keep pace with other jurisdictions around the world. Otherwise, we will lose that investment dollar. We will lose the innovation.

[Russ Hiebert, Conservative, South Surrey—White Rock—Cloverdale, BC]

How about other jurisdictions like Australia or Japan, or South Korea?

[Andrew Casey]

Canada would be unique. We were the only country.... I'm sorry, Brazil, India, and China, I think, are the other countries that don't have it, but in the OECD we were quite unique in that we didn't have anything in place already.

[Russ Hiebert, Conservative, South Surrey—White Rock—Cloverdale, BC]

This gives us a bit of a step ahead of Brazil, China, and India.

[Andrew Casey]

Yes, we're definitely ahead of those countries. There are other factors at play in those countries, but more importantly, I think, it keeps pace with the EU, the U.S., Japan, and other jurisdictions where biologic innovation certainly is taking place.

[Russ Hiebert, Conservative, South Surrey—White Rock—Cloverdale, BC]

Ms. Cobden, you made reference to an anti-dumping case from China as it relates to dissolving pulp. I was wondering if you could elaborate on that and help us understand what that's all about.

[Catherine Cobden]

Yes. I'm going to have to be careful here because we're in the middle of a legal WTO process, but the Chinese have come out with a preliminary determination suggesting that Canada, the U.S., and Brazil are dumping. They've put in duties, essentially tariffs, to collect as a result of that dumping at various levels. They've also I guess predetermined that the new supply that has been announced in these remote communities across the country will also be dumping, and they've put in a tariff on them as well: a 50% tariff as opposed to 13% on the rest of the operators.

I think this is a complex issue, but it is a significant issue in terms of.... We're talking about eight facilities across the country with approximately 400 jobs per facility. I know that maybe doesn't sound like a huge number, but in these remote communities where there are not a lot of other options, this is pretty important. From our vantage point, it's very important.

We are following legal due process. It's complicated. We're challenged to comprehend why the duty has gone the way it has. I'll just add that there are much more significant dissolving pulp producers in the world that are not subject to a duty at all. It's very difficult to understand the full nature of that. We're developing a much more detailed view. We have to wait for a final determination. We're in the process of.... I would love to have a further discussion with anyone on the trade committee as this develops.

This just came out a couple of weeks ago, so everyone is looking at the legalities, at the political system. We've deployed boots on the ground in Beijing. The trade offices are engaged with MOFCOM and we're trying to sort this out.

[The Chair, Conservative, Rob Merrifield]

Thank you very much for your testimony. We appreciate your testimony and also appreciate your support of this agreement. We find that very encouraging.

We will suspend now as we set up for the next panel. We want to leave a little extra time in the next panel for some committee business as we go in camera for five minutes at the end of that.

So with that, we'll suspend.

[The Chair, Conservative, Rob Merrifield]

We'd like to call the meeting back to order. We want to start our second panel.

We have with us, from the Dairy Farmers of Canada, Yves Leduc and Ron Versteeg. Yves is the director of international trade and Ron is vice-president. Thank you for being here.

We have also, from the Canadian Cattlemen's Association, John Masswohl. You've been here many times and we appreciate your being here with us as well. So we will start with you, John. We look forward to your presentation and testimony. The floor is yours.

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

Great. Thank you very much, and thank you again for the opportunity to appear before you. It really has been quite a journey to achieve a successful Canada-Europe free trade agreement. I'm really pleased that this day has come and that we can now speak with you about the tremendous results for the Canadian beef producer.

Also, let me just take a moment to thank the committee staff for really being patient with my travel schedule this week. I'm glad it all worked out and I got here.

Of course, the Canadian Cattlemen's Association hasn't just been passively waiting for this CETA to be achieved; we have actively engaged throughout the negotiations. We've engaged closely with the Canadian negotiators to provide advice and feedback. We've also met frequently with the EU negotiators, representatives of the EU member states, and members of the European Parliament. We undertook those efforts both here and in Brussels, so we put on a lot of air miles in getting this thing done.

Lastly, but also importantly, the Canadian Cattlemen's Association engaged with cattle producer groups in Europe. We travelled to France, Spain, England, and Ireland to reach out to our counterparts in those countries to establish relations and to engage in dialogue with them. Really, we haven't had transatlantic beef cattle trade for some 30 years. So that's something new we have to re-establish. We feel this was very helpful in overcoming sensitivities that might have otherwise prevented our reaching a successful conclusion for the beef sector. So we're going to continue to work hard to build on those relationships as we move forward through the implementation of the CETA.

What did we get in this agreement? Page 9 of that technical summary of the negotiations that the Prime Minister tabled recently provides an accurate account of our understanding of the agreement. Really, on the tariff side, the market access side, there are four quotas for beef products. The first is a new 35,000-tonne, carcass weight, duty-free fresh beef quota. The second is a 15,000-tonne, carcass weight, duty-free frozen beef quota. Those two are new quotas that will be for any grade of beef, including veal, and available for Canada only.

The third is an existing quota. It's called the Hilton quota, and it's for high grading beef. Currently it has a 20% rate of duty, and Canada shares that quota with the United States, but on day one of the CETA, the duty rate for Canada will drop to 0%, while U.S. beef will continue to pay a 20% duty rate. That quota is 11,500-tonnes, product weight, or 14,950 tonnes, carcass weight.

The fourth one is the most complicated to explain. It's an existing quota that was provided as compensation for the hormone dispute, and it currently provides 48,200 tonnes, product weight, of duty-free access for high quality beef. That quota is available on what we call an MFN, or a most favoured nation basis, which means it's shared amongst several countries. In the CETA, Canada agreed to take its 3,200 tonnes out of the total 48,200 MFN, and in return we secured a higher quantity in that first new quota I mentioned, just for Canada. As a result, the 48,200-tonne MFN quota will drop to 45,000 tonnes MFN when the CETA is implemented.

Also, there are several other products such as offals, a lot of the organ meats, tallow, rendered products, processed beef hides and skins that will all gain unlimited duty-free access to the EU under CETA.

As I said earlier, we were consulted closely on every one of these decisions during the negotiations. Any time there was a trade-off or a decision to be made, we were consulted and supported those decisions. We're pleased with this outcome. We strongly support this agreement going forward.

We estimate that the fresh beef exports to the EU will be worth approximately $11 per kilogram and the frozen will be worth approximately $6 per kilogram. So on that basis, doing the math, that brings the potential value of CETA to over $600 million for Canadian producers.

In previous appearances to this committee, I did stress the importance of addressing both the tariffs and the technical access barriers. On the cattle production side, we know the cattle will have to be raised according to EU protocols. That means no growth enhancing products, such as hormone implants or beta-agonists. Despite those products being safe and approved for use in Canada and other countries, the EU has refused to allow them and continues to refuse to allow them.

Fortunately, we feel that the value of the EU beef market is high enough that many Canadian producers will elect to incur the additional costs of raising cattle without those products. We always said that we wanted to be pragmatic about this issue and that if the access was worth our while we would produce those cattle. We feel that access is worth it.

We do estimate that Canada would need to produce approximately 500,000 head of cattle annually under the EU protocol. Clearly we don't need every producer to make the decision to follow the EU protocol, but we feel that enough of them will.

The Cattlemen's Association represents the cattle farmers, but on the processing side I know that the Canadian Meat Council has already appeared. They've spoken in detail about the technical issues at the processing level. On that, I would say that we agree with the CMC that it is vitally important to complete the work to ensure that beef slaughter and processing facilities across Canada are approved to export to the EU.

Currently, we only have two very small facilities that are approved to export to the EU. They're both in Alberta. If you're a cattle producer, whether it's in Nova Scotia or Ontario, you need facilities in the east to be approved. If you're a large producer in Alberta or Saskatchewan, you need the larger facilities in the west to be approved, in High River or in Brooks. You need those facilities competing to buy the cattle that are eligible for the EU.

We do understand that there's been a one-year deadline that was established to resolve those technical issues, and there's still work to do. But once those plant approvals are achieved, we can start making better use of the quotas that we already had, even before the CETA is implemented, because those existing quotas are underutilized due to the technical barriers.

This summarizes the main issues of how we got to this point and outlines some of the work ahead.

With that, I will look forward to your questions later.

Thank you.

[The Chair, Conservative, Rob Merrifield]

Now we'll move to the Dairy Farmers of Canada.

We have Mr. Ron Versteeg. I'm not sure if I pronounced that right—probably not—and Mr. Leduc.

I don't know who is doing the presentation, but the floor is yours.

[Ron Versteeg, Vice-President, Dairy Farmers of Canada]

Thank you, Mr. Chairman.

My colleague, Mr. Leduc, will make the presentation.

[Yves Leduc, Director, International Trade, Dairy Farmers of Canada]

Thank you, Ron.

Mr. Chairman, members of the committee, Dairy Farmers of Canada is in fact pleased to appear before this committee to present our views with respect to the CETA deal.

As you may be aware, Dairy Farmers of Canada is the national lobby, policy, and promotion organization representing Canada's farmers living on more than 12,000 farms across the country. I would like to start by highlighting the fact that DFC leads generic dairy market development in Canada, with an annual marketing budget of $80 million, which is collected from dairy farms across Canada.

The domestic cheese market has been a priority market segment, with an annual strategic investment totalling $30 million dedicated to developing the cheese market across Canada. This investment both sustains and grows the cheese market. Studies have proven that without this yearly $30-million investment, market share would rapidly erode.

I'd like to add that this investment has resulted in an increase in per capita consumption over the past 20 years of two kilos per capita, now in the order of 12 to 12.2 kilos per capita.

I'd like to point out that the dairy sector contributes $16.2 billion to Canada's GDP, and sustains more that 218,000 jobs in Canada. It also contributes annually more than $3 billion in local, provincial, and federal taxes.

We'd like to be clear here: Dairy Farmers of Canada is not against the deal. We have, however, reacted strongly to the news of the new excessive access that was given to the European Union, in particular in the fine cheese segment of the Canadian cheese market. The access granted to the EU will have major impacts on the Canadian dairy industry, much more significant than what is being claimed by Canadian officials.

The Canadian dairy industry is one of the few industries that will be negatively impacted. That was also recognized by Prime Minister Harper, who recognized that there may be some impacts. Therefore, our strong reaction was justified, in our opinion.

Allow me to put the outcome of the agreement into perspective. The new access of 17,700 tonnes will be equivalent to 20% to 33% of the fine cheese market in Canada. It's equivalent to 4.2% of our total cheese consumption. That is equivalent to 2.2% of Canada's total milk production; equivalent to $150 million in farmers' pockets; and translates into a minimum of $300 million at the industry level.

The access for cheese will then increase from 5% to 9% of our total domestic consumption. There are no reasons to be pleased about supplying 91% of the Canadian market when compared with other countries. For example, the EU supplies 99% of its cheese market, and the U.S. supplies 97.5% of its cheese market.

If we look at Canadian cheese production, the growth in the cheese sector is not as significant as what has been reported. While certain segments of the market have grown faster than others, the reality is that cheese production in Canada has grown by only one-half of 1% these past four to five years.

The fine cheese market is the segment that will be most affected, as I pointed out earlier. Considering that this is the segment of the market that attracts the highest value, import strategies will be developed to compete primarily in this market. Failing to compete in the fine cheese market, we expect a cascading effect towards the specialty cheese and ultimately towards the mass cheese market, i.e., cheddar types. In other words, the fine cheese makers will be directly affected, and the impact at the producer's level, the farmer's level, will be spread across the country as farmers are working collectively to supply the Canadian market and are sharing returns collectively.

If the CETA agreement is implemented over a seven-year period, it will add up to a total of $595 million in cumulative losses at the farmer's level. Over a seven-year implementation period, the production of milk going into cheese production would decrease slightly. But most importantly, what Canadian farmers are losing is future growth, in which they have heavily invested.

Furthermore, if the deal were to be implemented over a five-year period, as we have heard might be the case, not only would this result in a production quota cut, but it would also result in an incremental loss of $151 million, for a total of $746 million after seven years. I think this justifies a longer implementation period.

With respect to tariff reduction, while the in-quota tariffs have been reduced to zero—and that wasn't something we were opposing—most over-quota tariffs have been maintained at their current levels, with the exception of the over-quota tariff for milk protein concentrate with a concentration of over 85%. This TRQ had been introduced following the invocation of GATT article XXVIII by the Canadian government back in 2007, and this has now been nullified.

Canada has also granted the EU geographical indicators on 50 cheeses. The protection to be afforded the EU on geographical indicators and their dairy products should be available also within this country. By that, we are talking about effective reinforcement and protection of our own standard of identity for dairy products.

I would also like to address the myth about unfettered access. We believe it is a myth. There is no doubt that Canadian cheese makers can compete on quality. However, in the early 2000s a WTO panel ruled that any export from Canada sold below domestic price be considered subsidized. Combined with a prohibition on the use export subsidies in the EU as a result of this agreement, the reality is that Canada is not in a position to benefit from the opening of the EU market. The reality is that subsidies in the European Union can make up as much as 40% to 50% of farmers' income, and they get a lower price for their milk. That puts Canadian milk and dairy products at a price disadvantage.

I will switch to French for the latter part of my presentation.

The reality is that the world market is highly distorted. The 2013 report by the International Farm Comparison Network (IFCN) highlighted that only 12% of the world’s total milk production has been produced at a cost equal to or lower than the world price. The IFCN initiative started 13 years ago and seeks to compile dairy farm financial data among over 95 countries around the world.

Furthermore, the reality is that not only are we facing higher production costs at the farm level in Canada, but this is also the case along the production chain, with processors' margins that are twice as much as in Europe

The reality is also that the European dairy industry is highly subsidized. The IFCN report provides an astonishing picture of the level of support and direct payments to European dairy farmers.

In conclusion, let us reiterate that we are not against the agreement that has been signed with the European Union. However, we are deeply concerned about the negative impact that comes with it.

Over the last few weeks, we have sat down with Canadian ministers and senior officials and we have presented options to mitigate the negative impact of the agreement, not only on the primary production of dairy farmers, but also on Canada’s entire dairy sector.

Thank you for your attention.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

I am sure you have stimulated a number of very good questions.

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

[Don Davies, NDP, Vancouver Kingsway, BC]

Thank you, Mr. Chairman.

Thank you, to all the witnesses, for being here.

Mr. Leduc, every trade deal has winners and losers. There are gains and concessions. Is it fair to say that the dairy industry in Canada would be one of the losers under CETA? Is that a fair comment?

[Yves Leduc]

That's exactly how we are perceiving it. We are one of the very few losers in this agreement.