International Trade Committee on May 11th, 2017

[The Chair, Liberal, Mark Eyking]

I would like to call this meeting to order.

Good afternoon everyone. Welcome to the international trade committee. My name is Mark Eyking, and our study is on Canada's future trade relationships with our North American counterparts, Mexico and the United States. We started this study a couple of months ago.

We've already visited many states in the western United States. They were very receptive there. We felt it was very good to get outside of the Washington bubble and to visit the states, especially the ones that do a lot of buying from us. We had good dialogue and met many people and are going to continue those visits, ending up in Washington. We might even travel down there in the fall. We're also trying to visit our counterparts in Mexico.

I see that today we have quite the agriculture panel. Welcome.

I recognize many of you from having been on the agriculture committee previously. Farmers are having a rough time across this country with the land being so wet, but let's hope some sunshine will come out and people can get their crops in.

We have a slew of witnesses here, and I'm going to start with the Canadian Agri-Food Trade Alliance. I think we have Brian Innes, the president, here.

I'll just let everybody know that we try to keep it to five minutes so that we can have lots of time for dialogue with MPs.

Without further ado, Brian, you have the floor, sir. Go ahead.

[Brian Innes, President, Canadian Agri-Food Trade Alliance]

Thank you very much, Mr. Chair, for the invitation to be here.

The Canadian Agri-Food Trade Alliance is very interested to talk with you about how critical North American trade has been for our agrifood exports. First I'd like to explain a bit about CAFTA and how agrifood exports have grown because of improved market access through NAFTA. The agrifood sector has tremendous opportunity for growth, and I'd like to finish off with a few examples of how changes to NAFTA could bring even more growth.

First I want to explain a bit about CAFTA. CAFTA is a coalition of organizations that all seek a more open and fair international trading environment. Our members represent producers, processors, and exporters from the beef, pork, grains, cereals, pulses, soybeans, canola, as well as the sugar and malt sectors. Two CAFTA members are here with me today. Together, CAFTA members represent about 80% of Canada's agrifood exports, or about $55 billion in exports every year. That supports hundreds of thousands of jobs in communities right across the country.

Competitive access to international markets is critical for our sector. As an example, more than 90% of farmers rely upon international markets for their livelihood. The free and fair trade ushered in by NAFTA has been an incredible success for Canadian agriculture and indeed for agriculture throughout North America. Over the 25-plus years of NAFTA and the Canada-U.S. Trade Agreement, Canada's agrifood exports have grown by five times, from $10 billion in 1988 to $56 billion in 2016—a five-fold increase since the beginning of NAFTA.

Together, the U.S. and Mexico represent a little over half of Canada's agrifood exports. Of course, because trade is a two-way street, it has been good for the U.S. and good for Mexico as well. Indeed, Canada's imports from the U.S. have increased by six times since the beginning of NAFTA, and imports from Mexico have increased by ten times since NAFTA came into effect.

NAFTA has allowed us to take advantage of our strengths and to be more competitive. It has encouraged highly coordinated supply chains across all three countries. For example, we export live piglets from Canada to the U.S. They're fed corn and soybeans that are locally produced, and then the meat is processed, and some of it comes back into Canada for further processing and export around the world and indeed throughout North America. It's been clear, then, that NAFTA has been a success.

The first priority for the Canadian government must be to maintain this success by keeping the fair and free access that we currently have. This means we must have access that is free from tariffs, free from border taxes, and free from protectionist non-tariff measures and regulations. That's not to say that NAFTA can't be improved; we've identified several areas in which we could have even more growth coming from agriculture in this country.

Here are some examples.

For all agrifood products, greater regulatory alignment in plant and animal health products would provide producers equal access to these products and would remove barriers to trade. This alignment would include closer co-operation on new breeding techniques, new product approvals, maximum residues limits, and policies that accommodate a low-level presence of biotech crops.

For meat, despite Canada and the U.S. considering each other's systems equivalent, Canadian meat sent to the U.S. still faces greater barriers than U.S. meat coming to Canada. For example, after clearing U.S. customs, Canadian meat is sent for a second inspection after it has already been inspected once here in Canada.

For sugar, as the committee has heard earlier this week, the U.S. has a significant protectionist regime in place. Canada has a competitive advantage for sugar as an ingredient for food processing, but U.S. protectionism has blocked our export opportunities. In fact, U.S. import quotas have steered manufacturing of sugar-containing products away from Canada.

For canola, despite having a globally competitive industry on both sides of the border, further-processed products, such as margarine and shortening, can't cross the border without tariffs. This should be fixed.

For wheat, significant changes to the Canadian system over the last 10 years have substantially addressed the long-standing concerns of the U.S. around cross-border trade. While many of these concerns have been addressed, there are remnants of the former system in the Canada Grain Act. Industry supports the reintroduction of legislation to amend the Canada Grain Act, so Canadian grades can be given to wheat varieties registered in Canada, no matter where they have been grown.

In closing, we couldn't agree more with the advisory council to finance minister Morneau on how the agrifood sector has a tremendous opportunity for growth that can contribute to Canada's economy. The vast majority of this growth will come from exports.

As I've described, we've shown how international access to markets can really allow us to be competitive and to grow. Maintaining the free and fair trade we have in NAFTA, improving it, and achieving and implementing agreements with countries in the Asia-Pacific, like Japan and China, will help us achieve the $75-billion agrifood export target set in budget 2017.

I thank you for the opportunity and look forward to your questions.

[The Chair, Liberal, Mark Eyking]

Thank you, sir.

We're going to move over to the Canadian Cattlemen's Association. They are no strangers to our committee, and we're always appreciative when they come forward. We have Mr. Masswohl and Mr. Darling. Go ahead, you guys have the floor.

[Dan Darling, President, Canadian Cattlemen's Association]

Thank you very much for the invitation to appear before the committee and for your continued attention to international market access for Canadian beef.

The last time we were here talking about implementing the Canada-Europe agreement, we advised that the establishment of new market access through trade agreements is now our top priority, and that Europe and Japan are at the top of our priority list. Little did we imagine, that short time ago, that we would soon be preparing for a NAFTA renegotiation. My advice is that the Canadian beef producers strongly support keeping the NAFTA provisions on beef trade exactly the way they are.

In 2016, we exported 270,000 tonnes of beef and 760,000 head of live cattle to the United States for just over $3 billion. A further 16,000 tonnes of Canadian beef went to Mexico for $109 million. The U.S. is always our top export market, usually taking about 70% of our beef exports and nearly all of our live cattle exports.

Last year, Mexico was our number four beef export market. Sometimes they are number two or three. Mexico jockeys with Hong Kong and Japan for the numbers two through four spots. On the import side, Canadians bought $978 million of U.S. beef and $19 million of Mexican beef in 2016.

We currently enjoy unlimited duty-free beef trade between Canada, the United States, and Mexico. We can access those markets without any tariffs or quotas for either beef or live cattle trade. They can do likewise for the Canadian market. This is how free trade should work, and such access should be preserved.

NAFTA contains extensive product-specific rules of origin for determining which products are eligible to be traded duty-free amongst the NAFTA countries. Under these rules, either beef that is wholly produced in a NAFTA territory or transformed from a live animal into beef in a NAFTA country is eligible for NAFTA treatment. It also means that importing beef from a non-NAFTA country and shipping it to another NAFTA country does not provide a back door. These rules of origin should be maintained just as they are.

We also advise maintaining dispute settlement provisions in NAFTA and seeking to improve enforceability of NAFTA panel decisions. The Canadian beef sector has from time to time relied on dispute settlement, more so under the WTO, but strengthening the NAFTA option would provide a meaningful alternative to the WTO.

We understand that at least one protectionist group in the United States is advising the Trump administration that a renegotiation of NAFTA is the ideal forum to reinstate country of origin labelling, or COOL, for beef and pork. Our adversaries state:

The reinstatement of COOL would be a relatively straightforward negotiation.... The United States should first require in the NAFTA renegotiation that both Canada and Mexico formally withdraw their COOL complaints that are pending before the WTO as well as their WTO-sanctioned authorizations to impose retaliatory tariffs.... The United States should then prepare a NAFTA Renegotiation Implementing Act...that includes the restoration of the previously repealed COOL statute....

Such a demand is not only counter to Canada's interest, it's a harmful policy for the United States, and it jeopardizes American jobs.

If the Trump administration should formally include such a demand in the NAFTA position, Canada should reject it unequivocally and work with U.S. allies to demonstrate how U.S. jobs depend on livestock trade with Canada.

CCA has been working with U.S. counterparts to develop a list of actions that could improve the Canada-U.S. beef trade. While most of these are of a regulatory nature and therefore not likely to fit as part of a NAFTA negotiation, we do feel that they are consistent with the spirit of NAFTA.

Specifically, we should eliminate the reinspection of meat at the border. Since Canada and the U.S. deem each other's meat inspection systems to be equivalent, inspection at the point of production should be sufficient.

We should enable Canadian beef exported to the U.S. to receive a U.S. beef grade and eliminate the requirement for Canadian cattle to bear a permanent identification in the United States while there's no such requirement for U.S. cattle.

We should eliminate the requirement to prove that live cattle exported to the U.S. were born after March 1999.

In closing, I would note that we have consulted with our U.S. counterparts on these objectives, and I am pleased to inform you that we are in alignment with the mainstream cattle producer organizations in the United States.

Thank you for your time. John and I would be happy to answer any questions later.

[The Chair, Liberal, Mark Eyking]

Thank you, gentlemen.

We're going to move over to the Canadian Pork Council. We have Mr. Kristensen and Mr. Stordy.

Go ahead, please. You have the floor.

[Hans Kristensen, Director, Board of Directors, Canadian Pork Council]

Good afternoon. My name is Hans Kristensen. I'm a producer from New Brunswick and am the Maritimes representative on the Canadian Pork Council board of directors.

I'd first like to thank the members of the committee for the invitation to appear before you this afternoon.

The hog industry is extremely important to the Canadian economy, contributing 103,000 direct and indirect jobs across the country. These in turn generate $23.8 billion in economic activity. With well over 70% of our industry's output now exported to almost 100 countries, the Canadian pork sector is the classic example of what positives can occur with improved terms of trade.

Over the years since the implementation of the Canada-United States Trade Agreement, followed by NAFTA, the completion of the Uruguay round of multilateral trade negotiations, and ratification of several bilateral and regional trade agreements, we have increased the amount of exported pork and pork products by 387%, from $700 million to just over $4 billion in 16 years.

The U.S. is our strongest market, purchasing 408,000 tonnes of pork worth $1.4 billion. Mexico is our fourth-largest market, to which we ship 314,000 tonnes valued at $587 million. In 2016, we also shipped 4.8 million feeder pigs to U.S. producers to raise and 848,000 market hogs direct to slaughter.

This is an excellent example of each country focusing on its strengths and of the strengths of each country complementing the other's. Canada offers an advantage in swine health, since its cooler climate and lower herd density significantly reduce the development and spread of swine diseases. On the other hand, the U.S. industry has an advantage in finishing hogs, due to the abundance of low-cost and easily-sourced U.S. corn and soybean meal, which gives the U.S. an advantage in finishing the hogs.

There is no doubt that Canada and the U.S. have both benefited from a long trading relationship, the integrated nature of which enables both countries to remain competitive internationally, supporting jobs and exports on both sides of the border and enhancing our potential to increase our respective contributions to the Canadian and American economies even further.

The Canadian Pork Council takes the U.S. and Mexican market relationship very seriously. We invest a great deal of time and money to participate in trade missions whenever possible. We regularly meet with our U.S. and Mexican counterparts to discuss areas of common interest and concern. We have a strong relationship, since Canada, the U.S., and Mexico share many of the same animal health and trade policy goals in opening new markets together. We are natural allies, which helps in advocating our messages in various multilateral trade forums, including the World Trade Organization.

The North American meat and livestock industries have benefited from trade under NAFTA. Our counterpart in the U.S., the National Pork Producers Council, has publicly stated that their producers benefit from North American trade. Mexico and Canada are the number two and number four export markets respectively for U.S. pork. Canada alone imports close to $1.2 billion of U.S. pork, and disruption in that trade affects producers on both sides of the border negatively.

The U.S. industry knows that tariff-free trade is essential. Needless trade barriers provide no benefit to either country's economy. In Canada, we know what it's like to deal with disruptions in the marketplace. We are concerned when the issue of COOL keeps creeping back into the news and into trade negotiations. Challenging the U.S. COOL was a long and expensive fight for Canadian producers, and I encourage the federal government not only to protect it but also to retain its retaliatory rights to action in the future.

Canada and the U.S. serve customers with similar preferences for food safety, animal health, and risk profiles. Both countries follow almost identical science-based risk assessment frameworks for managing food safety and animal health, and both countries require very similar HACCP-based food safety programs in federally registered meat plants.

That said, although we speak frequently of an integrated North American market, the unfortunate reality is that the Canadian meat entering the U.S. is subject still to substantially greater bureaucratic requirements and cost than U.S. meat coming into Canada. We are disappointed that Canadian meat entering the U.S. must still proceed to privately owned inspection houses that set their own fees, while U.S. meat entering Canada can proceed directly to a federally registered establishment.

There is an opportunity here to smooth the flow of pork between Canada and the U.S. by reducing regulatory barriers and further aligning our regulatory processes. We support the work of the Canadian government as it works towards this end.

I welcome any questions you may have.

[The Chair, Liberal, Mark Eyking]

Thank you, gentlemen.

Mr. Kristensen, are you a hog producer yourself?

[Hans Kristensen]

I'm the general manager of Metz Farms Ltd in New Brunswick.

[The Chair, Liberal, Mark Eyking]

Where's your farm?

[Hans Kristensen]

In New Canaan, New Brunswick.

[The Chair, Liberal, Mark Eyking]

Thank you.

I know the area. I just didn't know exactly where it was from. Thank you for coming.

We're going to move over to Mr. Levi Wood.

You're not a stranger to this place. It's too bad you couldn't be here, but I'm sure you're going to do a great job through the video. It's good to see you again.

Go ahead. You have the floor, sir.

[Levi Wood, President, Western Canadian Wheat Growers Association]

Thank you, Mr. Chair, and I do thank all committee members for inviting the Western Canadian Wheat Growers Association to this discussion on the critical matter of trade in North America.

Going back to what you said, I would have liked to join you in person, but we're seeding canola and lentils here right now, just west of Regina, so I hopped off the tractor and came in right here, right now. It's good to have a little break anyway. Thank you very much.

Founded in 1970, the Western Canadian Wheat Growers Association is a voluntary farmer-run advocacy organization dedicated to developing public policy solutions that strengthen the profitability and sustainability of farming in the agriculture industry as a whole.

Without going into a variety of stats, which I believe Brian covered very eloquently and which everyone is fairly aware of, the bottom line for us and for western grain farmers is that trade and market access are absolutely essential, especially with the United States and Mexico.

In North America, and specifically in the crop sector, we're sending more and more of our products south as Canadian and U.S. markets continue to grow individually—but also, as a result, to become more integrated.

As we work to become more integrated in our markets, which we western farmers think is a really good thing, our growers and industry colleagues in the agriculture value chain continue to work closely together on both sides of the border. In my mind, this provides a great example or template of sorts of how we can improve and modernize NAFTA in a renegotiation of the trade deal, which would improve the flow of trade, not just specifically for agriculture but for our country as a whole.

Our counterparts in the United States, the U.S. Wheat Associates and the National Association of Wheat Growers, recently said “there are several elements of the trade agreement that could be re-examined and modernized. However, we believe withdrawing from NAFTA would be a serious mistake.” We agree with their position.

The Western Canadian Wheat Growers Association, in fact, wrote a joint op-ed in February with the U.S. Wheat Associates, in which we highlighted specifically how we could improve trade. I would like to talk to you today about one concrete example, which I'll summarize.

Currently, Canadian farmers delivering wheat into the U.S. receive equitable treatment with grain grown south of the border. However, because of legislation and regulations that have existed for years before the changes to the Canadian Wheat Board came to western Canada, U.S. producers who currently deliver into Canadian markets automatically receive the lowest grade, regardless of quality or variety of grain, even if the variety is currently registered here in Canada.

Our organizations have been working together to urge the House of Commons to address open, cross-border wheat trade, and we support updating the Canada Grain Act to ensure that wheat is treated consistently on both sides of the border. As a farmer, I want access to the most competitive wheat markets, but it's often not the case for U.S. farmers living near the Canadian border.

This inequity has started to create significant concerns in both the Canadian and the U.S. industries, especially given the potential of renegotiating NAFTA. A free flow of grain in both directions will improve the efficiency of our grain handling system and eliminate artificial price distortions that frustrate farmers and have caused ill will. Grain producers in both countries have worked hard to maintain a good relationship, and these ongoing concerns need to be addressed to prevent any future trade restrictions, which would be bad news for farmers and industry on both sides of the border.

Our organizations, and farmers in Canada and the U.S. strongly support co-operating to ensure an open market. Last year we also worked together to recommend that the Canada-United States Regulatory Cooperation Council and the Pacific NorthWest Economic Region Foundation, whom you had here this week, work to address this trade disparity. We hope that the work on this subject in the House of Commons can result in a free and equitable wheat trade across the Canada-U.S. border. That would be good news for grain growers, the wheat value chain, and consumers in both countries.

Two weeks ago, the Western Canadian Wheat Growers Association asked the Government of Canada to take action to harmonize regulations and to ensure the free flow of wheat between Canada and the U.S., as we're growing concerned about the open wheat market and cross-border trade with the U.S. with the prospect of the renegotiation of NAFTA.

A U.S. senator moved a resolution last month with respect to “supporting fair and equitable grading treatment for exports of United States wheat products to Canada”, which has now been referred to the U.S. Senate Committee on Finance. If not remedied, the action suggested in the resolution would potentially have very devastating effects on our industry, especially to wheat farmers and the whole ag sector. We see this as an area for greater harmonization in a renegotiation. It’s very timely that this has come up now.

Western farmers have a good news story to tell. We’re innovative and entrepreneurial, we're helping create jobs throughout the value chain, and are growing the Canadian economy. Open markets and freer trade are absolutely essential for us to continue going down this road in the agrifood sector.

I thank you again for the opportunity to be here and for allowing me to speak with you. I look forward to entertaining any questions you might have.

[The Chair, Liberal, Mark Eyking]

Thank you, Levi.

How's the planting going out west?

[Levi Wood]

To be honest with you, right in my area, which is very close to Regina, we have really quite good conditions. We haven't had the significant rain or the snow that many other areas have had lately. I would say that to my mind, we may be about one-third or coming up to one-half done with our seeding, which is a pretty good time frame for right now.

[The Chair, Liberal, Mark Eyking]

That's good.

To all the witnesses, these were good presentations, and it's good to see you coming back again. Our committee seems to draw on you quite a bit. You're the stakeholders, and it seems that every time we do a trade deal we have to have you guys give us some advice. Thank you for coming with those presentations.

We're going to open up with some dialogue with the MPs now. We're going to go to the Conservative Party and a gentleman who's no stranger to you guys.

Mr. Ritz, you have the floor for five minutes.

[Gerry Ritz, Conservative, Battlefords—Lloydminster, SK]

Than you, Mr. Chair.

Welcome, everyone. It's good to see you again. I'm sure we'll be talking to you again and again and again. Trade is one of those ongoing targets that are never really settled; there are always irritants.

As you rightly point out, Levi, we've had a lot of discussions around grain trading back and forth across the border. It's more an irritant from the American side; it's not a lot of bushels, I know that. There are changes that have been made. Most of it is done on spec. The Americans have—what will I say?—an iron in the fire that really isn't that hot, but at the end of the day it's just one of those things. It's not hard to fix, and I think we should do it.

How many acres are you guys putting in this year, just as an aside?

[Levi Wood]

On my farm, it's 22,000.

[Gerry Ritz, Conservative, Battlefords—Lloydminster, SK]

Yes, that's what I thought.

Anyway, say hi to your dad. It's always good to chat with you guys.

On the beef side, we've learned a lot about NAFTA and about the WTO with COOL. It really gives us a bit of an edge as we go into renegotiations on this, to try to make sure that things like that aren't in our future. It comes down to regulatory co-operation, tax harmonization, and a lot of different levels that need to be adjusted so that we can still have the free flow of product back and forth across the border.

One thing that I think is paramount to keep the Americans honest is to have diversity in our trade. I'm a firm believer in having a bit of a hammer going into these NAFTA negotiations by ratifying the TPP, especially since the Americans aren't doing so.

Have you guys given any thought to that with your Mexican counterparts? I've been speaking to the Mexicans at the trade level. New Zealand and Japan have both ratified it. Of course, Japan is the crown jewel in it. I'm a firm believer in getting the TPP done even before we get serious discussions on NAFTA going.

[Dan Darling]

Yes, we agree with you 100% on that. We see no reason that the TPP shouldn't be a done deal. We're big supporters of it. Certainly the Japan market is a brass ring at the end of the rainbow, and we need access there. To be competitive for our producers moving forward, we certainly need to catch up with the Australians right now.

If you talk to our American counterparts, you find they would love Canada to send a signal that we're on for the TPP, because it would put the pressure on their government. I agree 100% with you on that.

[Gerry Ritz, Conservative, Battlefords—Lloydminster, SK]

One thing that I think is important, and you guys outlined it in your presentations here today, is the interoperability of the North American market, including Mexico. Joint submissions, such as we made throughout COOL, in which everybody lines up on the same side and takes the U.S. administration to task, I think are so important.

Are you contemplating that again as we renegotiate NAFTA, making sure that the Mexican, American, and Canadian cattlemen—and the same thing with pork—are all putting in submissions jointly?

[Dan Darling]

Yes, we've been talking to our counterparts in the United States and Mexico, and they're all on the same page. They're all big supporters of free trade and NAFTA and know how important it is to all of our countries. I can't completely speak for the Mexicans—they're getting a little bit harder time over it so far than we are—but certainly they are supportive of things moving forward, and I think you'll see that support continue.

[Gerry Ritz, Conservative, Battlefords—Lloydminster, SK]

Sure.

It would be great, if you make presentations to the U.S., that we get a copy of them too so that we can follow up at the political level and, as we did with COOL, hit them on all the different levels. It certainly has a better effect. That way, when their own people are saying we have to do this—

I know Pat Roberts, who chairs the Senate committee, and Mike Conaway, who chairs the House ag committee, are both very much on side with getting NAFTA reinvigorated and continuing to make it work. They see how important the integration is.

[Dan Darling]

We've made frequent trips down to Washington to talk to our counterparts and their trade authority. Now that they finally have, it looks like, most of their administration intact there, we may get some answers when we're there the next time.

[Gerry Ritz, Conservative, Battlefords—Lloydminster, SK]

Yes. The state level is very important too. As the chair said, we made one swing down through the west coast. There will be other ones coming up as well. Getting them onside at the state level is important. Everything in the U.S. is local politics, and getting people one by one picked off....

The American Meat Council and NCBA are great at knowing who's on what side and whom you should tweak. If you guys get some inside information on who you think is waffling or needs a push, by all means give us those names too.

[Dan Darling]

I appreciate that. The U.S. cattlemen's president, Craig Uden, is a huge supporter. If you walk through his feed yard, a lot of those CAN brands—