International Trade Committee on May 4th, 2023

[The Chair (Hon. Judy A. Sgro (Humber River—Black Creek, Lib.)), Liberal, Judy Sgro]

I call the meeting to order.

This is meeting number 62 of the Standing Committee on International Trade.

Welcome to all our witnesses. We very much appreciate your taking your valuable time to spend a bit of time with us this afternoon, and we'll all hopefully leave here a little bit more enlightened on some of these issues.

Today's meeting is taking place in a hybrid format, pursuant to the House order of June 23, 2022; therefore, members are attending in person in the room and remotely by using the Zoom application.

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Pursuant to Standing Order 108(2) and the motion adopted by the committee on Friday, November 25, 2022, the committee is resuming its study of non-tariff barriers in Canada's existing and potential international trade agreements.

We have with us today Stewart Beck, as an individual, by video conference.

From the Canadian Agri-Food Trade Alliance, we have Adam Taylor, executive director, and Dave Carey, treasurer.

From the Canadian Cattle Association, we have Dennis Laycraft, executive vice-president, by video conference, and Jack Chaffe, foreign trade chair.

From the International Cheese Council of Canada, we have Joe Dal Ferro, chair, and Patrick Pelliccione, vice-chair.

Welcome to you all. We very much appreciate your being here.

We will start with opening remarks for up to five minutes.

Mr. Carey, would you like to go first, please?

[Dave Carey, Treasurer, Canadian Agri-Food Trade Alliance]

Good afternoon. Thank you for the invitation to be here. My name is Dave Carey. I'm an executive board member of the Canadian Agri-food Trade Alliance, or CAFTA. Joining me today is Adam Taylor, our interim executive director.

As this committee has heard from us before, CAFTA represents the 90% of farmers, ranchers, processors and agri-food exporters who depend on trade. The sectors CAFTA represents support over one million jobs in urban and rural communities across our country.

On behalf of our members, we thank the committee for initiating this study on non-tariff barriers. This has been a long-standing ask from CAFTA, and we are hopeful the study will show why the reduction and elimination of non-tariff trade barriers is so vital to the agri-food sector and those who rely on it for their livelihood.

Our remarks will provide a brief overview of non-tariff trade barriers in agricultural trade, and our individual members will focus more on the product-specific non-tariff barriers that are holding Canada back from reaching its full potential in many of our most important FTAs and, by extension, the markets that these agreements are supposed to unlock.

Simply put, non-tariff trade barriers or non-tariff measures, NTMs, remain the most significant source of disruption impacting Canada's agriculture and agri-food trade in our broader national economy.

These trade barriers tend to be used for specific products in specific markets, making it harder to identify, quantify and resolve them.

The three main types of NTMs are direct government support to a sector, sanitary and phytosanitary measures, and regulatory and technical requirements.

The total impact of direct subsidies and other non-tariff measures is equivalent to 42% of the total value of global agricultural production, generating a $17 trillion global impact.

The OECD has calculated that an average of $817 billion U.S. of state support was provided to agriculture annually from 2019 to 2020, a 13% increase from just a year earlier.

The Food and Agriculture Organization of the United Nations published a report in 2021 that found that over two-thirds of agricultural support is considered price-distorting and largely harmful to the trade environment.

The bulk of agricultural subsidies are within the EU, the U.K., China, the U.S. and India. When looking at both industrialized and developing countries, some trade watchers predict that overall, global subsidies could reach $2 trillion by 2030.

These subsidies don't only disadvantage agricultural producers in Canada; they also create higher prices for consumers and are working against global food security and efforts to combat climate change.

Similarly, sanitary and phytosanitary and wider technical and regulatory measures are also a significant, persistent and costly challenge for Canadian agri-food exporters.

SPS and related regulatory barriers have increased substantially, going from one million measures registered in 2000 to more than four million registered in 2021.

SPS barriers are most prevalent in the agricultural and agri-food sectors and have at times been used by countries as protectionist tools, disadvantaging imported products over domestic ones.

As you might expect, technical and regulatory barriers come in many forms and often persist long after tariffs fall to zero, acting as a barrier to taking advantage of a new market even if there is an FTA is in place.

While the impact of each non-tariff measure varies by product, our own research shows that the average price of NTMs in agriculture and agri-food is approximately 10%, which accounts for $362 billion in global costs and $4.7 billion in costs to Canada.

These sanitary and technical barriers also hinder small and medium-sized exporters from accessing international markets, since they generally do not have the resources to comply with these measures.

Overall, non-tariff measures increase the cost of agricultural goods and have a significant impact on the price paid by consumers. In a time of record food prices, we need to open access to agricultural trade to make food more affordable and accessible.

This study gives us an important opportunity to truly understand how the persistence of these barriers in many of our most significant FTAs is hurting Canadian agri-food exporters and consumers. We hope it also clearly demonstrates why greater focus on the elimination of non-tariff measures needs to be top of mind for those negotiating and implementing Canada's free trade agreements.

CAFTA calls on the committee to take this time to truly identify and quantify these barriers and work with us to develop solutions to resolve them. Doing so is critical to job creation, economic growth, rural economic development and keeping food plentiful and affordable here at home and around the world.

We look forward to playing an active role as this study takes shape and we thank all members in advance for taking this important work so seriously.

Thank you. We welcome your questions.

[The Chair, Liberal, Judy Sgro]

Thank you very much, sir.

Go ahead, Mr. Chaffe, please. You have the floor for up to five minutes.

[Jack Chaffe, Foreign Trade Chair, Canadian Cattle Association]

Thank you, and good afternoon.

My name is Jack Chaffe. I'm chair of the foreign trade committee with the Canadian Cattle Association and a beef producer from southwestern Ontario. With me today is Dennis Laycraft, the executive vice-president of CCA.

We're grateful to have the opportunity to contribute to today's committee study on non-tariff barriers and how these barriers prevent the Canadian beef industry from growing our exports.

CCA represents 60,000 beef producers from coast to coast. The beef industry is a significant driver of economic growth. It's the second-largest single source of farm income in Canada, contributing $22 billion in sales to the gross domestic product and supporting over 350,000 full-time equivalent jobs.

Trade is essential to the beef industry's long-term sustainability and profitability. The beef industry exports close to 50% of the beef produced here in Canada, and approximately 40% of the value of each animal comes from international trade. In 2022, Canada exported $6 billion in beef products and live cattle sales.

Our industry provides high-quality, nutritious and sustainable protein, and with the global demand for protein, the world needs more Canadian beef; however, our industry faces non-tariff barriers that add cost to our products and at times prevent us from reaching certain markets altogether. These barriers are both domestic and international in nature, and we appreciate any recommendations this committee can bring forth to address these trade irritants.

Many of our non-trade barriers are rooted in restrictions implemented during the discovery of BSE back in 2003. In 2021, Canada obtained the BSE negligible risk status from the World Organisation for Animal Health, which acknowledges Canada as having the lowest risk of BSE, similar to the U.S., yet some of these restrictions still remain and have impacted export opportunities for the Canadian beef industry.

In Canada, the BSE-era regulation requirements remain in place. Despite having the BSE negligible risk status, processors need to remove specified risk materials, better known as SRMs, in packing plants. The difference between Canada and the U.S. on SRM regulations increases costs for the Canadian beef industry, adding over $30 million a year to these costs. This puts the Canadian beef industry at an unnecessary competitive disadvantage compared to other countries.

Similarly, Canadian beef producers are negatively impacted by segregation requirements in the U.S. for Canadian live cattle at processing facilities, due to the differences in Canadian and American requirements to ship beef into South Korea, which are based on our BSE regulations.

Internationally, one of our main non-tariff barriers is the rejection of peroxyacetic acid, or PAA, during beef processing for the European Union and the United Kingdom. PAA is a commonly used food safety intervention around the world and is designed to exceed food safety expectations and meet hygiene standards.

Canada has a world-renowned food safety and meat inspection system that is recognized in most of the countries we export to. We need a full systems approval between Canada and the U.K. and Canada and the EU for Canadian beef producers to have the opportunity to grow these markets.

While we do not have time to explain all the non-tariff barriers in my opening remarks, CCA would like to submit to the committee a list of all the non-tariff barriers affecting the beef industry.

CCA appreciates the opportunity to provide input and would be pleased to provide further information to the committee.

Thank you.

[The Chair, Liberal, Judy Sgro]

Thank you very much, sir.

Mr. Del Ferro, go ahead, please. You have up to five minutes.

[Joe Dal Ferro, Chair, International Cheese Council of Canada]

Thank you, Madam Chair.

Members of the committee, good afternoon. My name is Joe Dal Ferro, chair of the International Cheese Council of Canada, or ICCC. In my everyday life, I work as president of Finica Food Specialties Ltd., an importer of fine specialty foods based in the Toronto area since 1968.

I am joined today by Patrick Pelliccione, vice-chair of the ICCC and president of Jan K. Overweel Ltd.

The ICCC was founded in 1976. We are an association of small and medium-sized cheese importers and their suppliers. Our members are Canadian-based importers of cheese. We also have associate members who are cheese producers and processors from various countries that have international trade agreements with Canada.

The ICCC accepts the rationale underlying Canada's supply-managed dairy sector. In partnership with Global Affairs Canada, or GAC, we operate within the system with a shared objective of ensuring that the system both respects Canada's trade commitments and works for Canadian businesses and consumers. However, we have concerns over how Canada's TRQ allocation and administration policy has affected importers and their customers across the country. As such, today I am here to provide a real-world perspective on the impacts of these non-tariff barriers. I will also offer some recommendations on how Canada could address these issues in current and future agreements.

First, parliamentarians must seriously consider how the TRQ allocation and administration, wholly chosen and administered by Canada, can create unintended yet serious impacts on Canadian businesses.

I'll use CETA as an example. Though market access was theoretically expanded, the implementation of CETA created severe challenges for cheese importers across the country. The allocation formula for the CETA “cheese of all types” TRQ leads the allocations to vary in size drastically from year to year, from hundreds of thousands of kilos in one year to barely 10,000 kilos in another. It is not only challenging to run an import program with such uncertainty; it also forces importers to rely on transfers, which is when we have to rent quota from other CETA quota holders for a fee, thus increasing the cost for Canadian consumers. At times the transfer price gets so high that some ICCC members just can't compete and must settle for their meagre initial allocation.

Second, as a result of the TRQ allocation mechanism across various trade agreements, importers receive allocations that are not economically viable. In our industry, an allocation is called economically viable when it is about the size of a shipping container—that is, about 20,000 kilos. Something like 10,000 kilos may seem big, but we are simply unable to support the cost associated with a load smaller than 20,000 kilos because of the fixed costs of bringing in the cheese from overseas or overland and distributing it. While we have shared this concern with Global Affairs Canada for years, we have yet to see allocations that actually reflect the needs and the realities of businesses that participate in the cheese trade.

Canada's approach to TRQ allocation and administration has had several negative effects on members. The lack of quota available for distributors has created uncertainty. Our members, who import products as their livelihood, face the prospect of not being able to fulfill their contractual obligations with the businesses they supply. This uncertainty has stifled economic growth. Moreover, the lack of available quota has also increased costs and bureaucratic work for companies, which are forced to hunt down and pay for those transfers.

Finally, members are unable to establish long-term relationships with suppliers, which is essential for a successful cheese program, due to the uncertainty in GAC's annual TRQ allocation model. This has led some companies to lose customers at a cost of millions of dollars.

The unknown outcome of Global Affairs' TRQ phase two review, which initially started in 2019, is creating ambiguity and inhibiting business planning. Moreover, it may require importers to significantly change their business models if the quota policy that emerges from this review is unfavourable to our industry.

We encourage the government to incorporate this committee's eventual report into its deliberations as it revises its TRQ allocation and administrative policy. It is imperative to ensure that Canada's approach aligns with our country's trade obligations and reflects Minister Ng's mandate to ensure that trade benefits small and medium-sized enterprises across Canada.

Thank you.

[The Chair, Liberal, Judy Sgro]

Thank you very much, Mr. Dal Ferro.

We'll now go to Mr. Beck, please, for up to five minutes.

[Stewart Beck, As an Individual]

Thank you, Madam Chair.

Good afternoon, members of the Standing Committee on International Trade.

I'm here today to discuss the pressing issue of non-tariff barriers in international trade. As a former high commissioner to India, I was there when we initiated negotiations for a comprehensive economic partnership agreement with that country, which unfortunately did not come to fruition.

However, I'm pleased that we are now taking a more pragmatic approach, recognizing that an early progress agreement will yield more modest but achievable successes. I'm pleased for Saskatchewan farmers, who understand some of the impacts of non-tariff barriers on their business going into India.

As a former assistant deputy minister for international business, development, innovation and investment with what was then the Department of Foreign Affairs and International Trade, now Global Affairs Canada, I understand the critical role that strong trade agreements play in Canada's global trade development success. Additionally, as the CEO of the Asia Pacific Foundation of Canada, I have witnessed first-hand the importance of trade agreements in developing Canada's markets in Asia.

Non-tariff barriers have become a significant concern for global trade, and as we all know, they can take the form of technical standards, regulations, licensing requirements, quotas, subsidies and administrative procedures. In addition, the challenges associated with NTBs are numerous, including a lack of transparency and their deployment due to irritants in bilateral relationships. These factors make it difficult for Canadian businesses to navigate the regulatory and political environment, leading to increased costs and time complying with ever-changing regulations.

Protectionist NTBs, particularly in the developed world, are gaining increased prominence today, appearing in the form of technical regulations that challenge foreign producers to meet subsidies only available to domestic producers and licensing requirements that are more readily obtainable by the domestic producers.

Canada's economy relies heavily on the SME community, and we are particularly susceptible to NTBs. SMEs lack the resources to navigate complex regulatory environments, leading to disproportionate compliance costs and the creation of barriers to entry that increase the prices for Canadian products.

Negotiating and implementing agreements to reduce or eliminate NTBs is a complex process, as evidenced by the difficulty in concluding a free trade agreement with India. However, it is crucial to address these issues and to foster a more open and fair global trading system. I offer compliments to the committee for undertaking the study.

Finally, I would be remiss if I did not acknowledge that Canada is not exempt from the issue of NTBs. I have had criticism of our supply management system from many counterparts, as a trade commissioner, as a head of mission and as president and CEO of the Asia Pacific Foundation of Canada. While I understand the political imperative of protecting our market and our farmers, I believe it's essential to consider the potential benefits of competing with our respected, high-quality and safe products in Asian markets where the consumer middle class is rapidly growing.

Thank you for your attention. I look forward to answering any questions that you may have.

[The Chair, Liberal, Judy Sgro]

Thank you very much, Mr. Beck.

I will now open the floor for questions.

Mr. Barlow, you have six minutes, please.

[John Barlow, Conservative, Foothills, AB]

Thank you very much, Madam Chair.

Thanks to our witnesses for being here.

I want to start with CAFTA and the Canadian Cattle Association. I know that the current government has reached a market access agreement with the United Kingdom to join the CPTPP, but they have done so without addressing some of the issues that you have talked about, like SPS, like carcass washing.

What kind of a missed opportunity is this for Canadian producers when we see such a massive discrepancy, a $25-million difference, between exports from the United Kingdom and exports from Canada to the U.K.? That gap is growing.

[Dave Carey]

CAFTA could perhaps start generally and let the Cattle Association speak to specifics.

We have concerns. We heard from Canadian negotiators that there were concerns around the United Kingdom's ability to meet some of our scientific rigour standards. That was certainly a concern.

Maybe Adam will have some more general comments before the Cattle Association weighs in on some specifics.

[Adam Taylor, Executive Director, Canadian Agri-Food Trade Alliance]

I'll just say that one of the things we were most concerned about was not addressing this in the CETA would transfer to the U.K. accession to the CPTPP, and that is exactly what has happened. Now we see a lot of things that are persisting in CETA that are shutting us out from that lucrative market. We have an FTA in place, yet these technical barriers are persisting.

The failure to address this issue in the recent accession to the CPTPP is a huge concern of ours, and it is why we want to see it addressed in the eventual bilateral talks.

[Jack Chaffe]

I'll chime in there.

In 2022, Canada exported zero dollars' worth of beef into the U.K., while they exported 33 million dollars' worth into Canada.

Basically, there are still bilateral negotiations going on there. We're asking for the full systems approval from Canada with our food safety system so that we can continue exporting to other countries under the same regime as we could into the U.K.

[John Barlow, Conservative, Foothills, AB]

Thank you.

It was obviously a horrifically missed opportunity when the U.K. was trying to come into the CPTPP and we could have addressed some of these non-tariff trade barriers on beef specifically.

Has the government given you any reason that they clearly failed to address this before agreeing to the accession of the U.K. to the CPTPP?

[Jack Chaffe]

I'm going to turn that over to Dennis Laycraft, my associate.

[Dennis Laycraft, Executive Vice-President, Canadian Cattle Association]

Thanks, Jack.

Thanks, John, for the question.

I think there were considerations other than just agriculture, obviously, with the accession to the CPTPP. That's been an indication we've received.

I couldn't agree more about the missed opportunity. I know our regulators also feel that the U.K. is not meeting the SPS conditions that the rest of the people who are now part of the CPTPP are. That's one of our great concerns. With the very first country—in this case, the U.K.—joining, we're already starting to erode the ambition that was achieved in the original CPTPP, which I'd consider to be one of the gold standards that really addressed and got rid of a lot of the non-tariff barriers that had plagued some of the countries that are now part of it.

This is a hugely missed opportunity. That said, we are negotiating the bilateral agreement and we're certainly going to come out opposing accession of the U.K. when it does come to Parliament until these issues are properly resolved.

[John Barlow, Conservative, Foothills, AB]

Thank you, Mr. Laycraft.

I'll go back to CAFTA.

We used to have a lucrative pulse and pea trade with India, which we saw decline significantly due to some mistakes by the government. Fumigation was one non-tariff trade barrier that was put up. We're seeing some opportunities there with a potential new free trade agreement with India.

Can you give us a bit of an update on where we are with that and with addressing the fumigation issue?

[Adam Taylor]

I can say right now that we're working very closely with agriculture. Officials are staying in close contact with us and saying that progress is being made to try to advance and conclude an agreement with India.

As Mr. Beck indicated earlier, I think that's an agreement that's been very difficult to negotiate. It's been difficult to negotiate for a number of years. These are the very issues that we need to resolve. I think India's a complicated market. Over half of that country is employed in the agriculture sector, so there are a lot of sensitivities there that we're going to have to resolve.

Specifically on fumigation, we're still trying to figure out exactly what the state of play is.

[John Barlow, Conservative, Foothills, AB]

Thanks.

I have time for one last quick question.

The USTR releases an annual report on foreign trade barriers through the national trade estimates report. We don't do something similar in Canada. I think it would highlight issues like front-of-pack labelling, which the United States has identified as a trade issue. They are now talking about mandatory country-of-origin labelling again.

What kind of benefit would having such a report here in Canada have for Canadian producers and commodity manufacturers?

[Dave Carey]

I think it would be absolutely critical.

The USTR also benefits from having an entire division dedicated to trade implementation. It's not just signing trade deals, but making sure they get done.

Hopefully, part of this study is articulating those trade irritants that exist to make sure we don't replicate them in future trade agreements and also to make sure that we deploy Canadian resources to resolve the trade irritants we're currently dealing with. There is a difference between deploying commissioners and technical barriers to trade. The India solution is more of a technical issue on some of those things.

It would be very beneficial to have that sort of thing in-house. We hope that this committee would be a part of getting that.

[The Chair, Liberal, Judy Sgro]

Thank you very much.

Mr. Arya, go ahead, please, for six minutes.

[Chandra Arya, Liberal, Nepean, ON]

Thank you, Madam Chair.

I have a question for Mr. Beck.

You were the Canadian high commissioner in India when I was actively involved with the Indo-Canada Ottawa Business Chamber. One thing I should say is that the comprehensive economic partnership agreement did not fail because of you. We know there are bigger issues surrounding that.

I just want to bring to your notice that last week, the United States national security advisor, Jake Sullivan, gave a talk. I thought the national security advisor of the United States would be more concerned with terrorism, cybercrimes and the wars that are going on, but he talked about the international economic agenda. He brought in the current United States international policy, which integrates with its domestic economic policy and foreign policy. He talked about how all these things integrate.

One strategy he mentioned was “moving beyond traditional trade deals to innovative new international economic partnerships focused on the core challenges of our time.” He said, “We do intend to pursue modern trade agreements” and “Asking what our trade policy is now—narrowly framed as plans to reduce tariffs further—is simply the wrong question. The right question is: how does trade fit into our international economic policy...?” That's what he asked.

For those who say that international economic partnerships are not free trade agreements, he said, “For the problems we are trying to solve today, the traditional model doesn't cut it. ... We need a new approach. Simply put: In today's world, trade policy needs to be about more than tariff reduction, and trade policy needs to be fully integrated into our economic strategy, at home and abroad.”

We know that every country practises its own non-tariff barriers, including Canada. Developing countries are now looking at where their strategic advantages are and are bringing new rules. They're basically bringing in new NTBs. For example, Indonesia has an import-export ban on raw nickel ore. The Democratic Republic of Congo has put in domestic processing requirements for cobalt mining that takes place there. Tanzania has done it for the gold and copper concentrates. It's the same with Zambia. Developing countries are bringing those in.

Developed countries like the United States are pursuing international economic partnerships, separately with Canada on one hand and Japan and South Korea on the other. It has its own with India and countries like Angola, etc.

Is what we are discussing today relevant for the future trade agreements or the economic partnerships that we are foreseeing? What are your comments on this?

[Stewart Beck]

Thank you very much, Mr. Arya.

I think you're hitting on a very important point, but the reality is that we have companies that are doing business on a day-to-day basis that have to deal with tariffs and non-tariff barriers in countries. I think that in the future, in particular if you take a look at the Canadian economy and how we're evolving, a lot of the technology that's driving our competitiveness and our effectiveness in the global marketplace needs to be considered in the context of how we're doing business.

In the context of India, for example—and this is one of the things I was trying to discuss at the time I was high commissioner—when we sell pulses or potash to India, we're very susceptible to non-tariff barriers and very susceptible to the whims and fancies of the geopolitical relationship on a bilateral basis, but if we understand how we can work with India to help them build their own agricultural technology expertise in collaboration with us, in a partnership with us, it changes the dynamic to a certain degree.

It's important for us to have the pulse or the potash exports going into India, or the other commodities. They're very susceptible to price demands in the marketplace and they're also susceptible to non-tariff barriers, but when you talk about partnerships in agricultural technology and working with India to help them improve their efficiencies in productivity but also help us in what we're trying to do in that particular space, it has a much larger impact on our global marketplace.

As an example, if we're working with India on helping them become more efficient in productivity of their agricultural sector through geospatial relationships, through the technologies that we're developing here in Canada—very astutely, whether it's through the protein supercluster or other places—and we work with India in a partnership on that, when it comes to data in the agricultural space, that's a different dimension of an economic partnership.

These are some of the things that we should be building into the early progress agreement that we're talking about now. This is something that's in the interest of both India and Canada. We benefit from having more access to their data, because they're much more.... As you can imagine, Canada's a small market of 35 million to 40 million, depending on how you want to determine the number, but India has 1.4 billion people. Some of the data that's not personalized that comes out of that, just in the mobile sector, for mobile farmers—almost everybody has a mobile phone in India now—in the agricultural space will be of benefit to us when it comes to building the algorithms that will make us more effective in the global marketplace, not just in the market of India.

That's how we have to start thinking, but we can't abandon the reality that we have exporters that depend on managing the tariff rate schedules in various countries. It's really what I would call the “A-level agreement”—I'm sorry—like CPTPP, versus just having a standard trade agreement.

[The Chair, Liberal, Judy Sgro]

Thank you very much, Mr. Beck.

On we go to Mr. Savard-Tremblay for six minutes, please.

[Simon-Pierre Savard-Tremblay, Bloc, Saint-Hyacinthe—Bagot, QC]

Thank you, Madam Chair.

I want to greet all of my colleagues. I also want to greet the witnesses and thank them for their attendance and testimony.

Mr. Chaffe, my first question may seem obvious to you, but I would like you to elaborate.

In summary, you are quite disappointed with the nature of the U.K.'s membership in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. Is that correct?